2018 (9) TMI 597 - HC - Companies Law

Winding up proceeding - application of provisions of the SARFAESI Act - Held that - The official liquidator will in that case be also not dependent on the secured creditors to put in funds to protect the assets of the company (in liquidation) at Silvasa or for the administrative charges to carry out the sale. The applicant bank can easily obtain actual physical possession of the Silvasa property by removing the encumbrances, if any more conveniently by applying the provisions of the SARFAESI Act and the said Rules. If the official liquidator has to sale the assets of the company (in liquidation) he would be compelled to sell the same with encumbrances, if any as it will take the official liquidator more time to remove the encumbrances if any in the event he chooses to remove such encumbrances by observing the legal formalities. The official liquidator may have to either file proceedings or defend in a competent court having jurisdiction over Silvasa Property from its office at Kolkata. The applicant bank is therefore permitted to remain outside the winding up proceedings since it had initiated proceedings before the DRT prior to the company being wound up and is also allowed to sell the Silvasa property in association with the official liquidator. The same procedure as laid down above has to be followed in respect of selling the movables of which the applicant bank claims to be its securities. The official liquidator, if satisfied that the assets of the company (in liquidation) are secured asset of the bank he should make over the symbolic possession thereof or the actual physical possession if he has taken the same in the meantime to the applicant bank to effect the sale. The applicant bank should bring to the notice of DRT about the restraint order dated 5th May, 2015 and get it varied and/or modified prior to proceeding for to sale by invoking the provisions of the SARFAESI Act pursuant to this order upon notice to the official liquidator who has to be also substituted in the OA pending before DRT in the place of the company (in liquidation).

Issues Involved:
1. Application by a secured creditor to stay outside the winding-up proceedings.
2. Rights and procedures under the SARFAESI Act and the RDB Act.
3. Role and authority of the Official Liquidator.
4. Distribution of sale proceeds among secured creditors and workers.

Issue-Wise Detailed Analysis:

1. Application by a secured creditor to stay outside the winding-up proceedings:
The Allahabad Bank, claiming to be a secured creditor of Chandra Proteco Ltd. (In Liquidation), sought leave to stay outside the winding-up proceedings. The bank requested a direction for the Official Liquidator to hand over the assets secured to it and allow the bank to take physical possession and sell these assets. The bank had provided credit facilities to Chandra Proteco Ltd., secured by charges, hypothecation, and equitable mortgages on the company’s movables and immovable properties. The bank, leading a consortium of other banks, had extended credit facilities amounting to ?283.25 crores, with the bank’s share being ?77.39 crores.

2. Rights and procedures under the SARFAESI Act and the RDB Act:
The bank classified Chandra Proteco Ltd.’s account as a Non-Performing Asset (NPA) on 30th September 2013. It issued notices under Sections 13(2) and 13(4) of the SARFAESI Act to the company and its guarantors. Additionally, the bank initiated proceedings under Section 19 of the RDB Act before the Debts Recovery Tribunal (DRT) for the recovery of outstanding dues. The DRT had also issued a restraint order against the company’s properties. The bank argued that the DRT, under the RDB Act, is entitled to order the sale of a debtor’s properties, even if the debtor is a company in liquidation. The bank intended to proceed under the SARFAESI Act, asserting that the later Act should be given preference over the Companies Act, 1956.

3. Role and authority of the Official Liquidator:
The Official Liquidator opposed the bank’s application, stating that he had taken symbolic possession of the company’s properties as per the court’s orders. The Official Liquidator argued that he should be allowed to sell the assets and distribute the proceeds among the creditors. The court noted that the Official Liquidator must be associated with the sale of the company’s assets and should be given notice before any action is taken against the secured assets. The Official Liquidator is responsible for scrutinizing whether the borrower received the required notices under the SARFAESI Act and ensuring the assets are secured before allowing the bank to proceed with the sale.

4. Distribution of sale proceeds among secured creditors and workers:
The court emphasized that the distribution of sale proceeds must comply with Sections 529 and 529(a) of the Companies Act, 1956, which place the dues of workmen on the same pedestal as secured creditors. The court permitted the bank to remain outside the winding-up proceedings and sell the Silvasa property, provided the Official Liquidator is given a 30-day notice before the sale. The bank must also notify the DRT about the restraint order and get it modified before proceeding with the sale. The Official Liquidator, upon being satisfied that the assets are secured, should hand over possession to the bank for the sale. The sale proceeds should be distributed among the secured creditors, including the bank, and the Official Liquidator should formulate a scheme for distribution after scrutinizing the claims of the workmen and other secured creditors.

Conclusion:
The court allowed the Allahabad Bank to stay outside the winding-up proceedings and sell the secured assets, provided the Official Liquidator is involved and given notice. The bank must follow the procedures under the SARFAESI Act and ensure the distribution of sale proceeds complies with the provisions of the Companies Act, 1956. The Official Liquidator retains the authority to sell other properties of the company not secured to the bank and distribute the proceeds accordingly.

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