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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 ..... ointed by the company court with the association of the official liquidator and on acceptance of the same by the company court in order to ensure a proper price is fetched for the assets of the company in liquidation. - O.S.A. NOS. 59 TO 63, 76, 77 AND 82 OF 2009 AND M.P. NOS. 1 AND 2 OF 2009 - - - Dated:- 17-9-2009 - M. CHOCKALINGAM AND R. SUBBIAH JJ. V. Prakash, Ms. Ramapriya, Karthik Seshadri and Sathish Parasaran for the Appellant. T.K. Seshadri, P.B. Ramanujam and R. Ravichandran for the Respondent. AR. L. Sundaresan and Mrs. K. Latha Parimala Vardhana for the Official Liquidator JUDGMENT M. Chockalingam, J. All these appeals challenge a common order of the learned single judge of this court made in C. A. Nos. 1811 of 2005, 854 of 2006 and 2740 to 2742 of 2007 in C. P. No. 170 of 1995 ( Subhash Kathuria v. Deve Sugars Ltd. ( in liquidation ) [2010] 158 Comp Cas 78 ). 2. All the above appeals have been filed under the following facts and circumstances : ( a )One M/s. Deve Sugars Ltd., was ordered to be wound up in C. P. No. 170 of 1995 and C. P. No. 35 of 1997 by an order dated September 16, 1999. An official liquidator was appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them as a party in C A. No. 1811 of 2005 alleging that the State Bank of Mysore approached the court for permission, and the company court in C. A. Nos. 1251-to 1253 of 1999 permitted the applicant/bank on March 10, 2000, in O. A. Nos. 440 and 1300 of 1997 by imposing a condition that the leave granted was subject to the condition that the official liquidator was impleaded, and no coercive steps were taken against the assets of the company during or after the conclusion of the proceedings before the Tribunal ; that the members of the Sangh were appointed as security men by the official liquidator to protect the assets of company with effect, from August 1, 2001, on a monthly salary basis ; that the Debts Recovery Tribunal, Bangalore, passed a decree in 2001 and ordered for sale by auction of the assets of the company on October 1, 2004 ; that the workers' union objected to the sale and filed a writ petition before the High Court of Karnataka seeking stay of the sale by auction proceedings as their salary and provident fund dues to the extent of Rs. 15 crores were due from the company ;, that the High Court of Karnataka by an order dated September 27, .2004, made an interim order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on Government valuation at Rs. 57 crores ; that the respondent also filed a writ petition in W. P. No. 26564 of 2005 before the High Court of Karnataka challenging the sale proceedings, and the same was also pending ; that they were also taking steps for revival of the company; that an application was also filed to that effect before this court ; that the proper and necessary procedure was not followed by the Recovery Officer while selling the property in auction sale which is in the custody of the official liquidator ; that under the circumstances, the sale had no legal sanctity and hence the application was to be dismissed. ( f )The official liquidator filed a report on January 31, 2006, wherein he has stated that he took possession of the available assets of the company on September 28, 1999 ; that after taking possession, the premises were locked and sealed ; that he also appointed the Mazdoor Sangh to safeguard the assets of the company in liquidation with effect from September 28, 1999 ; that they withdrew their services in the month of December, 1999 for the non-payment of the security charges ; that on July 30, 2001, a meeting was conducted, and it was decided to appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the respective parties. 3. Advancing arguments on behalf of the appellant Sangh in O. S. A. Nos. 59 and 60 of 2009, learned senior counsel Mr. V. Prakash would submit that it is pertinent to note that the appellant had very vehemently objected to the auction fixed by the Recovery Officer and filed a writ petition immediately when the first auction was called for and also filed objections before the Recovery Officer when the second auction was called ; that the company in liquidation had not paid salaries and wages to the workmen and also statutory payments like gratuity, bonus, EPF contributions ; that the appellant is very interested in ensuring that the assets of the company in liquidation fetched the best price possible ; that without reference to the official liquidator, no valuation could be done ; that the valuation based on which the upset price came to be fixed by the Recovery Officer was unacceptable and too low; that in the instant case, since the affected party is the official liquidator who is holding the assets in trust for so many claimants, the company court's jurisdiction under section 446 does not get ousted ; that there appears to be serious collusion betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; that the valuation report and the inventory report were prepared without notice to or involvement of the official liquidator; that the said valuation was imaginary ; that the impugned order is vitiated in view of the pendency of the appeals before the Debts Recovery Tribunal challenging the auction; that it is pertinent to note that both the conduct of the auction sale and its confirmation by the Recovery Officer himself and the illegality of the auction were yet to be determined by the Debts Recovery Tribunal in the appeal preferred by the appellant; that the orders of the Recovery Officer were passed subsequent to the winding up order passed by the company court ; that the auction is clearly violative of the earlier directions of this court issued on March 10, 2000 ; that no notice of proclamation of sale was served on the official liquidator ; that the Recovery Officer rejected the objection memo dated September 30, 2004, filed by the official liquidator in a casual manner and without assigning any cogent reasons ; that it is pertinent to note that as per section 456 of the Companies Act, all the properties of a company in liquidation shall be deemed to be in the custody of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petitioner-bank to proceed and prosecute and further O. A. No. 440 of 1997 filed by them against the respondent-company in the Debts Recovery Tribunal at Bangalore, the court made the following order : "Leave is granted subject to the condition that the official liquidator is impleaded and no coercive steps against the assets of the company during or after the conclusion of the proceedings before the Tribunal." 9. Now, at this juncture it is pertinent to point out that the above order was never varied, altered or set aside. Pursuant to the said order, the official liquidator was also made as a party in C. A. No. 440 of 1997. He has put forth his objections. There is nothing to indicate that any of his objections were considered by the Recovery Officer at any point of time. It remains to be stated that a valuation report was prepared on March 24, 2003 and an inventory report was also prepared on November 25, 2004, in respect of the company under winding up. But, no material was placed before the court to indicate that any notice was given to the official liquidator before making valuation of the property. During the relevant time, as pointed out earlier, the entire asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nai, on October 1, 2004. The contentions raised therein are in total contrast to the provisions contained in the Second Schedule to the Income-tax Act as well as the certificate proceedings. The Recovery Officer has to get guided by the provisions made under section 29 as well as section 19(19) of the RDB Act, 1993. Also the guidelines laid down by the hon'ble Supreme Court of India in Civil Appeal No. 2536 of 2000 between ( Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 ), codifying the jurisdiction of Recovery Officer as "exclusive" and its direction to the matter of distribution of sale proceeds (paragraph 50) shall be followed in this case. Hence the contentions of the official liquidator are rejected and disposed of as against the principles codified by the hon'ble Supreme Court of India.' 17. A perusal of the order which is cryptic would give a clear indication that the Recovery Officer has not applied his mind at all to the contentions raised by the official liquidator. It is no doubt true that the official liquidator is not before this court. But that by itself does not necessarily mean that the order of rejecting the objections of the official liquidator can be, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the conclusion of the proceedings before the Tribunal. In the face of the above order, i.e. , not to take any coercive steps against the assets of the company during or after the conclusion of the proceedings before the Tribunal, the secured creditor bank who was the applicant in the O. A., in the considered opinion of the court, could not proceed against the assets of the company either by bringing the property for sale or otherwise. The said order has become final. Needless to say it would be binding upon the creditor bank. The same was never varied or altered. Under such circumstances, the contention of the second respondent-bank that the Debts Recovery Tribunal in exercise of its powers can bring the property for sale, and it has sold the same by public auction accordingly cannot be countenanced. 12. The contention put forth by learned counsel for the second respondent that the official liquidator filed C. A. No. 854 of 2006 seeking to set aside the auction sale made by the Recovery Officer, and the same has been dismissed on the merits and if at all, the official liquidator can be the party really aggrieved by the order; but, he has not chosen to prefer an appeal canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, and the same was also considered and thereafter the Recovery Officer has proceeded with the sale of the property ; that to ensure proper working with the scheme under the SFC Act, it is necessary to associate the official liquidator with the process of sale so that he could 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 ; that in the instant case, it cannot be disputed that the official liquidator was a party to the proceedings and his objections were taken ; that section 446 of the Companies Act, 1956, has no application in the present case once RDB Act applies because section 34 expressly envisages over-riding effect to the provisions of the 1993 Act; that the RDB Act, 1993, is a special law and hence would prevail over the general law in the Companies Act; that once the sale is confirmed by the Recovery Officer and the sale certificate was issued, it cannot be stated to be illegal or void ; that sanctity should be attached to the auction sale conducted for recovery of the debts due to the banks and financial institutions ; and that if such sales are disputed in courts for extraneous re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under article 226 or 227 of the Constitution). This is the effect of sections 17 and 18 of the Act. 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-bank is concerned. ( ii ) Execution of certificate by Recovery Officer : Is his jurisdiction exclusive: Even in regard to 'execution', the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Act for recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under section 17, the banks/financial institutions should go to the civil court or the company court or some other authority outside the Act for the actual realisation of the amount. The certificate granted under section 19(22) has, in our opinion, to be executed only by the Recovery Officer. No dual jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded accordingly . . . The learned Attorney General has, in this connection, relied upon Damji Valji Shah v. Life Insurance Corporation of India [1965] 35 Comp Cas 755 ; 3 SCR 565 ; AIR 1966 SC 135, to contend that for initiating and continuing proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, no leave of the company court is necessary under section 446. In that case, a Tribunal was constituted under the Life Insurance Corporation Act, 1956. The question was whether under section 446 of the Companies Act, 1956, the said proceedings could be stayed and later be transferred to the company court and adjudicated in that court. It was held that the said proceedings could not be transferred. Section 15 of the Life Insurance Corporation Act, 1956 which we may say, roughly corresponds to section 17 of the RDB Act enabled the Life Insurance Corporation of India to file a case before a special Tribunal and recover various amounts from the erstwhile life insurance companies in certain respects. Section 41 of the Life Insurance Corporation Act conferred exclusive jurisdiction on the said Tribunal just like section 18 of the RDB Act, 1993. There the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Life Insurance Corporation Act. Still this court upheld the exclusive jurisdiction of the Life Insurance Corporation Tribunal observing as follows (page 763) : 'the provisions of the special Act, i.e. , the Life Insurance Corporation Act will override the provisions of the general Act, the Companies Act which is an Act relating to companies in general.' We are of the view that the appellant's case under the RDB Act with an additional section like section 34 is on a stronger footing for holding that leave of the company court is not necessary under section 537 or under section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the company court cannot also use its powers under section 442 against the Tribunal/Recovery Officer. Thus, sections 442, 446 and 537 cannot be applied against the Tribunal . . . While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour of jurisdiction and powers of the company court in Sudarsan Chits ( I. ) Ltd. v. G. Sukumaran Pillai [1985] 58 Comp Cas 633 (Ker) and other cases the said principle, in our view, cannot be invoked in the present case against the Debt R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned itself with the State Financial Corporations Act, 1951. Section 537 of the Companies Act was applied and it was held that the Companies Act did not yield to the provisions of the State Financial Corporations Act, 1951. There was no provision in the State Financial Corporations Act, 1951, like section 34 which gave overriding effect to its provisions. For the aforesaid reasons, we hold that at the stage of adjudication under section 17 and execution of the certificate under section 25 etc. the provisions of the RDB Act, 1993, confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to banks and financial institutions and there can be no interference by the company court under section 442 read with section 537 or under section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with section 19(19) read with section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993, are to the above extent inconsistent with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (Court) Rules, 1959 (hereinafter referred to as 'the Rules') for granting leave to proceed with the sale of the property of the company. The company court, vide its order, dated August 13, 1999, granted the permission. The bank then took steps for sale of land and building of the company. It got valuation report from approved valuer, assessed market value and realisable value, submitted copies of judgment, recovery certificate and valuation report, etc., to the official liquidator. It made an application being Company Application No. 187 of 2005 to 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 permit the bank to sell the property by conducting auction through Recovery Officer, Debts Recovery Tribunal, Hyderabad. On February 2, 2005, the bank published a notice fixing date of sale as March 13, 2005. A public notice was issued in "Vaartha" on February 9, 2005. Reserve price was fixed at Rs. 45 lakhs. No bidder, however, came forward and auction could not be effected. Same thing was repeated in auction sales scheduled to be held on May 29, 2005, July 8, 2005 and September 14, 2005. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale which was in favour of the appellant and ordered that the amount deposited by the appellant be refunded to him. The appellant approached the Division Bench of the High Court but the Division Bench also dismissed the appeal. The said order is challenged in the present appeal. On February 12, 2007, notice was issued by this court. The matter thereafter appeared on the board from time to time. Status quo was also granted. The parties were permitted to file replies and a direction was issued to the registry to place the matter for final hearing on a non-miscellaneous day and that is how the matter has been placed before us." 19. As regards the above case which was in the hands of their Lordships of the Supreme Court, it is necessary to mention the following which were available in the factual position of that case : ( a )Pursuant to a common judgment in the year 1993, directing the company in liquidation to make payment of Rs. 6,43,962 to the creditor company, the secured creditor filed execution application which was transferred to the recovery tribunal constituted under the RDB Act. The recovery certificates were issued in favour of the bank, and the bank was allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertinent to point out that as found in the case reported in [2008] 7 SCC 738 ; [2009] 144 Comp Cas 1 ( M.V. Janardhan Reddy v. Vijaya Bank ) referred to above, the second respondent-bank in the instant case, sought leave to proceed with the sale of the property of the company. The company court made an order on March 10, 2000, as referred to above, granting permission on condition that the official liquidator must be made a party, and apart from that, the secured creditor should not adopt coercive process against the assets of the company during or after the conclusion of the proceedings before the Tribunal. Needless to say that the sale of the property cannot but be a coercive process for recovery of the amount. In the considered opinion of the court, the case of the appellants in this case, is on a better footing for the reasons that in the case referred to above, namely [2008] 144 Comp Cas 1 ; [2008] 7 SCC 738 ( M.V. janardhan Reddy v. Vijaya Bank ) , though the matter was pending before the Debts Recovery Tribunal and also the Recovery Officer, the valuation report was filed along with the recovery certificate before the official liquidator. An application was also filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing paragraph of the judgment of their Lordships of the apex court reported in [2008] 144 Comp Cas 1 ; [2008] 7 SCC 738 ( M.V. Janardhan Reddy v. Vijaya Bank ) , which in the considered opinion of the court would directly apply to the present facts of the case (page 7) : "Having heard learned counsel for the parties and having given anxious consideration to the facts and circumstances in their entirety, in our opinion, it cannot be said that by setting aside sale, either the learned company judge or the Division Bench has committed any illegality which deserves interference in exercise of discretionary power under article 136 of the Constitution." 21. At the risk of repetition, the court has to reproduce the order of the company court dated March 10, 2000, which reads as follows : "Leave is granted subject to the condition that the official liquidator is impleaded and no coercive steps against the assets of the company during or after the conclusion of the proceedings before the Tribunal." 22. The second respondent-bank having applied to the company court and obtained an order as above, cannot ignore the same. Such an order would be binding on the Recovery Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany in liquidation. It was in that context that the rights of the official liquidator were discussed in International Coach Builders Ltd. v. Karnataka State Financial Corporation [2003] 114 Comp Cas 614 (SC). The Debts 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." 24. In view of the above position of law laid down by the apex court, the sale by the Recovery Officer and subsequent confirmation have got to be set aside in view of the non-association of the official liquidator in the process of sale which would ensure a proper price for the assets of the company in order to safeguard the interest of all the creditors secured and unsecured and also the workers' union, and also it was in violation of the order of the company court referred to above. 25. Hence, the following judgment is made : ( i )The auction sale in question is set aside ; ( ii )The auction purchaser is entitled to refund of the monies paid by him towards the auction sale which is now set aside ; ( iii )In the interest ..... 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