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TMI Blog2001 (7) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... edings initiated by the Debts Recovery Tribunal has to be stayed. 2. The provisional liquidator appointed by this Court vide order dated 23-1-2001 has filed a report that pursuant to the orders of this Court he issued notice under rule 130 of the Companies (Court) Rules, 1959 and thereafter held a meeting on 13-2-2001 in which Ex-Directors, representatives of the creditors and secured creditors and Ex-Managing Director of the company participated and that in the meeting the representative of the Federal Bank apprised the said Liquidator that pursuant to the orders of the Debts Recovery Tribunal, the two sets of keys of the building in which the assets of the company are kept have been taken over by the Debts Recovery Tribunal and that the said keys cannot be surrendered to the official liquidator unless there is specific orders of the Debts Recovery Tribunal. The official liquidator therefore approached this Court with the following prayers : "( i )to direct the Federal Bank Limited, Secured creditor of the company to hand over the two sets of keys of the Business Centre at M.G. Road, Ernakulam to the Official Liquidator; ( it )ratify the action of the Official Liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erests of the creditors including the workmen to whom amounts are due from the company under liquidation. It is well settled that the workmen's dues rank pari passu with debts due to secured creditors. The winding up proceedings are performed by the Company Court through a Liquidator who is given wide powers under section 457 of the Companies Act ('the Act') As far as the proceedings already initiated by the civil courts against the company for recovery of debts are concerned, the position is that a receiver appointed by a civil court on being approached by the secured creditor would basically look after the interest of that creditor. His interests may, in many cases, be in conflict with that of the liquidator, and in case of conflict, the interest of the liquidator has to receive precedence over that of the receiver inasmuch as the former looks after the interest of large segment of creditors along with that of the workmen, whereas the latter confines his concern to the interest of the secured creditor alone. 7. Section 446 provides as follows : " Suits stayed on winding up order. (1) When a winding up order has been made or the Official Liquidator has been appointed as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prolix and expensive. The amendment enables the Company Court to order realisation or recovery of subsisting debts owing to the company. 9. The enactment of the RDB Act is later in origin when compared to the amendment to section 457 aforementioned. The enactment was made taking into account the difficulty experienced by the financial institutions in recovering the loans and for enforcement securities charged with them. The provision in the said Act provides for a suitable mechanism through which debts due to these institutions could be realised without delay and in a less expensive manner. To achieve this purpose, the Act visualises establishment of the 'Debts Recovery Tribunal' with its own procedure which is expeditious in nature. Section 18 of the Act has barred jurisdiction of other courts except the writ court in relation to the matters specified in section 17; that being recovery of debts due to such institutions. There is some conflict between the scheme envisaged in the RDB Act and in the Companies Act for recovery of debts and for distribution of the assets of the company to the various creditors and workmen. Emphasis available in the proceedings before the Debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration shall have the right to take over the management of possession or both of the industrial concerns, 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." Under section 29 aforementioned, the Financial Corporation has thus the right to take over the management of 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 to the Corporation, whereas under the non obstante clause in section 529A aforementioned in the winding up of a company, workmen's dues, and debts due to secured creditors, to the extent such debts rank under clause ( c ) of the proviso to section 529(1) pari passu with such dues i.e., ( a ) debts provable; ( b ) the valuation of annuities and future and contingent liabilities; ( c ) the respective rights of secured and unsecured creditors have to be paid in priority to all other debts. 11. In A.P. State Financial Corpn. case ( supra ), the conflict between the two provisions (sections 29 and 529(A) was settled by the Apex Court. It took note of the fact that under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpn.'s ( supra ), the provisions in the RDB Act being later in point of time vis-a-vis section 529A has to prevail over section 529A if it comes into conflict with that provision. Under section 17 of the RDB Act the Debts Recovery Tribunal is to decide the applications of the banks and financial institutions for recovery of debts due to them and the jurisdiction of the Debts Recovery Tribunal in regard to adjudication of claims is exclusive. Under section 18 the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act is ousted and the power to adjudicate upon the liability is exclusively vested in the Debts Recovery Tribunal, though the exclusion is subject to the jurisdiction of the Supreme Court or of the High Court exercising power under article 226 or 227 of the Constitution of India. Even with regard to execution of decrees already obtained from other civil courts which are pending before the Debts Recovery Tribunal the jurisdiction of the Recovery Officer is exclusive and the Company Court cannot decide the claims of Banks and Financial Institutions. Considering the above aspects it was held in the Allaha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal is permissible only if a person seeking such shares has obtained a decree or an order of adjudication from the Debts Recovery Tribunal and has also complied with other condition laid down under section 73. Section 19(19) of the RDB Act, it was held, does not give priority to all secured creditors and priority will have to be given only to those secured creditors coming under section 529A. As regards secured creditors who go before the Companies Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in section 529 they will rank with the unsecured creditors and have to take their dividend as provided in section 529(2). As regards other secured creditors under section 529A(1)( b ) read with proviso ( c ) to section 529(1) the priority of the secured creditor is confined to the 'workmen's portion' as defined in section 529(3)( c ). Under clause ( c ) of the proviso to section 529(1) what is to be rateably distributed is the amount taken away from the private realisation of the secured creditor by the liquidator by way of enforcing the charge for workmen's dues and the distribution is against each secured creditor. To that extent, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case such application is made, it will be allowed by the Debts Recovery Tribunal considering the fact that he is a necessary party to the case. There will be further directions to the Debts Recovery Tribunal on the following lines: (1)The mode of sale of the assets belonging to the company should be decided after hearing all the parties including the official liquidator. (2)A copy of the inventory prepared by the Commissioner deputed by the Debts Recovery Tribunal with regard to the assets of the Company under liquidation will be served on the official liquidator forthwith. (3)Creditors of the company secured and unsecured will have the right to approach the Debts Recovery Tribunal seeking impleadment in view of the fact that the jurisdiction available with this Court under section 529A cannot be exercised by this Court and the matters mentioned therein will also have to be dealt with by the Debts Recovery Tribunal as far as distribution of assets are concerned. (4)The sale of the assets in question will be conducted only after fixing an upset price which will be decided after hearing all parties including the official liquidator. (5)The sale proceeds will be deposited wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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