2009 (1) TMI 493 - HC - Companies Law

Remit the sale proceeds of the assets of the company for an amount of ₹ 2 crores with accrued interest thereon - Held that - As after the claim has been adjudicated and an order is passed by the Debts Recovery Tribunal when the amount was determined and a recovery certificate has also been issued, there is no width of discretion left to the official liquidator to withhold the payment and contend that the bank should proceed personally against the ex-directors. the claim of the bank in the application is well merited and the official liquidator is directed to pay out of the sale proceeds of assets of the company available with the official liquidator, as prayed for in the petition, for statutory deductions.

Summary

Issues:
1. Direction sought by a secured creditor for remittance of sale proceeds of assets.
2. Resistance by official liquidator based on right of recovery against directors.
3. Exercise of discretion by secured creditor in proceeding against assets only.
4. Applicability of Supreme Court decision on discretion in creditor's actions.
5. Official liquidator withholding payment for creditor to proceed against directors.
6. Jurisdiction of Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
7. Company court's role in adjudication of claims by banks during liquidation.

Analysis:
The judgment revolves around the application by a secured creditor, Bank of India, seeking direction to remit sale proceeds of a company's assets in liquidation. The creditor requested remittance of Rs. 2 crores with accrued interest. The official liquidator resisted, claiming the company had a right of recovery against directors based on personal guarantees, suggesting the creditor should have proceeded against directors personally. The official liquidator cited a Supreme Court decision emphasizing the need for appropriate exercise of discretion by secured creditors, contending that depleting funds by focusing only on assets could prejudice unsecured creditors.

The court dismissed the official liquidator's argument, stating the reference to the Supreme Court decision was irrelevant as it pertained to a different context. The court clarified that a secured creditor's right to enforcement against security is distinct and not subject to discretionary considerations like those in the cited case. Once a claim is adjudicated, and a recovery certificate is issued by the Debts Recovery Tribunal, the official liquidator has no discretion to withhold payment and demand the creditor to pursue personal recovery against directors. The court highlighted a Supreme Court decision emphasizing the exclusive jurisdiction of the Debts Recovery Tribunal for adjudication of claims by banks under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, preventing duplication of proceedings and ensuring the primacy of the Tribunal in debt recovery matters.

Consequently, the court found the creditor's claim justified and directed the official liquidator to pay the requested amount from the sale proceeds of the company's assets, after statutory deductions. The judgment underscores the importance of respecting the legal processes and exclusive jurisdiction of specialized tribunals in matters of debt recovery during liquidation, ensuring efficient and fair resolution of creditor claims.