2012 (4) TMI 834 - HC - Indian Laws

Summary

Issues Involved:

1. Conflict between the SARFAESI Act and the Companies Act.
2. Role of the Official Liquidator in auctions conducted under the SARFAESI Act.
3. Validity of the auction conducted by Kotak Mahindra Bank Ltd.
4. Impleadment of National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED).

Detailed Analysis:

1. Conflict between the SARFAESI Act and the Companies Act:

The primary legal issue addressed in this judgment is the conflict between the SARFAESI Act and the Companies Act. The court examined whether the provisions of the SARFAESI Act, a special and specific legislation, override those of the Companies Act. The court referred to the judgment of the Punjab and Haryana High Court in Haryana State Industrial & Infrastructure Development Corporation vs. Haryana Concast Limited, which resolved the conflict through the principle of harmonious construction. The court concluded that the SARFAESI Act is not in derogation of the Companies Act, and both statutes can be harmonized. The SARFAESI Act allows for the enforcement of security interests without court intervention, but the Company Court retains jurisdiction to issue supervisory directions to securitization companies or secured creditors, ensuring the protection of workmen's dues and other stakeholders' interests.

2. Role of the Official Liquidator in auctions conducted under the SARFAESI Act:

The court emphasized the necessity of associating the Official Liquidator in the auction process when a company is under liquidation. The judgment highlighted that the Official Liquidator must be involved in the sale of assets to ensure compliance with Section 529A of the Companies Act, which pertains to the distribution of sale proceeds among creditors, including workmen. The court cited the Supreme Court's decision in Rajasthan Financial Corporation, which mandates the association of the Official Liquidator in the sale process to safeguard the interests of all creditors and ensure a fair distribution of assets.

3. Validity of the auction conducted by Kotak Mahindra Bank Ltd.:

The court found that the auction conducted by Kotak Mahindra Bank Ltd. was invalid as it was carried out without involving the Official Liquidator, despite the Provisional Liquidator being appointed prior to the auction. The court directed Kotak Mahindra Bank Ltd. to prepare a fresh draft sale notice in association with the Official Liquidator, taking into account the valuation report prepared by the valuer appointed by the Official Liquidator. Consequently, the applications filed by the auction purchaser and Kotak Mahindra Bank Ltd. for desealing the premises and handing over possession were dismissed, and the amount deposited by the auction purchaser was ordered to be refunded.

4. Impleadment of National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED):

The court addressed the application filed by NAFED seeking its impleadment in the proceedings. The Official Liquidator had no objection to NAFED's impleadment, and considering NAFED already had an arbitral award in its favor, the court allowed the application. NAFED was thus impleaded in the present proceedings, allowing it to participate in the ongoing legal process.

In conclusion, the judgment reinforced the necessity of involving the Official Liquidator in the auction process under the SARFAESI Act when a company is in liquidation, ensuring compliance with the provisions of the Companies Act. The court dismissed the applications for desealing the premises and ordered the refund of the auction deposit, while also allowing the impleadment of NAFED in the proceedings.