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TMI Blog2000 (4) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... In case any machinery or goods pledged to the Canara Bank are lying in the two other sheds already sold, it will be open to the Canara Bank to move the Tribunal/Recovery Officer for their removal and for an inventory. X X X X Extracts X X X X X X X X Extracts X X X X ..... filed Appeal No. 270 of 1998 before the Appellate Tribunal and there was no stay inasmuch as there was default in deposit of the money directed to be deposited. O.A. No. 784 of 1996 was filed by the Canara Bank also under the RDB Act in the Debt Recovery Tribunal, Delhi, for decree for Rs. 14,40,05,982.98 plus interest and it was said that a sum of about Rs. 25 crores was due from the same company. The said O.A. of the Canara Bank is pending in the Delhi Tribunal under the RDB Act. The Canara Bank filed an interlocutory application before the Recovery Officer for impleadment in the said recovery case of the appellant, viz., R.C. No. 9 of 1998 seeking pro rata distribution of sale proceeds from auctions of the debtor company's properties. The appellant-bank resisted the same contending that inasmuch as no orders have been passed in favour of the Canara Bank in its claim filed before the Delhi Tribunal against the same company, there was no question of impleading the Canara Bank. As regards proportionate disbursement of sale proceeds, it was observed that that question was premature and that the said issue could be considered after the sale proceeds were received by the Tribunal. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the pendency of this appeal. On May 14, 1999, this court passed an order in favour of the Allahabad Bank directing that the sale of the debtor company's property in Shed No. 15 to go on but that the sale proceeds be not distributed. Unfortunately, the sale was not held for quite some time due to an omnibus stay order dated June 29, 1999, passed by the Tribunal at Delhi. That order was stayed by the Appellate Tribunal, Bombay, on June 29, 1999. The sale did not take place even by January 7, 2000. This court then issued further orders on January 7, 2000, for sale of the company's property in Shed No. 15. Thereafter, sale of Industrial Shed No. 15/Cate-gory-II under SFS at Rohtak Road, Industrial Complex, New Delhi-110 005 was held on January 28, 2000. (The raw material and machinery in the shed which were said to have been mortgaged to Canara Bank were removed and segregated. An order was passed that an inventory be prepared and to remove the pledged property). It appears the sale proceeds of about Rs. 20 lakhs are in deposit in this court. Now, the position is that some sale proceeds are in deposit in the Tribunal and some in this court, all such sales having been held at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Canara Bank. It is urged that courts must interpret the RDB Act of 1993 so as to subserve the purpose of realisation of thousands of crores of bank funds which are due. The Legislature intended to avoid the long drawn proceeding's in the civil court as well as under sections 442, 446 and 537 of the Companies Act and this is now clear from section 19(19) as re-enacted by Ordinance No. 1 of 2000 which permits even the working out of priorities by the Tribunal. Several ruling's of this court and of High Courts under various other statutes have been cited before us and we shall refer to them at the appropriate stage. It is submitted that the appellant-bank having got a decree and having got the properties sold is solely entitled to the entirety of these proceeds and there is no question of the appellant sharing the sale proceeds with others nor is it necessary to wait till the Canara Bank gets a decree in its O.A. pending before the Delhi Tribunal. Important submissions have been made by the learned Attorney-General as to the effect of section 19(19) introduced by Ordinance No. 1 of 2000. It is contended by the learned Attorney-General that only section 529A of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 530, etc. The Canara Bank is also a nationalised bank and merely because the Allahabad Bank has been able to get a decree from the Debt Recovery Tribunal earlier than the Canara Bank, under the RDB Act, the Allahabad Bank cannot be allowed to appropriate the entire sale proceeds recovered by it. Even if the Canara Bank has only a "claim" and not a decree --in view of section 2(g ), its security has preference. Unlike section 73 of the Civil Procedure Code, section 446 does not require a decree and it is sufficient to prove a debt before the liquidator. Alternatively, it is submitted that even before the Tribunal section 73 of the Civil Procedure Code and also section 529(1) and (2) of the Companies Act read with sections 529A and 530, etc., are attracted for purposes of distribution of the sale proceeds and working out priorities, assuming that jurisdiction of the company court is excluded in so far as recovery of debts due to banks and financial institutions are concerned. From the aforesaid contentions, the following points arise for consideration: (1)Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the banks or financial i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. The said Act is the result of two reports, one of 1981 of a committee headed by T. Tiwari and the other by a committee headed by M. Narasimham in 1991. As on September 30, 1990, more than 15 lakh cases filed by public sector banks and about 304 cases filed by financial institutions were pending in various civil courts, and recovery of debts to banks in a sum of Rs. 5,622 crores and to financial institutions in a sum of Rs.391 crores, was held up. That was the immediate cause for the passing of the Act. Under sub-clause (4) of section 1 of the RDB Act, it is stated that the Act will not apply if the debt due is less than Rs. 10 lakhs or such other amount as may be notified. Section 2(d) defines "banks" as including (i) banking companies, (ii) corresponding new banks, (iii) State Bank of India, (iv) subsidiary banks and (v) regional rural banks".Banking company" is defined in section 2(e) and corresponding" new bank is defined in section 2(f) and it refers to section 5(da) of the Banking Regulation Act, 1949. Clause (da) of section 5 of the Banking Regulation Act, 1949, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion.--On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17". It is clear from section 17 of the Act, that the Tribunal is to decide the applications of banks and financial institutions for recovery of debts due to them. We have already referred to the definition of "debt" in section 2(g) as amended by Ordinance No. 1 of 2000. It includes "claims" by banks and financial institutions and includes the liability incurred and also liability under a decree or otherwise. In this context section 31 of the Act is also relevant. That section deals with transfer of pending suits or proceedings to the Tribunal. In our view, the word "proceeding's" in section 31 includes "execution proceedings" pending before a civil court before the commencement of the Act. The suits and proceedings so pending" on the date of the Act stand transferred to the Tribunal and have to be disposed of "in the same manner" as applications under section 19. In our opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall have effect notwithstanding" anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)". The provisions of section 34(1) clearly state that the RDB Act overrides other laws to the extent of "inconsistency". In our opinion, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. There is one more reason as to why it must be held that the jurisdiction of the Recovery Officer is exclusive. The Tiwari Committee which recommended the constitution of a Special Tribunal in 1981 for recovery of debts due to banks and financial institutions stated in its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e supervision of the court, any attachment, distress or execution put in force, without leave of the company court, against the estate or effects of the company, after the commencement of the winding up, or any sale held--without the leave of the court, if any of the properties or effects of the company, after such commencement, shall be void. Nothing in this section applies to any proceedings for the recovery of any tax or imports or any dues payable to the Government. After a winding up order is passed, the provisions of section 446 become applicable. Under sub-clause (1) of section 446, when a winding up order is passed or the official liquidator is appointed as a provisional liquidator, no .suit or other legal proceeding shall be commenced, or if pending on the date of the winding up order, shall be proceeded with against the company, except by leave of the court and subject to such terms as the court may impose. Under sub-clause (2), the company court shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of (a ) any suit or proceeding by or against the company (b) any claim made by or against the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Tribunal and its directors an 1962. The respondents before the Tribunal contended that the claim could not have been filed in the Tribunal without the leave of the company court under section 446(1). This court rejected the said contention and held that though the purpose of section 446 was to enable the company court to transfer proceedings to itself and to dispose of the suit or proceedings so transferred, unless the company court had jurisdiction to decide the questions which were raised before the Life Insurance Corporation Tribunal, there was no purpose of requiring leave of the company court or permitting transfer. It was held by this court (page 763 of 35 Comp. Cas.): "In view of section 41 of the Life Insurance Corporation Act, the company court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not. disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the Corporation under section 15 of the Life Insurance Corporation Act. It must follow that the consequential provisions of sub-section (1 ) of section 446 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidation) [1946] 16 Comp. Cas. 71; AIR 1946 FC 16, under the old Companies Act, 1913. Similarly, this court in Sudarsan Chits (India) Ltd. v. Sukumaran Pillai [1984] 4 SCC 657 ; [1985] 57 Comp. Cas. 85 (Ker) observed that--not satisfied with sections 442 and 537 and also with sections 446(1) (which was similar to section 171 of the old Companies Act, 1913,) Parliament enacted the Companies (Amendment) Act, 1960, and brought in the present sub-sections (2) and (3) into section 446. This court pointed out that instead of allowing' claims to be proceeded with against these companies in various civil courts, Parliament declared that wherever winding up proceedings were pending or when an order of winding up was passed, it was necessary to save the company "from this prolix and expensive litigation and to accelerate the disposal of winding up proceedings", and "a cheap and summary remedy" was devised by conferring jurisdiction on the company court to entertain suits and proceedings in respect of claims for and against the company. That being the object behind enacting section 446(2), it was held that the Companies Act "must receive such construction at the hands of the court as would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all "execution proceedings" were to be initiated only before the Adjudication Officer so that such execution proceeding's could be completed speedily. The above report of 1981 was followed ten years later by the M. Narasimham Committee Report which in Chapter V stated that the "special legislation" recommended by the Tiwari Committee in 1981 should be immediately enacted. The latter Committee too observed: "We regard setting up the Special Tribunals as critical to the successful implementation of the financial sector reforms", to ensure speedy remedy of adjudication and execution against defaulters. Even in regard to "priorities" among creditors, the said Committee stated in Annexure I as follows: "The Adjudication Officer will have such power to distribute the sale proceeds to the banks and financial institutions being secured creditors, in accordance with inter se agreement/arrangement between them and to the other persons entitled thereto in accordance with the priorities in the law". The above recommendations as to working out "priorities" have now been brought into the Act with greater clarity under section 19(19) of Ordinance 1 of 2000. Priorities, so far as the amounts re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some High Courts rightly treated the Companies Act as a general statute, and the RDB Act as a special statute overriding the general statute. Special law v. special law: Alternatively, the Companies Act, 1956, and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, section 34. A similar situation arose in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp. Cas. 803 ; [1993] 2 SCC 144, where there was inconsistency between two special laws, the State Financial Corporations Act, 1951, and the Sick Industrial Companies (Special Provisions) Act, 1985. The latter contained section 32 which gave overriding effect to its provisions and was held to prevail over the former. It was pointed out by Ahmadi J. that both special statutes contained non obstante clauses but that the "1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up sold the property of the company, pending a winding up petition, by private sale. It was pointed out by this court (see para. 15, page 351) that such a sale by a secured creditor, who opted to stand outside the winding up proceedings, would be permissible without the leave of the company court. It might be different if the secured creditor tried to sell the property through a court by filing a suit or other proceeding. It was argued there that the 1936 amendment to the Companies Act in section 232(1) (corresponding to section 537 of the new Act) introduced the words "or any sale held without leave of the court of any of the properties", and those words were introduced for the purpose of staying even private sales by the secured creditor unless leave was obtained for such sales. This contention was rejected and it was held that, even after the 1936 amendment, the private sale by the secured creditor standing outside the winding up proceedings was valid without the leave of the company court. Learned counsel for the respondent relied upon para. 24 of the judgment which stated that section 171 (corresponding to section 446(1)) was supplementary to sections 232 and 229 (correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to the RDB Act, 1993, and to sections 529 and 529A of the Companies Act. That judgment related to a batch of appeals against the judgment of the Andhra Pradesh High Court dated August 23, 1989, and certain SLPs. (c) 10101 of 1991 and 11055 of 1991 (from Kerala) (the Kerala SLPs were registered as C. As. of 1196). (see here facts in Industrial Credit and Investment Corporation of India v. Vanjinad Leathers Ltd. (In Liquidation) , AIR 1997 Ker 273 ; [1998] 91 Comp. Cas. 625 . It has to be noticed that when the Andhra Pradesh High Court decided the matter and when the special leave petitions from Kerala were filed in 1991, the RDB Act, 1993, had not yet been enacted. But much later by the time the civil appeals came up for disposal on February 22, 1996, the RDB Act of 1993 had been passed. The above ruling of this court did not concern itself with the RDB Act directly on the facts. The only issues which arose in that case, as stated in para. 5 of the judgment, were, viz., (1) when should leave of the winding up court be granted to a secured creditor to proceed with the suit after an order of winding up has been made (2) when should a winding up court transfer to itself any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDB Act laying down the procedure as to what should be done in case of the passing of a winding up order by the company court nor a provision for recovery of amounts due from a company against which a winding up petition was pending or was ordered or for distribution from a common pool. But, now section 19(19) introduced by Ordinance No. 1 of 2000 clarifies and removes any such doubts inasmuch as it refers to execution and distribution of sale proceeds by the Tribunal/Recovery Officer. The observation that the RDB Act does not operate in the same field and hence, leave of the company court is necessary under section 446(1), cannot, therefore, be accepted. We hold that the Delhi High Court's decision is not correctly decided. We are also unable to agree with the decision of the Calcutta High Court in UCO Bank v. Concast Products Ltd. (In Liquidation) [1996] 2 Comp LJ 449 . In that case a suit which was filed in the High Court by the bank against the company stood transferred to the Tribunal under the RDB Act by virtue of section 31. Later on, the company went into liquidation. The High Court held that in view of section 446 of the Companies Act, 1956, the suit had to be transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 25 etc. the provisions of the RDB Act, 1993, confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to banks and financial institutions and there can be no interference by the company court under section 442 read with section 537 or under section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with section 19(19) read with section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993, are to the above extent inconsistent with the provisions of the Companies Act, 1956, and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition against the debtor company and also after a winding up order is passed. No leave of the company court is necessary for initiating or continuing the proceeding's under the RDB Act, 1993. Points Nos. 2 and 3 are decided accordingly in favour of the appellant and against the respondents. Points 4 and 5: We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questions of priorities, subject only to the principles of natural justice. This court has explained that the powers under section 22 are wider than those of civil courts and the only restriction on its powers is that the principles of natural justice have to be followed. See Industrial Credit and Investment Corporation of India Ltd. v. Grapco Industries Ltd. [1999] 97 Comp. Cas. 117 ; [1999] 4 SCC 710 and Allahabad Bank v. Radha Krishna Maity [1999] 98 Comp. Cas. 264 (SC) ; [1999] 6 SCC 755. But under section 73 of the Civil Procedure Code, sharing in the sale proceeds (here, sale proceeds realised under the RDB Act) is permissible only if a person seeking such share has obtained a decree or an order of adjudication from the Tribunal and has also complied with other conditions laid down under section 73. In the present case, the Canara Bank is not in a position to invoke the principles underlying section 73 of the Civil Procedure Code because it has not yet obtained any decree or adjudication of its debt from the Tribunal. Nor has it complied with other provisions underlying section 73 of the Civil Procedure Code. Hence no relief can be granted on the basis of the said principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to section 529(1). Reading the definition of "workmen's portion" in section 529(3)(c) read with the illustration given in that clause, a secured creditor who stands outside the winding up, in case he loses any part of that security towards "workmen's dues" at the instance of the liquidator under clauses (a), (b ) of the proviso to section 529(1), then to that extent only he has priority over all other creditors under section 529A(1)(b). His priority is confined again to amounts not realised by him or the "workmen's portion" above referred to, whichever is less. In reply to this submission, learned counsel for the respondent has submitted that the words in the first part of the clause (c) to proviso to section 529(1) "so much of the debt due to such secured creditor as could not be realised by him" meant the entire unrealised amounts of the secured creditor and not merely the "workmen's portion". To understand the submission, it is necessary to refer to section 529A as well as section 529, to the extent relevant for this discussion. They read as follows: "529A. Overriding preferential payments.-- ( 1) Notwithstanding anything contained in any other provision of this Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditors. Illustration.--The value of the security of a secured creditor of a company is Rs. 1,00,000. The total amount of the workmen's dues is Rs. 1,00,000. The amount of the debts due from the company to its secured creditors is Rs. 3,00,000. The aggregate of the amount of workmen's dues and of the amounts of debts due to secured creditors is Rs. 4,00,000. The workmen's portion of the security is, therefore, one-fourth of the value of the security, that is Rs. 25,000". The respondent's contention that section 19(19) gives priority to all "secured creditors" to share in the sale proceeds before the Tribunal/ Recovery Officer cannot, in our opinion, be accepted. The said words are qualified by the words "in accordance with the provision of section 529A". Hence, it is necessary to identify the above limited class of secured creditors who have priority over all others in accordance with section 529A. Secured creditors fall under two categories. Those who desire to go before the company court and those who like to stand outside the winding up. The first category of secured creditors mentioned above are those who go before the company court for dividend by relinquishing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank) is Rs. 1 lakh, the "workmen's portion" will be Rs. 25,000 which is the pro rata amount to be shared by the said secured creditor. By virtue of section 529A(1)(b) his priority over all others out of other monies available in the Tribunal is restricted to Rs. 25,000 only. Reliance is placed by learned counsel for the respondent on the words "so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing' provisions of this proviso" occurring' in the first part of the said proviso (c) to section 529(1). The learned Attorney General on the other hand submitted that the first part of clause (c) of the proviso to section 529(1) is to be read along' with the words "or the amount of the workmen's portion in his security, whichever is less ". In other words, the priority of the secured creditor is only to the extent that any part of the said security is lost in favour of the workmen consequent to demands made by the liquidator under clauses (a), (b ) or the said proviso to section 529(1). No such situation has arisen so far. It is contended that where a secured creditor keeps himself outside as stated in the proviso to section 529(1) and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e workmen's dues of Rs. 25,000 taken away from the realisation out of his security, as prescribed in clause (c) of the proviso to section 529(i). That is what is meant by the words "whichever is less". (ii) Take a case where the total dues of a secured creditor are only Rs. 65,000 and his security is Rs. 1 lakh in value. The other facts being the same as in the illustration to section 529(3), the secured creditor loses his security rateably in a sum of Rs. 25,000. The balance of the available security is Rs. 75,000 and that is sufficient to meet his entire debt of Rs. 65,000. He has no occasion to claim any extra amount as a secured creditor under section 529A(1)(b). This situation presents no difficulty. (iii) Take yet another case where the secured creditor has a security valued at Rs. 1 lakh, but his total dues are Rs. 1.10 lakhs. In other words, Rs. 10,000 are not secured. Other facts are as in illustration to section 529(3). He is made to part with Rs. 25,000 towards workmen's dues rateably. He has Rs. 75,000 available from his security but he has to meet Rs. 1,10,000 and that leaves a balance of Rs. 35,000 (Rs. 1,10,000-Rs. 75,000) to be recovered. He can claim overriding p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions required for applying section 19(19) and section 529A is, therefore, satisfied, then the claim of Canara Bank before the Tribunal can only be on the basis of principles underlying section 73 of the Civil Procedure Code. There being no decree in its favour from any court or from any Tribunal, and the other conditions of section 73 not having been satisfied, no dividend can be claimed out of monies realised at the instance of the Allahabad Bank, even if the Allahabad Bank is an unsecured creditor. We hold accordingly on points Nos. 4 and 5. Point 6: By the sale of shed No. 15, a sum of Rs. 20 lakhs has been realised and is lying in this court. Other sale proceeds in respect of previous sales are lying with the Recovery Officer. In view of our findings on points Nos. 1 to 5, no part of the said amounts is payable to the Canara Bank. The next question is whether the amounts realised under the RDB Act at the instance of the appellant can be straightaway released in its favour. Now, even if section 19(19) read with section 529A of the Companies Act does not help the respondent-Canara Bank, the said provisions can still have an impact on the appellant-Allahabad Bank wh ..... 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