2016 (8) TMI 791 - HC - Companies Law

Proceeding under the SARFAESI Act - winding up proceedings - whether OLR cannot proceed because the Company (in Liqn.) is before the BIFR? - Held that - In the facts of the present case also, the debts owed by the Company (in Liqn.) to IOB have been assigned to ARCIL which admittedly is an ARC long before the reference on behalf of the Company (in Liqn.) was filed before the BIFR. This being the factual scenario, as per the 2nd proviso to section 15(1) of SICA, 1985, the reference itself was not maintainable and non-est in the eyes of law. Consequently, there is no question of the Company (in Liqn.) and/or its Ex-Directors contending that the Company (in Liqn.) gets protection under section 22 of SICA, 1985. In view of this clear enunciation of the law, I have no hesitation in rejecting the argument of Mr Shetye that this OLR cannot proceed because the Company (in Liqn.) is before the BIFR. As far as the prayers in the OLR are concerned, Mr Shetye points out that as far as the advertisement charges of ₹ 25,749/- are concerned prayer clause (a) , the said directions have already been complied with. The representative of the Official Liquidator who is present in Court today, has also confirmed this fact. In this view of the matter, no directions in this regard are necessary save and except that the Official Liquidator is directed to pay the charges of the advertising agency out of the sum of ₹ 25,749/- already deposited with the Official Liquidator. Official Liquidator has also sought a direction against IOB to take the physical possession of the factory premises and appoint security guards for the same prayer clause (b) . Ms Awasthi, appearing on behalf of ARCIL states that symbolic possession of the factory premises was taken by IOB and thereafter IOB also made an application under section 14 of the SARFAESI Act for the purposes of taking physical possession. This application under section 14 of the SARFAESI Act was allowed by the Magistrate vide his order dated 29 November, 2011 and appointed the authorized officer of IOB to take the physical possession of the factory premises. Thereafter, Mr Nikumbh Kanakiya and others filed a Securitisation Application No. 111 of 2011 before the DRT-III challenging the actions initiated by IOB. Though, initially the DRT has passed an interim injunction restraining IOB from proceeding under the SARFAESI Act, on 8 December, 2012, the said SA was dismissed for default. Thereafter, IOB has assigned the debts owed by the Company (in Liqn.), in favour of ARCIL. ARCIL is in the process of amending / modifying the order passed by the Magistrate on 29 November, 2011 for taking physical possession of the factory premises in the name of ARCIL instead of IOB. This Application is still pending. Considering that IOB had already taken steps under the SARFAESI Act for taking possession of the factory premises, and even ARCIL has now taken the steps in that regard, the directions sought in prayer clause (b) of the OLR are rendered infructuous. As Company has already been ordered to be wound up and the Official Liquidator has already been appointed, there is no question of the Company and/or its Ex-Directors carrying on its business after the date of the winding up order.

Summary

Issues Involved:
1. Deposit of advertisement charges by the Ex-Director.
2. Physical possession of factory premises by Indian Overseas Bank (IOB) or Official Liquidator.
3. Maintainability of the Official Liquidator’s Report (OLR) in light of pending reference before the Board for Industrial and Financial Reconstruction (BIFR).

Detailed Analysis:

1. Deposit of Advertisement Charges by the Ex-Director:
The Official Liquidator sought directions for the Ex-Director of the Company (in liquidation) to deposit ?25,749/- for advertisement charges. Mr. Shetye, representing the Ex-Directors, confirmed that this direction had already been complied with. The Official Liquidator verified this in court. Consequently, the court directed the Official Liquidator to pay the advertising agency from the deposited amount.

2. Physical Possession of Factory Premises by IOB or Official Liquidator:
The Official Liquidator requested directions for IOB to take physical possession of the factory premises and appoint security guards. Ms. Awasthi, representing ARCIL, explained that IOB had already taken symbolic possession and had applied under section 14 of the SARFAESI Act for physical possession. The Magistrate granted this application on 29 November 2011. However, the Securitisation Application filed by Mr. Nikumbh Kanakiya and others before the DRT-III initially restrained IOB, but was later dismissed for default. Subsequently, IOB assigned its debts to ARCIL, which is now seeking to amend the Magistrate's order to reflect ARCIL instead of IOB. Given these developments, the court found the request for directions in this regard to be infructuous.

3. Maintainability of the OLR in Light of Pending Reference Before BIFR:
Mr. Shetye argued that the OLR could not proceed due to a pending reference before the BIFR, citing Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). However, Ms. Awasthi and Ms. Cox contended that the reference was non-est in law based on the 2nd proviso to Section 15(1) of SICA, which bars references to the BIFR after the commencement of the SARFAESI Act if financial assets have been acquired by a securitisation or reconstruction company. The court agreed with this argument, noting that the debt assignment to ARCIL occurred before the reference to the BIFR, rendering the reference invalid and non-est. Consequently, no protection under Section 22 of SICA could be claimed.

Legal Precedents Cited:
- The court referred to the Division Bench decision in Paper Prints (India) Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd., which held that references to the BIFR are not maintainable if financial assets have been acquired by a securitisation or reconstruction company under the SARFAESI Act.
- The court also cited its own decision in ICICI Bank Ltd. Vs. S. Kumars Nationwide Ltd., reiterating that references to the BIFR are barred under similar circumstances.

Conclusion:
The court concluded that the OLR could proceed despite the pending BIFR reference, as the reference was invalid. The court also confirmed that the advertisement charges had been deposited and directed the Official Liquidator to pay the advertising agency. The request for directions regarding the physical possession of the factory premises was deemed infructuous due to the ongoing steps taken by ARCIL.

The OLR was disposed of accordingly, with a clear stipulation that the Company and its Ex-Directors could not continue business operations post the winding-up order.