2005 (7) TMI 368 - HC - Companies Law

Summary

Issues:
1. Representation of ex-directors in proceedings before Debt Recovery Tribunal.
2. Failure of official liquidator to protect interests of creditors, workers, and shareholders.
3. Locus standi of ex-directors to file the application.
4. Duties and powers of official liquidator under the Companies Act.
5. Priority of creditors' claims and jurisdiction of Debt Recovery Tribunal.
6. Participation of official liquidator in proceedings before Debt Recovery Tribunal.

Issue 1: Representation of ex-directors in proceedings before Debt Recovery Tribunal
The ex-directors of a company in liquidation sought direction for the official liquidator to represent in proceedings before the Debt Recovery Tribunal to safeguard the interests of creditors, workers, and shareholders. The company was wound up in 1996, and a receiver appointed by the High Court of Mumbai had taken possession of the company's assets. The ex-directors alleged that the official liquidator failed to defend the secured creditors and workmen before the Debt Recovery Tribunal.

Issue 2: Failure of official liquidator to protect interests of creditors, workers, and shareholders
The ex-directors claimed that the official liquidator did not act in the best interests of secured creditors and workmen by allowing the sale of company property at a low price without adequate defense in the proceedings before the Debt Recovery Tribunal. The official liquidator's report stated non-participation in the tribunal proceedings due to pending workmen's claims, questioning the ex-directors' locus standi to file the application.

Issue 3: Locus standi of ex-directors to file the application
The ex-directors' locus standi to file the application was challenged based on their status as ex-directors of the company. However, the court deemed the objection as technical, emphasizing the official liquidator's duty to defend suits and legal proceedings, thus rejecting the challenge to the ex-directors' standing to file the application.

Issue 4: Duties and powers of official liquidator under the Companies Act
The court referred to various sections of the Companies Act, outlining the duties and powers of the official liquidator, including the authority to defend legal proceedings, sell company assets, and represent the company's interests in winding up. The official liquidator was mandated to participate in proceedings before the Debt Recovery Tribunal to protect the rights of creditors and workmen.

Issue 5: Priority of creditors' claims and jurisdiction of Debt Recovery Tribunal
The court discussed the priority of creditors' claims under section 529A of the Companies Act, emphasizing that the Debt Recovery Tribunal holds exclusive jurisdiction over debts payable to banks and financial institutions. The Supreme Court's interpretation highlighted that the tribunal decides priorities among creditors, including workmen and secured creditors, without interference from the company court.

Issue 6: Participation of official liquidator in proceedings before Debt Recovery Tribunal
The court held that the official liquidator should have participated in the Debt Recovery Tribunal proceedings to represent the interests of secured creditors, workers, and shareholders. Despite the delay in involvement, the official liquidator was directed to effectively represent the proceedings initiated by a creditor before the tribunal for the equitable distribution of sale proceeds among stakeholders. The court emphasized the official liquidator's duty to protect the interests of all parties involved in the liquidation process.