9911796707
TMI Blog1989 (11) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... l liquidator of the company as those assets/properties are in the deemed custody of the Honn'ble High Court. ( d )To order the sale of those assets only under the supervision, guidance and orders of this Hon'ble High Court through its official liquidator." Vide ex parte order dated February 1, 1989, notice was issued to respondents and they were restrained from disposing of any of the goods, land, building or machinery of the company, namely, M/s. Aryavarta Plywood Limited (in liquidation), lying at the factory situated at Biwari, Distt. Alwar, Rajasthan. For better appreciation of the respective contentions of learned counsel for the parties, it will be useful to refer, in brief, to the facts of the case. One Mr. Dharam Bir, as creditor, filed a petition, being C. P. No. 53 of 1984, on May 14, 1984, for winding up the applicant, namely, Aryavarta Plywood Limited, hereinafter called "the company", on the ground that it was unable to pay its debts. Vide order dated July 19, 1988, Mahinder Narain J. directed the winding up of the company and appointed the official liquidator attached to this court as the liquidator of the company. In the present application, it is alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t", the company had been taken over by the respondents, since the Corporation was a secured creditor. It was further stated that, by a Gazette notification dated March 21, 1987, section 29 of the said Act had been extended to the Corporation. It is further alleged by the official liquidator that the factory was illegally taken over by the Corporation on September 15, 1984. At that point of time, section 29 of the said Act was not applicable and available to the Corporation. The notification issued on March 21, 1987, could not have retrospective effect. More so, the Corporation could invoke the provisions of section 29 of the said Act after obtaining the necessary permission from this court. The Corporation could not assume the power of the court and determine its own liability. The case of the official liquidator is that the Corporation was in the process of disposing of the assets and properties of the company which had been taken over by it illegally and in violation of law. The Corporation has sent a letter dated January 19, 1989, wherein it had stated that the Corporation was taking steps to sell the assets of the company in order to meet its demand, and that the Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from pilferage, etc. However, it has been denied that the Corporation took over the factory of the company on September 15, 1984. The Corporation has denied that it had illegally taken over the possession of the factory on September 15, 1984, or, for that matter, on any other date. The Corporation was wholly within its power to take over the secured assets of the company under section 29 of the said Act, yet that apart, the Corporation, as a secured creditor, was wholly within its right to realise its security, without the intervention of the court, by taking over the secured assets and effecting sale of the assets by private treaty, or by public auction. It is further alleged that the Corporation which had taken over the secured assets of the company, prior to the date of the order of winding up, as a secured creditor, is outside the winding up proceedings. It has been denied that, on the passing of the order of winding up, the assets taken over by the Corporation immediately came into the power and possession of the official liquidator by the deeming provisions of the Act. The loan with interest had risen to a huge figure of Rs. 59,75,611.38 as on October 15, 1987. With a vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Civil Procedure Code. Even a financial corporation cannot enforce a mortgage under section 29 of the said Act without following the procedure as laid down in Order 34 of the Civil Procedure Code. Once a mortgage, always a mortgage, is the law. Mr. Lalit Bhasin, learned counsel for the respondents, on the other hand, has contended that, under section 29 of the said Act, the Financial Corporation has been given a statutory right to resort to the remedies as provided therein without approaching a civil court for enforcement of a mortgage. Besides that, even under the deed of hypothecation and mortgage, the Corporation was given the right by the company to take possession of its assets including the immovable properties and sell the same. Section 69 of the Transfer of Property Act, 1882, reads as under : "Power of sale when valid.‑ (1) A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section have power to sell or concur in selling the mortgaged property or any part thereof, in default of payment of the mortgage money, without the intervention of the court, in the following cases and in no others, namely : ( a )where the mort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mortgaged property, or authorized to give receipts for the proceeds of the sale thereof. (5) Nothing in this section or in section 69A applies to powers conferred before the first day of July, 1882." It will be appropriate to reproduce the provisions of section 29 of the State Financial Corporations Act, 1951 : "Rights of Financial Corporation in case of default.- (1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. (2) Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Corporation is to approach the civil court, then it will amount to defeating the very objects and reasons for which the said Act in general and section 29 in particular were enacted by the Legislature. So, in my view, a Financial Corporation can enforce a mortgage under section 29 of the said Act without approaching a civil court. In the second place, Mr. Nayyar has contended that section 32(10) of the said Act clearly provides that where the proceedings for liquidation, in respect of an industrial concern, have commenced before an application is made under sub-section (1) of section 31 of the said Act, then nothing shall be construed as giving to the Financial Corporation any preference over the other creditors of the industrial concern, not conferred by any other law. He has thus urged that, as in the present case, the petition for winding up was filed on May 14, 1984, and, admittedly, the respondents took over possession of the secured assets of the company during the pendency of the liquidation proceedings, under section 32 of the said Act, the respondents have no preference over the other creditors of the company. Section 32(10) of the said Act reads as under : "32. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to the provisions of this Act, to acquire, hold and dispose of property and shall by the said name sue and be sued." From the Objects and Reasons and section 3(2) of the Act, it is clear that the Financial Corporation is a responsible body vested with power to discharge the various functions under the Act. Section 9 deals with 'management of Financial Corporations' and lays down that the general superintendence, direction and management of the affairs and business of the Financial Corporation shall vest in the board of directors and shall be assisted by an executive committee and the managing director. As we find in section 10, very responsible and highly placed persons will be the directors of the Board. Section 24 deals with the 'general duty of the Board' and lays down that the Board in discharging its functions under the Act shall act on business principles, due regard being had by it to the interests of industry, commerce and the general public. Again, under section 25, it is the Corporation as managed by the Board that is empowered to grant loans or advances to an industrial concern, repayable within a period not exceeding 20 years. Section 27 empowers the Financial Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidation in respect of industrial concern have commenced before an application is made under section 31(1) of the Act, then nothing in the section shall be construed as giving to a financial corporation any preference over other creditors of that industrial concern. So, I am of the view that section 32(10) of the said Act is not applicable to a case where a financial corporation exercises any of its options under section 29. In fact, the Legislature, has drawn a clear distinction between section 29 and section 31. Now, the questions arising for consideration are whether the respondents could sell the properties of the company which were mortgaged with it without the permission of the company court ; as, admittedly, no permission was obtained by the respondents, whether the sale by respondents to Zoravar Vanaspati Ltd. is void under section 537 of the Act; and whether during the pendency of the winding up petition, the respondents could not take possession of the assets of the company, under section 29 of the said Act, without the permission of the court. Mr. Nayyar has contended that when a company goes into liquidation, then, the said Act (the State Financial Corporations Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh court. Thus, Mr. Nayyar argued that when the Supreme Court omits to take into consideration the obvious provisions of the Indian law, the law laid down in that case does not have the binding sway of a precedent, to be followed, qua immovable property. He relied upon the judgments in Municipal Corporation of Delhi v. Gurnam Kaur, AIR 1989 SC 38, Mamleshwar Prasad v. Kanahaiya Lal, AIR 1975 SC 907 and Potharaju Pardhasaradhi Rao v. Potharaju Srinivasa Sarma, AIR 1959 AP 512. Mr. Bhasin, on the other hand, contended that, admittedly, under the various documents executed by the company, the respondents took possession of the assets of the company and the factory located at Bhiwandi on October 13, 1984. This is evident from the order dated July 19, 1988, wherein Mahinder Narain J. specifically mentioned this fact and then passed the order of winding up on this ground. The said Act was made applicable to the Corporation by means of a notification dated March 21, 1987. The Corporation issued an order under section 29 of the said Act, on April 25, 1988, for taking over the possession of the industrial concern, namely, M/s. Aryavarta Plywood Ltd. This order was issued befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Maharashtra Limited v. Maharashtra State Financial Corporation [1988] 64 Comp. Cas. 102 (Bom), Maharashtra State Financial Corporation v. Official Liquidator, Sidhu Tyres ( P. ) Ltd. [1988] 64 Comp. Cas. 641 (Bom), Hrushikesh Panda v. Orissa State Financial Corporation [1987] 61 Comp. Cas. 448 and Mamleshwar Prasad, AIR 1975 SC 907. The next contention of Mr. Bhasin is that the action taken by the respondents could not be questioned in proceedings under the Act as, by necessary application and by express enactment, the provisions of general law like the Act, the Code of Civil Procedure or the Transfer of Property Act hardly apply. The admitted facts are that the Corporation and the Industrial Finance Corporation of India, another secured creditor, advanced various loans to the company in August/September, 1980. In consideration thereof, the company executed various documents and also created a mortgage of its immovable properties and also executed a deed of hypothecation in favour of the Corporation and the Industrial Finance Corporation of India. As the company committed defaults in repayment of the loan, in October, 1984, the Corporation took possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon after such notice as he may think fit to give to any party, take possession of such property, effects, actionable claims, books of account or other documents and deliver possession thereof to the liquidator or the provisional liquidator. (1B) For the purpose of securing compliance with the provisions of sub-section (1A), the Chief Presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary. (2) All the property and effects of the company shall be deemed to be in the custody of the court as from the date of the order for the winding up of the company." Thus, the properties and effects of a company are deemed to be vested in the court on the date when the order of winding up is passed. In my view, the principle of relation back cannot apply to the vesting of the property of the company in the court. Thus, in the present case, it cannot be held that the property and effects of the company were deemed to be in the custody of the court as from the date of the presentation of the petition, i.e., May 14, 1984. In Potharaju Pardhasaradhi Rao, AIR 1959 AP 512, the Andhra Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be enforced by taking recourse to the ordinary law contained in the Transfer of Property Act and the Code of Civil Procedure. The special and speedy remedy contained in section 31 of the Act cannot be availed of by the Corporation. There is no conflict between the two provisions. Section 29 defines the general right of the Corporation in cases of default and section 31 provides for a speedy and summary remedy. From the scheme of the Act, it is clear that the speedy remedy contained in section 31 is available not against the surety but against the borrower only. Now, in the instant case the Corporation has sought to avail of the special remedy contained in section 31. As is evident from section 32, the reliefs contained in section 32 can only be granted against the borrower and his property mortgaged with the Corporation. If the Corporation wants to proceed against the property of the surety also, it may do so by taking recourse to the ordinary law." Thus, the Full Bench observed that the right given to the Corpora tion under section 29 could not extend to the property of the surety, but such a right could be enforced by taking recourse to the ordinary law, as contained in the, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. In that case, the secured creditor, under section 29 of the said Act, took possession of the assets of the industrial concern, after the order of winding up was made by the company court. As I have already held, the properties and effects of a company vest in the court on the day when the order of winding up is passed against a company. Thereafter, the secured creditor or the Financial Corporation as a secured creditor, as the case may be, cannot proceed under section 29 of the said Act, against the properties of the company, without the permission of the company court. In the present case, the order of winding up was passed on July 19, 1988, while the Corporation had already taken possession of the industrial concern. Section 46B of the State Financial Corporations Act, 1951, reads as under: "Effect of Act on other laws. -The provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or order is made by consent of the parties, the court does not adjudicate upon the rights of the parties nor lay down any principle. Quotability as 'law' applies to the principle of a case, its ratio decidendi. The only thing in a judge's decision binding as an authority upon a subsequent judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are distinguished as obiter dicta and are not authoritative. The task of finding the principle is fraught with difficulty because without an investigation into the facts, as in the present case, it could not be assumed whether a similar direction must or ought to be made as a measure of social justice. That being so, the direction made by this court in Jamnadas' case (WP Nos. 981-982 of 1984-dated 29-4-1985) could not be treated to be a precedent. The High Court failed to realise that the direction in Jamnadas' case (WP Nos. 981-982 of 1984-dated 294-1985) was made only with the consent of the parties but there was an interplay of various factors and the court was moved by compassion to evolve a situation to mitigate hardship which was acceptable to all the parties concerned. The cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50, certain immovable properties belonging to the company were mortgaged in favour of the same trustees. The trustees appointed respondent No. 2, the managing director of the company, in day-to-day management of Tramway Service, and of the business of the company, as their receiver. He took possession as a receiver from the midnight of April 11, 1953, of all the assets of the company. One Mr. J. B. Beardsell, one of the directors of the company, filed a petition for winding up the company on the ground that it was unable to pay its debts and further that it had ceased to run its business. An order for winding up of the company was made by the court on January -20, 1954, and the official receiver, High Court, Madras, was appointed the official liquidator. Since all the assets, including moneys of the company, were in the possession of respondent No. 2, the official receiver was unable to take charge of anything except the records of the company. Soon after the passing of the order for winding up, respondent No. 2 advertised for the sale of the properties and assets of the company. On July 16, 1954, respondent No. 2 agreed to sell and respondent No. 3 agreed to buy the movable pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e against the estate or effects of the company after the commencement of the winding up without the leave of the winding up court. The provisions in section 317 are also supplementary to the provisions of section 231 and emphasise the position of the secured creditor as one outside the winding up, the secured creditor being, in regard to the exercise of those rights and privileges, in the same position as he would be under the Bankruptcy Act." (At page 353) "Even apart from this intendment there are certain canons of construction which also tend to support the same conclusion. Prior to the amendment the law was well-settled both in England and in India that the secured creditor was outside the winding up and he could realise his security without the intervention of the court by effecting a sale of the mortgaged premises by private treaty or by public auction. It was only when the intervention of the court was sought either by putting in force any attachment, distress or execution within the meaning of section 232(1) as it stood before the amendment or proceeding with or commencing a suit or other legal proceedings against the company within the meaning of section 171 that leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be void. (2)Nothing in this section applies to proceedings by the Government." "537. Avoidance of certain attachments, executions, etc., in winding up by or subject to supervision of court.‑ (1) Where any company is being wound up by or subject to the supervision of the court ( a )any attachment, distress or execution put in force, without leave of the court, against the estate or effects of the company, after the commencement of the winding up ; or ( b )any sale held, without leave of the court, of any of the properties or effects of the company after such commencement ; shall be void. (2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government" In the present case, admittedly, the company took loans from the Corporation and the IFCI in the year 1980 and mortgaged and hypothecated its assets and properties in their favour, by executing various documents. The winding up petition was filed on May 14, 1984. No provisional liquidator was appointed during the pendency of the winding up proceedings. In October, 1984, under the loan documents, the Corporation took possession of the secured assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and possession of the company and the mortgaged property. A due and proper notice was given by the Corporation to the company on March 8, 1988. Thereafter, the Corporation started to explore the possibility of disposing of the assets of the company to recover its dues. As part of its established practice, advertisements were taken out in newspapers, including the Economic Times, giving details of the various projects including the project of the company at Bhiwandi. The Corporation also issued its pamphlet containing all details of the sick projects. In respect of the company, complete details were given in the pamphlet. Mr. Bhasin also contended that, vide letter dated January 10, 1989, the legal adviser of the Corporation informed the official liquidator that the assets including land, building plants and machinery, etc, in the possession of the Corporation, were being sold to a third party for a sum of Rs. 90 lakhs. Reference has been made to Warner v. Jacob [1882] 20 Ch 220 and Hrushikesh Panda [1987] 61 Comp. Cas. 448 (Orissa). In Warner [1882] 20 Ch 220, it was held that if a mortgagee exercises his power of sale bona fide for the purpose of realising his debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties was effected in the Economic Times. A pamphlet containing all the details with regard to the assets of the company was also issued. The advertisement and the pamphlet have been placed on record and the same have not been disputed. Therefore, there was no haste in selling the mortgaged properties of the company by the Corporation. The applicant has failed to show that the mortgaged properties could fetch a price higher than Rs. 90 lakhs. Nothing has been alleged by the applicant in the application. In my view, the Corporation and the IFCI, appear to have acted reasonably, both with regard to the price and the mode of disposal of the assets to a third party. No allegation of corruption or collusion or fraud has been made by the applicant against the Corporation or the other secured creditor. There is no evidence of any mala fides on the part of the Corporation. In the application, it is alleged that there must be dues of the workers. So far, not a single worker has come forward, nor has the official liquidator been able to place on record any material to show that there are any dues to the workers of the company. Admittedly, the business of the company did not pick up and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
