2006 (8) TMI 641 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the attachment orders by the Chief Judicial Magistrate and Government of Pondicherry.
2. Jurisdiction and authority of the Chief Judicial Magistrate and Government of Pondicherry.
3. Validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004.
4. Rights of secured creditors under the SARFAESI Act.
5. Entitlement to surplus sale proceeds.

Issue-wise Detailed Analysis:

1. Legality of the Attachment Orders by the Chief Judicial Magistrate and Government of Pondicherry:
The Chief Judicial Magistrate ordered the attachment of properties owned by V. Kannan, V. Baskaran, and their mother Sivapriya based on allegations of misappropriation. The Government of Pondicherry also issued a notification attaching properties allegedly acquired by M/s. Pondicherry Nidhi Limited (PNL Nidhi Ltd.). The Court found that the property in question was already under proceedings initiated by the Indian Bank under the SARFAESI Act, which has an overriding effect as per Section 35 of the SARFAESI Act. Therefore, the attachment orders by the Chief Judicial Magistrate and the Government of Pondicherry were set aside to the extent they related to the properties already under SARFAESI proceedings.

2. Jurisdiction and Authority of the Chief Judicial Magistrate and Government of Pondicherry:
The Chief Judicial Magistrate's order of attachment was challenged on the grounds of jurisdiction. The Court held that the Chief Judicial Magistrate should have taken note of the SARFAESI proceedings and the orders passed by the High Court, which had already confirmed the auction sale. The Government's notification was also challenged but was found to be within its powers under the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004. However, the notification could not override the SARFAESI Act's proceedings.

3. Validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004:
The Act was challenged on the grounds of legislative competence, arguing that it fell under the Union List. The Court upheld the validity of the Act, citing a similar case where the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act was found to be constitutionally valid. The Court concluded that the Pondicherry Act was also valid and not ultra vires the Constitution of India.

4. Rights of Secured Creditors under the SARFAESI Act:
The Indian Bank had initiated proceedings under the SARFAESI Act and had auctioned the property to M/s. EID Parry India Limited. The Court held that the SARFAESI Act has an overriding effect over other laws, and the proceedings under this Act were valid. The attachment orders by the Chief Judicial Magistrate and the Government of Pondicherry were found to be inconsistent with the SARFAESI proceedings and were set aside to that extent.

5. Entitlement to Surplus Sale Proceeds:
M/s. New Horizon Sugar Mills Limited sought the return of the surplus sale proceeds after the bank's dues were settled. The Court directed the petitioner to approach the appellate authority under Section 17 of the SARFAESI Act for appropriate relief regarding the surplus amount.

Conclusion:
The Court quashed the attachment orders by the Chief Judicial Magistrate and the Government of Pondicherry to the extent they related to properties under SARFAESI proceedings. The District Registrar was directed to register the sale certificate in favor of M/s. EID Parry India Limited. The validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 was upheld. M/s. New Horizon Sugar Mills Limited was directed to seek relief under Section 17 of the SARFAESI Act for the surplus sale proceeds. Other properties not under SARFAESI proceedings remained subject to the attachment orders, and parties were directed to approach the Designated Court for further relief.