2006 (7) TMI 337 - HC - Companies Law

Issues Involved:
1. Maintainability of the application under sections 446 and 537 of the Companies Act.
2. Role of the Official Liquidator in the auction process.
3. Jurisdiction of the Company Court versus the Debt Recovery Tribunal (DRT).
4. Applicability of the Companies Act vis-a-vis the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (1993 Act).
5. Confirmation and legality of the sale proceedings.

Issue-wise Detailed Analysis:

1. Maintainability of the Application under Sections 446 and 537 of the Companies Act:
The application filed by the Official Liquidator under sections 446 and 537 of the Companies Act was challenged for its maintainability. The argument was that the Official Liquidator should have filed an appeal against the auction order under the provisions of the 1993 Act instead of taking recourse to the Companies Act. The court observed that the jurisdiction of the Company Court under sections 442, 537, and 446 of the Companies Act is ousted by the 1993 Act, as confirmed by the Apex Court in Allahabad Bank v. Canara Bank [2000] 4 SCC 406.

2. Role of the Official Liquidator in the Auction Process:
The Official Liquidator's role was debated, with the contention that the Liquidator should only be involved at the stage of distribution and not during the sale or confirmation of the sale. The court referred to the judgment in Rajasthan State Financial Corpn. v. Official Liquidator [2005] 8 SCC 1901, which emphasized that the Official Liquidator must be associated with the sale process to ensure proper distribution of sale proceeds in accordance with section 529A of the Companies Act.

3. Jurisdiction of the Company Court versus the Debt Recovery Tribunal (DRT):
The exclusive jurisdiction of the DRT for adjudicating liabilities and executing recovery certificates was upheld. The court reiterated that the DRT and the Recovery Officer have exclusive jurisdiction for recovery proceedings under sections 17 and 18 of the 1993 Act. The Company Court's jurisdiction under sections 442, 537, and 446 of the Companies Act is ousted, except for the Supreme Court and High Courts exercising powers under Articles 226 and 227 of the Constitution.

4. Applicability of the Companies Act vis-a-vis the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (1993 Act):
The court highlighted that the 1993 Act has an overriding effect over the Companies Act, as per section 34 of the 1993 Act. The Apex Court in Allahabad Bank's case confirmed that the adjudication of liabilities and execution of recovery certificates fall within the exclusive domain of the DRT and Recovery Officer, and the Company Court cannot interfere except under Articles 226 and 227.

5. Confirmation and Legality of the Sale Proceedings:
The legality of the sale proceedings was upheld, noting that no infirmity was alleged in the process. The sale was conducted after issuing notice to the Official Liquidator and hearing objections. The court emphasized that the sale proceeds must be distributed in accordance with section 529A of the Companies Act, ensuring the rights of workmen and secured creditors are protected.

Conclusion:
The court stayed the impugned order dated 7-10-2005 of the Recovery Officer, DRT I, Delhi, until the disposal of Special Leave to Appeal (Civil) No. 3636/2003 by the Supreme Court. The application was disposed of without any order as to costs, affirming the exclusive jurisdiction of the DRT and the necessity of involving the Official Liquidator in the sale process to ensure proper distribution of proceeds.

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