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TMI Blog2011 (1) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of the turbo generators supplied by them to the company in liquidation, cannot be sustained and their applications under section 9 dismissed X X X X Extracts X X X X X X X X Extracts X X X X ..... and 114 of 2004 before the Debts Recovery Tribunal, New Delhi, claiming recovery of a total amount of more than Rs. 72.00 crores. While the first O.A. was against New Horizon Sugar Mills Ltd., the other two were against the company in liquidation. 6. In the meantime, one of the creditors of the company in liquidation filed the above C.P. No. 229 of 2004 for winding up. It was filed on July 12, 2004, along with an application in C.A. No. 1393 of 2004, for the appointment of the official liquidator as the provisional liquidator to take over the assets and management of the company in liquidation. That application was allowed by D. Murugesan J. by an order dated July 22, 2005, appointing the official liquidator as the provisional liquidator to take charge of all the properties and effects of the company. 7. In the meantime, Sundaram Finance Ltd., the second respondent herein filed an application in O.A. No. 4401 of 2004 under section 9 of the Arbitration and Conciliation Act, 1996 seeking the appointment of an Advocate Commissioner to seize and deliver the machinery available in the premises of the company in liquidation. By an order dated December 8, 2004, a Commissioner was appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi filed applications in I.A. Nos. 698 and 699 of 2005 seeking liberty to initiate steps under the SARFAESI Act, 2002. The applications were allowed on October 3, 2005. However, the applicant later filed I.A. Nos. 872 and 874 of 2005, seeking the leave of the Tribunal to withdraw O.A. Nos. 113 and 114 of 2004. During the pendency of these applications, which were wholly unnecessary, the applicant herein had issued two notices dated January 17, 2005 and January 18, 2005 under section 13(2) of the SARFAESI Act, 2002 and also took possession of the secured assets on October 5, 2005. Thereafter, the applicant also issued a tender on January 20, 2006, for the sale of the assets under section 13(4)(a) of the Act. 11. Challenging the measures taken by the applicant herein under section 13(4) of the Act, the promoters-directors of the company filed an application in S. A. No. 3 of 2006 on the file of the DRT-I, Chennai under section 17 of the Act. By an order dated February 16, 2006, the Debts Recovery Tribunal stayed the opening of the tenders, but permitted the applicant herein to receive the tenders and keep them in a sealed box. Thereafter, the applicant filed I.A. No. 31 of 2006 bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06, praying for confirmation of sale in favour of the highest bidder who offered Rs. 135.50 crores in the bid cum auction held on February 20, 2006. 16. In or about the same time, the promoters-directors of the company in liquidation and their respective wives, who are respondents Nos. 5 to 8 herein also took out an application in C.A. No. 1033 of 2006, praying for the transfer of their SARFAESI appeal (under section 17) in S.A. No. 3 of 2006 from the file of the DRT-I, Chennai, to the file of this court, to be heard along with the above C.P. No. 229 of 2004. 17. All the three applications, viz., C.A. Nos. 1033, 1038 and 1039 of 2006 were taken up together for hearing and by an order dated July 3, 2006, Mrs. Chitra Venkataraman J. (i) directed fresh publication for sale in C.A. No. 1038 of 2006 ; (ii) dismissed C.A. No. 1039 of 2006, as a consequence thereof ; and (iii) dismissed C.A. No. 1033 of 2006 on the sole ground that by the order passed on April 24, 2006 in C.A. No. 1786 of 2005, the possession taken under the SARFAESI Act was already directed to be handed over to the official liquidator and that therefore, nothing survived in the SARFAESI appeal, requiring the same to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the issues raised above the company court may proceed further with the tender. It is needless to say that the respondent/interveners/banks and finance companies are entitled to be heard on their objections to the auction sale, and the order under appeal shall be subject to further orders to be passed by the learned single judge. The company court is requested to decide the matter expeditiously preferably within a period of three weeks." 19. Thereafter, C.A. No. 1038 of 2006 was taken up for hearing. In that application, as it was originally filed, the official liquidator, Sundaram Finance Ltd., City Union Bank and Vijaya Bank alone were the respondents. But since the Division Bench by its order dated July 25, 2006 passed in O.S.A. No. 226 of 2006 permitted the interested parties to intervene and file their objections to the auction sale, the promoters and their wives filed an application in C.A. No. 1471 of 2006 for impleading them as respondents Nos. 5 to 8 in C.A. No. 1038 of 2006. Mr. V. Kannan, who is the fifth respondent herein and who is also the chairman of the company in liquidation, filed a separate application in C.A. No. 1472 of 2006 for impleading New Horizon Sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of 2006. 22. In order to convince this court to stall the sale of the properties, the fifth respondent also filed an affidavit of one Mr. M. R. Ramchander, claiming to be the chairman and managing director of a company incorporated in Singapore. It was stated in the said affidavit that he had agreed to give a loan of USD 30 million, equivalent to Rs. 120 crores for the rehabilitation of the company in liquidation. 23. Lured by the carrot held in front of them, the applicant herein issued a letter dated February 27, 2008 agreeing to accept a sum of Rs. 100.81 crores payable in 120 days, as full and final settlement. Similar letters of acceptance of the proposals for one-time settlement were issued by all other secured creditors including Sundaram Finance Ltd. On that basis, the fifth respondent filed an affidavit into court in March 2008. In paragraph 2 of the affidavit, he indicated that all secured creditors had given confirmed OTS acceptance letters, making the total liability as Rs. 158.92 crores. In paragraph 3 of the affidavit, the fifth respondent also made a commitment, which reads as follows : "I submit that the investor identified by the respondent has agreed to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills Ltd. and also pointing out that the machinery financed to New Horizon Sugar Mills are also installed in the same factory and that the removal and sale of those belonging to the company in liquidation, after the removal of the machinery belonging to the other company, would cause damage. Therefore, an order was passed on September 8, 2008 in the present C.A. No. 1038 of 2006 directing the official liquidator to indicate separately the value of the assets financed to these companies separately and also permitting the sale of the machinery belonging to New Horizon Sugar Mills Ltd. (the ninth respondent herein). 27. As against the order dated September 2, 2008 passed in the present application C.A. No. 1038 of 2006, directing the official liquidator to sell the properties, New Horizon Sugar Mills Ltd. (the ninth respondent herein) filed an appeal in O.S. A. No. 321 of 2008. A similar appeal was filed by the promoters and their wives (respondents Nos. 5 to 8 herein) in O.S.A. No. 345 of 2008. 28. As against the order dated September 2, 2008 dismissing O.A. Nos. 253 and 254 of 2005 (applications under section 9 of the Arbitration and Conciliation Act), Bharat Heavy Electricals Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions given by the First Bench earlier. (i) As regards the O.S.A. Nos. 341 and 342 of 2008, they have been filed by the tenth respondent herein. Their injunction restraining the sale of the assets of the company in liquidation was dismissed directing them to lodge their claim before the official liquidator. (ii) In any event, now there cannot be any sale without the permission of the court. However, since all the matters are interconnected, O.A. Nos. 253 and 254 of 2005 are also to be heard along with the other matters. However, the interim order originally granted in these applications will not continue. The parties can jointly file a memo before the learned single judge for early hearing." 31. In pursuance of the above order of the Division Bench dated October 27, 2009 passed in O.S.A. Nos. 321, 341, 342 and 345 of 2008, the application C.A. No. 1038 of 2006 in C.P. No. 229 of 2004 and O.A. Nos. 253 and 254 of 2005, have come back to the company court for a fresh hearing, as it would normally happen in a game of snakes and ladders, putting all the secured and unsecured creditors back to square one and making the borrower to have the last laugh, due to the pitfalls in the sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal liquidator was also appointed only for that company and hence, the powers are limited under section 450(3) of the Companies Act, 1956 ; (iii) the powers of the provisional liquidator are well defined under sections 446(1) and 456(1) and the provisions of section 443(1)(c) applies only if the petitioning creditor (and not third party creditors) invokes the same ; (iv) the present application filed in pursuance of an understanding reached between the applicant and the second respondent on September 27, 2005, is contrary to law in view of the fact that under section 441(2) of the Companies Act, 1956 the winding up of the company is deemed to have commenced on July 12, 2004, the date of presentation of the petition for winding up and that therefore, no understanding could be reached between the creditors outside the court ; and that therefore, the application C.A. No. 1038 of 2006 should be dismissed. 35. Dr. Anita Sumanth, learned counsel appearing for the tenth respondent opposed the application on the ground that the sale of the properties including the turbo generator manufactured and installed by them, would jeopardise their claim before the Arbitral Tribunal. 36. Since al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (3) of section 450 makes it clear that a provisional liquidator would have the same powers as a liquidator, unless the court which appointed him, limited and restricted his powers, by the very order appointing him or by a subsequent order. In the case on hand, the provisional liquidator was appointed by an order dated July 22, 2005 passed in C.A. No. 1393 of 2004. Neither the order of appointment dated July 22, 2005 nor any subsequent order passed by this court contained a restriction/limitation on the powers of the provisional liquidator. Therefore, the provisional liquidator has the same powers as that of the liquidator and the same cannot be belittled. In any case, the provisional liquidator has not sold the properties of the company in liquidation. He has not even come up with any application for sale of the properties. It is not the provisional liquidator, but one of the secured creditors (the applicant herein) who has come up with the application for the issue of a fresh advertisement for sale of the properties of the company in liquidation. There is nothing in the Companies Act, 1956, which restricts or limits the power of this court to order sale of the properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, it was not necessary for the company judge to wait till the company was wound up." 42. In paragraph 58 of its decision in Bakemans the Supreme Court expressly rejected the contention that the provisional liquidators have no statutory powers in relation to effecting the sale of the movable or immovable property. All that is required of this court, while ordering the sale, was to involve the provisional liquidator in the sale. Therefore, there are no impediments for the court to order sale of the properties. Therefore, the reliance placed by learned senior counsel for respondents Nos. 5 to 8 on the decision of the Division Bench of this court in Sri Chamundi Theatre Mysore Talkies Ltd. case (supra), is of no avail to him, in the light of the law laid down by the Apex Court in Bakemans. It is relevant to point out that the decision in Sri Chamundi Theatre was actually taken note of by the Supreme Court in Bakemans, in the very same paragraph 58 itself. 43. In Reinz Talbros Ltd. v. Kostub Investments Ltd. [2009] 96 SCL 108 (Delhi), the order passed by the company judge for an auction sale of the properties of the company involved in winding up proceedings came under ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets cannot be ordered. To say that the properties cannot be sold till the set aside petition is disposed of, is itself obnoxious. It is still worse if the said application is filed and not even numbered. Interestingly, a copy of the affidavit and Judges summons in the set aside petition in D. No. 6007 of 2006 is enclosed to the affidavit filed on December 12, 2009. Not even an apology of a reason is stated therein, to enable this court to allow the application for setting aside the order dated July 22, 2005. Therefore, the second objection cannot be sustained. 46. The third objection of respondents Nos. 5 to 8 is that the applicant herein had given up the security that it had, over the assets of the company in liquidation, by surrendering possession to the provisional liquidator. Therefore, according to learned senior counsel for respondents Nos. 5 to 8, the applicant has actually become an unsecured creditor and hence, the properties cannot be sold at their instance. 47. The above objection stems out of a mix up, intentional or otherwise, as to what constitutes a secured asset, in terms of different enactments. Section 2(1)(zc) of the SARFAESI Act, 2002 defines a " secured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Property Act, 1882 nor the Contract Act, 1872 nor even the SARFAESI Act, 2002 suggest even remotely that a secured creditor would be deemed to have given up his security, by merely surrendering possession. Actually possession is not a sine quo non for the creation of a charge/mortgage, except where it is a possessory mortgage. In fact sub-section (8) of section 13 of the SARFAESI Act stipulates that if the dues of the secured creditor, together with all costs, charges and expenses are tendered at any time before the date fixed for sale or transfer, the secured asset shall not be sold and no further step shall be taken for the transfer or sale of the secured asset. Section 13(8) does not take the issue any further by stipulating that the bank or financial institution shall then issue a no due certificate and a certificate of redemption, since all these acts fall outside the scope of the SARFAESI Act. Therefore, the third objection that the security interest was given up, by the applicant surrendering possession to the official liquidator, is not well founded. 50. It is well settled that a secured creditor is entitled to stand outside the winding up proceedings and can proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency Act, 1909. 53. Section 47 of the Provincial Insolvency Act, 1920, which is almost in pari materia with rules 9 to 11 of the Second Schedule to the Presidency-towns Insolvency Act, 1909, enables a secured creditor to do one of the three things, viz., (i) he may enforce his security and prove for the balance due to him ; (ii) he may relinquish his security for the benefit of the general body of creditors and prove the whole debt ; or (iii) he may value his security and receive a dividend for the balance that may be due to him, subject to the right of the court/official assignee to redeem the security. Interestingly, section 47(2) of the 1920 Act, uses the expression " relinquishes his security" , while rule 10 of the Second Schedule to the 1909 Act, uses the expression " surrenders his security" . As a matter of fact, these provisions correspond to rule 10 of the Second Schedule to the (English) Bankruptcy Act, 1883 (later rule 11 of the Second Schedule to Bankruptcy Act, 1914). The English Rule uses the expression " surrenders or gives up" . Therefore, rule 10 of the Second Schedule to the Presidency-towns Insolvency Act, 1909, also uses the very same expression " surrenders" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in ICICI Bank Ltd. v. Sidco Leathers Ltd. [2006] 67 SCL 383. 56. In Sidco Leathers Ltd. (supra), a first charge was created on the assets of the borrower, in favour of ICICI bank, IFCI and IDBI and a second charge was created in favour of Punjab National Bank. The first charge holders went before the civil court which got transferred to the Debts Recovery Tribunal. In the meantime, the borrower company was wound up and the official liquidator took charge. The Debts Recovery Tribunal granted liberty to ICICI bank (first charge holder) to obtain permission of the company court under section 446. The company court gave permission to them to prosecute the proceedings before the Debts Recovery Tribunal by standing outside the winding up. The Punjab National Bank which was a second charge holder, had also filed a suit. In the meantime, the official liquidator sold the assets of the company and issued a notice in Form 63 under rule 148(1) of the Companies (Court) Rules, 1959. The ICICI bank lodged a claim with the official liquidator. All the first charge holders also filed an application before the company court, seeking payment on pro rata basis, to the exclusion of the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incial Insolvency Act, 1920 and considered question as to when a secured creditor will be deemed to have "relinquished his security", for the purpose of section 47(2) of the 1920 Act and held in paragraphs 52 and 53 of its decision in Sidco Leathers Ltd. (supra) as follows:- "52. Section 47 of the Provincial Insolvency Act is attracted by virtue of section 529(1) of the Companies Act. Sub-section (2) of section 47 would become applicable where a secured creditor voluntarily relinquishes his security for the general benefit of the creditors. 53. The expression "relinquish" has a different connotation. In P. Ramanatha Aiyar's Advanced Law Lexicon at page 4047, it is stated : "Relinquish : To give over possession or control of ; to leave off." It envisages a conscious act, i.e., an act where a person was aware of his right and then relinquishes the same. The same must be for the general benefit of the creditors. His action must lead to a conclusion that he, for one reason or the other, intended to stand in the queue for receiving money owed to him. It, however, does not stand obliterated only by the filing of an affidavit or proof of claim with the official liquidator. Such a claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SARFAESI Act, 2002, by virtue of the decision in Transcore. Therefore, by the same logic, their decision to come before the winding up court, cannot be treated as a recourse to parallel proceedings. Hence, the fourth objection is also rejected. 60. The fifth objection that the lease hold equipment are not severable, can be dealt with conveniently, while dealing with the objections of learned senior counsel for the ninth respondent, as they overlap to some extent. 61. The sixth objection, arising out of a provision for arbitration in the agreements that the company in liquidation had with respondents Nos. 2 and 10, is not actually directed against the applicant herein. This objection can at the most be placed in response to a prayer, as and when made by respondents Nos. 2 and 10. There is no averment that the loan agreements that the applicant had with the company in liquidation contained an arbitration clause. Therefore, the claim of the applicant cannot be defeated, on the basis of an arbitration clause contained in the agreements that the company had with other lenders. 62. The seventh objection of learned senior counsel for respondents Nos. 5 to 8 is that the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2005, etc. batch. They were disposed of by a common order dated March 27, 2007 directing the workmen to go before the Commissioner of Labour, Puducherry, for the purpose of adjudication of their claims. The said order of the Division Bench became the subject-matter of two appeals before the Supreme Court in C.A. Nos. 6381 and 6382 of 2009. These appeals were disposed of by the apex court by an order dated August 31, 2009. In paragraph 9 of its order, the Supreme Court directed the Indian Bank to transfer an amount of Rs. 6.00 crores from out of the sale proceeds to a no-lien account, for the purpose of disbursement to the workers. The balance amount, if any remaining in the no-lien account, after the settlement of the workers dues, was directed to be paid to the ninth respondent, without prejudice to the contentions of the bank. I do not know if the ninth respondent, who was represented by the fifth respondent herein, even brought to the notice of the apex court that in the light of the claims that the applicant and other secured creditors had, the ninth respondent was not entitled to take the balance amount. 67. In pursuance of the aforesaid orders, the process of computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... least to the brain, if not to the conscience of the court. 71. In the counter affidavit filed by the fifth respondent, for and on behalf of the ninth respondent, it is admitted by him that the ninth respondent availed certain credit facilities from the Indian Bank, Pondicherry and committed default. Therefore, a notice under section 13(2) of the SARFAESI Act was issued on September 25, 2004 demanding a sum of Rs. 27,19,15,465, followed by a possession notice under section 13(4) dated January 1, 2005. The properties of the ninth respondent at their factory premises at Ariyur, which were taken possession of, have already been sold to EID Parry India Limited, in an auction held on March 24, 2005 and sales certificate has also been issued subsequently. The attempts made by the ninth respondent, the promoters of the ninth respondent, the workers of the ninth respondent as well as the association of depositors of two non-banking finance companies promoted by the very same respondents Nos. 5 to 8, to stall the sale by Indian Bank, failed. There were several litigations at several levels and all of them have now got reduced only to a small area of conflict, which relates to the distributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ninth respondent can easily be tested. 74. Out of the 4 categories of plant and machinery and equipment listed above, two were actually financed by the applicant herein to the company in liquidation. Therefore, the objections raised by respondents Nos. 5 to 8 and 9, relating to these two categories of plant and machinery and equipment, are covered by my discussion in the other portions of this order. 75. In so far as the equipment leased out by Sundaram Finance Ltd. (second respondent herein) to the company in liquidation is concerned, the company in liquidation cannot claim ownership, since these equipment are given on lease by Sundaram Finance Ltd. to the company in liquidation. Therefore they have the right of re-possession. As a matter of fact, Sundaram Finance Ltd., has already obtained orders in the applications (A. Nos. 4401 of 2004 and 1448 of 2005) filed under section 9 of the Arbitration and Conciliation Act, 1996, for re-possession and sale. The application A. No. 4401 of 2004, was closed on December 7, 2005 after the applicant and Sundaram Finance Ltd., entered into a memorandum of understanding on September 27, 2005. Therefore, the sale of the third category of plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a secured creditor, who has initiated proceedings under the SARFAESI Act, to sell the properties which are the subject-matter of those proceedings and at the same time, seek the sale of the properties of the company which is in liquidation, through the company court. If both of them issue advertisements at the same time in the same newspapers and conduct the sale simultaneously, the objection of the ninth respondent will become meaningless. But it would involve unnecessary expenditure, which should be avoided. Therefore, the first and second objections of the ninth respondent cannot hold water. 78. The third objection of the ninth respondent relates to the powers of this court and of the provisional liquidator, when the winding up petition is still pending. To be precise, the contention of the ninth respondent is that the power of this court to order the sale of the properties of a company, which is sought to be wound up, can be traced only to section 443(1). Clauses (a) to (d) of sub-section (1) of section 443 empowers this court only to make any interim order that it thinks fit. Therefore, according to the ninth respondent, the sale of the properties of the company, during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the Code of Civil Procedure, 1908, so far as applicable, shall apply to all proceedings under the Act and these Rules. Rule 9 makes it clear that nothing in the Rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or to pass orders as may be necessary for the ends of justice or to prevent abuse of the process of court. 83. Order XXXIX, rule 6 of the Code of Civil Procedure, 1908, empowers a civil court to order the sale of any movable property, which is subject to speedy and natural decay or which for any other just and sufficient cause it may be desirable to have sold at once. By virtue of rule 6 of the Companies (Courts) Rules, 1959, the power conferred by Order XXXIX, rule 6, CPC is also available to this court. 84. Rule 106(1) of the Companies (Courts) Rules, 1959, enables this court to appoint a provisional liquidator, upon such terms as in the opinion of the court shall be just and necessary. Sub-rule (2) of Rule 106 stipulates that the order appointing the Provisional Liquidator shall set out the restrictions and limitations, if any, on his powers imposed by the court. The order of appointment is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. As a matter of fact, if the secured creditors had opted to stand outside the winding up proceedings, they would have been free to bring these properties to sale. But, the applicant herein who is a secured creditor has come up before this court, on account of a decision of the Supreme Court in Asset Reconstruction Co. (India) Ltd. v. Official Liquidator [2006] 72 SCL 18 and also in view of the order passed by this court directing the applicant to surrender possession to the official liquidator. 87. The decision of the Division Bench of this court in Asset Reconstruction Company case (India) Ltd. v. Official Liquidator, High Court [2006] 134 Comp Cas 267, followed the law laid down in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64; [2000] 4 SCC 406 and Rajasthan State Financial Corp. v. Official Liquidator [2005] 63 SCL 468 SC/128 Comp Cas 387; [2005] 8 SCC 190. The question that arose for consideration in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 (SC) related to the jurisdiction of the Debts Recovery Tribunal under the RDDB Act, 1993 vis-a-vis the company court. The Supreme Court held therein that even where a winding up petition is pending, the adjudication of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 section 529 of the Companies Act. (4) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the company court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company in liquidation." 89. Therefore, following the above ratio, the Division Bench held in Asset Reconstruction Company that when the securitisation company acting under section 13 of the SARFAESI Act seeks to sell or otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter submitted itself to the jurisdiction of the company court. That the State Financial Corporation was entitled to do so, was also pointed out by the Supreme Court in the same paragraph, by holding that "SICOM (The State Financial Corporation in that case) indisputably had a statutory power, but it could waive the same." Therefore, by the same logic, the applicant herein who invoked section 13 of the SARFAESI Act, 2002, was also entitled not to proceed further with the other measures prescribed under section 13(4), but to come up before the company court. This is what the applicant had chosen to do by filing this application, especially in view of the order passed by this court, directing the applicant to hand over possession to the official liquidator. Therefore, the reliance placed by learned senior counsel for the ninth respondent in the decision of a learned judge of the Bombay High Court in Divya Chemicals Ltd., In re [2005] 127 Comp Cas 853; [2005] 64 SCL 429, is of no assistance to the ninth respondent, in view of the fact that in the case before the Bombay High Court, the official liquidator sought permission of the company court to sell the properties and the same was opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ninth respondent that since the present application is actually for enforcement of the understanding reached between the applicant and the second respondent outside this court after the commencement of the proceedings, the court shall not pass any order, which would give effect to such an understanding. 96. But the above contention of the ninth respondent is fallacious. At the outset, I do not think that there is any bar for two creditors to join together and work out a strategy to be followed before the company court while participating in the proceedings for winding up. Even without the memorandum of understanding (MoU) dated September 27, 2005, it was open to the applicant to have sought the concurrence of the second respondent, for the sale of the assets, in view of the fact that they also have stakes in the matter. For instance, Vijaya Bank, which is the fourth respondent in this application did not enter into any memorandum of understanding with the applicant. Nevertheless, they have supported the application in the course of its hearing. It does not mean that after the commencement of the proceedings for winding up under section 441(2), they have reached an understa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to the extent that they rank pari passu under clause (c) of the proviso to section 529(1), shall have the right of preferential payment, notwithstanding any law for the time being in force. These debts are also required to be paid in full, unless the assets are insufficient to meet them. If they are insufficient, they shall abate in equal proportions. 101. The preferential treatment to be given to the workmen's dues and the debts due to secured creditors, by virtue of section 529A of the Companies Act, 1956, is also recognised and inserted as sub-section (19) of section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. 102. Since section 529(1) makes the rules relating to the law of insolvency, applicable to the proceedings for winding up of an insolvent company, insofar as 3 aspects are concerned, viz., (i) debts provable; (ii) valuation of annuities and future and contingent liabilities; and (iii) the respective rights of secured and unsecured creditors, let us now take a look at the provisions of the Provincial Insolvency Act, 1920 and Presidency towns Insolvency Act, 1909. 103. While the Provincial Insolvency Act, 1920, consolidates and amends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent, but also answers the contention of learned counsel for respondents Nos. 5 to 8 that the applicant is deemed to have given up his security. 108. Coming to the Presidency Towns Insolvency Act, 1909, it is interesting to note that there is no provision therein, which corresponds to section 47 of the 1920 Act. On the other hand, the 1909 Act contains two Schedules, the First Schedule traceable to section 26 and the Second Schedule traceable to section 48. Section 26 deals with the meeting of creditors, convened by order of the court, at the instance of either a creditor or the official assignee. The purpose of the meeting is to consider the circumstance of insolvency and the mode of dealing with the property of the insolvent. The First Schedule contains rules relating to the summoning of and the proceedings at a meeting of creditors. 109. Rules 11 and 13 of the First Schedule, deal with secured creditors. In essence, rules 11 and 13 are similar to sub-sections (1) to (4) of section 47 of the 1920 Act. Rule 11 of the First Schedule contains two limbs. The first limb requires the secured creditor, who has not surrendered his security, to file a proof containing the particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47(4). 113. But there is a small difference between rules 10 and 12(1) of the Second Schedule to the 1909 Act and sections 47(2) and (4) of the 1920 Act. The difference is that under rule 10, the surrender of security is to the official assignee. Under rule 12(1), the right to redeem the security vests with the official assignee. But under section 47(4) of the 1920 Act, it is the court which is entitled to redeem the security. 114. While rule 12(1) of the Second Schedule to the 1909 Act, is similar to section 47(4) of the 1920 Act (except the small difference pointed out in the preceding paragraph), rule 12(2) confers more powers upon the official assignee. As per this rule, if the official assignee is dissatisfied with the value at which the security is assessed by the secured creditor, he can require the property to be offered for sale on such terms and conditions as agreed between the creditor and the official assignee. If there was no agreement on the terms and conditions, the court itself may fix the terms and conditions. Rule 12(2) goes to the extent of enabling the creditor and the official assignee to bid and purchase the security, if it is sold in a public auction. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at finding out whether such person is a mortgagee and if so, for what consideration. Once such a person is found to be a mortgagee and there is no sufficient objection to the amount claimed by him as due under the mortgage, the court shall direct the accounts and inquiries to be taken for ascertaining the principal, interest and costs due on the mortgage. Thereafter if the court is satisfied that there should be a sale, it may direct notice to be given in such newspapers as it thinks fit, for the sale of the property. In such an event, the official assignee, unless otherwise ordered, shall conduct the sale and the mortgagee himself is entitled to bid and purchase in such a sale. 117. Thus it is seen that the scope of rule 18 is very wide and it provides a complete answer to the contentions raised on behalf of the company in liquidation as well as to the contentions raised on behalf of respondents Nos. 5 to 9. Speaking of the rights of the mortgagee, the Supreme Court held in paragraph 49 of its decision in SIDCO Leathers Ltd. case (supra) as follows : "While enacting a statute, Parliament cannot be presumed to have taken away a right in property. Right to property is a constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eless add pepper and salt to the meat on hand. Therefore, let me place even the same on record. 120. It is on record that respondents Nos. 5 to 8 not only promoted Arunachalam Sugar Mills Ltd. and New Horizon Sugar Mills Ltd., but also promoted two non-banking finance companies by name (i) Pondicherry Nidhi Ltd., and (ii) PNL Nidhi Ltd. These finance companies committed default in payment of the deposits on maturity. Therefore, when Indian Bank sought to enforce its security against New Horizon Sugar Mills Ltd., by issuing a notice under section 13(2) of the SARFAESI Act, 2002, on September 25, 2004, the same was challenged by the company in W. P. No. 33700 of 2004. But the writ petition was disposed of, directing the company to pay the loan amount in three instalments. Since the company failed to make payment, the bank took possession on January 1, 2005 and issued an auction sale notice. Apprehending that the sale of the properties of New Horizon Sugar Mills Ltd., would leave them high and dry, the association of depositors of the finance company, viz., PNL Depositors Welfare Association filed a writ petition challenging the auction sale. The workers of the Mill also filed a writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned judge towards the end of the discussion, which was not set aside by the Division Bench, is of importance and hence it is extracted as follows : "It is seen from the materials placed on record that while Pondicherry Nidhi Ltd., was a registered financial establishment under the provisions of the Reserve Bank of India Act, 1934, M/s. PNL Nidhi Ltd., is an unregistered financial establishment. Both the financial establishments are carrying on their business activities in the very same address, viz., 189, Mission Street, Pondicherry. M/s. V. Kannan and V. Bhaskaran and their close relatives/associates are major shareholders of PNL Nidhi Ltd. It is also pertinent to note that the said persons are also major shareholders/directors of New Horizon Sugar Mills Ltd., and Arunachalam Sugar Mills Ltd., and as such they are persons interested in the management and affairs of the said companies and the financial establishment. Though these companies and the financial establishment are separate legal entities, as contended by learned counsel for the parties concerned, and, therefore, the properties standing in the names of the respective companies and the individuals are distinct and indep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positors from Pondicherry alone were 6,000, whose deposits totalled to Rs. 57 crores. The Indian Express newspaper also carried the sad tale of thousands of depositors. Therefore, I am convinced that respondents Nos. 5 to 8 are just attempting to stall the sale, only with a view to protect themselves from the depositors. If the sale is postponed, the hopes of thousands of depositors would be kept alive and the noose around the neck of respondents Nos. 5 to 8 would not get tightened. On the other hand, if the sale takes place, the secured creditors may take away a major chunk of the proceeds, exposing the respondents Nos. 5 to 8 to the risk of being proceeded against personally, by the depositors. Therefore, to my mind, the objection of respondents Nos. 5 to 8 to the proposed sale is only with a view to keep the secured creditors, unsecured creditors and the depositors as well as the long (if not mutilated) arm of the law at bay. As a matter of fact, a reasonably good offer appears to have been received from a leading sugar mill, for buying the properties in question. After it was stalled, the movable properties such as plant and machinery and co-generation and energy efficient equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btained a decree from a civil court and that execution proceedings are pending. Therefore, they seek the exclusion of this boiler from the list of machinery. 125. The applicant in C.A. No. 2486 of 2006 has produced a copy of the contract that they had with the company in liquidation. In clause 3.11 under section III of the contract containing the "General Conditions of Contract", it is stipulated that the title and ownership in goods shall, immediately on these being handed over to the transporter, pass onto the purchaser and these shall become the property of the purchaser. However, the proviso states that the supplier shall have a "particular possessory lien" on the goods to the extent of the value remaining to be realised from the purchaser. 126. The applicant has also filed a copy of the plaint filed by them in Civil Suit No. 19 of 2005 on the file of the court of the Civil Judge, Senior Division, Baramati, for recovery of a sum of Rs. 1,12,32,150, from the company in liquidation. But in the suit, the applicant did not seek to exercise or enforce their so-called lien on the boiler. A reading of the plaint would show that the applicant had conceded the passing on, of the title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery of the boiler lawfully, without the applicant reserving the right of disposal. Therefore, the applicant had lost its lien on the boiler. Consequently, the applicant had become merely an unsecured creditor, who holds a decree in its favour (for whatever it is now worth) and can only stand in the long queue of unsecured creditors, behind all those secured creditors and workmen. In such circumstances, the prayer made in A. No. 2486 of 2006 for excluding the boiler sold by Walchandnagar Industries Ltd., to the company in liquidation, cannot be granted. O.A. Nos. 253 and 254 of 2005 : 132. As pointed out elsewhere, O.A. Nos. 253 and 254 of 2005 are filed by Bharat Heavy Electricals Ltd., under section 9 of the Arbitration and Conciliation Act, 1996 praying for interim orders of injunction restraining the company in liquidation from alienating or encumbering or disposing of the land and building comprising of the factory of the company at Arunachalam Nagar, Malapampadi Village, Tiruvannamalai Taluk and the plant and machinery lying thereon. 133. It is contended by Dr. Anita Sumanth, learned counsel for the applicant Bharat Heavy Electricals Ltd., that the company in liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity to the applicant herein and that therefore, these turbo generators cannot be sold. 138. But unfortunately for the applicant herein, they stand in no better footing than the applicant in C.A. No. 2486 of 2006. In pursuance of two contracts, the applicant manufactured two sets of turbo generators and supplied them to the company in liquidation. The company had taken possession lawfully. The title in the goods had passed onto the buyer. Inasmuch as title as well as possession had passed on to the buyer, the applicant herein has no right to claim any lien over the goods. As an unsecured creditor, the applicant has only one remedy viz., to prove their claim before the official liquidator and wait in the queue for a miracle to happen. Therefore, the objection of the applicant herein to the sale of the turbo generators supplied by them to the company in liquidation, cannot be sustained and their applications under section 9 deserve to be dismissed. Conclusion : 139. In the light of the above discussion- (i) C.A. No. 2486 of 2006 is dismissed with liberty to the applicant to lodge its claim with the official liquidator. No costs. (ii) O.A. Nos. 253 and 254 of 2005 are dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall provide adequate police protection to ensure smooth inspection on the dates indicated above. It is open to the officials of the applicant, the officials of the second respondent and the representatives of the company in liquidation to accompany the official/deputy official liquidator, on the dates of the inspection, along with the intending purchasers. The cost of the paper publication in the English daily and the vernacular daily, shall be borne equally by the applicant (IREDA) and the second respondent (Sundaram Finance Ltd.), by making payment of the amount, as and when claimed by the official liquidator. Apart from issuing paper publications, the official liquidator shall also send intimation of the proposed sale to some of the leading sugar mills in the country, including (i) the sugar mills which already evinced interest in buying these properties by tendering letters of offer; and (ii) the sugar mill which purchased the properties of the ninth respondent. 140. In order to avoid any confusion, it is made clear at the cost of repetition that the newspaper publications inviting tenders, should contain the following details : (i) The upset price of the land, building, pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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