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TMI Blog2012 (6) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... - transparent procedure to be adopted since it is alleged that there were irregularities committed when the movable secured assets were sold - The proposal for sale and the details of the valuation obtained for determining the modalities of sale shall be made available to the Official Liquidator – as there are no dues to employees and workmen this aspect to be considered when the secured creditor seeks leave of this Court to appropriate the amount realized by selling the secured assets as necessary directions could be issued at that stage safeguarding claims in future and the pari passu interest should be protected in that regard - justification for sale by private treaty need not be gone into since the secured creditor/second respondent is not averse to selling it by public auction. - CO. APPLICATION NO. 914 OF 2010, CO. PETITION NO.185 OF 2002 - - - Dated:- 28-3-2012 - A.S. BOPANNA, J. Sriranga for the Applicant. K.S. Mahadevan, V. Jayaram, Udaya Holla and Venkatesh Dodderi for the Respondent. ORDER 1. The applicant, who is one of the unsecured creditors of M/s B.S. Refrigerators Ltd. (hereinafter referred to as to the 'Company-in-liquidation') had institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adoption of proper procedure for selling the property belonging to the Company-in-liquidation by associating the Official Liquidator, it is the case of the first respondent that it has equal right along with the second respondent so as to protect the interest of all the creditors who are entitled. 4. Heard Sri Sriranga, learned counsel for the applicant, Sri K.S. Mahadevan, learned counsel for the first respondent and Sri Udaya Holla, learned senior counsel on behalf of Sri Venkatesh Dodderi, learned counsel for second respondent and perused the materials on record. 5. At the threshold, it is necessary to notice that insofar as the prayer made in the application that the second respondent should be restrained from selling the property by private negotiation and that they should adopt a transparent process, the learned senior counsel on behalf of the respondent would state that in that regard the second respondent has no objection to cause public notice and invite offers. In that view, it would have been sufficient to dispose of the application accordingly. However, contentions have also been urged which would touch upon the right claimed by the secured creditor under the SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is upheld. The only requirement is to keep the Official Liquidator notified so that he could secure payment of workmen's dues as contemplated under Section 529A of the Companies Act. The said requirement in any event is provided under the proviso to Section 13(9) of SARFAESI Act which would be complied, if there are such dues. Therefore, if Sections 35 and 37 of SARFAESI Act are harmoniously construed, the right of the secured creditor has overriding effect, however, the right of workmen to receive on pari passu basis is protected. Hence, the question of associating the Official Liquidator for sale does not arise. The only requirement is to deposit the workmen's dues on pari passu basis and nothing more. 8. In order to consider the rival contentions, it would be appropriate to notice Sections 35 and 37 of SARFAESI Act, which read as hereunder: "35. The provisions of his Act to override other laws.- The provision of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 37. Application of other laws not barred.- The provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding up of a company - ( a ) workmen's dues; and ( b ) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) if sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions." 12. However, by enacting the SARFAESI Act and introducing the right for enforcement of security interest under Section 13, right is given to the secured creditor to enforce the security interest without intervention of the Court. Whether that conflicts with the provision existing in the Companies Act is to be examined. Sub-sections (1) to (7) of Section 13 provides for the secured creditor to follow the procedure, take possession and bring the property to sale for recovery of the amount due. Sub-section (8) provides the debtor an opportunity to settle the dues before sale is concluded and avoid the sale. However, if that does not happen and the property is to be sold and the realised funds are to be appropriated towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors representing not less than three- fourth in value of the amount outstanding on such date. ( b ) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor." 13. The relevant provisions under the Companies Act and SARFAESI Act noticed above arose for consideration before the Hon'ble Supreme Court in the case of Central Bank of India v. State of Kerala [2009] 4 SCC 94, wherein it was observed as hereunder: "114. By enacting various provisos to sub-section (9) of Section 13, the legislature has ensured that priority given to the claim of workers of a company-in-liquidation under Section 529-A of the Companies Act, 1956 vis-a-vis the secured creditors like banks is duly respected. This is the reason why first of the five unnumbered provisos to Section 13(9) lays down that in the case of a company-in-liquidation, the amount realised 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditor requires further consideration. 15. In that direction, with regard to the options available to the secured creditor, the Hon'ble Supreme Court while considering the right of the Tribunal to order sale under Section 19(19) of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 ('RDDB Act' for short) vis- -vis Companies Act, in the case of Andhra Bank v. Official Liquidator [2005] 59 SCL 239 (SC) has held that the secured creditors have two options. They may desire to go before the Company Judge or they may stand outside the winding up proceedings. Even if they choose to stand outside the winding up proceedings, the secured creditor would come within the purview of Section 529-A(1)(b) read with proviso ( c ) to Section 529(1) of the Companies Act. The said position, in my opinion, would hold good even to a situation where the secured creditor chooses to stand outside the winding up proceedings and exercise the right to enforce sale of the secured asset under Section 13 of the SARFAESI Act since sub-section (9) of that section itself will ensure compliance of Section 529A of the Companies Act as well. Therefore, there can be no ambiguity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, the same does not become relevant in the present circumstances. The Hon'ble Supreme Court in Rajasthan Financial Corporation's case ( supra ) has held that the Official Liquidator is entitled to notice and hearing. Hence the extent to which it applies or as to whether it is only an empty formality is to be examined since the learned counsel for the Official Liquidator has also relied on the same decision to assert the right of participation granted to the Official Liquidator. 17. The learned counsel for the Official Liquidator has also placed reliance on the decision of the Hon'ble Supreme Court in the case of Bakemans Industries ( P. ) Ltd. v. New Cawnpore Flour Mills [2008] 84 SCL 489 to contend that the powers of the Company Court and Official Liquidator has been elaborately discussed and that there is a duty to protect all concerned. The said case arose under a circumstance where the role of Provisional Liquidator was considered, that too in a circumstance where the secured creditor had subjected itself to the jurisdiction of the Company Court. It is not in a similar circumstance, but certain observations made therein that the Court cannot ignore its officer ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Official Liquidator. 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 Official Liquidator 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 pending before the Company Court, with details of case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "9. In view of the law declared by the Apex Court in Allahabad's case provisions of SARFAESI Act overrides Section 537 of the Companies Act. Therefore objectors being the secured creditors need not seek leave of the Company Court for the sale of assets of the respondent company under the provisions of the SARFAESI Act. Therefore the objections filed by the objectors are hereby rejected." 21. In view of the above, the learned senior counsel has relied on the decision of the Hon'ble Supreme Court in the case of U.P. State Road Transport Corpn. v. State of U.P. [2005] 1 SCC 444 wherein it is held that the principle of res judieata is based or: the need to give finality to judicial decisions and prevents the same case being twice litigated and that it applies also as between two stages of the same litigation and the parties cannot re-agitate. To the same effect, a decision of this Court in the case of Dattatraya v. Srinivasa Bhat Thammanna ILR 1985 Kar 1946 is cited. The decision of the Hon'ble Supreme Court in the case of the State of West Bengal v. Hemanth Kumar Bhattacharjee AIR 1966 SC 1061 is relied to contend that even a wrong decision by a Court having juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be protected in that regard. 24. One more aspect to be noticed is that the applicant had sought the present prayer for transparent procedure to be adopted since it is alleged that there were irregularities committed when the movable secured assets were sold. The secured creditor has disputed the said contention and had also produced copies or the document to establish that proper procedure for valuation and sale was followed relating to plant and machinery. However, the said question need not be considered herein. 25. In the result, I pass the following: ORDER ( i ) The second respondent/secured creditor/ ARCIL is entitled to sell the secured assets belonging to the Company-in-liquidation by exercising the right under Section 13 of SARFAESI Act and as per procedure in Rules 8 and 9 of Enforcement Rules subject to the following: ( a ) They shall however adopt a transparent procedure after notifying the Official Liquidator. ( b ) The proposal for sale and the details of the valuation obtained for determining the modalities of sale shall be made available to the Official Liquidator. ( c ) On completion of the sale, the secured Creditor shall place before the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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