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TMI Blog2014 (1) TMI 1809X X X X Extracts X X X X X X X X Extracts X X X X ..... p, must before he could prove the debt relinquish his security for the benefit of the general body of creditors. In other words, if the secured creditor relinquish the entire security for the benefit of general body of creditors, he would have to prove whole of his debt. As against this, if the secured creditor has realised his security, he may prove for the balance due after deducting the net amount that has been realized. Thus, stage for relinquishing of security arise only when the secured creditor seeks whole of his debt in the course of winding up. The proceedings initiated by the respondent -banks under SARFAESI are not alternate to the winding up petition. In the present case the respondents - banks did not surrender or relinquish their right in the Kingfisher House in respect of which, even before filing of company petition, they had initiated proceedings under the SARFAESI Act. That apart, the proceedings under Section 14 of the SARFAESI Act, in any case, need not be stayed or directions need not be issued not to proceed with the same, since till this date no order of winding up has been passed against the company at the instance of respondent -banks or at the instance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om taking possession thereof. 5. SBICAP-Trustee on behalf of the respondent-banks had issued a notice under Section 13(2) of the SARFAESI Act on 3-5-2013 to the appellant-company, UBHL and to Dr.Vijay Mallya. The appellant submitted a representation/objections to the notice under Section 13(3-A) of the SARFAESI Act on 29-6- 2013. SBICAP-Trustee, however, rejected the representation of the appellant vide order dated 14-7-2013. On 10-8-2013 SBICAP-Trustee took symbolic possession and issued notice under Section 13(4) in respect of Kingfisher House. On 14-8- 2013 the office of the Tax Recovery Officer also issued an order of attachment against Kingfisher House. On 19-8-2013, the respondents-banks filed company petition No.164/2013 before this Court seeking winding up of the appellant-company. on 14- 10-2013 SBICAP-Trustee filed an application under Section 14 of the SARFAESI Act, as aforementioned, before the CMM, Mumbai seeking possession of the Kingfisher House. On 23-12-2013, SBICAP-Trustee asked the appellant- company to vacate and handover complete and physical possession of Kingfisher House along with all assets therein on or before 16-1-2014. It is in this backdrop, the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following judgments: M.K.Ranganathan and another Vs. Government of Madras and others, (1955) 2 SCR 374; International Coach Builders Ltd. Vs. Karnataka State Financial Corporation, AIR 2003 SC 2012; Rajasthan State Industrial Development and Investment Corporation and Another Vs. Diamond & Gem Development Corporation Limited and another, (2013) 5 SCC 470, Hegde and Golay Ltd. Vs. State Bank of India, ILR 1987 KAR 2673 and Allahabad Bank Vs. Canara Bank, (2000) 4 SCC 406. 9. On the other hand, Mr.Naganand, learned Senior Advocate appearing for the respondents submitted that the propositions of law urged on behalf of the appellant and the judgments relied upon in support thereof are of no avail to the appellant-company in view of the admitted fact that so far the Company Court has not passed an order of winding up or appointing provisional liquidator till this date. He submitted that, in any case, SARFAESI Act being a special legislation, it is always open to secured creditors, like the respondents in the present case, to follow the due procedure contemplated therein and seek possession of the assets mortgaged with them. He submitted that the respondents-banks, in the company peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e light of the provisions contained in Sections 446 (2), 441 (2) and 529-A of the Act., and whether the enunciation of law laid down in Hegde & Golay Ltd., (supra) that a secured creditor has a right to present a winding up petition without electing to stand outside, is only applicable at the stage of proof and ranking of claims and not at the stage presenting a winding up petition, still holds good, in view of law declared by the Supreme Court in Allahabad Bank (supra). 13. Before we consider these and other questions we would also like to consider whether there is a bar of jurisdiction in terms of Sections 34 and 35 of the SARFAESI Act, for the Company Court, to grant the relief as prayed for in the application. 14. Section 34 of the SARFAESI Act bars that the jurisdiction of all civil Courts to entertain any suit or a proceeding in respect of any matter, which a Debt Recovery Tribunal or an Appellate Tribunal is empowered to determine under the said Act. Section 35 declares that the provisions of the SARFAESI Act would prevail over other laws notwithstanding anything inconsistent contained therein. Similarly, Section 446(2) of the Act provides that the Company Court shall have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the workers and pro tanto must be treated as special law made by Parliament. Thus it was held that since the amendments of the Act were made by the later Act of 1985, they would override the provisions of Section 29 of the SFC Act. As a matter of fact, the Supreme Court agreeing with the view expressed in A.P. State Financial Corporation rejected the contention that the view taken therein needs reconsideration. 15.2. Thus, it is clear that the Company Court would not have jurisdiction to interfere with the proceedings under the provisions of the SARFAESI Act, in particular when order of winding up or appointing provisional liquidator has not been made in the company petition. We may also notice that the appellant-Company did not at any point of time take recourse to the remedies available under Sections 17 and 18 of the SARFAESI Act against the order/action under Section 13(4) of the said Act. 16. At this stage, even before we advert to the contentions urged by learned Senior Counsel for the parties, we would like to consider the judgments of the Supreme Court and High Courts and their effect on the facts of the present case. 16.1. In M.K.Ranganathan (supra), the Supreme Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of winding up made against the company. The Supreme Court in International Coach Builders considered the rights of the pari passu charge- holders which run equally, temporarily and potentially, with the rights of the secured creditors and held that the secured creditors cannot realize their security without the leave of the winding up Court. However, the observations of the Supreme Court in International Coach Builders made in the concluding paragraph are more relevant. The Supreme Court observed that the right unilaterally exercisable under Section 29 of the State Finance Corporation Act is available against the debtor, if a company, only so long as there is no order of winding up and that, the Corporation cannot unilaterally act to realize the mortgaged properties without the consent of the official liquidator representing the workmen for the pari passu charge in their favour under the proviso to Section 529 of the Act. The question of consent of Official Liquidator would arise only where there is an order of winding up. The Supreme court further observed that if the Official Liquidator does not consent, the Corporation have to move the Company Court for appropriate directions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have otherwise had. Based on this it was vehemently submitted by Mr.K.G.Raghavan, learned Senior Counsel that under any circumstances the proceedings initiated under Section 14 of the SARFAESI Act, not only deserves to be stayed or direction be given to the SBICAP-Trustee not to proceed with the same but also deserves to be quashed. 20. In Allahabad Bank (supra) the dispute before the Supreme Court was between two nationalised banks, Allahabad Bank (appellant) on the one hand which had obtained a simple money decree against the debtor company M/s. M.S.Shoes (East) Co.Ltd. from Debt Recovery Tribunal at Delhi under the Regulatory of Debts Due to Banks and Financial Institutions Act, 1993 (for short "RDB Act") and Canara Bank on the other, whose claim as a secured creditor was still pending before the same Tribunal at Delhi against the same company. Allahabad Bank had appealed before the Supreme Court against the order passed by the Company Judge Under Sections 442 and 537 of the Act in a winding up proceedings by Ranbaxy Ltd. staying the sale proceedings taken out by Allahabad Bank before the Recovery Officer under the RDB Act. Applications for winding up the defendant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the Supreme Court was essentially considering the jurisdiction of the DRT under the Recovery of Debts Due to Banks and Financial Institution Act, 1993 vis-à-vis the Company Court and was not seized of the question whether a secured creditor can file a petition for winding up without relinquishing his security, as in the instant case. 21. In Hegde and Golay Ltd. (supra) this Court was considering the question can a secured creditor maintain a winding up petition without either giving up security or valuing it. The contention in this case was that the bank which is a secured creditor cannot maintain a winding up petition without making an election either to give up security or value it as required by Section 9(2) of the Provisional Insolvency Act 1920. It was further urged that by Section 529 (1) of the Act, the Rules of Insolvency in Section 9(2) are attracted. After having considered the provisions contained in Section 9(2) of the Provisional Insolvency Act, this Court considered the contention that a secured creditor may stand outside insolvency, but, if, he brings-up a creditor's winding up petition, he must, in his petition, state that he is either willing to rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it would be inappropriate and inapposite to require the secured creditor at the stage when he files company petition for winding up to exercise the option of relinquishing his security since that stage does not arise until the debt is to be proved. (see CANFIN Homes Ltd. Vs. Llyods Steel Industries Ltd. Vol.106 (2001) Company Cases 52, Hegde and Golay Ltd; Kotak Mahindra Bank Ltd. Vs. Eastern Spinning Mill (2013) 177 Comp.Case 15 (Cal.) and ICICI Bank Ltd. Vs. SIDCO Leather Ltd., AIR 2006 SC 2008) . 23. Thus, the law laid down by this Court in Hegde and Golay (supra) in the light of the facts and circumstances that fell for consideration and the law laid down by the Supreme Court in Allahabad Bank (supra) in the light of the facts and circumstances fell for consideration therein, in our opinion, do not conflict and, therefore, the law laid down in Hegde and Golay Ltd. still holds the field, insofar as the point in dispute in our case. The question that falls our consideration is whether respondent-banks can maintain a winding up petition without giving up security and/or can stand outside winding up in respect of secured assets and still maintain the petition for winding up for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law is that if a secured creditor who seeks to prove "whole of his debt" in the course of proceedings of winding up, must before he could prove the debt relinquish his security for the benefit of the general body of creditors. In other words, if the secured creditor relinquish the entire security for the benefit of general body of creditors, he would have to prove whole of his debt. As against this, if the secured creditor has realised his security, he may prove for the balance due after deducting the net amount that has been realized. Thus, stage for relinquishing of security arise only when the secured creditor seeks whole of his debt in the course of winding up. In the present case the respondents- banks did not surrender or relinquish their right in the Kingfisher House in respect of which, even before filing of company petition, they had initiated proceedings under the SARFAESI Act. That apart, the proceedings under Section 14 of the SARFAESI Act, in any case, need not be stayed or directions need not be issued not to proceed with the same, since till this date no order of winding up has been passed against the company at the instance of respondent-banks or at the i ..... 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