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TMI Blog2008 (1) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... ’ published from Hyderabad, and ‘Eenadu’ telugu daily, Hyderabad Edition, having circulation in ‘Nalgonda’ in the manner provided by rule 24 of Companies (Court) Rules, 1959. The advertisement shall be made within a period of three weeks from the date of receipt of copy of this order. - CO. APPLICATION NO. 45 OF 2007 - - - Dated:- 23-1-2008 - V.V.S. RAO, J. Satish Kumar Agarwal and C. Konda Ram for the Petitioner. S. Ravi for the Respondent. ORDER 1. The company petition is filed under sections 433( e ), 434(1)( a ) ( c ) read with section 439(1)( b ) of the Companies Act, 1956 for winding up of respondent company on the ground that the latter is unable to pay its dues within three months from the date of receipt of delivering demand by petitioner for an amount of Rs. 5,35,99,090. 2. In a nutshell, the case of petitioner is as follows. The petitioner, namely, M/s. LPL Infrastructures Limited (LPL, for brevity) is a public limited company engaged in the business of execution of civil construction contracts. The respondent, namely M/s. Kumar Metallurgical Corporation Limited (KMC, for brevity) is a public limited company registered under the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory taxes to a tune of Rs. 1,35,30,048. The respondent also failed to comply with the provisions of Companies Act and therefore, Registrar of Companies filed complaints under section 168 of Companies Act before the Court of Special Judge for Economic Offences. In these cases, being C.C.Nos. 55 to 63 of 2004, the Special Judge convicted the Managing Director of respondent company. 4. In the said background, LPL issued a statutory notice, dated 9-2-2007 calling upon respondent to pay an amount of Rs. 5,35,99,090 in default of which company petition under section 433( e ) of Companies Act would be filed. The same was received by respondent, who gave a reply dated 26-2-2007 informing that ARCIL exercised its right as secured creditor and claimed possession of entire plant, machinery, land and buildings of company and that there is a litigation between ARCIL and a third party with reference to the assets of company and therefore, LPL cannot proceed against the assets of respondent company. It is therefore alleged that respondent company is not able to pay its debts and therefore, it would be in the interest of creditors, statutory authorities and public to wind up the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. This plea was not specifically taken in the counter. Learned counsel was permitted to raise the plea having regard to section 15 of SARFAESI Act, which enumerates eventualities when possession and/or management is taken over by secured creditor in exercise of powers under SARFAESI Act. Disputing the contention, learned counsel for LPL submits that when the secured creditor obtains only possession from the debtor company, but does not take over the management, section 15(3)( c ) of SARFAESI Act does not bar winding up petition. The counsel brought to the notice of this Court, the decision of the Delhi High Court in the matter of Disco Electronics Ltd., In re AIR 1997 Delhi 251, in which it was held that mere possession by State Financial Corporation does not bar winding up petition under section 32E of State Financial Corporations Act, 1951 (SFC Act, for brevity), which is in pari materia with section 15(3)( c ) of the SARFAESI Act. On appeal, Division Bench of Delhi High Court reversed the same in Shivalik Agro Poly Products Ltd. v. Disco Electronics Ltd. AIR 2002 Delhi 10 holding that in section 32E(1)( c ) of SFC Act, the expression management and possession are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial Liquidator." 11. The learned Judge also held that even when industrial unit is taken over by SFC, the ownership still remains with borrower and mere taking of possession of sick unit does not by itself oust jurisdiction of company Court. The relevant observations are as below : "In my view, in the taking over of the possession under section 29 of the State Financial Corporations Act, the owner always retains the right of ownership of the property does not pass on to the financial corporation, but it is only for certain purposes of affecting recovery, of its dues by the sale and to remove any impediments in their way that the statute by a deeming provision has granted to the financial corporation powers of the owner for the limited purpose of realizing the security, to convey good marketable title to the purchaser, and to defend any legal action, but the property does not absolutely vest in it." 12. In Shivalik Agro Poly Products Ltd. ( supra ), Division Bench noticed that the appellant company - the successful bidder; was already given possession of the sick unit. A submission was made on behalf of the appellant that the concept of taking over possession is much l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in the said Act or in the memorandum or articles of association of such borrower,- contained in the said Act or in the memorandum or articles of association of such concern- ( a ) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; ( a ) it shall not be lawful for the shareholders of such concern or any other person to nominate or appoint any person to be a director of the concern; ( b ) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the secured creditor; ( b ) no resolution passed at any meeting of the shareholders of such concern shall be given effect to unless approved by the Financial Corporation; ( c ) no proceeding for the winding up of such company or for the appointment of a receiver in respect thereof shall lie in any Court, except with the consent of the secured creditor. ( c ) no proceeding for the winding up of such concern or for the appointment of a receiver in respect thereof shall lie in any Court, except with the consent of the Financial Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al role of being reconstruction company as well as secured creditor vis-a-vis the respondent company. Be it noted that as claimed in their notice, dated 1-11-2004, under section 13(2) of SARFAESI Act, issued to respondent, ARCIL is a reconstruction and securitisation company registered with Reserve Bank of India under section 3 of SARFAESI Act. It is nobody s case that ARCIL has appointed directors or administrator under section 15(1) of SARFAESI Act. This is an important and relevant factor. 17. Coming to section 15(3) of SARFAESI Act, it operates differently. Under section 15(3) of SARFAESI Act, certain eventualities are prohibited only when the management of the business of the borrower company is taken over by secured creditor. ARCIL as alleged in KMC s counter affidavit, published in newspapers, dated 24-1-2005 that the assets of respondent company have been taken over. Does it mean or does it amount to ARCIL taking over the management of respondent ? 18. As seen from section 15(1) of SARFAESI Act, securitization company or reconstruction company is empowered and entitled to take over the management of borrower company under section 9( a ) and a secured creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation company or reconstruction company and/or secured creditor by appointment of directors of borrower company or by appointment of an administrator of the business of the borrower. Both these are absent. 20. Even if the respondent company is taken over possession under section 15(3) of SARFAESI Act by ARCIL as secured creditor, unless the management is shown to have been taken over as per section 15(1), section 15(3)( c ) of SARFAESI Act does not bar a winding up petition. This is also further supported by the fact that section 13(4)( a ) of SARFAESI Act speaks of taking possession of secured assets of the borrower and also take over of management of business of the borrower under section 13(4)( b ) of SARFAESI Act. Admittedly, respondent company stopped its business for various reasons and there is not even a whisper in the counter that it is ongoing company. In such a situation, there cannot be a take over of management of business of respondent company nor it is shown that management is taken over by ARCIL as provided under section 15(1) of SARFAESI Act. The difference between the SFC Act and SARFAESI Act is section 13(4)( a ) and ( b ) and section 15(1) of SARFAESI Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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