9911796707
TMI Blog2003 (9) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Ltd., going into liquidation, by order dated 31-8-1994, the Corporation in purported exercise of its power under section 29 of the SFC Act seized the properties of the respondent, which were under hypothecation/mortgage to them. While the matter stood thus, by order dated 7-7-1995, passed in C.P. Nos. 35 of 1990, 34 of 1991 and 24 of 1992, this Court ordered winding up of the respondent. Long after the passing of winding up orders of the respondent, the Corporation moved an application in C.A. No. 464 of 1998 seeking permission of the Court to remain outside the liquidation proceedings for pursuing their statutory remedies for realization of their dues, which was allowed by this Court by order dated 30-9-1999, inter alia with the following directions : 1.The Official Liquidation shall be allowed to have inspection of the company s properties and assets to take inventory as and when required; 2.The applicant shall file the valuer s report in this Court before the properties covered under the mortgage deeds are put to sale; 3.The sale proceedings shall be conducted after wide publicity in consultation with the Official Liquidator who would be informed of each date of proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires the Corporation to obtain permission of this Court before the sale of moveable or immoveable properties is confirmed or finalized, the Corporation submits that they have filed the present application praying for the relief mentioned in the preliminary paragraph. 5. Opposing the application, the Official Liquidator filed report stating that as on 31-3-2002, the Corporation claimed an amount of Rs. 11.33 crores, which is inclusive of interest and other charges. According to the Official Liquidator, the Corporation being one of the creditors, have to prove their debt before the Court, and unless they prove their debt, they cannot appropriate the proceeds realized through the sale of the properties of the company in liquidation, and in support of this contention, he placed reliance on the judgment of the Apex Court in International Coach Builders Ltd. v. Karnataka State Financial Corpn. AIR 2003 SCW 1524. 6. According to the Official Liquidator, while confirming the sale in favour of the highest bidder, this Court should impose the following conditions, in the interests of the large body of the secured creditors : 1.The Corporation shall prove its claim against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmation of this Court", which rider is conspicuous by its absence in the terms and conditions of the sale. 8. It is further reported by the Official Liquidator that the Valuation Report now filed by the Corporation discloses that the valuation of the properties covered thereby, was done by the officials of the Corporation on 12-11-2001. The value of the land, buildings and civil works was estimated at Rs. 54.58 lakhs. The respondent owns Ac. 5-03 guntas of land, and though the prevailing market value of the land per acre is estimated at Rs. 12.00 lakhs, the Corporation has taken the average value of the land at Rs. 6.83 lakhs per acre, while the registry rate is Rs. 1.65 lakhs. The Corporation has not explained as to how it arrived the average rate of land per acre at Rs. 6.83 lakhs, though the footnote to the Valuation Report says that "we have made a local enquiry in and around areas, the market value is rapidly increasing day by day due to real estate owners in that area, the prevailing market value is in between ten to twelve lakhs per acre, this unit is abutting to National Highway, opposite to this land the real estate owners are developing the land into plots and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kmen are determined, the Official Liquidator cannot claim any amount or seek to enforce any charge on the monies realized by the Corporation through the sale of the properties mortgaged/hypothecated to them. 10. As against each of the conditions, which the Official Liquidator sought to be imposed at the time of confirming the sale, the Corporation sought to submit as follows : 1.There is no justification or requirement in law for a secured creditor to prove his debts by filing a claim before the Official Liquidator, especially when the Corporation was permitted to remain outside the liquidation proceedings by this Court. According to the Corporation, the option given to them and which is spelt out in the proviso appended to section 529 of the Companies Act, 1956, would become superfluous if the request made by the Official Liquidator is accepted by this Court. Having regard to the provisions of section 29, read with section 46B of the SFC Act, the Corporation submits that the provisions of section 528 of the Companies Act, have no application to their case, and as such, the claim of the Official Liquidator for imposition of Condition No. 1 is misconceived. 2.Inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporation, states that there is no justification for the Official Liquidator to insist upon the Corporation to file a claim before the Official Liquidator along with the other creditors. If Condition No. 6, as prayed for by the Official Liquidator is imposed, the Corporation states that the very existence of the Corporation as a first charge holder over the properties mortgaged/hypothecated, would be demolished, and more particularly when leave was granted to the Corporation to remain outside liquidation proceedings. 7.According to the Corporation, Condition No. 7, which is sought to be imposed by the Official Liquidator, is a figment of imagination on the part of the Official Liquidator in seeking to assume the powers conferred upon this Court and further directing the Court to pass orders. According to the Corporation, the Official Liquidator has chosen to adopt a hostile attitude towards them, even though he has gone by default in complying with the statutory obligation cast upon him by virtue of the provisions of the Companies Act. 8.Insofar as Condition No. 8, is concerned it is stated that the same being statutorily required to be complied with, such a condition for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted on the basis of the said Valuation Report, the learned Standing Counsel for the Corporation submits that non-placing of the Valuation Report before the Court in terms of Condition No. 2 of its earlier order, before proceeding to put the properties to sale, cannot be treated as violation of a condition, warranting non-confirmation of the sale, and more so when placing such Valuation Report before the Court is an empty formality. 14. The learned Standing Counsel for the Corporation further submits that in the absence of any statutory provision shown by the Official Liquidator that he is entitled to seek imposition of conditions at the time of confirmation of the sale, no such conditions as sought for by him, can be imposed, and if any such conditions are imposed, it would de hors the provisions of the Companies Act, and to support this contention, he placed reliance on the judgment of the Apex Court in Allahabad Bank v. Canara Bank AIR 2000 SC 1535 and International Coach Builders Ltd. s case ( supra ) on which even the Official Liquidator placed reliance, and also the judgment of the Delhi High Court in Shivalik Agro Poly Products Ltd. v. Disco Electronics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dator, to enable him disburse the same in accordance with the provisions of the Companies Act. 18. The learned counsel for the Official Liquidator further submits that the conditions imposed by this Court in its order dated 30-9-1999 in C.A. No. 464 of 1998 cannot be treated as complete in themselves, for they only relate to sale of the properties of the company in liquidation, and do not speak of how the proceeds realized through the sale of the properties, should be appropriated or disbursed. According to the learned counsel for the Official Liquidator any appropriation of the sale proceeds by the Corporation or for that matter, any other secured creditor, should only be in accordance with the provisions contained in sections 529 and 529A of the Companies Act, and not any other. According to the learned counsel, unless and until the Corporation proves their claim before the Official Liquidator, and the Official Liquidator adjudicates the claims of all the secured creditors, including those of the workmen, who have pari passu charge over the properties in question, the Corporation cannot claim to appropriate the entire sale proceeds for themselves. 19. The learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties to sale, as directed by this Court by Condition No. 2 of the order dated in C.A. No. 464 of 1998, dated 30-9-1999? 2.If so, whether the sale conducted by the applicant in favour of the highest bidder, without placing the Valuation Report before the Court, stood vitiated and is liable to be set aside or whether by reason of participation of the Official Liquidator and another secured creditor in the sale proceedings, the rigor of non-placing of the Valuation Report before the Court before proceeding to put the properties to sale, stood diluted? 3.And if not, whether the sale in favour of the highest bidder should be confirmed as prayed for by the applicant or any conditions as prayed for by the Official Liquidator should be imposed, while confirming the sale in favour of the highest bidder. 23. It is the admitted case of the Corporation that while allowing the application, C.A. No. 464 of 1998, filed by them seeking permission of the Court to remain outside the liquidation proceedings, this Court had imposed certain conditions, and according to Condition No. 2 of the said Conditions in the order, before proceeding to put the properties to sale, the Corporation wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the liquidation proceedings would disclose that the Court was very much conscious of the need to protect the interests of the other secured creditors and workers who have pari passu charge over the properties covered by the Valuation Report. When a particular condition had directed the applicant to place the Valuation Report before the Court before the properties covered thereby are put to sale, it was obligatory on the part of the Corporation to place the same before the Court, and the Corporation cannot assume for themselves that placing of such Valuation Report before the Court was an empty formality, and therefore, its non-placement before the Court, need not be viewed as a serious omission, disabling the Court from confirming the sale of the properties covered by the Valuation Report. Non-placing of the Valuation Report as directed by this Court in its earlier order, is certainly a violation of the orders of this Court, and any sale of the properties conducted without placing the valuation report before the Court, is vitiated, and cannot be confirmed, and more so when it is alleged by the Official Liquidator that the Valuation Report on the basis of which the properties co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a mandatory condition and was required to be complied with in letter and spirit. Merely because a learned Judge of this Court insisted the highest bidder to deposit some amount with the Corporation in relation to the sale transaction, it does not mean that the learned Judge had indicated his mind to confirm the sale in favour of the highest bidder. The sale of the properties of the company in liquidation being subject to confirmation by this Court, this Court is always entitled to consider the objections, if any, raised by the parties interested in the sale or having interest over the properties put to sale, before the sale is confirmed in favour of the highest bidder. 26. It should be further noted that the Official Liquidator is only a representative of the Court, and any power exercisable by him, is not independent, but is subject to the prior permission of the Court. It is no doubt true that the Official Liquidator and another secured creditor were furnished copies of the Valuation Report and they even participated in the sale proceedings. But merely because the Official Liquidator and another secured creditor participated in the sale proceedings, it cannot be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, without bringing the same to the notice, perusal and consideration of the Court, does not amount to compliance of the mandatory condition of placing the Valuation Report before the Court. By non-placing of the Valuation Report before the Court, it cannot be disputed that not only this Court was deprived of the opportunity of looking into the Valuation Report, but also the secured creditors and the Official Liquidator, who represents the interests of the workmen as representative of the Court, were deprived of the opportunity of either supporting or objecting the Valuation Report. In that view of the matter, it has to be held that mere filing of the Valuation Report in the section would not tantamount to placing the Valuation Report as directed by this Court. 28. The contention of the Corporation that inasmuch as the Court had permitted them to remain outside the liquidation proceedings and inasmuch as the properties covered by the Valuation Report were hypothecated to them, they had absolute right over the said properties by reason of the power conferred upon them by section 29 of the SFC Act, cannot be countenanced for the reason that the Apex Court in International Coach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re for the specific purpose of protecting the pari passu charge of the workmen s dues and subject thereto, SFCs can continue to exercise their statutory rights as secured creditors without being reduced to the status of unsecured creditors required to prove their debts in insolvency and stand in line with other unsecured creditors. Neither is the apprehension expressed justified, nor the contention sound. The Apex Court laid down the following principles : 1.The right unilaterally exercisable under section 29 of the SFC Act is available against a debtor, to a company, only so long as there is no order of winding up; 2.The SFCs cannot unilaterally act to realize the mortgaged properties without the consent of the Official Liquidator representing workmen for the pari passu charge in their favour under the proviso to section 529 of the Companies Act, 1956. 3.If the Official Liquidator does not consent, the SFCs have to move the Company Court for appropriate directions to the Official Liquidator who is the pari passu charge holder on behalf of the workmen. In any event, the Official Liquidator cannot act without seeking directions from the Company Court and under its supe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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