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TMI Blog2009 (9) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... pany on September 28, 1999. The State Bank of Mysore who extended financial assistance to the said company, in order to secure the outstanding dues, filed O. A. No. 440 of 1997 before the Debts Recovery Tribunal (DRT), Bangalore, for recovery of a sum of Rs. 22,31,78,558.55. After the decree was made in the said O. A., the Recovery Officer issued an official notice for the sale of the properties in various newspapers fixing the date of auction as August 11, 2005. Since the said company was ordered to be wound up, the official liquidator of the company raised his objections before the Tribunal at Bangalore. The auction was directed to be held by the Debts Recovery Tribunal. The applicant in C. A. No. 1811 of 2005 a third party, participated in the auction and his offer of Rs. 10.25 crores being the highest was accepted by the Recovery Officer. The applicant deposited 25 per cent, on the same day, and the balance amount was also deposited in time as directed by the Tribunal. The said auction sale was confirmed by the Recovery Officer on September 12, 2005 and a letter of confirmation was also issued to the applicant. (b)The State Bank of Mysore obtained prior permission from the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the writ petition ; that in view of the said order, the Recovery Officer of the Debts Recovery Tribunal postponed the auction proceedings to be held on October 1, 2004 ; but, again the Debts Recovery Tribunal called for the auction of the property by fixing the date as August 11, 2005 ; that the Sangh filed a fresh affidavit before the High Court, Karnataka, in W. P. No. 37991 of 2004 objecting to the methods adopted by the Debts Recovery Tribunal; that apart from that, M/s. Tapti Machinery who are the petitioners for winding up of the company and also a creditor of the company objected to the sale and filed objections separately before the official liquidator and also before the Debts Recovery Tribunal, Bangalore ; that all the objections were rejected by the Debts Recovery Tribunal and the sale was conducted and confirmed in favour of the applicant in C. A. No. 1811 of 2005 who was the successful bidder; that the successful bidder filed a petition before the High Court of Karnataka to implead them as a party in the writ petition and the same was allowed; that after getting himself impleaded in the writ petition, the applicant herein filed a petition to quash the writ petition, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises with effect from August 1, 2001 and to make the payment out of the rent amount collected from the Central Warehousing Corporation ; that he filed his objections before the Debts Recovery Tribunal, Bangalore, on October 1, 2004, in response to the sale proclamation issued by the Debts Recovery Tribunal; that when the Debts Recovery Tribunal issued a proclamation of sale of property for the second time fixing the date of auction as August 11, 2005, again objections were filed by the official liquidator putting forth his objections to the sale ; that the valuation of the property has been made on March 24, 2003, by a valuer without the knowledge of the official liquidator ; that the inventory report dated November 25, 2004, also revealed that the valuation of the property has been done without the knowledge of the official liquidator; that in view of the order passed by the company court on March 10, 2000, in C. A. Nos. 1251 to 1253 of 1999, the sale conducted by the Debts Recovery Tribunal, Bangalore, without the participation and presence of the official liquidator is vitiated ; that he has also received the copies of the letters addressed to the CBI by the ex-shareholders/dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the public on the proposed auction, and under the circumstances, the auction sale already conducted has got to be set aside. 4. Advancing arguments on behalf of the appellant in O. S. A. Nos. 61 to 63, 76 and 77 of 2009, learned counsel Mr. Karthik Seshadri would submit that the order of the company court made in C. A. Nos. 1251 to 1253 of 1999 dated March 10, 2000, was not varied or modified till date and hence without the leave of this court no coercive steps like auction sale, is possible in law ; that the proposed auction has been challenged by the workers' union even as early as 2004 before the High Court of Karnataka ; that the auction held on August 11, 2005, was the subject-matter of challenge before the Debts Recovery Tribunal at Bangalore ; that since the successful bidder had approached this court in C. A. No. 1811 of 2005, the Debts Recovery Tribunal did not pass final orders in the appeal before it; that under the circumstances, the learned single judge has erred in coming to the conclusion that there was no challenge to the auction held on August 11, 2005 ; that the report filed by the official liquidator would go to show that no consultation whatsoever had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferential creditors and other creditors in accordance with law ; that in the instant case, the Recovery Officer has acted against law and in a manner detrimental to the interest, of the workmen, Government and other creditors of the second respondent, and hence the order of the learned single judge has got to be set aside. 6. Learned senior counsel Mr. T.K. Seshadri, appearing for the first respondent successful bidder put forth the very same contentions in sustaining the order of the learned single judge. 7. This court also heard learned senior counsel Mr. AR. L. Sundaresan appearing on behalf of the official liquidator and also learned counsel Mr. R. Ravichandran for the second respondent-bank. 8. As could be seen above, by an order dated September 16, 1999, made in C. P. Nos. 170 of 1995 and 35 of 1997 by this court one M/s. Deve Sugars Ltd., was ordered to be wound up, and the official liquidator attached to this court, was appointed as the official liquidator of the company with directions to take charge of all the assets and effects of the company in liquidation. The official liquidator accordingly took possession of the assets of the company situated at Harige, Shimoga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator. It should be further added that the premises were actually kept under the seal of the official liquidator. It is a matter of surprise to note that the property in the possession and exclusive custody of the official liquidator could be valued and inventory could be taken even without notice to him and in his absence and that too when the premises are kept under his seal. It would be indicative of the fact that the valuation and inventory report could have been prepared hastily. Hence those reports could not reflect the real and actual value of the property brought for sale. A memo was filed by the official liquidator on September 30, 2004, itself notifying that he has taken possession of the property of the company in liquidation on September 28, 1999, itself and requesting that the sale fixed on October 1, 2004, could be deferred. He has also asked for conduct of the sale of the property jointly. Even the valuation of the property at this juncture can be commented as not only improper and incorrect, but also imaginary. 10. While the proceedings were pending in the hands of the Recovery Officer, W. P. No. 37991 of 2004 was filed by Tungabhadra Sugar Works Mazdoor Sangha, a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , workers union in respect of their dues from the second respondent-company . . . 18. A perusal of the proceedings before the Recovery Officer would disclose that the objections of the official liquidator as well as of the workers union has been rejected and that has been done in a casual and lackadaisical manner." 11. It is brought to the notice of the court that the Recovery Officer has issued paper publication in respect of the inspection of the properties of the company under winding up by intending purchasers by auction sale scheduled on August 11, 2005, just on the previous day of the auction, namely, August 10, 2005. Even on the day of paper publication, the Recovery Officer has registered only two bidders and has closed the registration the very day. It is contended by the appellants' side that though there were two bidders by name, in reality they were one and the same, the sale proprietor of Anitha International, Subhash Kathuria, and hence the auction and the bidding among two bidders were simply a farce. This court is able to see that the auction sale was hurriedly conducted by the Recovery Officer, and that too pending the proceedings, and the same was subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him seeking to set aside the sale was dismissed, it is pertinent to point out that he is shown as one of the respondents in the appeals preferred by others, and hence he was entitled to be heard. Apart from that, the property of the company under winding up stood vested in the hands of the official liquidator in order to satisfy the rights and interest of the creditors of the company. Under such circumstances, as far as the official liquidator is concerned, as respondent he was entitled to put forth his case, and equally all other appellants can also be considered as parties aggrieved by the order of the learned single judge dismissing the respective applications. 13. Much reliance was placed on the decision of the apex court reported in [2000] 101 Comp Cas 64 ; [2000] 4 SCC 406 (Allahabad Bank v. Canara Bank). At this juncture, learned senior counsel for the first respondent would contend that the sale proceedings with regard to the assets of the company in liquidation will have to be continued only by the Debts Recovery Tribunal and not by the official liquidator; that the official liquidator is to be consulted by the Recovery Officer while finalising the secured assets and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itigation. 14. Learned senior counsel would conclude that law is settled by the Supreme Court that the secured creditor need not get any leave from the company court to proceed with the sale of the assets in liquidation and the official liquidator in the instant case was a party, and notice has been issued to him by the secured creditor; that under the circumstances, the order of the company court dated March 10, 2000, does not render the sale not binding on the company in liquidation ; that the auction in question was not challenged by any one ; that the same was confirmed by the Recovery Officer on September 12, 2005 and hence it has got to be affirmed. 15. In support of the contentions put forth by learned counsel for the appellants, they relied on two decisions of the apex court reported in [2005] 128 Comp Cas 387 ; [2005] 8 SCC 190 (Rajasthan Financial Corporation v. Official Liquidator) and in [2008] 144 Comp Cas 1 ; [2008] 7 SCC 738 (M.V. Janardhan Reddy v. Vijaya Bank). 16. In order to solve the controversy, it would be more apt and appropriate to reproduce the relevant part of the judgments relied on by both the parties. In the decision reported in [2000] 101 Comp Cas 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : '34. Act to have overriding effect.-(1) Save as otherwise provided in sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).' The provisions of section 34(1) clearly state that the RDB Act overrides other laws to the extent of "inconsistency". In our opinion, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. There is one more reason as to why it must be held that the jurisdiction of the Recovery Officer is exclusive. The Tiwari Committee which recommended the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company before the Tribunal and its directors in 1962. The respondents before the Tribunal contended that the claim could not have been filed in the Tribunal without the leave of the company court under section 446(1). This court rejected the said contention and held that though the purpose of section 446 was to enable the company court to transfer proceedings to itself and to dispose of the suit or proceedings so transferred, unless the company court had jurisdiction to decide the questions which were raised before the Life Insurance Corporation Tribunal, there was no purpose of requiring leave of the company court or permitting transfer. It was held by this court (page 763 of 35 Comp Cas) : 'In view of section 41 of the Life Insurance Corporation Act, the company court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the Corporation under section 15 of the Life Insurance Corporation Act. It must follow that the consequential provisions of sub-section (1) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l/Recovery Officer under the RDB Act, 1993, because the purpose of the said Act is something more important than the purpose of sections 442, 446 and 537 of the Companies Act. It was intended that there should be a speedy and summary remedy for recovery of thousands of crores which were due to the banks and to financial institutions, so that the delays occurring in winding up proceedings could be avoided . . . At the same time, some High Courts have rightly held that the Companies Act is a general Act and does not prevail under the RDB Act. They have relied upon Union of India v. India Fisheries (P.) Ltd. [1965] 35 Comp Cas 669; [1965] 3 SCR 679 . . . . Alternatively, the Companies Act, 1956, and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, section 34. A similar situation arose in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803 ; [1993] 2 SCC 144, where there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso after a winding up order is passed. No leave of the company court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Points Nos. 2 and 3 are decided accordingly in favour of the appellant and against the respondents." 17. Following the above judgment of the apex court, the learned single judge has agreed with the contentions of the second respondent-bank to hold that the sale has become final since it has already been confirmed by the Recovery Officer, and the sale has become complete and absolute and hence the auction purchaser was entitled to take possession of the property. 18. The apex court in a judgment rendered in [2008] 144 Comp Cas 1 ; [2008] 7 SCC 738 (M.V. Janardhan Reddy v. Vijaya Bank), had an occasion to consider an identical situation as found in the instant case, and it becomes necessary to reproduce the following paragraphs in the judgment which would speak of the factual position that took place in that case (page 3) : "To appreciate the controversy raised in the present appeal, few relevant facts may be stated. Vijaya Bank-respondent No. 1 herein ("the bank" for short) filed Original Suit No. 57 of 1989 in the court of subo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany court to allow the Recovery Officer of the Tribunal to confirm the sale in favour of the appellant and to permit him to issue sale certificate. On February 13, 2006, the Recovery Officer confirmed the sale. It was stated in the said order that the purchasers had purchased the property for a sum of Rs. 67,50,000 at a public auction held on December 19, 2005. Full amount of the sale consideration was paid on January 3, 2006. It was then stated : 'Accordingly, the said sale is hereby confirmed.' According to the appellant, on February 23, 2006, the official liquidator submitted a report to the hon'ble court wherein he also stated that there was no impediment in confirming the sale. Sale certificate was issued in favour of the appellant on March 2, 2006. The sale was registered on March 16, 2006. On March 17, 2006, however, the company judge set aside the sale without issuing notice and without affording an opportunity of hearing to the appellant observing that the sale was not properly conducted and was confirmed without an order from the court. The sale was, therefore, set aside. It appears that an application was made by the appellant to recall the said order. Meanwhile, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. On the permission granted by the company court, the bank took steps for sale of the building of the company. It placed the recovery certificate and the valuation report, etc., to the official liquidator and also made an application before the company court under sections 446 and 457 of the Act read with rule 9 of the Rules praying for acceptance of the valuation report and to permit the bank to sell the property by conducting auction through the Recovery Officer, Debts Recovery Tribunal, Hyderabad. The bank gave notice through publication fixing the date of sale, and the reserve price was also fixed. Since there was no bidder, the same procedure was followed again for the auction sale scheduled to be held on different dates. In an auction held on December 19, 2005, the appellant therein has offered Rs. 67.50 lakhs which was the highest bid on that day, and the bank has also accepted the same. The bank made another application before the company court requesting to allow the Recovery Officer to confirm the sale in favour of the appellant therein and to permit him to issue the sale certificate. Accordingly, the Recovery Officer confirmed the sale. The official liquidator als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e official liquidator, who was a party to the recovery proceedings, were not even taken for consideration. The Recovery Officer did not even care to consider the same which necessitated the learned single judge of the Karnataka High Court to make a comment that it has been done in a casual and lackadaisical manner. In the case before the apex court as referred to above, it was contended by the appellant therein that the auction was held in accordance with law by the authorities and upset price was fixed, and the appellant was the highest bidder, and the same was accepted, and the entire amount was paid, and then the sale was confirmed, and hence it could not be interfered with and set aside by the court as urged by learned senior counsel for the first respondent in the instant case. It was contended by the respondent's side in that case that the Recovery Officer had no power, authority or jurisdiction to confirm the sale, and the order confirming the sale made by him was therefore without power or authority, and apart from that, the company proceedings were pending before the company court since the company was ordered to be wound up and the official liquidator appointed was in cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince it was in clear violation and inconsistent with the order of the company court made on March 10, 2000. The second respondent-bank cannot take advantage of the confirmation of the sale by the Recovery Officer who, in the considered opinion of the court, has acted in violation of the orders of this court and did not possess power to confirm the same. The apex court has held in paragraph 28 of the said judgment [2008] 144 Comp Cas 1 ; [2008] 7 SCC 738 (M.V. Janardhan Reddy v. Vijaya Bank) that in our opinion the company court was right in passing the fresh order after hearing the parties, and since the company was in liquidation and the official liquidator was in charge of the assets of the company, he ought to have been associated with the auction proceedings which was not done. But, in the case on hand, he was not allowed to be associated, and even the valuation of the assets were taken without his knowledge and also the objections raised by him were rejected. Following the decision of the apex court referred to above, the court without any hesitation has to set aside the sale. 23. Speaking of the necessity of the association of the official liquidator in the process of sale, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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