2015 (4) TMI 886 - HC - Companies Law

Winding up - Claim of secured creditor rejected by Official Liquidator - Discriminatory treatment to one creditor - Held that - In the present case, the earlier transferees were aware of the change. They agreed to the change, however, formality might not have been completed that might debar the Bank to claim the money on the basis of such subsequent charge. However, the earlier transferees were not entitled to raise such issue and their consent recorded in the said letter would preclude them to do so. The Official Liquidator would thus be obliged to take into consideration the entire situation and treat the modified charge as a valid one at least, to the extent as recorded with the Registrar of Companies. We would be failing in our duty if we do not draw attention of the learned Company Judge as to the functioning of the Official Liquidator as observed herein before. They were not acting in impartial manner. In course of hearing, we adjourned the matter and directed the Official Liquidator to pay, whatever according to them would be payable to the Bank. We directed so when we noticed, others were paid in ad hoc to the total exclusion of the Syndicate Bank. Official Liquidator paid only poultry a sum of ₹ 8 lakhs. When we asked Mr. Tilak Bose to explain, he would contend, in absence of appropriate papers, the Official Liquidator could not calculate the interest over the claim amount and thus they made prorata payment taking the claim of the Bank to the extent of ₹ 20 lakhs only. We are not sure as to whether they would use the same yardstick once again while making payment to the other creditors. We would humbly request the learned Company Judge to look into the affairs of the office of the Official Liquidator particularly ensuring impartiality. We observe so as we find, although the Official Liquidator was an officer appointed by the Central Government, he would enjoy his office and act strictly as per the direction of the learned Company Judge in his administrative capacity. - Decided partly in favour of appellant.

Summary

Issues Involved:
1. Validity of Syndicate Bank's claim over the extended financial support.
2. Conduct and impartiality of the Official Liquidator.
3. Application of Section 48 of the Transfer of Property Act.
4. Adjudication and settlement of claims by the Official Liquidator.

Issue-wise Detailed Analysis:

1. Validity of Syndicate Bank's Claim Over the Extended Financial Support:
The primary issue revolves around the Syndicate Bank's claim to a pari-passu charge over the assets of the company, extending beyond the initial Rs. 20 lakhs to include further financial support as directed by the BIFR. The Bank registered this increased charge with the Registrar of Companies. However, the Official Liquidator and other financial institutions, namely IDBI and IFCI, did not acknowledge this extended charge, restricting the Bank's claim to Rs. 20 lakhs. The Bank argued that they extended financial support with the understanding that it would be on a pari-passu basis with other secured creditors, as evidenced by a letter from IFCI dated September 24, 1991. The Court found that the other financial institutions had indeed agreed to this arrangement, making their later objections invalid.

2. Conduct and Impartiality of the Official Liquidator:
The Court scrutinized the conduct of the Official Liquidator, noting discriminatory treatment against the Syndicate Bank. Despite substantial payments to other secured creditors, the Syndicate Bank received no payments. The Official Liquidator's actions, including the exclusion of the Syndicate Bank from settlements and the lack of notice, raised concerns about impartiality. The Official Liquidator's failure to notify the Syndicate Bank about critical proceedings and their inconsistent handling of claims were highlighted. The Court emphasized the need for the Official Liquidator to act impartially and under the supervision of the Company Judge.

3. Application of Section 48 of the Transfer of Property Act:
The other financial institutions contended that under Section 48 of the Transfer of Property Act, the Syndicate Bank could not claim a better right without the consent of the first charge holders. The learned Judge initially upheld this view, stating that in the absence of consent from the first charge holders, the Official Liquidator's findings could not be interfered with. However, the Court later determined that the financial institutions' prior consent to the pari-passu charge precluded them from invoking Section 48 to deny the Syndicate Bank's claim. The Court rejected the hyper-technical objections raised by the financial institutions, emphasizing the need for fairness.

4. Adjudication and Settlement of Claims by the Official Liquidator:
The Official Liquidator's handling of the claims was found to be flawed. Initially, the Official Liquidator admitted the Syndicate Bank's claim to the extent of Rs. 15.48 crores but later restricted it to Rs. 20 lakhs, citing lack of security for the extended amount. The Court ordered a fresh determination of claims, directing the Official Liquidator to consider the entire situation and treat the modified charge as valid to the extent recorded with the Registrar of Companies. The Court also criticized the Official Liquidator for not making appropriate submissions and for failing to act impartially.

Conclusion:
The Court directed the Official Liquidator to adjudicate the Syndicate Bank's claim, treating the modified charge as valid up to Rs. 4.98 crores. The Court also highlighted the need for the learned Company Judge to oversee the functioning of the Official Liquidator to ensure impartiality and fairness. The appeal was disposed of without any order as to costs.