Supreme Court Clarifies Refund Terms for Super Bazar Revival Bidder: Writers and Publishers Pvt Ltd vs. A K Mishra (2018)

LEGAL ISSUE: Interpretation of refund terms in a court-monitored revival process.
CASE TYPE: Corporate Insolvency/Revival.
Case Name: M/S Writers and Publisher Pvt Ltd vs. A K Mishra, Official Liquidator, The Cooperative Stores Ltd. Super Bazar.
Judgment Date: May 17, 2018.

Introduction

Date of the Judgment: May 17, 2018
Citation: Not Available in the source document
Judges: Dipak Misra, CJI, A.M. Khanwilkar, J, Dr D Y Chandrachud, J.

What happens when a company’s revival plan, approved by the Supreme Court, fails to materialize? The Supreme Court of India recently addressed this question in a case involving the revival of Super Bazar, a cooperative store. The court clarified the terms of refund for the bidder, M/s Writers and Publishers Pvt Ltd (WPL), after the revival plan could not be implemented. This case highlights the complexities of court-monitored revival processes and the importance of precise financial terms. The judgment was delivered by a three-judge bench comprising of Dipak Misra, CJI, A.M. Khanwilkar, J, and Dr. D.Y. Chandrachud, J.

Case Background

The Supreme Court had been overseeing the revival of Super Bazar for several years. In 2008, the court identified three bidders, including M/s Writers and Publisher Pvt Ltd (WPL). The court noted that the dues of the workers were Rs. 54.31 crores as of December 31, 2007. On February 26, 2009, the court accepted the Evaluation Committee’s report, which recommended WPL’s offer. The Official Liquidator (OL) and the Central Registrar, Multi State Cooperative Societies, were directed to take steps to revive Super Bazar.

On August 13, 2010, the court directed that Rs. 20 crores out of the Rs. 55 crores deposited by WPL be disbursed to the workers. The court also directed WPL to undertake to disburse the balance amount to the workers within eight weeks of the constitution of the Board of Directors after the elections. However, in September 2015, the Union of India stated that neither WPL nor the management of Super Bazar had submitted a revival plan to the Central Registrar of Cooperative Societies.

On March 29, 2016, the Supreme Court acknowledged that despite efforts, the revival was not possible. The court then sought suggestions on how to terminate the arrangement with WPL. After negotiations, a joint statement was submitted, proposing that WPL be refunded its entire investment with 6% interest, subject to deduction of profits made during the arrangement. The court directed the Controller and Auditor General of India (CAG) to nominate an auditor to verify WPL’s income, expenditure, and profits.

Timeline:

Course of Proceedings

The Supreme Court had initially approved the revival plan for Super Bazar with WPL as the highest bidder. However, due to the failure of the revival plan, the court had to determine the terms of WPL’s exit. The court directed a refund of WPL’s investment with 6% interest, subject to the deduction of profits. To this effect, the court directed the CAG to nominate an auditor to verify the income and expenditure incurred by WPL and also the profits earned by it from the Super Bazar establishment.

Legal Framework

The primary legal framework in this case revolves around the orders passed by the Supreme Court in the context of the revival of Super Bazar. The court’s order dated March 29, 2016, is central to the dispute, as it outlines the terms of the refund to WPL. This order directed the CAG to verify the income and expenditure of WPL and the profits earned by it from the Super Bazar establishment. The determination made by the auditor was to be verified by the CAG, and it was to be binding on all parties. The court also considered the Multi-State Cooperative Societies Act, 2002, because the revival process was to be done in accordance with the provisions of the said Act.

Arguments

The main point of contention was the interpretation of the Supreme Court’s order dated March 29, 2016, regarding the refund to WPL.

• WPL’s Arguments:
  • WPL argued that the order of March 29, 2016, clearly stated that its entire investment, including the share capital, should be refunded with 6% interest. They contended that the share capital was merely a method of bringing in the bid amount.
  • WPL asserted that the CAG was only required to deduct profits made by WPL, not to adjust for losses incurred by Super Bazar. They argued that the losses were not due to business operations but due to payments made to workers as per the court’s orders.
• CAG’s Arguments:
  • The CAG argued that interest should not be allowed on share capital because shareholders bear the profits and losses of a business and do not get interest on their investment in the form of share capital.
  • The CAG contended that the amount payable to WPL should be determined after adjusting for losses incurred by Super Bazar.

The innovativeness of WPL’s argument lies in its interpretation of “entire investment” to include share capital, which is typically not considered a debt-bearing instrument.

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. Whether WPL is entitled to interest at 6% per annum on its entire investment, including share capital.
2. Whether the amount refundable to WPL should be determined after adjusting for losses incurred by Super Bazar.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The court did not cite any specific case laws or books in its judgment. The primary basis for the court’s decision was the interpretation of its own order dated March 29, 2016, and the factual context of the case. The court also considered the Multi-State Cooperative Societies Act, 2002, as the revival process was to be done in accordance with the provisions of the said Act.

Judgment

Authorities Viewed by the Court:

• The Supreme Court’s order dated March 29, 2016 was interpreted to mean that WPL was entitled to a refund of its entire investment along with interest at 6% per annum.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to adhere to the specific terms of its previous order dated March 29, 2016. The court emphasized that the order directed a refund of the “entire investment” with interest, and this included the share capital. The court also noted that the order only required the deduction of profits earned by WPL, not the adjustment of losses. The court was also influenced by the fact that the losses were not due to business operations, but due to payments made to workers as per the court’s orders.

The court’s reasoning was primarily based on the interpretation of its previous order and the specific facts of the case. The court emphasized the importance of adhering to the terms of its orders and ensuring that parties are treated fairly.

The court rejected the CAG’s interpretation, stating that it was not in line with the specific directions given in the order of March 29, 2016. The court emphasized that the order was clear in its intention to refund the entire investment with interest, subject only to the deduction of profits.

The court stated, “WPL in terms of the aforesaid direction is entitled to interest at 6 per cent on the entire investment made by it. Investment brought in by way of share capital, did fall within the above mandate.”

The court also noted, “CAG was only required to deduct the profits which had accrued in favour of WPL while determining the amount refundable to it.”

The court further clarified, “This part of the direction does not contemplate that losses which accrued over the period were to be adjusted.”

Key Takeaways

• The Supreme Court clarified that when a court orders a refund of “entire investment” with interest, it includes share capital.
• The court emphasized that when a court order specifies the deduction of “profits,” it does not imply the adjustment of losses unless explicitly stated.
• This judgment highlights the importance of precise language in court orders and the need to adhere to the specific terms of such orders.
• The judgment also underscores the importance of the specific factual context in interpreting court orders.

Directions

The Supreme Court directed that all concerned parties must act in accordance with the observations made in this order and the interpretation placed on the earlier directions dated March 29, 2016.

Development of Law

The ratio decidendi of this case is that when a court orders a refund of “entire investment” with interest, it includes share capital, and when a court order specifies the deduction of “profits,” it does not imply the adjustment of losses unless explicitly stated. This judgment clarifies the interpretation of financial terms in court orders, particularly in the context of corporate revival and insolvency. There is no change in the previous position of law, but the present judgment clarifies the interpretation of the previous order.

Conclusion

The Supreme Court’s judgment in the case of M/S Writers and Publisher Pvt Ltd vs. A K Mishra clarifies the terms of refund for WPL, the bidder in the failed revival of Super Bazar. The court held that WPL was entitled to interest on its entire investment, including share capital, and that only profits earned by WPL should be deducted, not losses incurred by Super Bazar. This decision emphasizes the importance of precise language in court orders and the need to adhere to the specific terms of such orders.