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TMI Blog2006 (7) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act read with sections 25-28 of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 (for short 1993 Act ). Thereafter vide notice dated 28-3-2005 the Recovery Officer informed that 17-5-2005 has been fixed for drawing up the proclamation of sale and setting the terms thereof. The Official Liquidator submitted reply to the notice. The Recovery Officer allowed the request of the Bank of India vide its order dated 7-10-2005 for putting the property on public auction and rejecting the written objections filed by the Official Liquidator. The order of the Recovery Officer is based on the judgment delivered by the Apex Court in Allahabad Bank v. Canara Bank [2000] 4 SCC 406. The Recovery Officer fixed the reserve price Rs. 2.10 crores and earnest money Rs. 25 lakhs. The Official Liquidator was allowed 15 days time to bring offer for the property more than the above reserve price with 10 per cent deposit of affront money. The Recovery Officer observed in the order that the sale proceeds shall be distributed amongst the respondent Bank and other defendants 4 to 8 who were the secured creditors on pari passu basis. 2. On 20-2-2006, M/s. Pravesh Bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 for the property of M/s. Spark Plug India Ltd. 3. The respondent Bank of India filed reply admitting the order passed by the Debts Recovery Tribunal, Delhi against M/s. Spark Plug India Ltd. Filing of objection by the Official Liquidator before the Recovery Officer was also admitted by the Bank. The Bank supported the case of Allahabad Bank ( supra ) relied on by the Recovery Officer in its order. The Bank stated that DRT has got the exclusive jurisdiction to decide the priorities amongst the various creditors subject to the provisions of section 529A of the Companies Act. The Bank denied that they had given any consent to sale the assets of the debtor company through Official Liquidator. 4. Following points emerge from the arguments raised by the parties : ( i )Application filed under sections 446 and 537 of the Companies Act is not maintainable. ( ii )The Officer Liquidator cannot be allowed to take recourse to the aforesaid sections where a remedy was available before him to file an appeal against the order of auction under the provisions of 1993 Act. ( iii )The Official Liquidator has a role only at the stage of distribution and cannot be said to have a rol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations for Recovery of Debts Due to Banks or Financial Institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under section 19(22) [formerly under section 19(7)] to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word recovery in section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under section 19(22). 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 Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 and 227 of the Constitution). This is the effect of sections 17 and 18 of the Act." "22. We hold that the provisions of sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of the defendant to the appellant Banks is concerned" ( ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication of the liability but also in regard to the execution proceedings. It stated in Annexure XI of its Report that all "execution proceedings" must be taken up only by the special Tribunal under the Act. In our opinion, in view of the special procedure for recovery prescribed in Chapter V of the Act, and section 34, execution of the certificate is also within the exclusive jurisdiction of the Recovery Officer." "25. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decided accordingly. Points 2 and 3" Does the Act overrides the provisions of sections 442 and 537 and section 446 of the Companies Act? "47. In our view, the decision of the Kerala High Court in ICICI v. Vanjinad Leathers Ltd. AIR 1997 Ker. 273 relied upon for the appellants, is correctly decided. It was pointed out in that case that the records leading to the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery Tribunal in accordance with section 19(19) of the Recovery of Debts Act read with section 529A of the Companies Act and in no other manner. The Court took into account that fact that the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 was a legislation subsequent in point of time, to the introduction of section 529A of the Companies Act by Act 35 of 1985 and it had overriding effect. But it noticed that by virtue of section 19(19) of the Recovery of Debts Act, the priorities among various creditors had to be decided by the Recovery Tribunal only in terms of section 529A of the Companies Act and section 19(19) did not give priority to all secured creditors. Hence, it was necessary to identify the limited class of secured creditors who have priority over all others in accordance with section 529A of the Companies Act. The Court also held that the occasion for a claim by a secured creditor against the realization by other creditors of the debtor under section 529A read with proviso to section 529(1) of the Companies Act could arise before the Debts Recovery Tribunal only if the concerned creditor had stood outside the winding up and realised amounts and if i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the Companies Act. This argument is not available as far as the SFC Act is concerned, since section 529A was introduced by Act 35 of 1985 and the overriding provision therein would prevail over the SFC Act of 1951 as amended in 1956 and notwithstanding section 46B of the SFC Act. As regards distribution of assets, there is no conflict. It seems to us that whether the assets are realized by a secured creditor even if it be by proceeding under the SFC Act or under the Recovery of Debts Act, the distribution of the assets could only be in terms of section 529A of the Act and by recognizing the right of the liquidator to calculate the workmen s dues and collect it for distribution among them pari passu with the secured creditors. The Official Liquidator representing a ranked secured creditor working under the control of the Company Court cannot, therefore, be kept out of the process. 17. Thus, on the authorities what emerges is that once a winding up proceeding has commenced and the liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the duty for further distribution of the proceeds on the basis of the preferences contained in section 530 of the Companies Act under the directions of the Company Court. In other words, the distribution of the sale proceeds under the direction of the Company Court is his responsibility. To ensure the proper working out of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the Company Court, that a proper price is fetched for the assets of the company in liquidation. It was in that context that the rights of the Official Liquidator were discussed in International Coach Builders Limited ( supra ). The Debt Recovery Tribunal and the District Court entertaining an application under section 31 of the SFC Act should issue notice to the liquidator and hear him before ordering a sale, as the representative of the creditors in general." 8. The learned counsel contended that the issue with regard to Companies Act, 1956 vis-a-vis 1993 Act stood finalised and concluded by Allahabad Bank s case ( supra ) and the said finding has not been distinguished by the Rajasthan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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