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TMI Blog2014 (2) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... e Official Liquidator will have to approach the DRT under Section 17 of the SARFAESI Act, if he seeks to challenge the sale held by the secured creditor under Section 13(4) of the SARFAESI Act. The view of the Delhi High Court commends acceptance. In view of the answer to the question of maintainability, against the applicant, it is not necessary to deal with the factual aspects and the grounds for setting aside the sale, as urged by the applicants. Application dismissed being not maintainable. - Company Application Nos. 525, 572, 573 and 597 of 2013, Company Petition No. 171 of 2011 - - - Dated:- 28-2-2014 - Vilas V. Afzulpurkar, J. Counsel for Applicants: Mr. M. Anil Kumar Counsel for Respondent No. 1: Mr. M. Nareder Reddy, Mr. V.S Raju, Mr. Ch. Ramesh Babu COMMON ORDER: This application is filed by the Official Liquidator on behalf of the company in liquidation seeking to set aside the sale of the land, buildings, plant and machinery etc. of the company in liquidation by the State Bank of India (SBI) in favour of third respondent and for direction to the SBI to hand over the entire auctioned assets to the Official Liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings is wholly unauthorized and contrary to the mandate of Section 456 read with Section 536 of the Companies Act, as the said secured creditor had not obtained any leave of the company Court to stay outside the winding up proceedings. It is also stated that winding up petition was filed on 07.07.2011 and the winding up order, which is ultimately passed on 09.11.2012, relates back to the date of the presentation of the petition and as such, the sale of the said assets by SBI under the SARFAESI Act, being without reference to the company Court, is sought to be declared as void. Pending consideration of this COMPA. No. 525 of 2013, this Court, by order dated 30.04.2013 in COMPA. No. 315 of 2013, directed status quo to be maintained. 5. The aforesaid application is strongly contested by the SBI as well as the third respondent/auction purchaser by filing separate counter affidavits. 6. SBI filed a counter wherein they have traced the manner in which the loans were availed by the company in liquidation from the bank and the equitable mortgage of its immovable property created in favour of the bank including that of the property, in question. The bank further state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FFICIAL LIQUIDATOR v. ALLAHABAD BANK 2013 4 SCC 381 and submits that the application filed by the Official Liquidator is liable to be rejected and the auction deserves to be upheld. COMPA. No. 572 of 2013: 10. This application is filed by an unsecured creditor seeking to set aside the sale conducted by SBI under the SARFAESI Act. The said applicant states that the sale price was grossly undervalued, though the unit is on national highway. It is further stated that the National Highways Authority of India have acquired Ac.1.35 cents of land from respondent No. 1 and paid ₹ 75 lakhs per acre as compensation. COMPA. No. 573 of 2013: 11. This application is filed by the Official Liquidator for direction against the SBI not to allow it to remove, shift or transfer the assets of unit I of the company viz. unit at Renigunta, Chittoor District and to direct the SBI to continue the security and protect the assets. COMPA. No. 1083 of 2013: 12. Another creditor of the company has filed this application seeking impleadment in COMPA. No. 525 of 2013. The said application is filed by a third party creditor on the ground that his propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d party. 17. While the learned counsel for the Official Liquidator has pointed out several irregularities in the sale conducted by SBI, he also raised a contention that the sale is undervalued. The said contention of the Official Liquidator is also supported by Mr. Ch. Ramesh Babu by highlighting the manner in which the land, buildings, plant and machinery were delivered to the auction purchaser and highhanded removal of substantial part of the plant and machinery by the auction purchaser is also highlighted. Learned counsel placed strong reliance upon a decision of the Supreme Court in M.V JANARDHAN REDDY v. VIJAYA BANK 2008 7 SCC 738. 18. Learned senior counsel for SBI and learned senior counsel for the auction purchaser have made submissions on the maintainability of these applications keeping in view the ratio of the decision of the Supreme Court in ALLAHABAD BANK's case (2 supra) and contended that the sale having been conducted under the SARFAESI Act without intervention of the Court, the only remedy available to the Official Liquidator is to approach the DRT under Section 17 of the SARFAESI Act and that Court alone is competent to go into all the questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act are extracted hereunder for the sake of convenience: Section 442 - Power of Court to stay or restrain proceedings against company - At any time after presentation of a winding up petition and before a winding up order has been made, the company, or any creditor or contributory, may - (a) where any suit or proceeding against the company is pending in the Supreme Court or in any High Court, apply to the Court in which the suit or proceeding is pending for a stay of proceeding therein; and (b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceedings; and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit. Section 446 - Suits stayed on winding up order (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings before the Recovery Officer. It was also categorically held that the said litigation cannot be transferred to the Company Court. In the ultimate eventuate, the bench ruled that in view of Section 34 of the RDB Act, the tribunal has exclusive jurisdiction and, hence, the Company Court cannot use its powers under Section 442 of the 1956 Act against the tribunal/Recovery Officer and, therefore, Sections 442, 446 and 537 of the 1956 Act could not be applied against the tribunal. Be it noted, emphasis was laid on speedy and summary remedy for recovery of the amount which was due to the banks and financial institutions and the concept of special procedure as recommended by the Tiwari Committee Report of 1981 was stressed upon. It was concluded that the special provisions made under the RDB Act have to be applied. The Court addressed itself to the special and general law and ruled that in view of Section 34 of the RDB Act, it overrides the Companies Act to the extent there is any thing inconsistent between the Acts. 23. From the aforesaid verdict, it is vivid that the larger Bench in Rajasthan State Financial Corpn. approved the law laid down in Allahabad Bank v. Can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tably be regarded as a person aggrieved relating to the action taken by the Recovery Officer which would include the manner in which the auction is conducted or the sale is confirmed. Under these circumstances, the Official Liquidator cannot even take recourse to the doctrine of election. It is difficult to conceive that there are two remedies. It is well settled in law that if there is only one remedy, the doctrine of election does not apply and we are disposed to think that the Official Liquidator has only one remedy, i.e, to challenge the order passed by the Recovery Officer before the DRT. Be it noted, an order passed under Section 30 of the RDB Act by the DRT is appealable. Thus, we are inclined to conclude and hold that the Official Liquidator can only take recourse to the mode of appeal and further appeal under the RDB Act and not approach the Company Court to set aside the auction or confirmation of sale when a sale has been confirmed by the Recovery Officer under the RDB Act. 36. We will be failing in our duty if we do not take notice of the decision in M.V Janardhan Reddy (supra) wherein the sale was aside by the Company Judge. It may be stated here that the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the SARFAESI Act. The following paragraphs from the said decision may, therefore, be relevant: 23. Though sale of the secured asset by the secured creditor under the SARFAESI Act is without the intervention of the Court but a safety valve preserving the rights of the debtor/borrower/mortgagor or for that matter any other person (see United Bank of India v. Satyawati Tondon(2010) 8 SCC 110) aggrieved from the measures taken by the Bank/Financial Institution under Section 13(4) of the Act is provided in Section 17 of the Act. The legislature in making the sale under the SARFAESI Act without the intervention of the Court, constituted DRT only as the forum for redressal of grievances. We are of the view that if the debtor/borrower/mortgagor himself/herself/itself has not been given any right of participation in the sale except in the manner provided in Section 17 of the Act, the question of our interpreting the provisions in a manner vesting such right in the Official Liquidator who is but a successor-in-interest of the debtor/borrower/mortgagor and also representing the interest of the workmen and other creditors of such debtor/borrower/mortgagor, does not arise. Sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AESI Act holds good during the pendency of winding up petition against the debtor/borrower/mortgagor and also after a winding up order is made and remains unaffected therefrom. 28. The decision of the Supreme Court in PRAVIN GADA's case (1 supra) was also a decision relating to the sale of assets of a company in liquidation by the Debt Recovery Tribunal and the ratio of the said decision is similar to that of the decision of the Supreme Court in ALLAHABAD BANK's case (2 supra). 29. In view of the ratio of the decisions, referred to above, the view of the Delhi High Court commends acceptance. In view of the answer to the question of maintainability, under point No. 1 above, against the applicant, it is not necessary to deal with the factual aspects and the grounds for setting aside the sale, as urged by the applicants under point No. 2. In view of above, therefore, COMPA. No. 525 of 2013 filed by the Official Liquidator cannot be considered by this Court and is accordingly dismsised. However, in view of the fact that the Official Liquidator was bonafide pursuing the remedy before this Court, the Official Liquidator is granted four (4) weeks time t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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