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TMI Blog2015 (12) TMI 1472X X X X Extracts X X X X X X X X Extracts X X X X ..... that the sale made in favour of M/s. Venus Realcon does not require any interference. There is no good reason why the full price paid by Venus Realcon should be ordered to be refunded with interest etc. and possession which was delivered to Venus Realcon at the time of sale should be disturbed after passage of so much time. The money deposited in this case by the intervener M/s. Himalayan Infra Projects Private Limited should be refunded to it forthwith along with interest accrued thereupon. The judgment and order of the Delhi High Court is affirmed by holding that powers under the Companies Act cannot be wielded by the Company Judge to interfere with proceedings by a secured creditor to realize its secured interests as per provisions of the SARFAESI Act. - Civil Appeal No. 3646 of 2011, Civil Appeal No. 14736 of 2015 (Arising out of SLP(C) No. 7074 of 2010), Civil Appeal Nos.14737-14738 of 2015 (Arising out of SLP(C) Nos. 117-118 of 2011) and Civil Appeal Nos. 9293-94 of 2014 - - - Dated:- 29-12-2015 - Vikramajit Sen And Shiva Kirti Singh, JJ. JUDGMENT Shiva Kirti Singh, J. 1. A common issue of law: Whether a Company Court, directly or through an Official Liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court dated 17.9.2012. By this order the Delhi High Court has differed with the views taken by the Punjab and Haryana High Court in the judgment assailed by Pegasus in Civil Appeal No.3646 of 2011. According to Delhi High Court, the company judge or the official liquidator cannot have any say in the sale of secured assets by the secured creditors under the SARFAESI Act. The Companies Act cannot be used to put any fetters on the sale by secured creditors because a secured creditor under Section 13 of the SARFAESI Act has been granted a right to enforce the security interest without the intervention of the court or tribunal in accordance with the provisions of the SARFAESI Act. It goes without saying that if the view taken by the Punjab and Haryana High Court in the matter of Pegasus is approved and the Civil Appeal No. 3646 of 2011 is dismissed, then the Delhi High Court s view will stand disapproved and Civil Appeal No. 9293-94 of 2014 will have to be allowed. 5. In order to decide the issue indicated above, it is not necessary to go into factual details relating to either the case of Pegasus or to that of Megnostar. Only the broad features necessary for appreciation of ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (hereinafter referred to as the Rules ). These conditions forming part of paragraph 19 of the judgment of the learned Company Judge are extracted hereinbelow because these have been objected to by Pegasus as fetters which the Company Judge could not have obtained and therefore Pegasus preferred Company Appeal No.28 of 2009 which has been dismissed by the order under appeal dated 15.12.2009. Para 19 is as follows : 19. If any attempt to harmonize the provisions of the SARFAESI Act and the Companies Act could be made, in the context of orders for sale having already been made by the Company Court and the participation of the assignor of the applicant at several steps for the conduct of sale through the Company Court, it will be inexpedient unyoke the proceeding that were put through the O.L. While upholding the claim that the procedure laid down under the SARFAESI Act would enable the provisions of the Security Enforcement Rules to be applied for conduct and confirmation of the sale, the dispensation in this case would be (a) to permit the applicant to stay outside the winding up proceedings and take action to bring to sale the secured assets under Section 13 of the SAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come into the hands of the Official Liquidator, these have to be protected and governed by provisions of the Companies Act which are meant not only to serve the interest of secured creditor like Pegasus but also to take care of interest of the workmen and by ascertaining their dues which have highest priority and require protection as per Section 529A of the Companies Act as well as interest of the unsecured creditors. The stand of respondent no.2 is that once the bank had opted to participate in the winding up proceedings before the Company Judge, Pegasus should not have been permitted to take a contrary stand as it could have only stepped into the shoes of the bank. HSIIDC had also preferred a cross appeal bearing No. 23 of 2009 before the Division Bench against order of the Company Judge dated March 20, 2009. Before the Division Bench, it claimed a right to be associated with Pegasus in the process of sale of the secured assets of the company, from beginning to end. However, it is clear as a crystal that HSIIDC is neither a secured creditor of the company under winding up nor it has stepped into shoes of any secured creditor. C.A.Nos.9293-9294 of 2014 9. Megnostar is the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ESI Act but with the aid of police personnel they took forcible possession of the mortgaged property on August 30, 2011. In September 2011 the bank filed C.A.No.1948 of 2011 in C.P. No.359 of 2009 for a direction upon the Official Liquidator to unseal the property and hand over its possession to M/s. Mohan Tractors. To similar effect was C.A.No.1947 of 2011 filed by M/s. Mohan Tractors. The Company Judge appointed a valuer who submitted a Valuation Report on 14.01.2012. As per the report the land was valued at ₹ 77.44 lacs approx. and the construction existing on the land was valued at ₹ 40.65 lacs, the total value thus amounted to ₹ 1.18 crores approx. The learned Company Judge dismissed C.A. Nos.1947 and 1948 of 2011 by order dated 26.4.2012. Against that, the bank respondent no.2 preferred Company Appeal No.58 of 2012 before the Division Bench of High Court of Delhi. A separate appeal bearing no.62 of 2012 was filed by M/s. Mohan Tractors. Those appeals were allowed by the Division Bench as per order under appeal dated 17.09.2012. 10. The case of Mr. Vinod Rajaliwala requires separate consideration but only after an adjudication on the main issue indicated e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue supervisory direction to a securitization company/ secured creditor in connection with a company in liquidation or under winding up in the face of Section 13 of the SARFAESI Act or securitization company opting to stand outside the winding up is absolutely free to utilise the sale proceeds of assets of the company in liquidation? 11. The Division Bench of Punjab Haryana High Court considered the case of Mardia Chemicals v. Union of India (2004) 4 SCC 311; Rajasthan State Financial Corporation v. Official Liquidator AIR 2006 SC 755 = (2005) 8 SCC 190; Bakemans Industries v. New Cawnpore (2008) 144 Company Cases 71 (SC); Ram Kripal Singh v. State of Uttar Pradesh (2007) 11 SCC 22; and Central Bank of India v. State of Kerala (2009) 4 SCC 94 for coming to a conclusion in paragraph 34 that the Company Court enjoys the jurisdiction to issue directions to a securitization company or a secured creditor who has opted to stay outside the winding up and invoke its power under Section 13 of the SARFAESI Act. 12. We are unable to subscribe to the aforesaid views. On the other hand, after going through the judgment of Delhi High Court in the case of Megnostar we are persuaded to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of secured property is, vide Section 31 required to be taken by moving appropriate application before the concerned District Judge as per procedure prescribed under Section 32. Section 46B does bestow overriding status on this Act over the then existing law but not over the Companies Act of 1956 which is a later law. Hence, in several judgments it has rightly been held that if the defaulter is a company under winding up, a State Financial Corporation can at best be a secured creditor who may opt to remain out of winding up but nonetheless it will be subject to orders passed in accordance with law under the Companies Act. 16. The RDB Act is of 1993, i.e. later to the Companies Act. Its avowed object is to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. This Act creates a special machinery for speedy recovery of dues of banks and financial institutions which, by an amendment of 2004 now include a registered securitization company or reconstruction company envisaged under the SARFAESI Act. Section 18 bars the jurisdiction of ordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of a company under winding up being a borrower would mean requirement of notice to the Official Liquidator. The Security Interest (Enforcement) Rules, 2002 (for brevity, the Rules ) framed under the provisions of SARFAESI Act also require notice upon the borrower or his agent at different stages. For sale of immovable secured assets, as per Rule 8, the authorized officer can take possession by delivering a Possession Notice to the borrower and by affixing Possession Notice on the outer door or at some conspicuous place of the property. Before the sale also, the authorized officer is required to serve to the borrower a notice of 30 days. Thus the Rules also ensure that the Official Liquidator is in knowledge of the proceedings under the SARFAESI Act in case the borrower happens to be a company under winding up. As a borrower, the Official Liquidator has ample opportunity to get the details of the workers dues as ascertained under the Companies Act, placed before the authorized officer and seek proper distribution of the amount realised from the sale of secured assets in accordance with various provisos under sub-section (9) of Section 13 of the SARFAESI Act. 18. The above di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sections 529 and 529A of the Companies Act would affect the rights of financial corporations because of a pari passu charge in favour of the workmen. In respect of such dues of the workmen the Official Liquidator has to be accepted as their representative. 21. In the context of RDB Act, reliance was placed upon another judgment of this Court by three Judges in the case of Bank of Maharashtra v. Pandurang Keshav Gorwardkar (2013) 7 SCC 754 wherein this Court held that the Debts Recovery Tribunal is not empowered to adjudicate/ determine dues of workmen of debtor-company. Once the company is in winding up workmen s dues can be determined only by the liquidator under supervision of Company Court and by no other authority. In para 53, while considering Rajasthan State Financial Corporation decided by three Judges Bench it was noticed that once a winding up proceeding has commenced, the distribution of the proceeds of the sale of the assets at the instance of the banks or financial institutions coming under the RDB Act or SFC Act can only be with the association of the Official Liquidator and under the supervision of the Company Court. The reason for such a view was recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AESI Act to warrant reading something more into it. For the purpose it has been enacted, it is a complete code and the earlier judgments rendered in the context of SFC Act or RDB Act vis- -vis the Companies Act, cannot be held applicable on all force to the SARFAESI Act. There is nothing lacking in the Act so as to borrow anything from the Companies Act till the stage the secured assets are sold by the secured creditors in accordance with the provisions in the SARFAESI Act and the Rules. At the post sale stage, the rights of the persons or parties having any stake in the sale proceeds are also taken care of by sub-section (9) of Section 13 and its five provisos (not numbered). It is significant that as per sub-section (9) a sort of consensus is required amongst the secured creditors, if they are more than one, for the exercise of rights available under sub-section (4). If borrower is a company in liquidation, the sale proceeds have to be distributed in accordance with the provisions of Section 529A of the Companies Act even where the company is being wound up after coming into force of the SARFAESI Act, if the secured creditor of such company opts to stand out of the winding up pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the law. Since the sale already made has not been assailed by Pegasus, therefore that issue will abide by the views that we shall indicate hereinafter in respect of SLP(C) Nos. 117-118 of 2011 preferred by Mr. Vinod Rajaliwala. 27. We grant leave in SLP(C) No.7074 of 2010 preferred by HSIIDC but only to dismiss this case as we have found the grievance of Pegasus to be justified; it was entitled not only to stay outside the winding up proceeding in view of provisions of SARFAESI Act which is a special and later Act but was also entitled to exercise its rights without any fetters that were erroneously placed upon it by the company Judge and were approved also by the Division Bench. Hence, the grievance of the HSIIDC that Pegasus should not have been permitted to stay outside the winding up proceeding is found meritless. Consequently its appeal has to be dismissed. 28. As we have approved the judgment of the Division Bench of Delhi High Court in the case of Megnostar, the appeals preferred against the judgment in Civil Appeal Nos. 9293-94 of 2014 are hereby dismissed. In the facts of the case there shall be no order as to costs. 29. With respect to the case of Vinod Rajali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 40 crores in April, 2011. That money is lying in deposit in this Court. 31. The argument on behalf of Mr. Rajaliwala and the intervener Himalayan Infra Projects Private Limited is that this Court should take a practical view and allow the offer of ₹ 50 crores in comparison to ₹ 32 crores deposited by the auction purchaser. In reply, on behalf of Venus Realcon- respondent No. 3, it was pointed out that Mr. Rajaliwala is himself a property dealer and a PIL at his instance, in this matter, does not deserve any consideration for lack of good faith, in view of Judgment in the case of Arun Kumar Agrawal vs. Union of India, 2014 (2) SCC 609. It was pointed out from materials on record that the valuation of property has been changing from 2002 when it was estimated to be ₹ 10.13 crores. In January 2010 its market value was around ₹ 24-25 crores and the distress value was ₹ 18-20 crores approximately as per two different valuation reports. The valuation of ₹ 75 crores approximately in 2008 was unrealistic, solely on the basis of oral communication from the Collector said to be based upon valuation for commercial plot and not for an industrial plot. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmation will create huge problems. When an auction-sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they are themselves to be blamed if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price. Of course, the situation may be different if an auction-sale is finalized, say for ₹ 1 crore, and subsequently somebody turns up offering ₹ 10 crores. In this situation it is possible to infer that there was some fraud because if somebody subsequently offers ₹ 10 crores, then an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done. 33. In Vedica Procon s case (supra) the aforesaid view was noticed and after considering many judgments in Paragraph 39, the Court approved the view taken in Navalkha and S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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