Order
1. The subject-matter of appeal relates to a decision of the High Court disposing of an appeal (CP No. 41 of 1990) filed by the appellant from the order passed by a Single Judge on an application filed by Respondent 1 (hereinafter referred to as “the Company”) under the Companies Act, 1956.
2. The Company had been granted a lease by the appellant for felling trees and for removing and selling the same from a specified area on 4-3-1961. The lease was granted subject inter alia to the Company making payment of royalty in respect of the sold trees at fixed percentage to the appellant. The initial period of the lease was subsequently extended. According to the appellant the Company had failed to make payment of royalty in terms of the lease agreement and a large amount of money amounting to over Rs 39,56,407 was payable by the Company to the appellant. The Company was admittedly in financial difficulties and had a large number of creditors who had initiated proceedings against it during the pendency of the lease period. Without going into the facts in greater detail it is sufficient for the purpose of this appeal, to record that an arrangement was entered into between the Conservator of Forests, the Company and the financial institutions whereby the appellant would supervise and control the sale of the timber. The proceeds from such sales were agreed to be paid to the creditors of the Company, including the appellant, before the balance would be made over to the Company. According to the Company, the arrangement was that the appellant would take over control of the business and management of the entire area including the machinery of the Company by the appellant. It is the further case of the Company that the appellant did not discharge its obligations under this arrangement and did not account for the sale proceeds nor did it account for the stock of timber taken over by it nor did it return the machinery to the Company since the lease period expired in 1972. On the allegation that the Company was, as a consequence of the aforesaid, not able to meet its liabilities and had suffered loss, the Company raised a claim before the High Court of Punjab and Haryana (CP No. 35 of 1975) against the appellant as well as the officers of the Forest Department, the United Commercial Bank and the J&K State Financial Corporation claiming a decree for diverse sums of money during the period the lease was operated by the appellant, accounts for such period, for an extension of the period of lease and payment for the stock of timber taken possession of by the appellant as well as machinery installed, etc., the amount advanced by the United Commercial Bank on account of the Company to the appellant and generally for other consequential losses.
3. The defence of the appellant was, inter alia, a denial of liability to pay any loss, a counter-claim for an amount of Rs 21,26,049 calculated up to 31-3-1975, a denial that the appellant or the Forest Department had taken over control of the Company or any of its assets and an assertion that the timber found lying in the leased area had been duly auctioned and whatever money has been recovered in this behalf has been credited and adjusted against the outstanding dues of the Company. The financial institutions also filed a written statement opposing the claimant's claim but it is not necessary to set out the same in connection with the present appeal.
4. The learned Single Judge raised various issues. Specific issues were raised regarding the items of loss claimed by the Company as well as the counter-claim of the appellant. Amongst the diverse heads under which the Company had claimed loss, one head related to machinery and installations, machinery stocks and stores and tools and implements, etc. taken over by the appellant and Respondents 2 and 3 at the time when they undertook the working out of the forest, an alternative prayer was for the estimated cost or value for replacement thereof and interest thereon at 12% per Rs 10,00,000 annum amounting to Rs 6,60,000.
5. The claim of the Company was partially decreed by the Single Judge. With regard to the several claims raised by the parties against each other, the matter of amount was referred to the decision of Shri Ujjagar Singh, a retired Judge of the Punjab and Haryana High Court. However, a decree was passed in favour of the Company against the appellant for a sum of Rs 8,50,000 together with the interest thereon at 12% on account of the machinery which according to the learned Single Judge had been “appropriated” by the appellant.
6. The decision of the learned Single Judge was impugned before the Division Bench. The Division Bench by the impugned order affirmed the findings and conclusions of the learned Single Judge. However, as far as the decree for Rs 8,50,000 was concerned the same was modified to the limited extent that it was made conditional upon the default of the appellant returning the machinery to the Company.
7. Before us the appellant has basically raised two issues:
(i) That the arrangement on the basis of which it was pleaded by the Company, the machinery had been allegedly taken up by the appellant, was hit by the provisions of Section 122 of the Constitution of Jammu and Kashmir. Reliance has been placed on an earlier decision of this Court, in relation to the same arrangement, being order dated 22-4-2004, in State of J&K v. UCO Bank. (2005) 10 SCC 331
(ii) That the decree for Rs 8,50,000 had been erroneously passed in favour of the Company.
8. Learned counsel appearing on behalf of the Company has submitted that Section 122 of the Jammu and Kashmir Constitution (which materially reproduces Article 299 of the Constitution of India) did not apply to this case as the claim of the Company was not based on the arrangement but on the agreement of lease and the failure of the appellant to carry out its obligations thereunder. As far as the decree for Rs 8,50,000 is concerned the reasoning of the courts below has been relied upon. It has been additionally submitted that there was other material on record which would support the conclusion arrived at by the High Court.
9. On the first submission of the appellant, we are of the view that the learned counsel for the Company is correct. Scrutiny of the claims made in CP No. 35 of 1975 would show that the claim of the Company for loss and damages was relatable to the discharge of obligations by the parties to the agreement of lease executed by the appellant in favour of the Company. The reference to the arrangement in the prayers is only in the alternative and in the event the court came to the conclusion that the novation had taken place of the agreement between the appellant and the Company. Both the courts below have not proceeded on the basis that any such novation had taken place and have referred to the arrangement arrived at between the parties in 1969 as a method of working out the rights and obligations of the parties under the agreement. The decision in UCO Bank (2005) 10 SCC 331 related to a claim of the United Commercial Bank based on the arrangement. The question was whether the arrangement could be termed to be an agreement and if so whether such an agreement could be held to be valid in view of Section 122 of the Jammu and Kashmir Constitution. The question was answered in the negative. Since the Company does not base its claim on the arrangement, the decision in UCO Bank (2005) 10 SCC 331 does not affect the Company's claim as framed in CP No. 35 of 1975. The first submission of the appellant is accordingly rejected.
10. However as far as the second submission is concerned the appellant must succeed. The learned Single Judge has relied solely upon the uncorroborated statement made in the deposition of the Company's witnesses without considering whether there was any document to establish either that the machinery as claimed by the Company had indeed been installed or was available in the leased area, or whether the value of such machinery was as claimed by the Company or whether the machinery had in fact been taken over by the appellant. The finding of the learned Single Judge that there was no dispute with regard to the aforesaid three questions is contrary to the record. The mere fact that the appellant may not have assailed the value of the machinery as claimed by the Company's witnesses would not establish the Company's case. The onus is on the Company to positively establish its case on the best material available and it cannot rely on the weakness or absence of defence to discharge such onus.
11. The attention of the Division Bench was in fact drawn to that part of the deposition of one of the Company's witnesses who stated that the machinery was being operated by Respondent 9 (a sister concern of the Company) under an agreement between Respondent 9 and the Company and that Respondent 9 continued to do so even after the machinery was taken over by the State Government. Despite that, the Division Bench came to the conclusion that although Respondent 9 may have continued to operate the machinery, nevertheless “complete control and supervision of the machinery vested with the Forest Department”. We do not find any evidence cited by the Division Bench in support of the conclusion that the State Government through the Forest Department had taken possession of the machinery in question. Learned counsel appearing for the Company, however, has submitted that there was documentary evidence on record which would show that the State Government had indeed taken over possession of the machinery and that the machinery was not returned to the Company even after termination of the agreement of lease.
12. We are not prepared to sift through the evidence in support of the Company's contention. Suffice it to say that the reasoning of the High Court in the impugned order is unacceptable. What should have been established has been taken as proved on the basis of conjecture.
13. However, having regard to the submissions made by the learned counsel appearing on behalf of the Company that there was sufficient evidence on record, apart from the deposition of the parties concerned, to establish the Company's case with regard to the machinery, we deem it fit to set aside the decision of the High Court insofar as it pertains to the decree of Rs 8,50,000 and remand the matter back to the learned Single Judge of the High Court for the purpose of redetermining the issue relating to the existence of the machinery, the value of the machinery and the de facto control and possession of the machinery subsequent to the arrangement. Needless to say if the evidence on record supports the Company's case, the Company will be entitled to a decree as has been directed by the earlier decision of the High Court which is set aside today.
14. We make it clear that so far as the remaining directions of the Single Judge are concerned which have been affirmed by the Division Bench, namely, the reference of the amounts relating to the claims of the parties against each other to the determination of a Commissioner, we see no ground to interfere. Appeals are disposed of accordingly. It is requested that the learned Single Judge may dispose of this CP No. 35 of 1975 as expeditiously as is conveniently possible.