2012 (6) TMI 560 - HC - Companies Law

Application from unsecured creditors Winding up Secured creditors had objected to the passing of the winding up order - Secured creditors be restrained from selling the assets by private negotiation, instead to follow a transparent process - Held that - The manner of appropriation of the amount realised would be subject to the proviso to Section 13(9) of SARFAESI Act and Section 529A of the Companies Act which operate in the same plane except that secured creditor would have the right to sell the property which would otherwise have been the function of the Official Liquidator. But, the Official Liquidator acting under the orders of the Company Court would have a role to play to an extent so as to protect the interest of the persons who would be entitled to the benefits of liquidation - the secured creditor/second respondent herein shall therefore have the right to sell the secured assets in terms of Section 13 of the SARFAESI Act as per the procedure contemplated under Rules 8 and 9 of the Rules, 2002 - transparent procedure to be adopted since it is alleged that there were irregularities committed when the movable secured assets were sold - The proposal for sale and the details of the valuation obtained for determining the modalities of sale shall be made available to the Official Liquidator as there are no dues to employees and workmen this aspect to be considered when the secured creditor seeks leave of this Court to appropriate the amount realized by selling the secured assets as necessary directions could be issued at that stage safeguarding claims in future and the pari passu interest should be protected in that regard - justification for sale by private treaty need not be gone into since the secured creditor/second respondent is not averse to selling it by public auction.

Issues Involved:

1. Winding up of the Company-in-liquidation.
2. Right of the secured creditor under Section 13 of the SARFAESI Act.
3. Role and rights of the Official Liquidator under the Companies Act.
4. Procedure for the sale of assets and distribution of proceeds.
5. Application of Sections 35 and 37 of the SARFAESI Act.
6. Compliance with Section 529A of the Companies Act.
7. Principle of res judicata in the context of the winding-up order.
8. Transparency in the sale process of the Company-in-liquidation's assets.

Detailed Analysis:

1. Winding Up of the Company-in-Liquidation:
The applicant, an unsecured creditor of M/s B.S. Refrigerators Ltd., filed a petition for winding up the company. The High Court allowed the petition on 18.08.2010, ordering the winding up of the Company-in-liquidation.

2. Right of the Secured Creditor under Section 13 of the SARFAESI Act:
The second respondent, an Asset Reconstruction Company (ARC), exercised its rights under Section 13 of the SARFAESI Act, taking steps to sell the company's properties. Despite objections, the court upheld the secured creditor's right to sell the secured asset, which was not affected by the winding-up order.

3. Role and Rights of the Official Liquidator under the Companies Act:
The Official Liquidator argued that the properties of the Company-in-liquidation vest with the Company Court and should involve the Official Liquidator to protect the interests of all creditors. The court examined the interplay between the SARFAESI Act and the Companies Act, noting that the Official Liquidator must be involved to monitor the sale process for maximum benefit to the Company-in-liquidation.

4. Procedure for the Sale of Assets and Distribution of Proceeds:
The second respondent justified the sale of assets by private treaty due to unsuccessful public advertisements. However, they agreed to re-advertise and call for the highest bidders. The court mandated a transparent process, involving the Official Liquidator, to ensure the fair distribution of proceeds.

5. Application of Sections 35 and 37 of the SARFAESI Act:
Sections 35 and 37 were examined to determine whether the SARFAESI Act overrides the Companies Act. Section 35 provides overriding effect to the SARFAESI Act, while Section 37 clarifies that the SARFAESI Act is in addition to, and not in derogation of, the Companies Act. The court concluded there is no conflict between the two acts regarding the distribution of proceeds.

6. Compliance with Section 529A of the Companies Act:
Section 529A of the Companies Act mandates preferential payment to workmen's dues and secured creditors on a pari passu basis. The court emphasized that the secured creditor's right to sell under the SARFAESI Act must comply with Section 529A, ensuring the protection of workmen's dues.

7. Principle of Res Judicata in the Context of the Winding-Up Order:
The court addressed the argument of res judicata, noting that the previous order allowing the secured creditor to sell assets under the SARFAESI Act did not preclude the current consideration of procedural compliance and involvement of the Official Liquidator. The court reaffirmed the secured creditor's right to sell but emphasized the need for a transparent process involving the Official Liquidator.

8. Transparency in the Sale Process of the Company-in-Liquidation's Assets:
The court ordered the second respondent to adopt a transparent sale process, notifying the Official Liquidator and involving them in determining the sale modalities. The court mandated that the secured creditor present the sale details to the Company Court before appropriation.

Conclusion:
The second respondent is entitled to sell the secured assets under Section 13 of the SARFAESI Act, following a transparent procedure involving the Official Liquidator. The sale proceeds must be appropriated as per the Company Court's order, ensuring compliance with Section 529A of the Companies Act. The application was disposed of with no costs.

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