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2014 (8) TMI 1242 - HC - Companies LawPermission to applicant bank to remain outside the winding up proceedings for enforcing its security interest in the secured assets of the Company (in liquidation) - permission to applicant bank to sell the secured assets of the Company (in liquidation) under the provisions of the Securitisation And Reconstruction of the Financial Assets and Enforcement of Security Interest Act 2002 - permission to applicant bank to proceed with the sale by e-auction fixed on 28.3.2014 - HELD THAT - The provisions of SARFAESI especially section 13 and proviso there under are required to be read along with provision of Section 37 and other provisions and bare reading of the provision of Section 37 would make it incumbent upon all the concerned to accept that the provision of SARFAESI Act are not to be treated as interrogation of any provision of law including Companies Act. Therefore bear-in-mind provision of Section 37 and its mandate which has been embedded in the very Special Act the submission of counsel for the bank and sole bidder is required to be viewed. The submission in respect of Section 13(9) that the only obligation upon the agency invoking SARFAESI provisions in respect of the company in liquidation is for reserving the funds from the sale proceeds to meet with the liability of the company qua its workmen is to say the least inadequate and truncated reading of the provisions without any reference to the detailed provisions of the Companies Act as well as the SARFAESI Act and the Rules. The proviso of Companies Act is not to be brushed aside and the Companies Act cast an obligation upon all the concerned to see to it that the company in liquidation and its assets are to be treated in a manner so as to satisfy the larger segment. The provision of making reserve or providing for reserve from the sale proceeds cannot be said to be an unfettered license in SARFAESI Act to deal with the property which may not be commensurate with commercial prudence and tenets flowing there from. The Court hasten to add here that the provision of section 13 (9) of SARFAESI Act and proviso thereto are to be read bear-in-mind that the agency invoking SARFAESI Act in a case of company under liquidation will take all the care and precaution to see to it that the provisions of SARFAESI Act are completely complied with and it may not in any manner violate principles of Company Law - The Court is in full agreement with the counsels of the applicants that in a given case when there is proper justification for the secured creditor who is sought to invoke SARFAESI Act shall take precedence over all other creditors and essentially when it has chosen to remain outside the proceedings of winding-up. But that also will not absolve that agency of observing minimal of principle of reasonableness in dealing with the property. The secured creditor even if is permitted to remain outside the winding up proceedings cannot be permitted to ignore or over look the interest of other creditor so as to deprive them of their right to realise the dues. Ofcourse the secured creditors are to be given priority than unsecured creditors but that in itself would not cloth the secured creditor with power to sale property for song. The Court therefore is of the considered view that the bank is required to be directed to issue fresh advertisement after obtaining fresh valuation in consultation with Official Liquidator and make it clear in the advertisement itself that the company is in liquidation that the bank shall after fresh valuation prepared of the entire property in consultation with the Official Liquidator fix the reserve price which shall not be less than Rs.6, 25, 00, 000/- as it is in bank s own assessment for offering finance on this very property. In any manner if the valuation is more than Rs.6, 25, 00, 000/- then the bank is at liberty to fix appropriate reserve price / upset price also. Application disposed off.
Issues Involved:
1. Whether the applicant bank can remain outside the winding-up proceedings and enforce its security interest under the SARFAESI Act. 2. Whether the sale of the secured assets through e-auction should be confirmed. 3. Compliance with statutory provisions and procedural requirements during the sale process. 4. The role and rights of the Official Liquidator in the sale process of a company under liquidation. Issue-wise Detailed Analysis: 1. Whether the applicant bank can remain outside the winding-up proceedings and enforce its security interest under the SARFAESI Act: The applicant bank, a secured creditor, sought permission to remain outside the winding-up proceedings and enforce its security interest under the SARFAESI Act. The Court acknowledged the bank's right to enforce its security without intervention from the winding-up proceedings, provided it complies with the statutory requirements under both the SARFAESI Act and the Companies Act. 2. Whether the sale of the secured assets through e-auction should be confirmed: The bank conducted an e-auction on 28/3/2014, where a sole bidder participated. The bank argued that the sale should be confirmed as it followed due procedure under the SARFAESI Act. However, the Court noted that the sale process must ensure that the property fetches the highest possible price to satisfy the claims of all creditors, including unsecured creditors. The Court found that the bank's acceptance of the sole bidder's offer, which matched the reserve price without further efforts to seek higher bids, was inadequate. 3. Compliance with statutory provisions and procedural requirements during the sale process: The Court scrutinized the compliance with statutory provisions, including the requirement to notify the Official Liquidator (OL) and ensure proper valuation and advertisement of the sale. The Court observed that the bank failed to notify the OL, who is the custodian of the company's assets post-winding-up order. Additionally, the bank's advertisement did not mention the company's liquidation status, and the sale notice was sent only to the original borrowers, not the OL. These procedural lapses were deemed significant. 4. The role and rights of the Official Liquidator in the sale process of a company under liquidation: The OL argued that the bank's actions in selling the property without proper involvement of the OL were unjustified. The Court emphasized that the OL's role is crucial in ensuring that the sale process is transparent and fetches the maximum value for the benefit of all creditors. The Court held that the OL must be involved in the valuation and sale process to protect the interests of all stakeholders, including unsecured creditors. Conclusion: The Court directed the bank to issue a fresh advertisement for the sale of the property after obtaining a new valuation in consultation with the OL. The reserve price should not be less than Rs.6,25,00,000/-, reflecting the bank's assessment for financing the property. The applications were disposed of, and the interim reliefs granted earlier were vacated. The OL was permitted to refund the balance amount deposited by the bank after deducting expenses.
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