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2014 (11) TMI 1199 - HC - Companies LawAuction - mortgaged property - sale of the mortgaged property owned by private individuals - Whether the sale of the mortgaged property owned by private individuals can be brought before the learned Company Judge or in Writ Court for scrutiny? - HELD THAT - Any transfer of assets of the company is effected in violation of Sections 531 531A is void altogether incurably, but it is void under Section 537 if it is done without leave of the Company Court - Here, admittedly, no leave of the Company Court was obtained. In this context, we examine the contentions of the learned Senior Counsel Mr. S. Ravi that no leave is required, as jurisdiction of Company Court is ousted in view of the provisions of Sections 13, 37 35 of the SARFAESI Act. Whether the Company Court can decide the question raised with regard to the invalidity of sale in view of provisions of the SARFAESI Act read with Recovery of Debts due to Banks and Financial Institutions Act, 1993? - HELD THAT - It is true that Section 34 mentioned the words Civil Court (not apparently company court), but after winding up order is passed by virtue of the provisions of Section 446 (2) of the Companies Act, the Company Court exercises jurisdiction of the civil court. So, essentially, the company court becomes civil court. What is important is not the nomenclature of the Court, but power and functions exercised by that Court. In view of discussions above, accepting argument of Mr. S. Ravi and rejecting contention of the learned counsel for the respondent and Official Liquidator, we hold that the company court has no jurisdiction to deal with the issues arising out of action of secured creditor under Section 13 of SARFAESI Act. Whether the provisions of Sections 531, 531A 537 of the Companies Act, 1956 have any manner of application with regard to sale of securities conducted under the SARFAESI Act? - HELD THAT - It will appear from Section 13(1), as quoted above, it clearly provides that without intervention of the Court or Tribunal action can be taken for sale of securities, whereas the provisions of Section 537 of Companies Act requires leave of Company Court - this is apparent inconsistency in two competing provisions in two different Acts on the same subject - no leave is required under Section 537 of the Companies Act, moreover jurisdiction of the Company Court is also ousted. Whether the provisions of Section 531 531A of the Companies Act will be applied or not in this case? - HELD THAT - It is clear from sub-section (6) the moment action taken under sub-section (4) by the secured creditor or any manager on his behalf of the secured creditor for transfer all rights shall vest in the transferee in relation to the secured assets. In other words, if action taken under Section 13(4) is found to be lawful and valid in accordance with SARFAESI Act, no other legal provision can invalidate it. Whereas Sections 531 531A provide otherwise if any transfer including sale is effected in violation thereof the same is invalid and void. Thus it appears that there has been glaring inconsistency naturally, we are constrained to hold that the provisions of Sections 531 531A have no manner of application and the same do not apply in case of valid sale undertaken under the SARFAESI Act and the Rules framed thereunder. Whether the sale can be held invalid because of the alleged non-compliance of the mandatory provisions of the Rules framed under the SARFAESI Act? - HELD THAT - All materials namely advertisement, conditions of sale and other things are not produced before us also. Therefore we do not like to decide this issue conclusively nor do we accept such decision of the learned Trial Judge in absence of such materials and also for the reasons stated hereunder. Thus, granting relief to the auction purchaser as prayed for in the writ petition is not sustainable under the law - petition dismissed.
Issues Involved:
1. Validity of the sale conducted by the Indian Bank under the SARFAESI Act. 2. Whether the sale is void and fraudulent as contended by the Official Liquidator. 3. Whether the sale is vitiated by irregularities raised by the auction purchaser. 4. Jurisdiction of the Company Court and Writ Court regarding the sale of mortgaged properties. 5. Applicability of Sections 531, 531A, and 537 of the Companies Act, 1956. 6. Compliance with mandatory provisions of the SARFAESI Act and related rules. Detailed Analysis: 1. Validity of the Sale Conducted by the Indian Bank under the SARFAESI Act: The court examined whether the sale conducted by the Indian Bank was valid under the SARFAESI Act. The Indian Bank, as a secured creditor, sold the hypothecated and mortgaged properties of M/s. Laran Sponge & Minerals Private Limited (in liquidation) without obtaining leave from the Company Court. The court concluded that the sale conducted by the authorized officer is invalid due to non-compliance with Sections 531, 531A, and 537 of the Companies Act, as well as the mandatory requirements under Rule 9 of the SARFAESI Act. 2. Whether the Sale is Void and Fraudulent as Contended by the Official Liquidator: The Official Liquidator argued that the sale was void under Sections 531, 531A, and 537 of the Companies Act, as it was conducted within six months before the commencement of the winding-up petition and without the leave of the Company Court. The court agreed, holding that the sale was void and fraudulent as it violated the mandatory provisions of the Companies Act. 3. Whether the Sale is Vitiated by Irregularities Raised by the Auction Purchaser: The auction purchaser raised several irregularities, including non-disclosure of encumbrances and improper valuation of the property. The court found that these irregularities, along with the failure to deliver possession effectively, vitiated the sale. Consequently, the sale was set aside, and the writ petition and company application filed by the auction purchaser were allowed. 4. Jurisdiction of the Company Court and Writ Court Regarding the Sale of Mortgaged Properties: The court examined whether the Company Court has jurisdiction over the sale of mortgaged properties owned by private individuals. It was clarified that the Company Court has no jurisdiction over mortgaged properties, even if the sale is questioned for illegality or invalidity. The court also noted that the writ court has jurisdiction under Articles 226 & 227 of the Constitution of India to entertain disputes, which cannot be ousted by simple legislation. 5. Applicability of Sections 531, 531A, and 537 of the Companies Act, 1956: The court held that the provisions of Sections 531, 531A, and 537 of the Companies Act are applicable to the sale of securities conducted under the SARFAESI Act. However, it was noted that the SARFAESI Act, being a special and later legislation, has an overriding effect over the Companies Act to the extent of inconsistency. The court concluded that no leave is required under Section 537 of the Companies Act for the sale conducted under the SARFAESI Act. 6. Compliance with Mandatory Provisions of the SARFAESI Act and Related Rules: The court found that the sale conducted by the Indian Bank did not comply with the mandatory provisions of the SARFAESI Act and the related rules. The sale was held invalid due to non-compliance with Rule 9 of the SARFAESI Act, which mandates specific procedures for conducting the sale of secured assets. Conclusion: The appeals were allowed, and the judgments of the trial court were set aside. The court held that the Company Court has no jurisdiction over the sale of mortgaged properties and that the sale conducted by the Indian Bank was invalid due to non-compliance with the mandatory provisions of the SARFAESI Act and the Companies Act. The writ petitions and company applications filed by the auction purchaser were dismissed, leaving all questions open for the auction purchaser to approach the Debts Recovery Tribunal or other appropriate forums.
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