2001 (7) TMI 1181 - HC - Companies Law

Summary

Issues Involved:
1. Whether the Debts Recovery Tribunal (DRT) is entitled to proceed with the sale proceedings during the pendency of the liquidation proceedings before the Company Court.
2. Directions to be issued to protect the interests of shareholders, creditors, and workmen if the DRT is allowed to proceed with the sale.

Detailed Analysis:

Issue 1: Jurisdiction of the Debts Recovery Tribunal (DRT) vs. Company Court
The central question is whether the DRT can continue with the sale proceedings of Remanika Silks (P.) Ltd.'s assets while the company is undergoing liquidation proceedings before the Company Court. The Company Court oversees the interests of creditors, including workmen, and ensures their dues are paid pari passu with secured creditors. Section 446 of the Companies Act stays all suits or legal proceedings against the company once a winding-up order is made, except with the leave of the court. This aims to safeguard the company's assets from wasteful litigation and expedite proceedings.

Section 457 grants the liquidator the power to sell the company's properties and realize its assets. The RDB Act, however, was enacted later to address the difficulties financial institutions face in recovering debts. Section 18 of the RDB Act bars the jurisdiction of other courts in matters specified in Section 17, emphasizing the expeditious recovery of debts due to financial institutions.

The Supreme Court's decision in Allahabad Bank v. Canara Bank [2000] 4 SCC 406 clarified that the DRT's jurisdiction in adjudicating claims is exclusive, and no leave from the Company Court is required for initiating or continuing proceedings under the RDB Act. The decision also emphasized that the DRT would decide the distribution of recovered amounts, considering Section 19(19) read with Section 529A of the Companies Act, which prioritizes workmen's dues.

Issue 2: Directions for Protecting Interests of Shareholders, Creditors, and Workmen
Given the DRT's jurisdiction, the sale proceedings of Remanika Silks (P.) Ltd.'s assets should be continued by the DRT. However, several directions are necessary to protect the interests of all stakeholders:

1. Mode of Sale: The mode of sale should be decided after hearing all parties, including the official liquidator.
2. Inventory Copy: A copy of the inventory prepared by the Commissioner deputed by the DRT should be served on the official liquidator.
3. Right to Implead: Creditors, both secured and unsecured, should have the right to approach the DRT for impleadment, as the jurisdiction under Section 529A cannot be exercised by the Company Court.
4. Upset Price: The sale should be conducted only after fixing an upset price, decided after hearing all parties, including the official liquidator.
5. Deposit of Sale Proceeds: The sale proceeds should be deposited with the DRT until the distribution manner is finally decided by the DRT, considering the legal principles involved.
6. Public Notification: The official liquidator should issue a public notification, through advertisements in leading newspapers, informing creditors and workmen to approach the DRT for impleadment in T.A. No. 1112 of 1997, ensuring their claims are adjudicated through the DRT.

Conclusion:
The DRT is entitled to proceed with the sale proceedings of Remanika Silks (P.) Ltd.'s assets during the liquidation process. The official liquidator's request for the Federal Bank to surrender the keys is inadmissible. The DRT will handle the sale and distribution of assets, ensuring the protection of workmen's dues and other creditors' interests. The official liquidator and other stakeholders are directed to participate in the DRT proceedings to ensure a fair distribution of the sale proceeds.