2007 (9) TMI 401 - HC - Companies Law

Winding up - Exercise and control of liquidator s powers - Held that - The Official Liquidator has authority, inter alia, under section 460(4) of the Companies Act to refer a matter of the nature now referred to the court, though the form and the prayers in the summons may be inappropriate. Equally, the recovery officer has a right to apply under section 28(4) to this Court to seek transfer of the sale proceeds being held by the Official Liquidator. The matter relevant need to be considered if the recovery officer makes such an application. Since, a direction has been issued to the Official Liquidator without the concerned recovery officer resorting to section 28(4) of the 1993 Act, the Official Liquidator need not transmit any part of the sale proceeds held by him to such recovery officer. Jurisdiction is authority ordained by law. Jurisdiction is not a privilege; for if it were, there would be an element of choice about it. Assumption of jurisdiction follows a command by law. It is a duty cast on the judicial authority that cannot be abdicated by the whims of such judicial authority. The failure by a judicial authority to exercise jurisdiction vested in it by law is as illegal and as inexcusable as the usurpation of jurisdiction beyond its bounds of authority. The Official Liquidator need not transmit the sale proceeds held by him to the recovery officer of the DRT-II, Delhi. It will be open to such recovery officer to apply under section 28(4) of the 1993 Act, if he deems it fit.

Issues Involved:
1. Authority and obligation of the company court.
2. Jurisdiction of the company court versus the Debts Recovery Tribunal (DRT).
3. Application of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (1993 Act) versus the Companies Act, 1956.
4. Role and authority of the Official Liquidator.
5. Distribution of sale proceeds and assessment of priorities among creditors.
6. Interpretation of section 19(19) of the 1993 Act and its implications.
7. Jurisdictional conflict between the company court and the DRT.

Analysis:

1. Authority and Obligation of the Company Court:
The judgment addresses the significant question of the company court's authority and obligation in matters where the Official Liquidator, as the custodian of the assets of companies in liquidation, contests orders passed by the Recovery Officer of the Debts Recovery Tribunal (DRT). The Official Liquidator sought to set aside a common order by the Recovery Officer, which required the transmission of sale proceeds to the Recovery Officer. The contesting respondent, a secured creditor, resisted this on the grounds of the company court's lack of jurisdiction.

2. Jurisdiction of the Company Court versus the DRT:
The secured creditor argued that the DRT and its officers have exclusive jurisdiction over adjudication and execution of recovery certificates, as per the 1993 Act, and that the company court does not have supervisory jurisdiction over the Tribunal. The bank emphasized that the company court should not interfere with the Tribunal's wide authority, as laid down by the Supreme Court, and that the Official Liquidator should assist the Tribunal in disbursement matters.

3. Application of the 1993 Act versus the Companies Act, 1956:
The judgment delves into the apparent conflict between the provisions of the Companies Act and the 1993 Act. It references the Supreme Court's judgment in Allahabad Bank v. Canara Bank, which established that the jurisdiction of the Tribunal under the 1993 Act in matters of adjudication and execution is exclusive, and the Tribunal has the authority to deal with the distribution of sale proceeds and assessment of priorities among creditors.

4. Role and Authority of the Official Liquidator:
The Official Liquidator, acting under the supervision of the company court, holds the sale proceeds of the assets of companies in liquidation. The judgment emphasizes that the Official Liquidator's role includes ensuring that the proceeds are applied according to creditors' priorities. The Official Liquidator reported to the company court on the progress of liquidation proceedings and resisted the Recovery Officer's order to transmit the sale proceeds.

5. Distribution of Sale Proceeds and Assessment of Priorities Among Creditors:
The judgment highlights the Supreme Court's interpretation that the Tribunal under the 1993 Act is responsible for distributing sale proceeds and assessing priorities among creditors, in accordance with section 529A of the Companies Act. However, the judgment clarifies that the Recovery Officer's authority to distribute proceeds is limited to those realized under the 1993 Act and does not extend to proceeds already held by the Official Liquidator.

6. Interpretation of Section 19(19) of the 1993 Act and Its Implications:
The judgment interprets section 19(19) of the 1993 Act, concluding that it applies specifically to companies in liquidation and limits the Recovery Officer's authority to proceeds from sales conducted by the Recovery Officer. The section does not empower the Recovery Officer to demand all sale proceeds held by the Official Liquidator.

7. Jurisdictional Conflict Between the Company Court and the DRT:
The judgment acknowledges the jurisdictional conflict but asserts that the company court retains supervisory authority over matters relating to companies in liquidation. The company court's jurisdiction is not entirely ousted by section 18 of the 1993 Act, and the Official Liquidator need not comply with the Recovery Officer's order without an application under section 28(4) of the 1993 Act.

Conclusion:
The applications were disposed of on the basis that the Official Liquidator need not transmit the sale proceeds to the Recovery Officer of the DRT-II, Delhi, unless the Recovery Officer applies under section 28(4) of the 1993 Act. The judgment reaffirms the company court's supervisory role and the necessity for the Recovery Officer to seek the court's direction for the transfer of sale proceeds.

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