2006 (3) TMI 778 - HC - Companies Law

Summary

Issues Involved:
1. Modification of the winding-up order dated 15.04.2005.
2. Secured creditor rights under the Securitisation Act.
3. Official Liquidator's authority and possession of assets.
4. Sale of assets and distribution of proceeds.
5. Compliance with legal provisions and court orders.

Detailed Analysis:

1. Modification of the Winding-Up Order Dated 15.04.2005:
The applicant, Bank of India, sought to modify the court's order dated 15.04.2005, which directed the Official Liquidator to take possession of the assets of Phar-East Laboratories Limited. The bank argued that it had already taken possession of the assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) on 18.04.2005, and thus, the order should be recalled.

2. Secured Creditor Rights Under the Securitisation Act:
The bank, as a secured creditor, had issued a notice under Section 13(2) of the Securitisation Act on 10.10.2003. Despite delays due to intervening circumstances, including court stays and the company's status as a relief undertaking, the bank took possession of the assets on 18.04.2005. The bank contended that it was justified in taking possession and proceeding with the sale under Section 13(4) of the Securitisation Act, which allows secured creditors to take possession and sell the secured assets.

3. Official Liquidator's Authority and Possession of Assets:
The Official Liquidator argued that the bank's action of taking possession after the winding-up order was void under Section 456(2) of the Companies Act, 1956. The Liquidator requested the court to direct the bank to hand over possession of the assets and deposit the sale proceeds with the Official Liquidator for proper distribution among creditors and workers as per Sections 529 and 529A of the Companies Act.

4. Sale of Assets and Distribution of Proceeds:
The bank sold the company's assets through public auction, realizing Rs. 131 Lacs for land and buildings and Rs. 36 Lacs for plant and machinery. The bank informed the Official Liquidator and the court about the sale and sought confirmation to appropriate the sale proceeds towards its dues, subject to workers' claims under Section 529A of the Companies Act. The Official Liquidator, however, insisted that the sale proceeds should be deposited with him for distribution.

5. Compliance with Legal Provisions and Court Orders:
The court examined whether the bank complied with the legal provisions of the Securitisation Act and relevant court orders. The bank argued that it had acted in accordance with Section 13(9) of the Securitisation Act, which allows secured creditors to retain sale proceeds after depositing workers' dues with the Liquidator. The court noted that the bank had informed the Liquidator and the court at every stage and had taken steps to safeguard the assets, including taking inventory and insuring the property.

Conclusion:
The court concluded that the bank was justified in taking possession and selling the assets under the Securitisation Act. The court directed the Official Liquidator to inform the bank about the workers' claims, and the bank was instructed to deposit the estimated amount of workers' dues with the Liquidator. The bank was allowed to retain the sale proceeds, except for the expenses incurred, until the workers' claims were determined. The application was allowed, and the court granted the bank's prayers to the extent specified, without any order as to costs.