2010 (4) TMI 612 - HC - Companies Law

Winding up - Overriding preferential payments - Held that - Coming to the facts of the present case, the assets had been mortgaged in favour of respondent No. 1, which were taken over by SASF which in turn had sold them to PMC-Bank Ltd. In other words, it is a transaction under the provisions of the Securitization Act unlike what was the subject-matter before the Gujarat High Court. The question, therefore, of considering whether the transaction is void under section 23 of the Indian Contract Act would not arise. Dismissal of this petition will not in any way bar the remedy of the workers for recovery of their claims considering the provisions of section 13(9) of the Securitization Act. The workers thus will have to file their claim before the Official Liquidator who will ascertain the claim and considering the amount available distribute the same pro rata amongst the workers depending on their claims. Considering that the matter has been going on for a long time, the Official Liquidator is directed to invite the claims, if not already invited, and thereafter to proceed according to law as expeditiously as possible.

Issues Involved:
1. Legality of the sale of securities and properties by the Official Liquidator.
2. Applicability of the Gujarat High Court judgment on the assignment of debts.
3. Availability and adequacy of alternative remedies under the Securitization Act.
4. Rights and claims of the workers under section 13(9) of the Securitization Act and section 529A of the Companies Act.

Detailed Analysis:

1. Legality of the Sale of Securities and Properties by the Official Liquidator:
The petitioner, a registered Trade Union representing the employees of a company in liquidation, challenged the sale of securities to respondent No. 1 by respondent No. 4, assigned to respondent No. 2 - Stressed Assets Stabilisation Fund (SASF). The sale was conducted by the Punjab and Maharashtra Co-operative Bank Limited (PMC Bank) for recovery of secured debt. The properties were sold to Housing Development and Infrastructure Limited (HDIL) for Rs. 180 crores. The petitioner contended that the properties were undervalued in the tender notice. However, the court noted that the sale was conducted in compliance with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) and that the Official Liquidator did not challenge the sale.

2. Applicability of the Gujarat High Court Judgment on the Assignment of Debts:
The petitioner relied on the Gujarat High Court judgment in O.J. Appeal No. 156 of 2007, which held that the assignment of debts to Kotak Mahindra Bank Limited was violative of section 23 of the Indian Contract Act. However, the court distinguished the present case, noting that the assets were mortgaged to SASF and sold to PMC Bank under the provisions of the Securitisation Act, unlike the case before the Gujarat High Court. Therefore, the judgment was not applicable to the present case.

3. Availability and Adequacy of Alternative Remedies under the Securitization Act:
The court examined whether the petitioner had an efficacious remedy under section 13(9) of the Securitisation Act. The court noted that the Union representing the workmen had previously withdrawn proceedings to avail of the remedy under the Securitisation Act. The court held that the petitioners had an alternative remedy, which they had invoked, and thus were disentitled from invoking the extraordinary jurisdiction of the court. The court emphasized that the sale was not a nullity at law and that the petitioners' contention that the property was sold for a lower price was a question of fact to be addressed through the alternative remedy.

4. Rights and Claims of the Workers under Section 13(9) of the Securitization Act and Section 529A of the Companies Act:
The court clarified that the dismissal of the petition would not bar the workers from recovering their claims under section 13(9) of the Securitisation Act. The proviso to section 13(9) mandates that the amount recovered from the sale of security assets be distributed in accordance with section 529A of the Companies Act, which provides for workers' pari passu claims. The court directed the Official Liquidator to invite claims from the workers and distribute the amount pro rata among them as per the law.

Conclusion:
The court dismissed the petitions, holding that the sale was conducted in compliance with the Securitisation Act and that the petitioners had an alternative remedy. The court also directed the Official Liquidator to expedite the process of inviting and distributing the workers' claims. There was no order as to costs.

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