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2016 (7) TMI 438 - SC - Companies LawWinding up proceedings - Jurisdiction of Company Court in the High Court at Madras - sale of property conducted by Recovery Officer - Held that - For recovery of a debt due to a bank or a financial institution, the concerned bank or financial institution, can legitimately initiate proceedings, by filing a winding up petition before the jurisdictional Company Court, or alternatively, intervene in a pending winding up petition. Since there is no bar restraining a bank or a financial institution from approaching a Company Court, by filing a winding up petition, it is not possible to conclude, that the jurisdictional Company Court, is not possessed with the determinative authority/competence to entertain a claim raised by such bank or financial institution. In view of the above, it is not possible for us to accept, as was suggested on behalf of the appellants, that the order passed by the Company Court in the High Court at Madras dated 10.3.2000, lacked the jurisdictional authority. Since we have concluded that the Company Court which passed the order dated 10.3.2000 did not lack jurisdiction, we hereby hold, that in the facts of this case, the above order dated 10.3.2000 was neither invalid nor void. The submission canvassed at the hands of learned counsel for the appellants, that the impugned sale dated 11.8.2005, and its confirmation on 12.9.2005, should not be interfered with on the ground of equity, as the appellant had made the entire payment in 2005, and the Recovery Officer had ordered confirmation of the sale, as no objection had been raised against the same. We find it difficult to persuade ourselves to accept the above contention. In this behalf, one cannot lose sight of the fact that the Official Liquidator, as well as, the workers union had raised objections before the Recovery Officer at the very initial stage. Even a former Director of Deve Sugars Ltd. N. Ponnusamy raised a challenge to the proceedings before the Recovery Officer by asserting, that the reserve price of ₹ 10 crores fixed for the property being put to auction, was too low. The fact, that in the process of sale of the properties of Deve Sugars Ltd. only two bids were received, has not been disputed. It is also not disputed, that whilst one of the bidders was the appellant Anita International, the other bidder was Synergy Steel Ltd. a sister company of the appellant. In sum and substance therefore, there was only one bidder. For the above reasons, in addition to those recorded by the High Court it is not possible for us to accept the claim of the appellant on the ground of equity. there was sufficient justification for the parties to have approached the Company Court in the High Court at Madras, for the reason that they were seeking the enforcement of the order dated 10.3.2000, passed by the Company Court itself. The sale made by the Recovery Officer on 11.8.2005, and its confirmation on 12.9.2005, were in utter violation of the order dated 10.3.2000, and therefore, the concerned parties were justified in approaching the High Court at Madras and submission on behalf of the appellants, that the sale conducted by the Recovery Officer and the order of confirmation thereof passed by the Recovery Officer ought to have been assailed only in proceedings under Section 30 of the RDB Act rejected. Binding of HC order - Held that - in the application filed by the State Bank of Mysore, the prayer made was, that the State Bank of Mysore be permitted, leave to proceed with recovery proceedings before the DRT, Bangalore. By the order dated 10.3.2000, the Company Court in the High Court at Madras, while granting leave, imposed two conditions. Firstly, the Official Liquidator would have to be impleaded by the bank in the recovery proceedings before the DRT, Bangalore. And secondly, no coercive steps would be taken against the assets of the company during or after the conclusion of the proceedings before the Tribunal. It is not possible for us to accept, that the aforesaid order passed by the High Court was an order in personam. We are of the view, that the above order had a clear and binding effect on the proceedings permitted to be initiated before the DRT, Bangalore, and further, that it was equally binding on the Recovery Officer. And accordingly, in our view, the same would also be binding on those claiming through sale proceedings conducted by the Recovery Officer. In the above view of the matter, there can be no doubt, that the order dated 10.3.2000 was also binding on the appellant before this Court. For the above reasons, we find no merit even in the last contention advanced by learned counsel for the appellants.
Issues Involved:
1. Jurisdiction of the Company Court versus the Debts Recovery Tribunal (DRT). 2. Validity and binding nature of the Company Court’s order dated 10.03.2000. 3. Legality of the sale of Deve Sugars Ltd.'s assets by the Recovery Officer. 4. Equitable considerations in setting aside the auction sale. 5. Availability and appropriateness of alternative remedies under the RDB Act. Detailed Analysis: 1. Jurisdiction of the Company Court versus the Debts Recovery Tribunal (DRT): The primary contention was whether the Company Court or the DRT had exclusive jurisdiction over the recovery proceedings initiated by the State Bank of Mysore. The Supreme Court reiterated that the DRT has exclusive jurisdiction in matters of recovery of debts due to banks and financial institutions, including the execution of recovery certificates by the Recovery Officer. This was supported by precedents like Allahabad Bank v. Canara Bank, which emphasized that the jurisdiction of the DRT is exclusive and overrides other laws to the extent of inconsistency. 2. Validity and Binding Nature of the Company Court’s Order Dated 10.03.2000: The Company Court’s order dated 10.03.2000, which allowed the State Bank of Mysore to proceed with recovery proceedings before the DRT, was subject to the condition that no coercive steps would be taken against the assets of Deve Sugars Ltd. during or after the conclusion of the proceedings. The appellants argued that this order was void and non est. However, the Supreme Court held that even if an order is void, it remains enforceable until set aside by a competent court. Thus, the Recovery Officer was bound by the Company Court's order, and any action in violation of this order was impermissible. 3. Legality of the Sale of Deve Sugars Ltd.'s Assets by the Recovery Officer: The auction sale conducted by the Recovery Officer on 11.08.2005 and its confirmation on 12.09.2005 were challenged on the grounds that they violated the Company Court’s order. The Supreme Court upheld the High Court’s decision that the sale and its confirmation were invalid as they were conducted in contravention of the Company Court’s order. The Court emphasized that the Recovery Officer could not ignore the binding order of the Company Court. 4. Equitable Considerations in Setting Aside the Auction Sale: The appellants argued that the auction sale should not be set aside on equitable grounds as the entire payment had been made, and no objections were raised initially. However, the Supreme Court noted that objections were indeed raised by the Official Liquidator and the workers’ union at the initial stage. The Court found that the auction process was flawed, as it received only two bids, both from related entities, indicating a lack of genuine competition. Therefore, the Court held that the sale was not conducted in a fair and transparent manner, justifying its annulment. 5. Availability and Appropriateness of Alternative Remedies under the RDB Act: The appellants contended that the parties should have availed the alternative remedy under Section 30 of the RDB Act instead of approaching the Company Court. The Supreme Court rejected this argument, stating that the parties were justified in approaching the Company Court to enforce its order dated 10.03.2000. The Court held that the availability of an alternative remedy did not preclude the parties from seeking enforcement of a binding judicial order. Conclusion: The Supreme Court dismissed the appeals, affirming the High Court’s decision to set aside the auction sale conducted by the Recovery Officer. The Court held that the Recovery Officer’s actions were in violation of the Company Court’s binding order, and the sale process was flawed, lacking transparency and fairness. The judgment underscores the principle that judicial orders must be complied with until they are set aside by a competent court, and any action in violation of such orders is liable to be invalidated.
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