2017 (4) TMI 5 - HC - Companies Law

Lien of the appellant on the money deposited by the respondent company in liquidation - Power of recognized stock exchanges to make bye-laws - lien possessed by the Stock Exchange - Held that - Instant case of there being no workman who has filed any claim before the official liquidator and therefore the question of the official liquidator protecting the interest of any workman does not arise. On facts, it is not a case where workmen‟s dues would be required to be treated at par with a secured or a charged asset. It is not a case where a security is subject to a pari passu charge with the workers and thus on the facts of the instant case Section 529A of the Companies Act, 1956 is not attracted. The legal position qua the appellant would be that its functioning is regulated under the Securities Contracts (Regulation) Act, 1956 and the Rules made thereunder. Under the Securities Contracts (Regulation) Rules, 1957 the Central Government has notified Rules and Rule 8 prescribes the qualifications for membership of a recognized stock exchange. As per Rule 8(1)(f) a member of the Exchange has to sever all connections with other businesses upon being enrolled a member. The bye-laws of the appellant are statutory and deposits made by a member with the appellant is subject to a first and paramount lien for any sum due to the appellant or other trading member or to a third party for discharge of the liability of the member towards the third party. In the instant case there would be a lien of the appellant on the money deposited by the respondent company in liquidation when it became a member of the appellant and since there are no workmen dues the official liquidator has not to watch the interest of any workman. As a matter of fact other than persons who used the services of the respondent company to act as a broker on the stock exchange no one has any claim against the company. Therefore the manner of adjudication of the claims and disbursement in the instant case has to be as per the bye-laws of the appellant.The appeal is accordingly allowed.

Issues Involved:
1. Validity of the Company Judge's order directing the appellant to deposit ?1.10 crores with the official liquidator.
2. Applicability and interpretation of the bye-laws of the appellant (NSEIL) regarding the handling of deposits from defaulting members.
3. Jurisdiction and authority of the Company Court under Sections 446, 456, and 468 of the Companies Act, 1956.
4. Priority of claims and the role of the official liquidator in the liquidation process.

Detailed Analysis:

1. Validity of the Company Judge's Order:
The appeal challenges the order dated January 23, 2013, by the Company Judge, which directed the appellant to deposit ?1.10 crores with the official liquidator. The Company Judge had allowed the application filed by the official liquidator and dismissed the appellant's application, leading to the appeal.

2. Applicability and Interpretation of Bye-laws:
The appellant, a stock exchange, argued that the deposits made by a trading member are subject to a "first and paramount lien" under its bye-laws, approved by SEBI and the Central Government. Upon a member being declared a defaulter, the Defaulters Committee is vested with the member's assets to settle claims as per Bye-law 23. The appellant's counsel emphasized that this mechanism is a complete code in itself and ensures the credibility of the capital markets by guaranteeing settlement through a risk management system.

3. Jurisdiction and Authority of the Company Court:
The official liquidator contended that under Section 446(2)(d) of the Companies Act, 1956, the Company Court has the jurisdiction to decide the question of priorities. Sections 456 and 468 were cited to argue that the provisional liquidator should take custody of all company properties and that any property appearing to belong to the company should be delivered to the official liquidator.

4. Priority of Claims and Role of Official Liquidator:
The appellant argued that the deposits vested with the Defaulters Committee are not assets of the company in liquidation and hence are not available to the official liquidator. The official liquidator's role is to collect and sell assets of the company, but in this case, the deposits are governed by the stock exchange's bye-laws, which take precedence.

Court's Decision:
The Court noted that no workman had filed any claims, making Section 529A of the Companies Act, 1956, inapplicable. The Court held that the appellant's bye-laws, being statutory, govern the handling of the deposits. The bye-laws provide a mechanism for settling claims, and only surplus, if any, after settling claims, should be handed over to the official liquidator.

The appeal was allowed, setting aside the Company Judge's order. The official liquidator's application was dismissed, and the appellant's application was allowed with the clarification that any surplus remaining after settling claims should be paid to the official liquidator.

Conclusion:
The Court upheld the statutory nature of the appellant's bye-laws, emphasizing that the mechanism for handling defaulting members' deposits is a complete code in itself. The official liquidator's role is limited to receiving any surplus after the claims are settled as per the bye-laws. The appeal was allowed, and the Company Judge's order was set aside.

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