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TMI Blog2016 (7) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as provisional liquidator vide order dated 05.02.2007 in pursuance whereto he took possession of the moveable and immovable assets of the company aforesaid in winding up. It appears that IFCI Ltd., the secured creditor of the company, seeking to recover its unpaid secured loan advanced to the company had earlier approached the Debt Recovery Tribunal, Mumbai (hereinafter "DRTM") prior to the company's liquidation, filing an application under Section 19 of the Act of 1993. A recovery certificate thereupon came to be issued in its favour on 08.07.2004. The said recovery certificate was transferred for execution to the DRT at Jaipur ("DRTJ") as the properties of the judgment debtor company are situate in Rajasthan. As the properties were in possession of the Company Court through the Official Liquidator under the Company Court's order dated 05.02.2007, Application No.38/2012 came to be filed before the Company Court at the instance of the secured creditor-IFCI Ltd. under Rule 9 of the Company (Courts) Rules, 1959 (hereinafter "the Rules of 1959") seeking permission to stay outside winding up and sell the judgment debtor company's mortgaged properties in terms of the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covery Officer, DRTJ for several months and the application for confirmation filed by the highest bidders was kept pending. In the circumstances, the highest bidder (M/s. SPC Infrastructure Pvt. Ltd.) moved Company Application No.20/2015 before this Court in Company Application No.38/2012 inter alia stating that for reasons of delay in confirmation of the bid, the bid amount of Rs. 2.91 crore be directed to be refunded along with accrued interest. This Court was however disinclined to scuttle the auction and direct a refund of the amount of Rs. 2.91 crore, along-with interest dehors the provisions of Schedule-II of the Income Tax Act, 1956 (hereinafter "the Income Tax Act"). In the circumstances, it was prayed by the applicant that directions issue to the Recovery Officer, DRTJ or one holding additional charge of the said post for expeditious disposal of the pending application for confirmation of its bid at the auction held on 19.01.2015. Taking into consideration the fact that the auction was conducted on 19.01.2015 and several months had since lapsed, this Court then directed vide order dated 18.09.2015 that the application for confirmation of the highest bid at the auction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e certificates issued with regard thereto by the Recovery Officer to M/s. SPC Infrastructure Pvt. Ltd. in respect of Lot No.2 i.e. Land & Building (Rs.2.91 crore) and Delhi Tax-Mac Traders in respect of Lot No.1 i.e. Plant and Machinery (Rs.56.10 lac). This Court's orders for the purpose of handing over possession are sought. The Commercial Taxes Department has also filed objections/claim. It has been submitted that a huge amount of Rs. 28,80,84,830/- is owing as sales tax/VAT due against the company in liquidation on account of tax, interest as also penalty for the assessment years 1988-89 to 2001-02. The Department has been regularly following up for recovery of the tax due but was first obstructed by the proceedings against the Company now in winding up under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter 'the Act of 1985'). Thereafter following the recommendations of BIFR, Delhi under Section 20(1) of the Act of 1985 for winding up of the company in default on tax, M/s. Thar Cement Ltd., a provisional liquidator was appointed on 05.02.2007 whereafter complete details of the amounts due to the Department has been conveyed to him on or abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .09.2015 and 04.12.2015, hence without jurisdiction and of no effect. It has been submitted that under the order dated 29.11.2012 whereby the secured creditor-IFCI Ltd. was granted permission of this Court to sell the assets of the judgment debtor company (in liquidation), it was a specific condition that the sale would be confirmed by this Court-the Recovery Officer had in the circumstances no authority to confirm the auction sale and therefore the order dated 11.12.2015 confirming the auction sale is nonest. It has been submitted that the counter applicant is willing to offer a sum of Rs. 3.25 crore as against the highest bid of Rs. 2.91 crore for Lot No.2 and an affidavit in this regard has been filed by Deependar Singh on behalf of the applicant-Company. It has been also submitted that the counter applicant-M/s. Bhawani Stone Crushers Pvt. Ltd. was not aware of the date of the auction sale and could not participate therefor. Counsel submitted that as the bid of the highest bidder M/s. SPC Infrastructure Pvt. Ltd. has not yet been lawfully confirmed by this Court as ought to have been for reasons earlier stated, it has no vested right and can be displaced by highest bidder such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een further submitted that in M.V. Janardhan Reddy (Supra) subsequent to the cancellation of the sale in favour of successful bidder, the property was reauctioned by the Official Liquidator as directed by the Company Court and a price of Rs. 1.80 crores odd received for the mortgaged assets as against the sum of Rs. 67.50 lacs odd which have been offered in the first instance at the auction which was confirmed by the Recovery Officer. Counsel pointed out that admittedly in the present case the Official Liquidator was associated with the valuation of the mortgaged assets as directed by the Company Court in its order dated 29.11.2012 at every stage of the auction sales. No objection as to the valuation of the mortgaged assets or even the highest bid has been raised by him at any point of time. It has been further submitted that the offer belatedly filed by the counter applicant-M/s. Bhawani Stone Crushers Pvt. Ltd. almost after a year of the auction sale, is a mere Rs. 30 lacs more (and after a year barely factoring in the inflation), and the difference is in any event not at all one which would shock the conscience of this Court vis a vis an auction sale lawfully conducted under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors are reproduced hereinbelow : 21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) (formerly under section 19(7)) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word 'recovery' in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act. 22. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decided accordingly. Points 2 and 3: Does the Act override the provisions of Sections 442 and 537 and Section 446 of the Company Act? Question of leave and control by the Company Court: 30. Learned Attorney General has, in this connection, relied upon Damji Valji Shah & Another vs. Life Insurance Corporation of India & Others to contend that for initiating and continuing proceedings under the RDB Act, 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 25 etc. the provisions of the RDB Act, 1993 confer exclusive jurisdiction on 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 529-A of the Companies Act and in no other manner. The provisions of the RDB Act,1993 are to the above extent inconsistent with the provisions of the Companies act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition against the debtor-company and also after a winding up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against the respondents. Mr. Ashok Mehta finall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Liquidator approaches the Company Court, then such a situation would only bring anarchy in the realm of adjudication. The aforesaid submission of the learned senior counsel commends acceptance as the intendment of the legislature is that the dues of the banks and financial institutions are realized in promptitude. It is to be noted that when there is inflation in the economy, the value of the mortgaged property/assets depreciates with the efflux of time. If more time is consumed, it would be really difficult on the part of the banks and financial institutions to realize their dues. Therefore, this Court in Allahabad Bank's case has opined that it is the DRT which would have the exclusive jurisdiction when a matter is agitated before the DRT. The dictum in the said case has been approved by the three-Judge Bench in Rajasthan State Financial Corporation. It is not a situation where the Official Liquidator can have a choice either to approach the DRT or the Company Court. The language of the RDB Act, being clear, provides that any person aggrieved can prefer an appeal. The Official Liquidator whose association is mandatorily required can indubitably be regarded as a person agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any in liquidation only has an enforceable right to participate all through in the sale of the assets of a company against which a recovery certificate has been issued by the DRT. The Company Court has no manner of jurisdiction to interfere either with the adjudication or execution of recovery certificate issued by DRT. The case of M.V. Janardhan Reddy (Supra) is a peculiar one which turned on its own facts. Albeit the Apex court did not unturn it even while noting it in Official Liquidator, Uttar Pradesh & Uttarakhand (Supra) yet made it absolutely clear that it could not be held to be binding authority for the proposition that the Official Liquidator could approach the Company court to set aside the auction sale conducted and confirmed by the Recovery Officer, DRT. Reverting the facts of the present case, it is indeed true that the secured creditor-IFCI Ltd. sought direction of this Court to stay outside the winding up in Company Application No.38/2012. Therein vide order dated 29.11.2012 the Company court did grant it permission to stay outside winding up. The Official Liquidator was directed to be associated with the whole sale process by the secured creditor and sale price de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vent of the Official Liquidator being aggrieved by the order of the Recovery Officer, his remedy is not to approach the Company Court but the Appellate Authority i.e. DRT under the Act of 1993. The same situation also obtains in respect of any of the objectors before the Recovery Officer, if aggrieved by the rejection of their objections and confirmation of auction sale vide order dated 11.12.2015. The company applications under the circumstances, challenging before this Court the order dated 11.12.2015 passed by the Recovery Officer, DRTJ are wholly misdirected and not maintainable. They are thus dismissed. Having held that this Court has no jurisdiction to entertain a challenge to the order passed by the Recovery Officer rejecting the objections to an auction sale and confirming the bid of the highest bidder at an auction held by him following a recovery certificate issued by the DRT resulting from an adjudication of an application under Section 19 of the Act of 1993 filed by the secured creditor or seek to appropriate the Recovery Officer's power to confirm a bid at an auction sale held by the Recovery Officer, even on permission being granted by a Company Court to a secur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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