2008 (9) TMI 554 - HC - Companies Law

Winding up Exercise and control of liquidator s power - Overriding preferential payments - primacy of the said Act of 1993 over the company court s jurisdiction to interfere with an order passed by the recovery officer under the said Act - Held that - SFCs cannot unilaterally act to realise the mortgaged properties without the consent of the official liquidator representing workmen for the pari passu charge in their favour under the proviso to section 529 of the Companies Act, 1956. Hon ble company judge after analysing all the decisions correctly came to the conclusion that section 28(4) of the said Act of 1993 permits a recovery officer to apply before the court in whose custody there is money belonging to the certificate debtor. It is also true that the non obstante clause in section 446(2) yields to the overriding provisions of the 1993 Act but it is necessary to notice the scope of the company court s authority over all the matters relating to a company (in liquidation).The hon ble company judge has correctly assessed the position of the official liquidator in respect of the company (in liquidation) and we also hold that his Lordship has correctly came to the conclusion that the official liquidator need not transmit the sale proceeds held by him to the Recovery Officer, Debts Recovery Tribunal-II, New Delhi, and it will be open to such recovery officer to apply under section 28(4) of the said Act.

Summary

Issues Involved:
1. Primacy of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) over the Companies Act, 1956.
2. Jurisdiction of the company court versus the Debts Recovery Tribunal (DRT).
3. Role and authority of the official liquidator in liquidation proceedings.
4. Distribution of sale proceeds from the assets of companies in liquidation.
5. Application of section 28(4) of the RDB Act.

Detailed Analysis:

1. Primacy of the RDB Act over the Companies Act:
The central issue in this case was whether the RDB Act of 1993 holds primacy over the Companies Act, 1956, particularly in matters related to the recovery of debts due to banks and financial institutions. The court referenced Allahabad Bank v. Canara Bank and Rajasthan Financial Corporation v. Official Liquidator, where the Supreme Court held that the RDB Act, being a special statute, has an overriding effect over the Companies Act due to its non obstante clause in section 34. This clause ensures that the RDB Act prevails in case of any inconsistency between the two statutes.

2. Jurisdiction of the Company Court versus the DRT:
The court examined whether the company court has jurisdiction to interfere with orders passed by the recovery officer under the RDB Act. It was argued that the company court does not have supervisory jurisdiction over the DRT or its officers, and the official liquidator should seek remedy within the framework of the RDB Act. The court concluded that adjudication and execution of recovery certificates fall within the exclusive jurisdiction of the DRT, as established in Allahabad Bank v. Canara Bank.

3. Role and Authority of the Official Liquidator:
The official liquidator, acting as an officer of the company court, holds custody of the assets of companies in liquidation. The court acknowledged that while the non obstante clause in section 446(2) of the Companies Act yields to the RDB Act, the official liquidator's role as custodian of the company's assets is recognized under section 456(1) of the Companies Act. The court emphasized that the official liquidator must act under the directions of the company court, particularly in matters of asset distribution.

4. Distribution of Sale Proceeds:
The court discussed the process of distributing sale proceeds from the assets of companies in liquidation. It was noted that the DRT has the authority to distribute sale proceeds among secured creditors in accordance with section 529A of the Companies Act, as per section 19(19) of the RDB Act. However, the court clarified that the recovery officer does not have the authority to demand all sale proceeds held by the official liquidator. Instead, the recovery officer can apply to the court under section 28(4) of the RDB Act to access the funds.

5. Application of Section 28(4) of the RDB Act:
The court agreed with the hon'ble company judge's interpretation that section 28(4) of the RDB Act permits the recovery officer to apply to the court holding the funds for the certificate debtor. This allows the recovery officer to seek the court's assistance in disbursing the sale proceeds held by the official liquidator. The court affirmed that the official liquidator need not transmit the sale proceeds directly to the recovery officer but should act under the court's direction.

Conclusion:
The court upheld the hon'ble company judge's decision that the official liquidator need not transmit the sale proceeds to the Recovery Officer, Debts Recovery Tribunal-II, New Delhi. Instead, the recovery officer may apply under section 28(4) of the RDB Act. The appeal was dismissed, affirming the primacy of the RDB Act in matters of debt recovery while recognizing the official liquidator's role under the supervision of the company court in the distribution of assets.