9911796707
TMI Blog1993 (7) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... ces at Bombay on 16th June, 1981. The charge is also registered with the Registrar of Companies on 16th September, 1983 under Section 125 of the Companies Act, 1956. 3. Under an Order of this Court dated 31st July, 1987, the company has been ordered to be wound up. The Official Liquidator has been appointed Liquidator of the company. 4. Under the terms of the mortgage deeds, the appellants have a right to take possession of and sell the mortgaged properties of the company without the intervention of the Court. Moreover, under Section 29 of the State Financial Corporations Act, 1951 also the appellants have a statutory right, inter alia, to take possession of and realise the mortgaged property in case the industrial concern to whom the loan is advanced makes a default in repayment of loan or any instalment thereof or otherwise fails to comply with the terms of its agreement with the financial corporation. As the company had made persistent defaults in paying the installments of principal amount and interest as and when they became due to the appellants, the appellants recalled the loan on 17th May, 1988. According to the appellants, as on 30th June, 1988, an amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of the mortgaged properties by private treaty or by public auction. It is only when intervention of the Corut is sought either by putting in force any attachment, distress or execution within the meaning of Section 232(1) of the Companies Act, 1913, or proceeding with or commencing a suit or other legal proceedings against the company that leave of the Court is necessary. The Supreme Court considered the words any sale held without leave of the Court of any of the properties in Section 232 of the Companies Act, 1913, which provisions are equivalent to the provisions of the present Section 537 of the Companies Act, 1956. The Court held that these words refer only to sales held through the intervention of the Court and not to sales effected by the secured creditors outside the winding up and without the intervention of the Court. The Supreme Court upheld the decision of the Madras High Court before it which is . 7. The decision of the Supreme Court undoubtedly supports the appellants. The Supreme Court, however, has dealt with the question at a time when the Companies Act, 1913 was in force. The Companies Act, 1913 did not have any provision equivalent to the amended Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficient to pay his claim in full, a secured creditor will hardly come under insolvency. It is only when the security is insufficient that he comes in under the insolvency to prove in respect of the balance. In such a case, he has the following three courses open to him : (i) He may realise the security and then prove for the balance; (ii) He may surrender his security and prove for the whole debt; (iii) He may state in his proof the value of which he assessee the security and prove for the balance after deducting the assessed value. (See Mulla's Law of Insolvency in India, 3rd Edition, Page 347) Bearing in mind these rights of a secured creditor, the proviso to Section 529 of the Companies Act lays down that where a secured creditor, instead of relinquishing his security and proving for his debt, opts to realise his security (i.e. adopts Course (i) above), the Liquidator shall be entitled to represent the workmen and enforce the statutory charge in their favour which runs pari passu with the mortgage in favour of the secured creditor. The Proviso further says that any amount which the Liquidator may realise by enforcing such a charge shall be applied rateably for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale and distribution of the assets of the company in winding up. In both these capacities, he has an interest in the sale of the mortgaged security by the secured creditor. 12. What are the rights of a pari passu charge holder? Can a mortgagees exercise his power of sale without the consent of a pari passu charge holders? The meaning of the word 'pari passu' is defined in Jowitt's Dictionary of English Law, Volume II, 1959 Edition page 1294 as: With equal step, equally, without preferance . The term is similarly defined in Black's Law Dictionary, 6th Edition, page 1115 as, By an equal progress. .... Used especially of creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other . Prem's Judicial Dictionary, Volume III, 1964 Edition, page 1217 also defines pari passu as : With equal steps, that is to say, proceeding side by side at the same piace . Therefore, the rights of an Official Liquidator as representing the workmen run equally with the rights of the secured creditors. 13. In the case of co-mortgagees, the Courts have held that the one co-mortgagee cannot sell or institute any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d outside the winding up proceedings and these rights are not taken away in any manner by the provisions of S. 529 or S. 529A of the Companies Act. He realies, in this connection, on a decision of the Bombay High Court in the case of Govindram Bros. v. Official Assignee, . In that case, the Court was required to construe the provisions of the Dekkhan Agriculturists' Relief Act, 1879 as affecting the power of sale without the intervention of the Court conferred on the mortgagee by the mortgage deed. After considering the provisions of S. 15D of the Dekkhan Agriculturists' Relief Act, 1879, the Court said that once the rights of the mortgagor and the protection given to him under S. 15D had been secured, if no further steps were taken by the mortgagor, the mortgagees did not lose his right to sell the property under the mortgage deed and he could exercise that right. 17. This judgment has only a limited application in the present case. If the appellants were the only first mortgagees of the secured property, there can be no doubt that they would be entitled to stand outside the winding up and exercise their power of sale without the intervention of the Court. It is also tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the sanction of the Court to realise the charge after notice to the secured creditor or with the consent of the secured creditor. Since the Official Liquidator represents both the chargeholder and the mortgagor, he need not file a suit against the mortgagor company through himself, to enforce the charge. But, like the secured creditor, the Official Liquidator as a pari passu charge holder also cannot sell the security ignoring the secured creditor. He must, therefore, either obtain concurrence of the secured creditor for sale and take Court's sanction, or he can apply for sanction of the Court after notice to the secured creditor. The Court, while granting such a sanction, may give appropriate directions regarding the conduct of the sale, the fixing of the reserve bid and distribution of sale proceeds. In fact, it will exercise similar powers and give similar directions as when it sanctions a sale by the secured creditor. 20. Hence, both the creditor, viz., the secured creditor as also the Official Liquidator as a representative of the workman, are entitled to exercise their power of sale to realise their claims by mutual consent and after obtaining sanction of the Court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked for by the appellants for conducting the sale. The decision of the Supreme Court in the case of M. K. Ranganathan v. Govt. of Madras, (supra) dealt with a situation where a there was no pari passu charge and the secured creditor had obtained possession of the property of the company before the company went into liquidation. In such a situation, the Supreme Court upheld the right of the secured creditor to sell the security without the intervention of the Court and, hence, the leave of the Company Court was held not necessary under S. 537. In a situation where the Official Liquidator, as a representative of the workmen, has a pari passu charge on the property of the company over which a security is created in favour of a creditor, it is difficult to see how the secured creditor can sell the property outright ignoring the Official Liquidator of the Court. Under S. 537(1)(b), any sale held without leave of the Court of any of the properties or effects of the company after the commencement of winding up shall be void. Since the Court is directly concerned with a property which is in its custody and over which its officer, the Official Liquidator, has a charge, the sale cannot take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise its right to take possession with the permission of the Court. Also, the statutory right which is given to a financial corporation under S. 29 to sell the property has to be exercised consistently with the rights of a pari passu chargeholder in whose favour a statutory charge is created by the Proviso to S. 529 of the Companies Act when the company is in liquidation. Therefore, such a power can be exercised only with the concurrence of the Official Liquidator and the Official Liquidator is required to take the permission of the Court before giving such concurrence since he is an officer of the Court and is required to act under the directions of the Court while exercising his powers on behalf of the workers. However, we entirely agree with the learned Judge when he says in the above judgment that for the implementation of the priorities under S. 529A of the Companies Act the Official Liquidator must take necessary steps to file the claim of the workman before the Court as set out in the judgment and that this is not dependent on the statement of affairs being filed by the directors of the company. This, however, is not a question which requires determination in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Division Bench, in that case, has held that the Maharashtra State Financial Corporation, a duly secured creditor, was outside the winding up and it was entitled to sell the mortgaged property without obtaining leave of the Company Court under Section 537 of the Companies Act. The Division Bench has relied upon the decision of the Supreme Court in the case of M.K. Ranganathan v. Govt. of Madras (supra) in this behalf. It is not clear from the judgment whether in respect of the case before the Court, the amendment to Section 529 of the Companies Act had come into force or was applicable. The Division Bench has not considered the amended provisions of Section 529 at all and any contention in that connection does not appear to have been raised before the Division Bench. Hence, this judgment does not carry the matter any further. 26. It was also urged by Mr. Tulzapurkar, learned counsel for the appellants, that under Section 46B of the State Financial Corporations Act, the provisions of that Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, but save as aforesaid, the provisions of that Act shall be in add ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
