Hon. Shri Narayan Shukla,J.
(Per: Tarun Agarwala,J.) The petitioner is a company, which was set up in 1986 for manufacture and sale of Ingots and Billet Casting. The petitioner entered into two lease agreements dated 16.06.1995 and 02.02.1996 with Uttar Pradesh Financial Corporation (hereinafter referred to as the UPFC) for leasing casting machine and induction furnace. Under clauses 3.3 and 4 of the agreements, the petitioner was required to deliver back the equipments after the expiry of the lease period. Under the terms of the agreements, the ownership over the equipments, at all point of time, remained with the UPFC. The lease of machinery was for a period of sixty months. In 1997 the company suffered losses and as on 31.03.1999, the accumulated loss of the company exceeded its entire net worth. The petitioner company became sick and made a reference to the Board For Industrial And Financial Reconstruction (hereinafter referred to as BIFR). On 13.08.1999, the BIFR declared the petitioner to be a sick unit.
During the pendency of the proceedings before BIFR, the petitioner entered into One Time Settlement (hereinafter referred to as OTS) on 05.01.2004 with UPFC. Clause 13, 14 and 15 of the OTS of the proposal are relevant, which are extracted hereunder:
"13. Company has been granted permission for the sale of concost plant & furnace which was leased to company, at a price of Rs. 65.00 lacs + Trade Tax & same would be set off towards the OTS of lease assets. In case, it get higher value against the advertisement to sale for these assets then same difference amount is to be paid to Corporation.
(14)In any case, entire sale proceeds would go towards O.T.S.
(15) The O.T.S. amount of Rs. 255.55 lacs inclusive of advance lease rental and this amount would be adjusted in the last instalment of OTS of lease."
Under this proposal UPFC granted permission to the petitioner to sell concost plant & furnace, which was leased to it at a price of Rs. 65.00 lacs.
Based on the aforesaid OTS, it transpired that the equipments was sold by company and an amount of Rs. 255.55 lakhs was paid to UPFC.
On 08.09.2005, BIFR passed a rehabilitation scheme. This scheme has attained finality and has been implemented inasmuch as no appeal has been filed by any of the parties. Relevant extract of the rehabilitation scheme namely, para 6.3 B in relation to UPFC is extracted hereunder:
"(i) To accept repayment of principal outstanding Rs. 232.25 lakh in respect of term loan as on March 31,2004, over a period of three years commencing from date of sanction of the scheme in twelve quarterly instalments without interest upto April, 2004 and thereafter with interest @ 16% p.a. on reducing balance.
(ii) To waive penal interest and liquidated damages chargeable up to the date of sanction of the scheme.
(iii) To grant permission for the sale of assets including machinery taken on lease finance, proceeds of which are proposed to be utilised for repayment of dues of UPFC.
(iv) UPFC to accept an amount of Rs. 255.55 lakhs in full and final settlement of its entire claim against the company in respect of lease finance. The said amount of Rs. 255.55 lakhs shall be paid in the following manner:
(I) Rs. 27 lakhs has already been paid by 5.1.2004.
(II) Rs. 64.69 lakhs out of sale proceeds of leased assets (already paid by 5.1.2004).
(III) An amount of Rs. 81,97,500/- has already been paid in six equal quarterly installments starting with effect from 5.2.2004 till 30.6.2005.
(IV) Balance amount of Rs. 81.97 lakhs shall be paid in six equal quarterly installments of Rs. 13,66,250/- each starting from 5.8.2005. Against last instalment of Rs. 13,16,250/- which will be payable on 5.11.2006, advance lease rent paid amounting to Rs. 8.50 lakhs shall be adjusted and balance amount of Rs. 5,16,250/- will be paid.
(V) No interest shall be payable for the first year of repayment i.e. upto 31.3.2005 and with effect from 1.4.2005 simple interest @ 16% per annum shall be paid by the company on outstanding settlement amount on reducing balance basis. The said simple interest which amounts to Rs. 15.50 lakhs shall be paid in four equal quarterly installments on interest free basis after the installments towards principal are fully paid.
(VI) UPFC shall issue no dues certificate on payment of above-mentioned settled amount in full and after trade tax matter has been sorted out."
A perusal of this scheme indicates that the OTS proposal between the petitioner and the UPFC was accepted and the amount of Rs.255.55 lakhs was paid by the petitioner over a period of three years. Necessary permission to sell the machinery taken on lease was also given to the petitioner and that the UPFC was to accept an amount of Rs. 255.55 lakhs in full and final settlement of its entire loan against the company in respect of the lease finance.
Based on the scheme, the entire amount, as per the sanctioned scheme and OTS has been paid to the UPFC.
To the utter surprise of the petitioner, a demand letter was issued by the UPFC against the petitioner demanding 12.00 lakhs towards salvage value of the leased assets. The petitioner, upon receipt of such demand, filed a representation intimating them that there was no provision for payment of salvage value, and that in any case, no amount was payable pursuant to the OTS and the sanctioned scheme being implemented between the parties. In spite of this representation, UPFC by a letter dated 13.06.2008, again reiterated that the petitioner was liable to pay the salvage value of Rs. 12.00 lakhs, as per the agreement entered into between the petitioner company and the UPFC. In response to the said letter, the petitioner again submitted a reply that there was no provision in the agreement for payment of salvage value and that no amount was due or payable to the UPFC. In spite of the aforesaid letter being written, the UPFC issued a demand notice dated 05.08.2008 directing the petitioner to deposit a sum of Rs. 12,78,000/- towards salvage value calculated @ 5% on the cost of machinery leased to them along with interest @ 13.5%. The UPFC relied upon clause 2.3 of the agreement and contended that the petitioner was required to return the machinery after expiry of the lease period and, in the alternate, the machines could be transferred to the petitioner on payment of salvage value i.e. 5% of the cost of plant and machinery in the event the petitioner wants to retain the machinery. The petitioner, being aggrieved by the issuance of such notice, consequently, filed the present writ petition.
The respondents have filed a counter affidavit and have relied upon clause 2.3 of the agreement, which is extracted hereunder:
"Upon termination of this lease by efflux of time or otherwise, the lessee shall, at its own cost and expenses, forthwith deliver or cause to be delivered to the lessor the equipment, at such time and place as may be directed by the lessor, in good repair, order and condition (subject to normal wear and tear)."
We have heard Sri Bharat Ji Agrawal, the learned senior counsel assisted by Sri Shubham Agrawal for the petitioner and Sri S.C.Srivastava, the learned counsel for the UPFC.
The contention of the respondents is that, as per clause 2.3 of the agreement, by efflux of time or otherwise the petitioner was required to return the equipments to U.P.F.C.. Alternatively, if the petitioner wanted to retain the machinery, it could be transferred to to petitioner on payment of salvage value, i.e., @ 5% of the cost of plant and machinery. It was contended that since the petitioner had not returned the machinery they were entitled to pay the salvage value in addition to the amount mentioned in the OTS.
Having heard the learned counsel for the parties, we are constrained to observe that in spite of our repeated requests, the learned counsel for the UPFC was unable to show any provision in the agreement executed between the petitioner and the UPFC, which required the petitioner to pay the salvage value of the cost of plant and machinery in the event such plant and machinery was retained by the petitioner after the expiry of the lease period. In the absence of any provision in the agreement, we are of the opinion that no such amount can be demanded by the UPFC.
Even assuming that the UPFC could demand payment of salvage value, such demand cannot now be raised after acceptance of OTS, which was confirmed again in the sanctioned scheme by the BIFR. The OTS executed between the petitioner and the UPFC clearly indicates that the petitioner was granted permission for sale of concost plant and furnace, which was leased to it and that the entire sale proceeds could be given to the UPFC. The same OTS agreement was incorporated in the scheme issued by the BIFR in which it was agreed that UPFC will accept an amount of Rs. 255.55 lakhs in full and final settlement against the company in respect of the lease finance.
In the light of the aforesaid, it is no longer open to the UPFC to contend that they are still entitled to claim salvage value of the machinery.
We are of the view that the terms and conditions of the agreement has been superseded by the OTS entered between the parties, which has also became part of the scheme issued by the BIFR. In Uttar Pradesh Financial Corporation and others Vs. Sri Bharat Paper Udyog Private Limited and others, 2011(10) SCC 385, the Supreme Court held that the terms included in the OTS is binding of the parties. We find from a reading of Section 32(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 that the scheme framed under Section 13 of the Act have an overriding effect on any other Act, agreement etc. except over the provisions of Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. Consequently, even if any term and condition exists in the agreement executed between the petitioner and the UPFC, the same has been superseded by OTS entered into between the petitioner and the UPFC, which has been affirmed and has become part of the sanctioned scheme issued by the BIFR under the Act of 1985. In Commissioner of Income Tax Vs. J.K.Corporation Ltd., (2011) 331 ITR 303 (Cal), the Calcutta High Court held that once a scheme is framed under the Act of 1985, the said scheme by virtue of Section 32(1) overrides all other provisions of law including the Income Tax Act, 1961 and also other instrument and document having an effect by virtue of any law.
For the reasons stated aforesaid, the impugned demand letters/orders dated 16.05.2007, 13.06.2008 and 05.08.2008 are quashed.
Writ petition is allowed.
Dated: 10.10.2014/-
MAA/-