GUJARAT HOTELS LIMITED Vs. STATE OF GUJARAT

JUDGEMENT

(1.) I have heard the parties regarding interim relief. Petitioner No. 1, Gujarat Hotels Ltd. (G.H.L. for short) incorporated under the provisions of the Indian Companies Act, 1956, having its registered office at Welcome Group, Vadodara. Petitioner No. 2 is a Director of petitioner No. 1-Company. Petitioner No. 3-Indian Tobacco Co. ("I.T.C." for short) is also a Company duly registered under the provisions of the Indian Companies Act, 1956, having its head office at Virginia House, 37, Chowringhes, Calcutta. Petitioner No. 4 is a shareholder of petitioner No. 3-Company.

(2.) It is the case of petitioners that the petitioner No. 1-G.H.L. was promoted in the year 1982 as joint sector Company by respondent No. 4 - M/s. Gujarat Industrial Investments Corporation Ltd. ("G.I.I.C." for short) and I.T.C. - petitioner No. 3. G.I.I C. is a Government of Gujarat undertaking established in the year 1968 with a view to promote industrial investment in the State of Gujarat. It is responsible for establishment of various industries in the State of Gujarat. G.I.I.C. facilitates industrial investment by rendering financial assistance to industries and sponsoring projects in joint and public sectors. G.I.I.C. is "State" within the meaning of Art. 12 of the Constitution of India. Petitioner No.. 1-Company was promoted by petitioner No. 3 and respondent No. 4 with the object of promoting hotel business which would subserve the Government of Gujarat's policy of creating necessary infra structure to augment industrialisation in the State and also to create employment and to boost tourism. The said object of promoting hotel business was initiated at the instance of the Government of Gujarat and also to implement the Government policy in that behalf. It was with the consent and approval of the Government of Gujarat that the formation of petitioner No. 1-Company was undertaken. On 18/01/1974 and subsequently on 1/08/1985 G.I.I.C. and I.T.C. entered into an agreement by which it was agreed between G.I.I.C. and I.T.C that G.I.I.C. shall take up 26.1% of the equity share capital while I.T.C. shall take up 24.9% of the equity share capital of the petitioner No. l-Company. The balance of the equity shares were to be offered for: public subscription. This agreement was to remain in force for a period of 15 years. G.I.I.C. and I.T.C. gave undertakings to the financial institutions like I.F.C.I., I.D.B.I. and I.C.I.C I. that they would not transfer, assign or dispose of its shareholding in the Company until the loans taken by petitioner No. 1-Company under the loan agreements will be repaid. They have also undertaken that if there was any shortfall in the resources for completing the project or in the working capital, they would make the requisite arrangements for additional funds, so as to complete the project. Pursuant to the above object, some hotels were established in the State of Gujarat. Petitioner No. 1 took. on sub-lease a land and constructed a hotel in Vadodara by the name of "Welcome-group, Vadodara". For that purpose, loans to the tune of Rs. 303 lacs were also taken from the financial institutions and the State Bank of India by petitioner No. 1. Initially, hotel incurred heavy financial losses due to very high rate of luxury tax which was levied at 30%, low occupancy due to mushrooming of public guest houses, and very high electricity tariff rates. The luxury tax at the rate of 30% was the highest rate levied by any State in the country. By 31/03/1991, the accumulated losses reached to Rs. 304 lacs and thus, about 80% of the equity had been eroded and petitioner No. 1 had become a "Sick Unit".

(3.) It is the case of the petitioners that G.H.L. could not make repayment of its dues to All India Financial Institutions and the Banks and was in continuous loss. The Government of Gujarat also realised that the company will be required to be wound up and it may lower down the image of the State Government. It may adversely affect huge investment already made by the State Government in the project. It may also prejudicially affect the employees employed by the company. It may Jeopardise the interest of about 12,500 share-holders who have invested their hard earned money in the company. The petitioners assert that the Government, therefore, decided to take some bold steps and positive actions with a view to prevent the closure of G.H.L. and to rehabilitate it. Due deliberations have been made at different levels by the Government of Gujarat and a meeting was convened on Octomber 4, 1990 under the Chairmanship of the Chief Secretary, Government of Gujar.at.All the parties, namely All India Finance Institutions, Secretary of Tourism, the Managing Director of G.I.I.C. and the representatives of I.T.C. remained present at that meeting. Minutes were drawn up wherein it was stated that in view of the important role of the Hotel Industry in promotion of Tourism in the State, ail the parties agreed that petitioner No. 1 must be revived without any further delay and all the parties must contribute equitably for such revival. After considerable evaluation of various options, it was agreed that the following sacrifices, as reflected in the minutes, would be made by each party in net present value, term's of which read as under : (a) Financial Institutions.................. Rs. 83 lakhs. (b) Govt. of Gujarat/G.I.I.C.......... Rs. 110 lakhs. (c) I.T.C........................................ Rs. 126 lakhs.