2010 (12) TMI 1285 - HC - Companies Law

Summary

Issues involved: Recovery of debts by a public financial institution, liquidation of respondent-company, distribution of proceeds from sale of assets, priority of claims by creditors.

The petitioner, a public financial institution, granted a loan to the respondent-company for a telecom business, with personal guarantees from two directors. When the loan was not repaid, the petitioner filed for recovery of debts, leading to a decree against the company and guarantors. Subsequently, the respondent-company went into liquidation, and the Official Liquidator (OL) challenged the order of the Recovery Officer. The OL filed appeals under Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which were eventually compromised and disposed of. The Recovery Officer sold the company's properties in auction, and the petitioner sought the proceeds to be handed over. The OL filed an appeal, resulting in a modification of the order regarding the distribution of sale proceeds from land and moveable assets. The petitioner appealed this decision, which was dismissed by the DRAT.

The petitioner contested the direction to deposit proceeds from the sale of immovable assets with the OL, acknowledging that it was not a secured creditor in this regard. The petitioner agreed to bear expenses for future advertisements from the funds held. Despite opportunities, the OL did not file a counter affidavit promptly. The OL's counter affidavit provided no new information, stating that no claims had been received except one, without details on verification. The OL planned to issue advertisements in various states for claims, with costs to be borne by the petitioner.

The court noted the unique circumstances where funds from the sale of immovable properties were with the petitioner, not a secured creditor, and no other claims had been verified. The OL's role is to ensure secured creditors are paid first, with unsecured creditors receiving the remainder. As no unsecured creditors had come forward, the court allowed the petitioner to retain the proceeds from the sale of immovable properties, with unsecured creditors' claims ranking equally. The OL was instructed to communicate advertisement costs to the petitioner, who would pay the amount along with additional expenses. The petitioner was to adhere to previous undertakings given.

In conclusion, the writ petition was allowed, with each party bearing their own costs.