2010 (8) TMI 181 - HC - Companies Law

Winding up - Overriding preferential payments - Held that - After the winding up order on 29-10-1998 the Official Liquidator sold the assets of the company in liquidation and realised a sum of ₹ 4 crores. On realisation of the amount by the Official Liquidator it is necessary to pay the amounts by complying section 529A of the Companies Act. Section 19(19) of the Recovery of Debts Due to the Banks and Financial Institutions Act, 1993 also specifies that the sale proceeds of the assets of the company-in-liquidation to be distributed among its secured creditors in accordance with section 529A of the Companies Act. Therefore, there is no inconsistency in the Companies Act and the Debt Recovery Tribunal Act insofar as it relates to distribution of sale realisation by the Official Liquidator in accordance with section 529A of the Act. In the instant case, the respondent without complying the mandatory requirement under section 529A passed the impugned order denying the claim of the applicant-Bank. On this ground also the impugned order is liable to be quashed. Appeal allowed.

Summary

Issues:
1. Setting aside the order passed by the Official Liquidator.
2. Entitlement of interest to the applicant after the winding up order.
3. Compliance with mandatory requirements under section 529A of the Companies Act.
4. Application of judgments in similar cases.

Analysis:
1. The applicant, a secured creditor, sought to set aside an order passed by the Official Liquidator after the winding up of the company. The applicant had initiated proceedings for recovery of a sum, and the Tribunal had allowed the claim. However, the Official Liquidator rejected a significant portion of the applicant's claim, leading to the present application before the High Court.

2. The contention arose regarding the entitlement of the applicant to interest post the winding up order. The Official Liquidator argued that interest would only be payable if there is a surplus after paying all admitted claims, as per rule 179 of the Company (Court) Rules, 1959. The High Court noted that the denial of the applicant's claim without complying with section 529A of the Companies Act was a ground to quash the impugned order.

3. Referring to the Supreme Court's judgment in Allahabad Bank v. Canara Bank, the High Court emphasized the exclusive jurisdiction of the Tribunal and the Recovery Officer in matters of liability adjudication and recovery. It highlighted the need for compliance with section 529A for distribution of sale proceeds among secured creditors. The High Court found that the Official Liquidator had not followed this mandatory requirement, leading to the order being set aside.

4. The High Court rejected the judgments cited by the Official Liquidator, stating they were not applicable to the present case. Ultimately, the High Court allowed the application, set aside the impugned order, and remanded the matter to the respondent for reconsideration in light of the observations made regarding compliance with section 529A of the Companies Act.

This detailed analysis of the judgment highlights the key issues addressed by the High Court in the case involving the applicant, the Official Liquidator, and the compliance with relevant legal provisions and precedents.