9911796707
Advanced Search 
TMI Blog2009 (12) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... of other laws and not otherwise. There is no inconsistency in issues of supervisory directions in order to achieve the avowed object of section 529A of the Act as echoed by unnumbered five provisos of section 13(9) of the SARFAESI Act because there is no provision in the SARFAESI Act giving any conflict with the claim of the workers due as contemplated by section 529A of the Act. Thus question (A) is answered against both the appellants and their appeals are liable to be dismissed. We have examined the record and have also put it to the learned counsel for the HSIIDC as to whether there was any hypothecation of plant and machinery with it. The record does not show any such hypothecation nor Mr. Kamal Sehgal, learned counsel for the HSIIDC has been able to support the aforesaid averments. Therefore, there is factual error and to that extent the impugned order deserves to be modified. It is, thus, clear that the HSIIDC would be simply a secured creditor with regard to the raw material and, in fact, an unsecured creditor qua plant and machinery. It cannot claim any right of association with the process of sale or participation at par with the Securitisation Company. Appeal dismissed.< ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Liquidator attached to this Court was directed to take over the assets of the company in liquidation. 3. On 28-5-2004, this Court allowed the Official Liquidator to sell immo-vable assets of respondent No. 1 Company to satisfy claims of the creditors. The Official Liquidator sold the assets of respondent No. 1 Company accepting the highest bid of Rs. 21.10 crores and the sale was confirmed by this Court in favour of M/s. Radha Raman Builders. The auction purchaser failed to deposit 15 per cent of the bid amount, therefore, the earnest money deposited by it was forfeited. On 20-3-2008, the sale concluded by the Official Liquidator was set aside by this Court. The amount of earnest money paid by M/s. Radha Raman Builders was ordered to be refunded. He was directed to undertake the sale afresh. The auction purchaser M/s. Radha Raman Builders filed company appeal and was awarded interest vide order dated 22-1-1999. 4. It is pertinent to notice here that the Securitisation Company has claimed that the Bank of India was the sole secured creditor of respondent No. 1 Company. On 27-8-2008, the Securitisation Company entered into an Assignment Agreement with the Bank of India. It purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Company for sale in view of the fact that value of the property has increased manifold. It has been claimed that the HSIIDC settled the liabilities of different banks and a sum of Rs. 10,39,98,000 was paid to three banks, namely, (i) Bank of Maharashtra; (ii) Punjab National Bank; and (iii) Bank of India. After clearance of the charge of above mentioned banks over the movable assets of respondent No. 1 Company, this Court ordered substitution/subrogation of the HSIIDC in place of three banks, vide order dated 22-5-2006. 8. The Company Court has undertaken the bidding by itself. At the time of receipt of bid of Rs. 29.12 crores, there was a dispute regarding a part of the land measuring about 4 acres out of total land measuring 40 acres owned respondent No. 1 Company, which was under un-authorised possession of the DHBVN. During the proceedings before the Company Court, the secured creditor Bank of India as well as the HSIIDC agreed to sell the aforementioned disputed land measuring 4 acres to DHBVN at Collectorate rate. On 20-3-2008, learned Company Judge claims to have passed an order permitting the Official Liquidator to sell the assets of the company in liquidation after asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the SARFAESI Act and the Companies Act could be made, in the context of orders for sale having already been made by the Company Court and the participation of the assignor of the applicant at several steps for the conduct of sale through the Company Court, it will be inexpedient to unyoke the proceeding that were put through the O.L. While upholding the claim that the procedure laid down under the SARFAESI Act would enable the provisions of the Security Enforcement Rules to be applied for conduct and confirmation of the sale, the dispensation in this case would be : (a )to permit the applicant to stay outside the winding up proceedings and take action to bring to sale the secured assets under section 13 of the SARFAESI Act read with rules 8 and 9 of Security Interest Enforcement Rules, 2002. (b )The applicant-Reconstruction Company shall keep all the steps taken under the SARFAESI Act and the relevant rules transparent and submit all the proposals for sale to the O.L. and the details of valuation obtained for the conduct of sale for the purpose of determining the used price. (c )Sale shall be advertised with a specific clause that the winding up proceedings are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial sector reforms. This has resulted in slow place of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on 21-6-2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi-110 001. 7. Reliance Asset Reconstruction Company Ltd. Reliance Centre 19, Walchand Hirachand Marg, Ballard Estate, Mumbai-400 038 8. Pridhvi Asset Reconstruction and Securitisation Company Ltd. 123/3 RT, First Floor, Sanjeeva Reddy Nagar, Hyderabad-500 038 9. Phoenix ARC (P.) Ltd. 240, Navsari Building, 1st Floor, DN Road, Mumbai-400 001. Kotak Mahindra Bank 10. Invent Assets Securitisation & Reconstruction Private Limited 7, Raheja Centre, Ground Floor 214, Free Press Journal Marg, Mumbai-400 021. Sr. No. Name of the Registered Company Address of the Company Promoters 11. JM Financial Asset Reconstruction Company Limited 141, Maker Chambers III, Nariman Point, Mumbai-400 021. 12. India SME Asset Reconstruction Company Limited (ISARC) SME Development Centre, Plot No. C-11, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai-400 051 SIDBI, United Bank of India, BoB 14. According to the learned counsel a non obstante provision has been made under section 5(1)(b) of the SARFAESI Act, contemplating that a Securitisation Company may acquire financial assets of any bank or financial institution by entering into an agreement with them for the transfer of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfer any right upon the borrower to prefer an application before the Debt Recovery Tribunal under section 17 or the Court of District Judge under section 17A thereof. It has further been pointed out by referring to the provisions of section 13(7) that any expenses properly incurred by a securitisation company/secured creditor or any expenses incidental thereto are liable to be recovered from the borrower in the process of initiating action under section 13(4) involving taking of possession, the right to transfer by way of lease, assignment or sale for realising the secured assets etc. The money received by the secured creditor in the absence of any contract to the contrary is held by him in trust which is to be applied firstly in payment of such costs, charges and expenses. Secondly, in discharge of the duties of the secured creditor and the residue of the money so received is required to be paid to such persons who are entitled thereto in accordance with their rights and interests. He has then referred to the proviso of section 13(9) and submitted that in the case of a company in liquidation, the sale of secured asset is required to be distributed as per the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Securitisation Company, which are alien to the letter and spirit of the SARFAESI Act. In support of his submission, learned counsel has placed reliance on paras 6 and 17 of the judgment of Hon'ble the Supreme Court in the case of Rajasthan Financial Corpn. v. Official Liquidator AIR 2006 SC 7551 and paras 11 to 13 of another judgment of Madras High Court in the case of Asset Reconstruction Co. India v. Official Liquidator [2006] 134 Comp. Cas. 2672. Reliance has also been placed on paras 39 and 40 of the judgment of Hon'ble the Supreme Court in Bakemans Industries (P.) Ltd. v. New Cawnpore Flour Mills [2008] 144 Comp. Cas. 713 and para 47 of the judgment in the case of Central Bank of India v. State of Kerala [2009] 4 SCC 94. Mr. Sarin has also placed reliance on an unreported judgment of Madras High Court in the case of Subhash Kathuria v. Deve Sugars [C.A. Nos. 1811 of 2005, 854 of 2006 and 2740 to 2742 of 2007 in C.P. Nos. 170 of 1995 and 35 of 1997, decided on 3-3-3009]. He has drawn our attention to the legal principle formulated in para 41 of the judgment. 19. Mr. Sarin has also argued that a conjoint interpretation of sections 35 and 37, primacy has been conferred on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sacred duty of sale of assets and its distribution cannot be delegated to either a secured creditor or any person outside the process of winding up. Therefore, the order dated 20-3-2009 is liable to be set aside, inasmuch as, it permits the Securitisation Company to sell the remaining piece of land and building. According to the learned counsel, the only course open to the learned Company Judge was to permit the Official Liquidator to sell the assets in association with HSIIDC and the Securitisation Company. Learned counsel has referred to the provisions of section 5(3) of the SARFAESI Act and argued that the only secured creditor i.e., Bank of India had given its consent to this Court for sale of assets through the Official Liquidator, which has never been withdrawn and, therefore, the rights of a securitisation company will remain subject to the consent given by its predecessor, namely, the Bank of India, as per the provisions of section 5(3) of the SARFAESI Act. Therefore, once the consent has been given for sale of assets by the Bank of India through the Official Liquidator then the Securitisation Company being successor in interest would stand in the shoes of its pre-decess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 of the application (A1), which seek permission of the Company Court to stay outside the process of winding up and enforce its security interest under the SARFAESI Act. According to the learned counsel section 13 of the SARFAESI Act uses the expression 'may' which does not necessarily means that the secured creditor may invoke the SARFAESI Act or its secured interest could be recovered by the intervention of the Court. She has further argued that the proceedings of winding up in the instant case were at the final stage, when the sale notices have already been once issued and it was to be re-advertised after the express consent of the secured creditor i.e., Bank of India. 25. Another submission made by Ms. Sethi is that all the assets of respondent No. 1 Company are deemed to be in the custody of the Court from the date of winding up and under rule 232 of the Company Courts Rules, 1959, the Official Liquidator is empowered to deal with the property subject to the direction issued by the Company Court. She has submitted that in such circumstances the provisions of the SARFAESI Act cannot be applied to respondent No. 1 Company. She has placed reliance on the judgment of Rajasthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, vide Circular dated 30-8-2001. The aforesaid circular has been set out in detail in the case of Mardia Chemicals Ltd. (supra) then before taking any step to realise its dues, the secured creditor is obliged to serve a notice in writing to such a borrower to discharge the liabilities within a period of 60 days failing which the secured creditor would be entitled to take any of the measures provided by sub-section (4) of section 13 the SARFAESI Act. Sub-section (3) of section 13 further provides that a secured creditor is under an obligation to give details of the amount payable by such a borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment by him. In pursuance of the observations made in the case of Mardia Chemicals Ltd. (supra), sub-section (3A) was also added in section 13 of the SARFAESI Act that if a borrower made any representation or raises any objection on the receipt of notice under section 13(2), the secured creditor is under an obligation to consider such representation or objection. If he concludes that such a representation or objection was not acceptable or tenable, he must communicate within one week of receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act : Provided also that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator : Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator : Provided also that the secured creditor shall furnish an liquidator to pay the balance of the workmen's dues, if any. Explanation - For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the Official Liquidator and under the supervision of the Company Court. The right of a financial institution or of the Recovery Tribunal or that of a financial corporation or the Court which has been approached under section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the Official Liquidator being associated with it, giving the Company 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. What we have is only a liquidation proceeding pending and the secured creditors, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company-in-liquidation, through its Recovery Officer but only after notice to the Official Liquidator or the liquidator appointed by the Company Court and after hearing him. (ii)A District Court entertaining an application under section 31 of the SFC Act will have the power to order sale of the assets of a borrower company-in-liquidation, but only after notice to the Official Liquidator or the liquidator appointed by the Company Court and after hearing him. (iii)If a financial corporation acting under section 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the Company Court and acting in terms of the directions issued by that court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of section 529A and sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 13(9) lays down that in the case of a company-in-liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956. This and other provisos do not create first charge in favour of the worker of a company-in-liquidation for the first time but merely recognize the existing priority of their claim under the Companies Act. It is interesting to note that the provisos to sub-section (9) of section 13 do not deal with the companies which fall in the category of borrower but which are not in liquidation or are not being wound up. 115. It is thus clear that provisos referred to above are only part of the distribution mechanism evolved by the Legislature and are intended to protect and preserve the right of the workers of a company-in-liquidation whose assets are subjected to the provisions of the Securitisation Act and are disposed of by the secured creditor in accordance with section 13 thereof." 34. Once the aforesaid legal position is clear then it has to be concluded that the Company Court enjoys the jurisdiction to issue directions to a securitisation company or a secured creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 35 of the SARFAESI Act which contained a non obstante clause over-rode section 37 which stipulated that the provisions of the Act shall be in addition and not in derogation of the Companies Act. The Division Bench adopted the golden rule of construction that the attempt must always be harmonize the provisions and not to see any conflict between two sections under the same enactment. This decision did not actually address the issue of effect of any sale having already commenced after winding up of the Company which the point of issue in our case Rama Steel Industries v. Union of India AIR 2008 Bom. 38 dealt with the case of interplay of the provisions of the SARFAESI Act and RDB Act and other enactments. It found that the expression "any other law for the time was in force" under section 37 of the Securitisation Act was missing from section 34(2) of the RDB Act. This according to the Bench was crucial but it showed that the remedy was in addition to any other law for the time being in force and the availability of other mechanisms of recovery could not be a bar for providing remedy under the SARFAESI Act. . . ." 37. We are in entire agreement with the view taken by the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Court for appropriate directions if the petition for winding up is considered favourably. The winding up petition is still pending. The situation is fluid in the sense that at this stage it cannot be concluded as to whether there would be an order of winding up or not. If there is an order of winding up then the labour dues as contemplated by section 529A of the Companies Act would require to be paid by the Appellant Reconstruction Company as per the requirement of section 13(9) of the SARFAESI Act. The directions issued by the learned Company Judge do not go to the extent of stopping the working of Appellant Reconstruction Company. The directions in fact are supervisory in nature and aims at ensuring that dues of every one as permissible by law gets paid. The learned Company Judge has further issued supervisory directions by asking the Appellant Reconstruction Company to refrain from appropriation or disbursal of the sale proceeds without leave of the Court. It is not a case where it could be said that the learned Company Judge had interfered with the functioning of the reconstruction company because as and when any funds are required to be spent as per the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swered against both the appellants and their appeals are liable to be dismissed. Re: Question (B) 41. It appears to us that while recording facts in para 3 of the impugned judgment, learned Company Judge has committed a factual error when it observed as under :-- "3. It is not in dispute that Bank of India was the only secured creditor in respect of the land where the Company factory premises was situate. The plant and machinery alone had been the subject of hypothecation to HSIIDC at the time when the Company was wound up. ..." [Emphasis added] 42. We have examined the record and have also put it to the learned counsel for the HSIIDC as to whether there was any hypothecation of plant and machinery with it. The record does not show any such hypothecation nor Mr. Kamal Sehgal, learned counsel for the HSIIDC has been able to support the aforesaid averments. Therefore, there is factual error and to that extent the impugned order deserves to be modified. It is, thus, clear that the HSIIDC would be simply a secured creditor with regard to the raw material and, in fact, an unsecured creditor qua plant and machinery. It cannot claim any right of association with the process of sale or ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
