9911796707
TMI Blog2002 (10) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... that they filed O.A. No. 925 of 1999 before the DRT, Hyderabad, for recovery of Rs. 2,91,27,334, that in the said application all the other respondents, except 9th respondent herein are parties, that one of the respondents, namely Andhra Bank has put up a claim for Rs. 1,05,71,000 against the applicant, that the DRT vide orders dated 1-3-2002 allowed the claim of the applicant and rejected the claim of the 2nd respondent and issued a Certificate of Recovery in favour of the applicant vide R.P. No. 90 of 2002, for recovery of a sum of Rs. 8,49,07,865. As per section 34(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short the DRT Act ) and the order passed by the DRT dated 1-3-2002, the applicant is entitled to seek transfer of all the assets of the Company in liquidation to the DRT and the 1st respondent. The 5th and 7th respondents, namely IDBI and ICICI have opposed the application. In their counter-affidavit, IDBI stated that the application filed by Syndicate Bank is belated and is not maintainable, that when the assets of the company in liquidation are sold by the Official Liquidator and the sale is awaiting confirmation by the Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperties of the company in liquidation absolutely vest in the Company Court, and it is for the Company Court to pass appropriate orders for disposal of the properties of the company in liquidation having regard to the interests of the company as well as secured and unsecured creditors of the company. He urged that the property of the company in liquidation does not vest in the Official Liquidator and he is only the custodian of the company. Since the object of winding up proceedings is to put the secured creditors on par with and pay them pari passu , any attachment or sale of the properties of the company in liquidation by another authority would be ineffective, as under law, all the properties of the company in liquidation would absolutely vest in the Company Court free from all attachments. It is only the Company Court which can give all the directions, and no secured creditor is entitled to seek removal of the properties vested in the Company Court by reason of exercise of jurisdiction by any other forum or authority. Point for consideration The point that arises for consideration is whether a Bank or a Financial Institution, which obtained a Certificate of Recovery fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in Allahabad Bank s case ( supra ). These facts are not denied. The main contention of the learned counsel is that in view of section 34 of DRT Act, the properties which are mortgaged to Syndicate Bank cannot be brought to sale in winding up proceedings. It is also the contention that notwithstanding the proceedings of the Companies Act, the provisions of DRT Act prevail, and therefore, any recourse to winding up under the Companies Act would defeat the purpose of DRT Act. It is, therefore, necessary to notice the purport of relevant provisions of Companies Act as well as DRT Act. ( a ) Relevant provisions of the Companies Act, 1956 - Sections 442 and 537 of the Companies Act deal with situations before passing of the winding up order. When a petition for winding up is presented to the Company Court, the company or any creditor or contributor may seek stay of all suits and proceedings against the company, and if any company is being wound up, any attachment or execution enforced or taken out without the leave of the Company Court would be void. That is the purport of section 442 read with section 537. Section 446 deals with situations after the passing of winding up order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunals by the banks and financial institutions and sub-section (7) of section 19 empowers the Presiding Officer of the DRT to issue a Certificate of Recovery to the Recovery Officer appointed by the Central Government under sub-section (1) of section 7, directing recovery of the amount of debt specified in the certificate. The procedure for recovery of the debt determined by the Tribunal is contained in Chapter V of the DRT Act, which contains sections 25 to 30. As per section 25, the Recovery Officer shall proceed to recover the amount of debt specified in the Certificate of Recovery ( i ) by attachment and sale of movable and immovable properties of the defendant; ( ii ) arrest of the defendant and his detention in prison, and ( iii ) appointing a Receiver for the management of the movable and immovable properties of the defendant. This provision, be it noted, is in similar terms to that of section 222 of the Income-tax Act, 1961 (for short the Income-tax Act ). Section 28 speaks of other modes of recovery. Sub-sections (4) and (5) of section 28 are relevant, and they read : (4) The Recovery Officer may apply to the Court in whose custody there is money belonging to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to the Civil Court requesting the Civil Court to stay the execution of the decree. When such a request is received by the Civil Court, the Civil Court shall on application of the Tax Recovery Officer and subject to the provisions of the Code of Civil Procedure, 1908 proceed to attach the decree and apply the net proceeds in satisfaction of the Tax Recovery Certificate. Here, it may be noticed that as per sub-section (4) of section 28 of the DRT Act, the Debt Recovery Officer has to apply to the Court in whose custody there is money belonging to the defendant for payment to him of the entire amount of such money or if its more than the amount of debt due, an amount sufficient to discharge the amount of debt so due. Further the Third Schedule to the Income-tax Act as noticed deals with distraint and sale of movable property of a defaulter of an assessee who has defaulted in payment of tax. Third Schedule lays down that distraint and sale of movable property are to be effected by the Tax Recovery Officer as per the provisions of Second Schedule relating to attachment and sale of immovable property. Here we may notice rule 31 of the Second Schedule, which reads : 31. Attachm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (7) of section 19 of the DRT Act, the bank or financial institution is entitled to obtain a Certificate of Recovery if the debt is more than Rs. 10,00,000. Such certificate of recovery specifying the debt to be recovered is enforced/executed by the Recovery Officer appointed under sub-section (1) of section 7 of the DRT Act. The Recovery Officer is required to recover the amount of debt specified in the Certificate of Recovery by attachment or sale of movable and immovable properties by following the procedure contemplated in Second and Third Schedules to the Income-tax Act. As per sub-section (4) of section 28 as well as rules 27 and 31 of the Second Schedule, the Recovery Officer has to apply to the Court when the property to be attached or money belonging to the defendant is in the custody of a Court and seek appropriate orders for holding the property or for payment to him the entire amount of money or money sufficient to discharge the debt. In view of the various provisions discussed thus far, it must be held that the applicant before the Debts Recovery Tribunal or the defendant is not entitled to move the Company Court seeking directions to the Official Liquidator to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which a winding up petition is pending. The facts in the said case were that Allahabad Bank obtained Certificate of Recovery from the Debts Recovery Tribunal, Delhi and filed a Recovery Case before the Recovery Officer against M.S. Shoes. In the meanwhile, Ranbaxy Limited filed a petition for winding up of M.S. Shoes, which was pending. Canara Bank another creditor of M.S. Shoes also filed another O.A. before the DRT, Delhi and the same was also pending. When the Recovery Officer was proceeding with the sale of the properties of M.S. Shoes, Canara bank filed an application before the Recovery Officer seeking pro rata distribution of the sale proceeds, which was opposed by Allahabad Bank. Simultaneously Canara Bank also filed an application before the DRT under section 22 of the DRT Act seeking stay of recovery proceedings initiated by Allahabad Bank. They also filed company application before the Company Court for stay of the Recovery Case of Allahabad Bank and the Company Judge passed orders under section 442 read with section 537 of the Companies Act. This order was challenged by Allahabad Bank. The contention was that in view of section 18 of the DRT Act, all matters relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceedings under the RDB Act, 1993.... (p. 88) The question which arose in Allahabad Bank s case ( supra ) is altogether different from the question that falls for consideration in the case on hand. It is not a case where stay of recovery proceedings or execution of Recovery Certificate is sought for in this case. The Syndicate Bank, which obtained Certificate of Recovery from the Debts Recovery Tribunal long after the winding up order has been passed by the Company Court, has itself filed an application seeking transfer of assets of the company in liquidation from the custody of the Company Court to the Recovery Officer. Whether Syndicate Bank being decree holder or whether the Recovery Officer being an officer is entitled to proceed with the recovery as per the Certificate, is the question before us, which never arose before the Apex Court. Besides, the Supreme Court made the following observations in regard to execution by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 7(1) of the DRT Act. The Division Bench observed : The Tribunal although has a plenary jurisdiction, its right of execution, in our opinion, must be done having regard to the provisions laid down therein. We must also take into consideration the fact that the Tribunal is subject to the supervisory jurisdiction of this Court. The jurisdiction of the Tribunal for adjudication and the right of execution vis- -vis the jurisdiction of the Company Court has been determined in Allahabad Bank but not the mode of recovery thereof. When a liquidator or a provisional liquidator as the case may be is directed to take into his custody or under his control the property, effects and actionable claims, the company is or appears to be entitled to by reason of the provisions contained in section 456 of the Companies Act, there cannot be any doubt whatsoever that leave of the Court must be obtained. By reason of the aforesaid provision a legal fiction is created. (p. 351) Thus the judgment of this Court in Pennar Patterson s case ( supra ) does not in any manner takes a contra view from the view taken by me. The application filed by Syndicate Bank at the stage when th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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