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TMI Blog2008 (9) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... official liquidator in respect of the company (in liquidation) and we also hold that his Lordship has correctly came to the conclusion that the official liquidator need not transmit the sale proceeds held by him to the Recovery Officer, Debts Recovery Tribunal-II, New Delhi, and it will be open to such recovery officer to apply under section 28(4) of the said Act. - A.P.O.T. NO. 592 TO 594 OF 2007 A.C.O. NO. 227 TO 232 OF 2007 C.P. NO. 90 TO 92 OF 1998, AND C.A. NOS. 541 TO 543 OF 1999 AND 101 TO 103 OF 2006 - - - Dated:- 22-9-2008 - PINAKI CHANDRA GHOSE AND SANKAR PRASAD MITRA, JJ. P.C. Sen, Ranjan Bachawat, Tilak Bose, Rudraman Bhattacharya and Shamim Ahmed Ranju for the Appellant. A.K. Dhandhenia and Biswapati Das for the Respondent. JUDGMENT Pinaki Chandra Ghose, J. This appeal is directed against a judgment and/or order dated September 18, 2007 ( Ganapati Commerce Ltd. ( in liquidation ) v. Recovery Officer, Debts Recovery Tribunal [2007] 140 Comp Cas 916 (Cal)), passed by the hon'ble company judge whereby his Lordship was pleased to hold that the official liquidator need not transmit the sale proceeds held by him to the Recovery Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the official liquidator in its report upholding the exclusivity issues of the Act of 1993 and directed to deposit all proceeds to the Debts Recovery Tribunal-II, New Delhi, on January 10, 2006 in R.C. Case No. 144 of 2001. Furthermore, the official liquidator prayed for an order before the hon'ble company court that the recovery officer not to further proceed with the matter in recovery case in the said R.C. Case No. 144 of 2001 and also in other matters. It is submitted that there is no lease pending before this company court and further there is no appeal lying from the order so passed by the recovery officer before the company court, and hence, it is submitted that the company court had no jurisdiction to pass such order on the application so filed by the official liquidator. It is further contended that the bank has already obtained the certificate in its recovery proceedings and is in the process of executing such certificates before the recovery officer. The prayers made by the official liquidator cannot be taken up by the company court since that would be tantamount to annual an order passed by an officer under the Act of 1993. The company court does not exercising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the Companies Act. Reliance was also placed on the judgments in ICICI Bank Ltd. v. Sidco Leathers Ltd. [2006] 131 Comp Cas 451 ; [2006] 10 SCC 452 and International Coach Builders Ltd. v. Karnataka State Financial Corporation [2003] 114 Comp Cas 614 ; [2003] 10 SCC 482, respectively, wherein it was held that where the special statute did not contain any specific provision dealing with contractual and other statutory rights between different kinds of secured creditors, the specific provisions contained in the general statute would prevail. It is further submitted on behalf of the appellant that his Lordship should appreciate the scope of the provisions of sections 30 and 18 of the said Act, respectively, and according to Mr. Sen, the Tribunal had only jurisdiction to pass necessary direction regarding the sale proceeds held by the official liquidator without supervision of the company court and further submitted that under section 18 of the said Act, the court has no jurisdiction to interfere with the matter in question. Mr. Sen also drew our attention to section 34 of the said Act which has a non obstante clause. According to Mr. Sen, where two statutes have a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal or any officer under the said Act. Therefore, the court should refrain from going into the question urged by the official liquidator in view of the provisions of section 18 of the said Act. The official liquidator has a right to challenge the said order which was passed by the learned Tribunal before the forum created under the said Act. It further appears that the bank has obtained certificate in its recovery proceedings and is in the process of executing such certificates before the recovery officer. The official liquidator appeared on behalf of the defendants, the company (in liquidation) in the said proceedings before the learned Tribunal which has custody of the assets on the said companies (in liquidation). It also appears that the official liquidator kept the recovery officer informed of the progress made in the liquidation proceedings, claims receipt from creditors of the companies (in liquidation) as well as the sale of assets of the companies (in liquidation) pursuant to the directions of the court. It further appears that the bank before the learned Tribunal contended that the learned Tribunal has exclusive jurisdiction but the recovery officer agreed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the RDB Act, leave of the company court is necessary under section 537 before a winding up order is passed against the company or before the provisional liquidator is appointed under section 446(1) and whether the company court can pass orders of stay of proceedings before the Tribunal, in exercise of powers under section 442 ? (3)Whether after a winding up order is passed under section 446(1) of the Companies Act or a provisional liquidator is appointed, whether the company court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution and priority under section 446(2) and (3) read with sections 529, 529A, 530, etc., of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal ? (4)Whether in case it is decided that the distribution of monies is to be done only by the Tribunal the provisions of section 73, CPC, and sub-sections (1) and (2) of section 529 and section 530 of the Companies Act also apply apart from section 529A to the proceedings before the Tribunal under the RDB Act ? (5)Whether in view of provisions in section 19(2) and 19(19) as introduced by Ordinance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n regard to "priorities" among creditors, the said Committee stated in annexure I as follows (page 82 of 101 Comp Cas) : "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) as substituted by Ordinance 1 of 2000. Priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act. Section 19(19) of the RDB Act is reproduced hereunder : 19(19). "Where a certificate of recovery is issued against a company registered under the Companies Act, 1956 (1 of 1956), the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors in accordance with the provisions of section 529A of the Companies Act, 1956 and to pay the surplus, if any, to the company." Section 19(19) is dearly inconsistent with section 446 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a )Whether significance is lost in respect of inter se right of priority between two sets of secured creditors in view of section 529A of the Companies Act ? ( b )Whether section 48 of the Transfer of Property Act stands overridden by section 529A of the Companies Act ? ( c )Whether the appellant can be said to have relinquished his right to claim as a secured creditor as it had not opted in terms of section 47 of the Provincial Insolvency Act ?" The hon'ble Supreme Court further held that there are two secured categories, viz ., those who desire to go before the company court and those who stand outside the winding up proceeding. The Supreme Court further held that the second class of the secured creditors are those who come under section 529A(1)( b ) of the Companies Act, i.e. , those who opt to stand outside the winding up to realise their security. They also can, in certain circumstances, go before the company court. In the case of Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 ; [2000] 4 SCC 406, Jagannadha Rao, J., referring to the Tiwari Committee Report, 1981, as regards framing of the RDB Act of 1993, stated the law in the following terms (page 82) : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Rajasthan Financial Corporation v. Official Liquidator [2005] 128 Comp Cas 387 ; [2005] 8 SCC 190, wherein one of us (P.K. Balasubramanyan J.) was a member. It was stated as follows (SCC pages 198-99, paragraph 14) (page 397 of 128 Comp Cas) : "14. In Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 ; [2000] 4 SCC 406, the question of jurisdiction of the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, vis-a-vis the company court arose for decision. This court held that even where a winding up petition is pending, or a winding up order has been passed against the debtor company, the adjudication of liability and execution of the certificate in respect of debts payable to banks and financial institutions, are, respectively, within the exclusive jurisdiction of the Debts Recovery Tribunal and the Recovery Officer under that Act and in such a case, the company court's jurisdiction under sections 442, 537 and 446 of the Companies Act stood ousted. Hence, no leave of the company court was necessary for initiating proceedings under the Recovery of Debts Act. Even the priorities among various creditors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors, in accordance with inter se agreement/arrangement between them and to the other persons entitled thereto in accordance with the priority in law. The Supreme Court further held that the provisions of the Companies Act may be a special statute but if the special statute does not contain any specific provision dealing with the contractual and other statutory rights between different kinds of the secured creditors, the specific provisions contained in the general statute shall prevail. Therefore, what must not be lost sight of is the context in which the Supreme Court rendered judgment in the Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 ; [2000] 4 SCC 406. In view of the legal fiction in section 441 of the Companies Act, winding up proceedings are deemed to commence on the date of presentation of the petition. Such deeming provision takes effect only upon the company being wound up, for the date of commencement of winding up is irrelevant if the petition is dismissed or permanently stayed. In view of the legal fiction, the other provisions relating to liquidation become applicable upon commencement of winding up proceedings and till such proceedings are alive. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow the same procedure as to the sale of the secured and other assets of the certificate debtor. But, the expression "the sale proceeds of such company" appearing in section 19(19) of the 1993 Act limits the distribution contemplated in the words that follow such expression in the sub-section. Where the certificate debtor is a company in liquidation, the recovery officer will distribute such proceeds from the sale of the assets of the company in liquidation that the recovery officer sells. If the company in liquidation has other available assets to be sold upon the secured asset not meeting the certificate claim, the recovery officer can call upon the concerned the official liquidator to have such other available assets of the company in liquidation sold under the aegis of the recovery officer and such recovery officer will then distribute, on the basis of the priorities recognised by section 529A of the Companies Act, such of the proceeds that have been realised by the sales conducted by the recovery officer. The sub-section does not recognise that the recovery officer will call upon the concerned the official liquidator to produce before him all monies realised out of pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing contained in any other law for the time being in force or in the Companies Act itself, there is a preferential payment provided for workmen's dues and debts due to the secured creditors to the extent such debts rank under clause ( c ) of the proviso to section 529(1) pari passu with such dues. Therefore, when the assets of the company are sold and the proceeds realised, the debts by way of workmen's dues and that of the secured creditors have to be paid in full if the assets are sufficient to meet them and if they are not sufficient, in equal proportions. The court further held that in the best interests of all concerned, the sale of the assets had to be conducted by the official liquidator under the supervision of the company court. It may be noted that in that case, the financial corporation had sought permission of the company court to initiate proceedings under section 29 of the SFC Act. Furthermore, in the case of Maharashtra State Financial Corporation v. Official Liquidator, High Court, Bombay, AIR 1993 Bom 392 ; [1995] 82 Comp Cas 342, the Bombay High Court took the view that rights conferred on a financial corporation as a mortgagee under section 29 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny court the right to ensure that the distribution of the assets in terms of section 529A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion any proceeding under the SFC Act. The question is that it is only a liquidation proceeding pending and the secured creditors and the financial corporations approaching the company court for permission to stand outside the winding up and to sell the properties of the company in liquidation. The company court has rightly directed that the sale be held in association with the official liquidator representing the workmen and that the proceeds will be held by the official liquidator until they are distributed in terms of section 529A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this court in the decisions referred to above. In this situation, the court finds no reason to interfere with the decision of the High Court. The court also clarifies that there is no inconsistency between the decisions in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 ; [2000] 4 SCC 406 and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights of the " pari passu " chargeholders would run equally, temporally and potently, with the rights of the secured creditors. The official liquidator, as the representatives of the workmen, to enforce such " pari passu " charge would have the right of representing the workmen equally with the rights of the secured creditors. Hence, the official liquidator, as the representative of the workmen's " pari passu " charge, would be in the position of a co-mortgagee. It is well-established law that where there are co-mortgagees, one co-mortgagee cannot sell without consent of the co-mortgagee or institute any proceedings for sale of mortgaged property without joining the other co-mortgagees either as the plaintiffs or as the defendants. All of them should join in the suit for enforcing the security, but if some of them refuse to join, they have to be included as the defendants, not merely as pro forma parties, but as necessary parties inasmuch as the mortgage right vests in them along with the plaintiff-mortgagees. The same principle would be substantially true and applicable in the case of a mortgagee and a " pari passu " chargeholder over the same security for realising the securi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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