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841 paragraphs · 18,382 wordsS. Rajeswaran, J.—The facts are as under:
CA. No. 1811 of 2005 was filed by a third party seeking for a direction directing the Official Liquidator to remove the Security Guards and
handover possession of the subject property. In the affidavit filed in support of the above application, it is stated by the third party that, M/s. Dev
Sugars Limited (in Liquidation) was ordered to be wound up in C.P. No. 170 of 1995 and C.P. No. 35 of 1997 by an order dated 16-09-1999.
The first respondent Official Liquidator was appointed as the Liquidator of the said company. The Official Liquidator took possession of the assets
of the company situated at Harige Village, Shimogo District, Karnatka on 28-04-1999 in the presence of the Deputy Commissioner, Shimoga and
Chief Manager of State Bank of Mysore, a secured Creditor of the Company.
State Bank of Mysore extended financial assistance to the Company and secured their outstanding dues. The Bank filed O.A. No. 440 of 1997
before the Debt Recovery Tribunal, Bangalore for recovery of a sum of Rs. 22,31,78,558.55. The said O.A was decreed by the Debt Recovery
Tribunal(DRT) and the Recovery Officer in consultation with the Bank issued an official notice for sale of the properties in various news papers on
24-07-2005, fixing the date of auction as 11-08-2005. The first respondent/official liquidator herein was a party before the Debt Recovery
Tribubnal, Bangalore. In fact, the Official Liquidator raised his objections before the Debts Recovery Tribunal, Bangalore and only thereafter, the
auction was directed to be held by the Debt Recovery Tribunal(DRT). The applicant herein participated in the auction and his offer of Rs. 10.25
Crores being the highest was accepted by the Recovery Officer. The applicant deposited 25% of Rs. 10.25 Crores on the same day and the
balance amounts also was deposited in time as directed by the Tribunal.
No one challenged the auction and thereofre, it became final resulting in the sale being confirmed by the Recovery Officer on 12-09-2005. A
confirmation of sale letter was also issued to the applicant. It is further stated by the applicant that the State Bank of Mysore obtained prior
permission before this Court for selling the properties of the Company. After the issue of the sale confirmation letter, the applicant approached the
Official Liquidator to hand over possession of the property of the Company in liquidation. But, no auction has been taken by the Official Liquidator
in this regard causing irreparable loss to the applicant. It is also Pointed out by the applicant that the DRT, by letter dated 26.10.2005 written to
the Official Liquidator, directed the Official Liquidator to withdraw the security personnel appointed by him to enable the DRT to hand over
possession of the property. The Recovery Officer also wrote a letter dated 23.09.2005 to the Chief Secretary, Government of Karnataka to
provide securities for the properties of the company in liquidation. A Receiver was also appointed by the Recovery Officer to hand over
possession. Hence the applicant herein, who is the Auction purchaser of the property, filed C.A. No. 1811 of 2005 for the above said relief.
When C.A. No. 1811 of 2005 was pending before this Court, C.A. No. 250 of 2006 was filed by M/s. Thungabadra Sugar Works Mazdoor
Sangha, represented by its president to implead them as a party in that application. In the affidavit filed in support of the above application, it is
stated by the President of the Sangha that the State Bank of Mysore approached this Court for permission and this Court in C.A. No. 1251 of
1999 permitted the Bank on 10.03.2000 in O.A. No. 440 of 1997 and O.A. No. 1300 of 1997 by imposing a condition that the leave granted is
subject to the condition that the Official Liquidator is impleaded and no coercive steps are taken against the assets of the company during or after
the conclusion of the proceedings before the Tribunal. The members of the Sangh were appointed as Security men by the Official Liquidator to
protect the assets of the company with effect from 01.08.2001 on a monthly salary basis. In the mean time, the DRT, Bangalore passed a decree
in 2001 and ordered for sale by Auction of the assets of the company on 01.10.2004. The Workers'' Union objected to the sale and filed a Writ
Petition before the High Court, Karnataka, seeking stay of the sale by auction proceedings as their salary and provident fund dues to the extent of
Rs. 15 crores are due from the company. The High Court, Karnataka, by order dated 27.09.2004 passed an interim order to the effect that the
sale is subject to the result of the petition. In view of the order passed on 27.09.2004, the Recovery Officer of the DRT, postponed the auction
proceedings to be held on 01.10.2004. But, again the DRT called for the auction of the property by fixing the date on 11.08.2005. The
Employees'' Sangh filed a fresh affidavit before the High Court, Karnataka in W.P. No. 3799 of 2004 objecting to the methods adopted by the
DRT. That apart, M/s. Tapti Machinery, who are the petitioners for winding up of the company and also a creditor of the company objected to the
sale and filed objections separately before the Official Liquidator and also before the DRT, Bangalore. All the objections were rejected by the
DRT and the sale was conducted and confirmed in favour of the applicant in C.A. No. 1811 of 2005, who is the successful bidder. It is further
stated that the successful bidder filed a petition before the High Court, Karnataka to implead them as a party in the writ petition and the same was
allowed by the High Court. After getting impleaded in the writ petition, the applicant herein, filed a petition to quash the writ petition, but, the High
Court, by order dated 02.12.2005, dismissed that petition filed by the auction purchaser. Hence, according to them, they are a necessary party to
the impleaded in C.A. No. 1811 of 2005 before this Court.
This Court, by order dated 01.03.2006, allowed C.A. No. 250 of 2006 as prayed for.
Another application was filed in C.A. No. 253 of 2006 by M/s. Tapti Machineries (P) Ltd. to implead them as a party/respondent in C.A. No.
1811 of 2005. This application also was allowed by this Court on 01.03.2006 as prayed for.
After getting impleaded as second respondent in C.A. No. 1811 of 2005, a counter affidavit has been filed by M/s. Tapti Machineries (P) Ltd.
It is stated in the counter affidavit that they filed C.P. No. 35 of 1997 for winding up of the company and C.P. No. 170 of 1995 was filed by M/s.
Sicom Ltd. By order dated 16.09.1999, this Court ordered winding up of the company and appointed the official Liquidator to take possession of
the properties of the company in liquidation. They also referred to the proceedings before the DRT and the Writ Petition filed by the Mazdoor
Sangh. It is their contention that inspite of the conditional order passed by this Court and the interim order passed by the High Court, Karnataka,
the Recovery Officer of the DRT, Bangalore in collusion with the State Bank of Mysore issued an official notice for sale of the properties on
24.07.2005, fixing the date of auction as 11.08.2005. They contented that the properties were sold for a meagre value of Rs. 10.25 crores.
According to the impleaded second respondent, the value of the property based on Government valuation was Rs. 57 crores. They also filed a
Writ Petition in W.P. No. 26564 of 2005 before the High Court, Karnataka, challenging the impugned sale proceedings and the same is pending.
They are also taking steps for the revival of the company and an application was also filed to this effect before this Court. It is their further
contention that proper and necessary procedure was not followed by the Recovery Officer while selling the property in auction sale which is in the
custody of the Official Liquidator. Therefore, the sale conducted by the Recovery Officer has no legal sanctity and the application filed by the
Auction Purchaser seeking possession of the property is to be dismissed.
The Employees Sangh which was impleaded as the third Party in C.A. No. 1811 of 2005 also filed a counter affidavit opposing the C.A. No.
1811 of 2005. Their contention is also that the sale is bad as the same was sold in total violation and the interim orders passed by this Court as
well as the order of the Karnataka High Court. Therefore, they also sought for the dismissal of the application.
The Official Liquidator has also filed a report dated 31.01.2006. In his report, the Official Liquidator stated that he took possession of the
available assets of the company on 28.09.1999. After taking possession, the premises were locked and sealed. The official Liquidator appointed
the Mazdoor Sangh to safeguard the assets of the company in liquidation with effect from 28.08.1999, but, they withdrew their services on
28.12.1999 for non-payment of security charges. On 30.07.2001, a meeting was conducted and it was decided to appoint M/s. Tungabadra
Sugar Works Mazdoor Sangh to safeguard the premises with effect from 01.08.2001 and to make the payment out of the rent amount collected
from the Central Warehousing Corporation. The Official Liquidator also referred to the Writ Petition filed by the Mazdoor Sangh in W.P. No.
37991 of 2004 and the interim order passed by the Karnataka High Court. The Official Liquidator admitted that he filed his objections before the
DRT, Bangalore on 01.10.2004 in response to the Sale Proclamation issued by the DRT. When the DRT issued a Proclamation of Sale of
property for the second time fixing the date of auction as 11.08.2005, again objections were filed by the official Liquidator objecting to the sale.
According to the Official Liquidator, the valuation of the property has been made on 24.03.2003 by a valuer without the knowledge of the official
liquidator. The Inventory report dated 25.11.2004 also reveals that the valuation of the property has been done without the knowledge of the
official liquidator. The official liquidator pointed out that in view of the order passed by this Court on 10.03.2000 in C.A. No. 1251 to 1253 of
1999, the sale conducted by the DRT, Bangalore without the participation and the presence of the official liquidator is vitiated. The official
liquidator also received copies of the letters addressed to the CBI by the ex-shareholders/directors/promoters of the company in liquidation
wherein certain allegations against the recovery officer has been made. Therefore, the official liquidator submitted that a fresh sale is to be
conducted by the DRT with the official liquidator and the sale proceeds should be deposited with this Court.
11.The official liquidator also has taken out an application in C.A. No. 854 of 2006 to set aside the sale confirmed by the DRT, to direct the third
respondent Central Warehousing Corporation to remit the arrears of rent to the official liquidator and also to permit the official liquidator to sell the
assets of the company in liquidation afresh.
C.A. No. 854 of 2006 was resisted by the first respondent Bank by filing a counter affidavit wherein they raised the question of maintainability
of the application itself. According to the bank, all the legal formalities were duly complied with and the sale was confirmed in favour of the
applicant in C.A. No. 1811 of 2005. It is pointed out in the counter that after the auction, neither the official liquidator nor any other person
challenged the auction in a manner provided under the Recovery of Debts due to Banks and Financial Institutions Act, 1993. Having allowed the
auction to become final, now it is not open to the official liquidator to challenge the auction before this court under the provisions of the Companies
Act, which is not maintainable in law. It was admitted that the bank obtained leave before this Court to proceed with the sale on 10.03.2000 in
C.A. No. 1251 to 1253 of 1999. Subsequently, the legal position was clarified by the Supreme Court and the law is now settled that the banks
need not obtain leave of the Companies Court for proceeding before the DRT. Notwithstanding the settled legal position, the bank filed an
application seeking leave to execute the Recovery Certificate in 2003, but, the same was returned by this Court as not maintanable in view of the
judgment of the Supreme Court. As the order of the Recovery Officer was not challenged in accordance with law, the auction was confirmed and
even after the confirmation of sale, neither the Workers Union nor the Official liquidator challenged the said auction. Therefore, they sought for the
dismissal of the application filed by the official liquidator.
To this counter affidavit, a reply report dated 11.10.2006 was filed by the official liquidator.
When these applications were pending, C.A. No. 2740 to 2742 of 2007 in C.P. No. 170 of 1995 were filed by one N. Ponnuswamy who is
a shareholder and ex-director of the company in liquidation. C.A. No. 2740 of 2007 has been filed to transfer the proceedings pending before the
DRT, Bangalore in O.A. No. 440 of 1997 and DCP. No. 1912 dated 10.08.2001 to this Court to be heard along with C.P. No. 170 of 1995.
C.A. No. 2741 of 2007 is for an order of Stay, staying all further proceedings in O.A. No. 440 of 1997 pending before the DRT, Bangalore. The
prayer sought for in C.A. No. 2742 of 2007 is to set aside the sale made in favour of the third respondent (applicant in C.A. No. 1811 of 2005)
dated 10.08.2005, in C.A. No. 440 of 1997 on the file of the DRT, Bangalore.
In the common affidavit filed in support of the above three applications, it is stated by the applicant that he preferred a claim for revival of the
company and also for restructuring and arrangement of the creditors. In this connection, he filed an application in C.A. No. 1960 of 2006 for
convening a meeting of the Unsecured and Trade Creditors and the same was conducted as per the directions of this Court. A report was also
filed by the Chairman before this Court.
According to the applicant, the State Bank of Mysore advanced certain amounts to M/s.Tungabadra Sugars Works Ltd., and an application in
O.A. No. 440 of 1997 came to be filed before the DRT, Bangalore for recovery of a sum of Rs. 22,31,78,558.55. In the recovery proceedings in
DCP No. 1912 dated 10.08.2001, the land measuring an extent of 126 acres and 14 guntas was brought for sale and the property was sold to the
third respondent (applicant in C.A. No. 1811 of 2005). According to him, as per the conditional order passed by this Court on 10.03.2000 in
C.A. No. 1251 to 1253 of 1999, the sale ought not to have been conducted by the DRT. He accused that the third respondent who is the
purchaser of the assets colluded with the Recovery Officer and purchased the property by committing fraud. According to him all the procedures
in this regard were violated by the DRT and the Recovery Officer. It is further stated that the assets are very valuable and as per his scheme, even
the unsecured creditor could be settled and further business operations of the company could be revived. Hence, he filed C.A. No. 2740 to 2742
of 2007 for the aforesaid reliefs.
This Court by order dated 24.10.2007 granted stay of all further proceedings in O.A. No. 440 of 1997 and DCP No. 1912 dated
10.08.2001 pending on the file of the DRT, Bangalore.
The second respondent in the above applications, i.e. State Bank of Mysore filed counter affidavit in all the applications, wherein it is stated
that the auction was properly conducted and the sale was confirmed in favour of the third respondent. In so far as the scheme for reconstruction
being profounded and canvassed by the applicant is concerned, it is bereft of particulars and it is also very vague. This scheme has been floated
only for the purpose of protracting the proceedings and for nothing else. They denied the allegations of fraud and collusion and prayed for the
dismissal of all the applications.
An objection statement was filed by the third respondent in the above three applications (applicant in O.A. No. 1811 of 2005). It is pointed
out in the objection statement that both the writ petitions filed before the High Court, Karnataka challenging the auction sale, confirmed in favour of
the third respondent were disposed off on 27.10.2006, by a common order. The High Court, Karnataka directed the Writ Petitioners to avail the
alternative and efficacious remedy of appeals as contemplated under the DRT Act and Rules. While disposing off the writ petitions, the Learned
Single Judge made certain observations against the third respondent herein and therefore they filed Writ Appeals No. 2051 and 2052 of 2006.
Though the appeals were dismissed, the Division Bench of the Karnataka High Court made a specific observation that the DRT shall not be
influenced by the observations made in the order. The High Court, Karnataka granted six weeks time to the writ petitioners to prefer an appeal
before the DRT and two appeals in A.O.R. 15 of 2006 and A.O.R. 1 of 2007 were filed before the DRT, challenging the order of confirmation of
sale. The DRT already heard the appeals and reserved the matters for orders. The order was about to be passed on 24.10.2007. On the same
day a memo was filed informing about the stay granted in the above applications. Hence, the order was not pronounced by the Presiding Officer.
Heard Thiru. T.K. Seshadri, the learned Senior Counsel for the applicant in C.A. No. 1811 of 2005 (third respondent in C.A. No. 2740 to
2742 of 2007), Thiru PS. Raman, the learned Senior Counsel for the applicant in C.A. No. 2740 to 2742 of 2007, Thiru M. Jeyakumar, the
Assistant Official Liquidator for the official liquidator, the learned Counsel for the second respondent in C.A. No. 1811 of 2005, the learned
Counsel for the third respondent in C.A. No. 1811 of 2005 (the fourth respondent in C.A. No. 854 of 2006), the learned Counsel for the third
respondent in C.A. No. 854 of 2006 and the learned Counsel for the State Bank of Mysore (the first respondent in C.A. No. 854 of 2006 and
the second respondent in C.A. No. 2740 to 2742 of 2007).
I have considered the entire materials on record besides the judgments cited by all of them in support of their submissions.
In Rajasthan Financial Corporation and Another Vs. The Official Liquidator and Another, , the Hon''ble Supreme Court observed as under:
PARA : 18. In the light of the discussion as above, we think it proper to sum up the legal position thus:
(i) A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order
the sale and to sell the properties of the debtor, even if a company-in-liquidation, through its Recovery Officer but only after notice to the Official
Liquidator or the Liquidator appointed by the Company Court and after hearing him.
(ii) A District Court entertaining an application u/s 31 of the SFC Act will have the power to order sale of the assets of a borrower company-in-
liquidation, but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him.
(iii) If a financial corporation acting u/s 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said
power could be exercised by it only after obtaining the appropriate permission from the Company Court and acting in terms of the directions
issued by that court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the
sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of Section 529-A and Section 529 of the Companies
Act.
(iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in
motion, the creditor concerned is to approach the Company Court for appropriate directions regarding the realisation of its securities consistent
with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation.
In International Coach Builders Ltd. Vs. Karnataka State Financial Corpn., , the Hon''ble Supreme Court held as under:
PARA : 32. We, therefore hold as under:
The right unilaterally exercisable u/s 29 of the SFC Act is available against a debtor, if a company, only so long as there is no order of winding
up.
SFC''s cannot unilaterally act to realise the mortgaged properties without the consent of the official liquidator representing workmen for the pari
passu charge in their favour under the proviso to Section 529 of the Companies Act, 1956.
If the official liquidator does not consent, SFCs have to move the Company Court for appropriate directions to the official liquidator who is the
pari passu charge-holder on behalf of the workmen. In any event, the official liquidator cannot act without seeking directions from the Company
Court and under its supervision.
In Industrial Credit and Investment Corporation of India Ltd. Vs. Srinivas Agencies and Others, , the Hon''ble Supreme Court while dealing
with Sections 446, 529(1 & 2), 529A and 537 of the Companies Act 1956 observed as under:
PARA : 4 : A combined reading of the aforesaid provisions leads to the following results:
(i) A winding-up court has jurisdiction, inter alia, to entertain or dispose of any suit or proceeding by or against the company, even if such suit or
proceeding had been instituted before an order for winding up had been made. This apart, the winding-up court has jurisdiction to transfer such a
suit or proceeding to itself and dispose of the same. These follow form Sub-sections (2) and (3) of Section 446.
(ii) When a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal
proceeding, even if pending at the date of the winding-up order, can proceed against the company, except by leave of the company court vide
Sub-section (1) of Section 446.
(iii) Any sale held, even without the leave of the winding-up Court pursuant to order of civil court on it being approached by a secured creditor to
realise its debt will not ipso facto be void, in view of the holding in Ranganathan Case that Section 537, dealing with voidness of sale, operates
when the sale in pursuant to attachment of company Court, This, however, would be the position where a company has not been wound up, but is
in the process of being wound up.
The Hon''ble Supreme Court in the above decision, further held as under:
PARA : 12. We have duly applied our mind to the rival contentions. It is no doubt correct that the interest of the secured creditor, who has taken,
recourse to an independent proceeding to realise his debt has to be protected; but it is apparent this cannot be done at the cost of other secured
creditors. To preserve the integrity of one secured creditor, another secured creditor cannot be discredited his integrity has to be of equal concern.
It may, however, be that in a particular case the secured creditor who has approached the civil court happens to be one who has lent huge amount,
or be one who is the main secured creditor. In such a situation, on approach being made by such creditor, we have no doubt that company court
would duly take note of this fact and should like to grant leave required by Sub-section (1) Section 446; and by the same token refuse to transfer
the proceeding to his court. This is not to say that in all cases where the proceedings have been initiated by the main secured creditor, the company
court would grant leave. Much would depend on the circumstances of each case. But, if the position be that the secured creditor who had
approached the civil court is one amongst many similar creditors, it may be that the company Court feels that to take care of the interest of other
secured creditors, either the relief of leave does not deserve to be granted or that the proceeding is required to be transferred to it for disposal. It
may be pointed out that Sections 529 and 529-A of the Act do contain provisions insofar as the priority of secured creditor''s claim is concerned.
Of course, the company court would not transfer the proceeding to it merely because of its convenience ignoring the difficulties which may have to
be faced by the secured creditor, who may be at a place far away from the seat of the company Court. The need to protect the company from
unnecessary litigation and costs have, however, to be borne in mind by the company court.
PARA : 13. We are, therefore, of the view that the approach to be adopted in this regard by the company court does not deserve to be put in a
strait-jacket formula. The discretion to be exercised in this regard has to depend on the facts and circumstances of each case. While exercising this
power we have no doubt that the company court would also bear in mind the rationale behind the enactment of Recovery of Debts Due to the
Banks and Financial Institutions Act, 1993, to which reference has been made above. We make the same observation regarding the terms which a
company Court should like to impose while granting leave. It need not be stated that the terms to be imposed have to be reasonable, which would,
of course, vary from case to case. According to us, such an approach, would maintain the integrity of that secured creditor who had approached
the civil Court or desires to do so, and would take care of the interest of other secured creditors as well which the company court is duty-bound to
do. The Company court shall also apprise itself about the fact whether dues of workmen are outstanding; if so, extent of the same. It would be
seen whether after the assets of the company are allowed to be used to satisfy the debt of the secured creditor, it would be possible to satisfy the
workmen''s dues pari passu.
In 1981 51 Comp Cas 60 (Delhi) Faqir Chand Gupta v. Tanwar Finance Private Ltd. (In Liquidation) and Ors., a division Bench of the Delhi
High Court observed as under:
It is contended by the learned Counsel for the appellant that the liquidator in voluntary winding-up of the company subject to the supervision of the
court has wide powers within the meaning of Sub-section (1). His contention is that no restrictions were imposed upon the liquidator by the Court,
and, therefore, when the liquidator contested the auction proceedings before the executing court he is deemed to have power to consent to the sale
either expressly or by implication. By ""implication"" he means that the liquidator contested the auction sale by filing objections against the sale and
when his objections were dismissed and no appeal was pursued, he is deemed to have consented to the sale by the executing Court. In other
words the liquidator waived his right to object to the sale. There is no force in this argument. The liquidator has not sold the land in question. The
land was sold by the executing court and, therefore, there is no question of application of Section 526(1) of the Companies Act to the facts of the
present case. The liquidator after the sale by the executing court filed objections but the same were dismissed. The liquidator being under the
supervision of the Court and thus accountable to it could move the court u/s 518 of the Act and pray that sale of the property belonging to the
company conducted without leave be held to be void. It is not necessary in this case to further comment upon, what are the powers of a liquidator,
in voluntary winding-up under the supervision of the court, relating to sale of property belonging to the company.
In Allahabad Bank Vs. Canara Bank and Another, , the Hon''ble Supreme Court held as under:
PARA 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 u/s 19(22) [formerly u/s 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 u/s 19(22). u/s 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.
PARA.22. We hold that the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of
the defendant to the appellant Bank is concerned.
(ii) Execution of certificate by Recovery officer : is his jurisdiction exclusive
PARA 23. Even in regard to ""execution"" the jurisdiction of the Recovery officer is exclusive. Now a procedure has been laid down in the Act for
recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by
Sections 25 - 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal u/s 17, the
banks/financial institutions should go to the civil court or the Company court or some other authority outside the Act for the actual realisation of the
amount. The certificate granted u/s 19(22) has, in our opinion, to be executed only by the Recovery officer. No dual jurisdictions at different stages
are contemplated. Further, Section 34 of the Act gives overriding effect to the provisions of the RDB Act. That section reads as follows:
(1) Act to have overriding effect.(1) Save as provided under Sub-section (2), the provisions of this Act shall have effect not withstanding
anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other
than this Act.
(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act,
1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial
Reconstruction Bank of India Act, 1984 (62 of 1984) and the Sick Industrial Companies (Special provisions) Act, 1985 (1 of 1986).
The provisions of Section 34(1) clearly state that the RDB Act overrides other laws to the extent of ""inconsistency"". In our opinion, the
prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any
other manner.
PARA 24. There is one more reason as to why it must be held that the jurisdiction of the Recovery officer is exclusive. The Tiwari Commitee
which recommended the constitution of a Special Tribunal in 1981 for recovery of debts due to banks and financial institutions stated in its report
that the exclusive jurisdiction of the Tribunal must relate not only in regard to the adjudication of the liability but also in regard to the execution
proceedings. It is stated in Annexure XI of its report that all ""execution proceedings"" must be taken up only by the Special Tribunal under the Act.
In our opinion, in view of the special procedure for recovery prescribed in Chapter V of the Act, and Section 34, execution of the certificate is also
within the exclusive jurisdiction of the Recovery Officer.
PARA 25. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive
jurisdiction of the Tribunal and Recovery Officer 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.
PARA 30. Learned Attorney of General has, in this connection, relied upon Damji Valji Shah v. LIC of India to contend that for intitiating and
continuing proceedings under the RDB ACT, no leave of the Company Court is necessary u/s 446. In that case, a Tribunal was constituted under
the Life Insurance Corporation Act, 1956. Question was whether u/s 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 Life Insurance
Corporation of India to file a case before a Special Tribunal and recover various amounts from the erstwhile life insurance companies in certain
respects. Section 41 of the LIC Act conferred exclusive jurisdiction on the said Tribunal just like Section 18 of the RDB Act, 1993. There the
Company was ordered to be wound up by an order of the Company Court passed u/s 446(1) on 09.01.1959. The claim was filed by LIC against
the Company and its Directors before the Tribunal in 1962. The respondents before the Tribunal contended that the claim could not have been
filed in the Tribunal without the leave of the Company court u/s 446(1). This Court rejected the said contention and held that though the purpose of
Section 446 was to enable the Company Court to transfer proceedings to itself and to dispose of the suit or proceedings so transferred, unless the
Company Court had jurisdiction to decide the questions which were raised before the LIC Tribunal, there was no purpose of requiring leave of the
Company Court or permitting transfer. It was held by this Court:
In view of Section 41 of the LIC Act, the Company Court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is
empowered to decide or determine under that Act. It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters
raised in the petition filed by the Corporation u/s 15 of the LIC Act. It must follow that the consequential provisions of Sub-section (1) of Section
446 of the Companies Act will not operate on the proceedings which be pending before the Tribunal or which may be sought to be commenced
before it."" (emphasis supplied) Just as the Company Court was held incompetent to stay or transfer and decide the claims made before the LIC
Tribunal because the Company Court could not decide the claims before the LIC Tribunal , the said Court cannot, in our view, decide the claims
of banks and financial institutions. On the same parity of reasoning as in Damji Valji Shah case there is no need for the appellant to seek leave of
the Company Court to proceed with its claim before the Debts Recovery Tribunal or in respect of the execution proceedings before the Recovery
Officer. Nor can they be transferred to the Company Court.
PARA 31. It may also be noticed that in the LIC Act of 1956, there was no provision like Section 34 of the RDB Act giving overriding effect to
the provisions of the LIC Act. Still this Court upheld the exclusive jurisdiction of the LIC Tribunal observing as follows:
[T]he provisions of the special Act, i.e., the LIC Act will over hide the provisions of the general Act, viz., the Companies Act which is an Act
relating to companies in general.
We are of the view that the appellant''s case under the RDB Act- with an additional section like Section 34 -is on a stronger footing for holding
that leave of the Company Court is not necessary u/s 537 or u/s 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the
Company Court cannot also use its powers u/s 442 against the Tribunal/Recovery Officer. Thus, Sections 442, 446 and 537 cannot be applied
against the Tribunal.
PARA 34. While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour of jurisdiction and powers
of the Company Court in Sudarsan Chits (1) Ltd. case, and other cases the said principle, in our view, cannot be invoked in the present case
against the Debts Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion,
the very same principle mentioned above equally applies to the Tribunal/Recovery Officer under the RDB Act, 1993 because the purpose of the
said Act is something more important that the purpose of Sections 442, 446 and 537 of the Companies Act. It was intended that there should be a
speedy and summary remedy for recovery of thousands of crores which were due to the banks and to financial institutions, so that the delays
occurring in winding-up proceedings could be avoided.
PARA 38. At the same time, some High Courts have rightly held that the Companies Act is a general Act and does not prevail under the RDB
Act. They have relied upon Union of India (UOI) and Another Vs. India Fisheries (P) Ltd.,
PARA 40 : Alternatively, the Companies Act, 1956 and RDB Act can both be treated as special laws, and the principle that when there are two
special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be
applied. Such a provision is there in the RDB Act, namely, Section 34. A similar situation arose in Maharashtra Tubes Ltd. Vs. State Industrial and
Investment Corporation of Maharashtra Ltd. and Another, . Where there was inconsistency between two special laws, the Finance Corporation
Act, 1951 and the Sick Industries Companies (Special Provisions) Act, 1985. The latter contained Section 32 which gave overriding effect to its
provisions and was held to prevail over the former. It was pointed out by Ahmadi, J. that both special statutes contained non obstante clauses but
that the
1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obstante clause in Section 46-B of
the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one"". (SCC p.157, para9)
Therefore, in view of Section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between
the Acts.
PARA.49. The decision of the Rajasthan High Court in Rajasthan Finance Corporation v. Official liquidator 1963 (2) Com. LJ 309 (Raj) relied
upon for the respondent cannot be of any help. That was a case which concerned itself with the state finance corporation act 1951. Section 537 of
the Companies Act was applied and it was held that the Companies Act did not yield to the provisions of the state Finance Corporation Act,
1951. There was no provision in the State Finance Corporation Act, 1951 like Section 34 which gave overriding effect to its provisions.
PARA 50:. For the aforesaid reasons, we hold that at the stage of adjudication u/s 17 and execution of the certificate u/s 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 u/s 442 r/w Section 537 or u/s 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) r/w Section 529A 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.
In M.K. Ranganathan and Another Vs. Government of Madras and Others, the Honourable Supreme Court held that the secured creditor is
outside the windings up and he can realise his security without the intervention of the Court by effecting the sale of the mortgaged premises by
private treaty or by public auction. It is only when the intervention of the Court is sought, either by putting in force any attachment, distress or
execution within the meaning of Section 232(i) of the Companies Act 1913 or proceeding with or commencing a suit or other legal proceeding
against the Company within the meaning of Section 171 of the same Act, the leave of the Court is necessary and if no such leave is obtained, the
remedy cannot be availed by the secured creditor.
In 106 COM cas (A) 338 Pennar Paterson Limited v. State Bank of Hyderabad and Ors. a Division Bench of the Andhra Pradesh Court
observed as under:
at page 352 & 353 : ""It is now a well settled principle of law that provisions of two statutes, when they appear to be in conflict with each other,
must be read harmoniously and efforts should be made to give effect to the provisions of both the statutes.
It is further a well settled principle of law that when an order is passed by one court, the doctrine of amity or comity of reasons demands that no
order contrary thereto or inconsistent therewith should be passed.
Although we do not intend to lay down a law to the effect that the Tribunal does not have plenary jurisdiction, as the said question does not arise
for our consideration or assuming that the Tribunal has plenary jurisdiction having regard to the rule of exclusivity as envisaged by the apex court,
the mode and manner laid down for recovery of the debts due to banking or financial institutions must, not only strictly, be adhered to having
regard to the provisions contained in Rule 31 of the Second Schedule appended to the Income Tax Act which has been incorporated by reference
in section of the said Act.
Even otherwise, when the property is in custody, leave of the court having plenary jurisdiction, keeping in view the principles adumbrated in Order
40 of the CPC must be obtained.
2002 (1) COMP LJ 191 (KER) Remanika Silks (P) Ltd. (In Liquidation), the Kerala High Court observed as under:
PARA-16. What was considered in Allahabad Bank Vs. Canara Bank and Another, was the impact of a still later enactment, namely, the
Recovery of Debts due to Banks and Financial Institutions Act, 1993, on Section 529A of Companies Act. If we go by the principle in the A.P.
State Financial Corporation v. Official Liquidator (2000) 4 Comp LJ 4 (SC) aforementioned, the provisions in the Act, being later in point of time
vis-a-vis Section 529-A, have to prevail over Section 529A, if it comes into conflict with that provision. u/s 17 of the RDB Act the Debt Recovery
Tribunal is to decide the applications of banks and financial institutions for recovery of debts due to them and the jurisdiction of the Tribunal in
regard to adjudication of claims is exclusive. u/s 18, the jurisdiction of the 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 exclusively vested in the Tribunal, though the exclusion is
subject to the jurisdiction of the Supreme Court or of the High Court exercising power under Article 226 or 227 of the Constitution of India. Even
with regard to execution of decrees already obtained from other civil courts which are pending before the Tribunal the jurisdiction of the Recovery
Officer is exclusive and the Company Court cannot decide the claims of the banks and financial institutions. Considering the above aspects it was
held in the Allahabad Bank v. Canara Bank (2000) 2 Comp LJ 170 (SC), that for deciding such claim or to proceed with execution proceedings,
the Recovery Officer or the Debt Recovery Tribunal does not need the leave of the Company Court. Noting the fact that there is no provision for
transfer of the case from the Tribunal to the Company Court, and also that when there are two special laws, the provision in the later special Act
has to prevail, and in view of the provision in Section 34 of the RDB Act, it was held that the provision in the RDB Act would override the
corresponding provisions in the Companies Act to the extent there is inconsistency between the two acts. In respect of 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 529A of the Companies Act, and in no other manner. In view of this position,
the apex court also held in categoric terms that the provisions of the RDB Act, on the above aspects being inconsistent with the provisions of the
Companies Act, do prevail over the provisions of the Companies Act 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, it was held, is necessary for initiating or continuing the proceedings
under the RDB Act, 1993.
PARA : 17. The question of distribution of the amounts recovered by the Tribunal in such event was also considered in the Allahabad Bank v.
Canara Bank (2000) 2 Comp LJ 170 (SC) aforementioned. It was held that where against the defendant-company, no winding up order has been
passed, the company is like any other defendant, and if in such a situation, a question of priority arises before the Tribunal, in respect of any monies
realised under the RDB Act, as between the bank or financal institutions on the one hand, and the other creditors on the other, it would be
necessary for the Tribunal to decide such question of priority bearing in mind the principles underlying Section 73 of the Civil Procedure Code, and
that Section 22 of the RDB Act gives sufficiently wide powers to the Tribunal to decide such question of priorities subject to the principles of
natural justice. It was also held that u/s 73 of the CPC sharing in the sale proceeds realised through the Tribunal is permissible only if a person
seeking such share has obtained a decree or an order of adjudication from the Tribunal, and has also complied with other conditions laid down u/s
Section 19(19) of the RDB Act, it was held, does not give priority to all secured creditors and priority will have to be given only to those
secured creditors u/s 529A of the Companies Act. As regards secured creditors who before the Company Court for dividend by relinquishing
their security in accordance with the Insolvency Rules mentioned in Section 529, they will rank with the secured creditors and have to take their
dividend as provided in Section 529(2). As regards other secured creditors u/s 529A(1)(b) read with proviso (c) to Section 529(1), the priority of
the secured creditor is confined to the ''workmen''s portion'' as defined in Section 529(3)(c) of the Companies Act. Under clause(c) of the proviso
of Section 529(1) what is to be rateably distributed is the amount taken away from the private realisation of the secured creditor by the liquidator
by way of enforcing the charge for workmen''s dues and the distribution is against each secured creditor. To that extent, the secured creditor who
has stood outside the winding up and who has lost a part of the monies otherwise covered by security can come before the Tribunal to reimburse
himself from out of other monies available in the Tribunal claiming priority over all creditors by virue of Section 529A(1)(b) of the Act. At the same
time, the position would not improve from what it was originally and his priority would extend to his entire unrealised sums which might be in
excess of his security.
PARA 18. The question whether the amount realised by a bank through the Tribunal can straightaway released in its favour was also considered in
the aforesaid decision. It was found that even if Section 19(19) read with Section 529A of the Companies Act does not help a secured creditor
who has not approached the Tribunal or court for realisation of its money, those provisions can still have an impact in the matter. The workmen''s
dues have priority over all other creditors, secured or unsecured in view of Section 529A(1)(a). The said priority will have to be protected. No
secured or unsecured creditor including banks or financial institutions will have a right to be paid before the workmen''s dues are paid.
In an unreported judgment of this Court made in CA. Nos. 10, 116, 701, 193 and 194 of 2002 in CP. No. 39/94 a learned Single Judge of
this Court observed as under:
Para 20: It is clear from the above discussion, particularly para 53, which I have already extracted show that in respect of monies realized under
the RDB Act, the question of financial institutions and other creditors can only be decided by the Debts Recovery Tribunal under the RDB Act and
in accordance with Section 19(19) read with Section 529A the Companies Act and the said position of the debtor company, but also after winding
up order is passed.
PARA 22 : Though the learned Counsel appearing for the Official Liquidator as well as the Ex. Directors of the Company in liquidation very much
relied on the Division Bench decision of the Andhra Pradesh High Court, in the light of the categorical pronouncement by the Supreme Court
including their conclusion that the said principle is applicable efen after winding up order, with respect, I am unable to follow the view expressed by
Andhra Pradesh High Court. On the other hand, I am bound by the decision of the Honourable Supreme Court.
PARA 23 : In similar circumstance, a learned Judge of the Kerala High Court in the case of Remanika Silks (P) Ltd. reported in 2002 (1)
Company Law Journal 191, after following the judgment of the Supreme Court in Allahabad Bank''s case reported in 2000 (2) Company Law
Journal 170, permitted the Debts Recovery Tribunal to continue the sale proceedings with regard to the assets of one Remanika Silks (P) ltd. and
not by the Official Liquidator. However, the learned judge has observed that it will be open to the Official Liquidator to get himself impleaded in
the proceedings before the Debts Recovery Tribunal concerned. It is also relevant to refer the order passed by N.V. Balasubramanian, J in C.P.
No. 60 of 1980 dated 22-01-2001. Before the learned Judge, an application was filed by ICICI Ltd. to grant leave to the applicant for
continuation of the Court Reciver, High Court, Mumbai as the Receiver in respect of the suit bearing No. 847 of 1981 filed before the High Court,
Bombay with all powers including powers to sell the schedule mentioned properties. After accepting the stand of the applicant, namely that the
jurisdiction of the matter is not vest with the Debts Recovery Tribunal, Bombay learned Judge has granted leave as prayed for. The learned Judge
has further observed that it is always open to the applicant therein (ICICI Ltd.) to approach the Debts Recovery Tribunal Bombay for necessary
orders including the permission to sell the schedule mentioned properties through the Receiver appointed by the Debts Recovery Tribunal.
PARA 25 : In the light of what is stated above, I am of the view that the decision of the Supreme Court in the case Allahabad Bank v. Canara
Bank reported in 2000 (2) Comp LJ 170, the sale proceedings with regard to the assets of the Company in Liquidation will have to be continued
only by the Debts Recovery Tribunal and not by the Official Liquidator and the applicant Official Liquidator will be consulted by the Recovery
Officer while finalizing the secured assets and distribution of the sale proceeds. I also accept the claim that the second respondent -ICICI''s case
u/s 529 of the Companies Act in order to stand out side the winding up to realize its security. Apart from this, Section 19(19) of RDB Act, permits
distribution of sale proceeds to secured creditors in accordance with Section 529-A, who stand outside the winding up proceedings.
In In Re: Divya Chemicals Ltd.; In Re: N.N. Dyechem (I) Ltd.; In Re: Agritech Hatcheries and Foods Ltd., the Bombay High Court held as
under:
PARA-12 : ""In the aforesaid analysis of the proceedings of law I answer the question which has been framed by me in this judgment that the
Official Liquidator is not empowered and/or entitled to dispose of and/or sale immovable properties which are secured in favour of the banks and
financial institutions and in respect of which there is a Recovery Certificate issued by the DRT.
In Andhra Bank Vs. Official Liquidator and Another, the Honourable Supreme Court held as under:
PARA : 20. ""The observations were presumably made having regard to the fact situation obtaining therein as Allahabad Bank was an unsecured
creditor and Canara Bank although a secured creditor would not come within the purview of Sections 529 and 529-A of the Companies Act. The
decision in Allahabad Bank1 could, thus, be explained but we think it necessary to clarify the legal position having regard to the fact that the matter
has been referred to this Bench and particularly when reliance thereupon has been placed by the High Court as a proposition of law as regards
interpretation of Sections 529 and 529-A of the Companies Act.
PARA : 21. Before adverting to the question, we may notice the relevant provisions of Sections 529-A and 529 of the Companies Act, which
read as under:
529-A. Overriding preferential payments.--(1) Notwithstanding anything contained in any other provision of this Act or any other law for the time
being in force, in the winding up of a company-
(a) workmen�s dues; and
(b) debts due to secured creditors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529 pari passu with
such dues,
shall be paid in priority to all other debts.
(2) The debts payable under Clause (a) and Clause (b) of Sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in
which case they shall abate in equal proportions.
Application of insolvency rules in winding up of insolvent companies.--(1) In the winding up of an insolvent company, the same rules shall
prevail and be observed with regard to-
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities; and
(c) the respective rights of secured and unsecured creditors;
as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent:
Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of
the workmen�s portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his
security,-
(a) the liquidator shall be entitled to represent the workmen and enforce such charge;
(b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen�s dues;
and
(c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the
amount of the workmen�s portion in his security, whichever is less, shall rank pari passu with the workmen�s dues for the purposes of Section
529-A.
(2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the
winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section:
* * *
(3) For the purposes of this section, Section 529-A and Section 530,-
(a)-(b) * * *
(c) workmen�s portion�, in relation to the security of any secured creditor of a company, means the amount which bears to the value of the
security the same proportion as the amount of the workmen�s dues bears to the aggregate of
(i) the amount of workmen�s dues; and
(ii) the amounts of the debts due to the secured creditors.
Illustration.--The value of the security of a secured creditor of a company is Rs. 1,00,000. The total amount of the workmen�s dues is Rs.
1,00,000. The amount of the debts due from the company to its secured creditors is Rs. 3,00,000. The aggregate of the amount of workmen�s
dues and of the amounts of debts due to secured creditors is Rs. 4,00,000. The workmen�s portion of the security is, therefore, one-fourth of
the value of the security, that is Rs. 25,000.
PARA : 22. In terms of the aforementioned provisions, the secured creditors have two options (i) they may desire to go before the Company
Judge; or (ii) they may stand outside the winding-up proceedings. The secured creditors of the second category, however, would come within the
purview of Section 529-A(1)(b) read with proviso (c) appended to Section 529(1). The ""workmen�s portion"" as contained in proviso (c) of
Sub-section (3) of Section 529 in relation to the security of any secured creditor means the amount which bears to the value of the security the
same proportion as the amount of the workmen�s dues bears to the aggregate of (a) workmen�s due, and (b) the amount of the debts due to
all the (sic secured) creditors. The submission of Mr. Gupta is that in a situation of this nature, what was necessary to be considered by the learned
Single Judge was to find out the amount in relation whereto the appellant was raising its claim as a secured creditor, namely, Rs. 135 lakhs vis-�-
vis the aggregate of the amount of the workmen�s dues of Rs. 19 crores and the claim of any other secured creditor was not required to be
taken into consideration. We cannot accept the said contention. The Illustration appended to Clause (c) of Sub-section (3) of Section 529 is a
clear pointer to the effect that the amount of debts due to the secured creditors should be taken into consideration for the purpose of ascertaining
the workmen�s portion of security.
PARA : 23. The language of Section 529-A is also clear and unequivocal, in terms whereof the workmen�s dues or the debts due to the
secured creditors, to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529 pari passu with such dues, shall
have priority over all other debts. Once the workmen�s portion is worked out in terms of proviso (c) of Sub-section (1) of Section 529,
indisputably the claims of the workmen as also the secured creditors will have to be paid in terms of Section 529-A. This Court in Allahabad
Bank1 held: (SCC pp. 436-37, paras 67-68)
Learned Attorney General on the other hand submitted that the first part of Clause (c) of the proviso to Section 529(1) is to be read along with
the words ''or the amount of the workmen''s portion in his security, whichever is less�. In other words, the priority of the secured creditor is only
to the extent that any part of the said security is lost in favour of the workmen consequent to demands made by the liquidator under Clauses (a),
(b) or the said proviso to Section 529(1). No such situation has arisen so far. It is contended that where a secured creditor keeps himself outside
as stated in the proviso to Section 529(1) and seeks to recover his dues outside the Company Court, if he loses part of his security towards
workmen�s dues, he gets reimbursed to that extent as a secured creditor, with an overriding priority u/s 529-A(1)(b). He gets priority over all
other creditors before the Tribunal, to be compensated for this loss out of the monies that may have been realised at the instance of other creditors
before the Tribunal. It is pointed out that Canara Bank has neither realised any amount outside winding up nor has it lost any part of its security
towards workmen�s dues. In our view, this contention of the learned Attorney General is well founded and is entitled to be accepted.
In our opinion, the words so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing
provisions of this proviso� obviously mean the amount taken away from the private realisation of the secured creditor by the liquidator by way of
enforcing the charge for workmen''s dues under Clause (c) of the proviso to Section 529(1) ''rateably'' against each secured creditor. To that
extent, the secured creditor -- who has stood outside the winding up and who has lost a part of the monies otherwise covered by security � can
come before the Tribunal to reimburse himself from out of other monies available in the Tribunal, claiming priority over all creditors, by virtue of
Section 529-A(1)(b).
PARA : 25. While determining Point (6), however, a stray observation was made to the effect that the ""workmen''s dues"" have priority over all
other creditors, secured and unsecured because of Section 529-A(1)(a). Such a question did not arise in the case as Allahabad Bank was
indisputably an unsecured creditor.
PARA : 26. Such an observation was, thus, neither required to be made keeping in view the fact situation obtaining therein nor does it find support
from the clear and unambiguous language contained in Section 529-A(1)(a). We have, therefore, no hesitation in holding that finding of this Court
in Allahabad Bank1 to the aforementioned extent does not lay down the correct law.
PARA :27. The Court also wrongly placed reliance on National Textile Workers'' Union and Others Vs. P.R. Ramakrishnan and Others, . The
question which arose therein was only as regards the right of the workers to be heard in the winding-up proceeding. The said decision was,
therefore, not applicable.
In 2005 (6) COMP LJ 463 (MAD) V.K. Seshasayee and Ors. v. Official Liquidator this Court held as under:
PARA-9. In this context, the provisions of Section 19(19)) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and
Section 529A of the Companies Act are referable. While considering both the provisions, the Supreme Court in Allahabad Bank Vs. Canara Bank
and Another, has held that even the priorities among the various creditors can be decided only by the Debt Recovery Tribunal in accordance with
the provisions of Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, read with Section 529A of the Companies
Act.
PARA-10. The Supreme Court in a recent decision in Andhra Bank v. Official Liquidator [2005] 4 Comp LJ 33 (SC) : (2005) 124 Comp Case
453 has explained the above judgment by holding that the language of Section 529A is also clear and unequivocal in terms whereof the workmen''s
dues of the debts due to the secured creditors to the extent such debts rank under Clause [c] of the proviso to Sub-section (1) of Section 529 pari
passu with such dues shall have priority over all other debts. Once the workmen''s claims are worked out in terms of proviso [c] of Sub-section (1)
of Section 529, indisputably the claim of the workmen as also the secured creditors will have to be paid in terms of Section 529A.
PARA-13. From the foregoing discussions, I am of the considered view that the official liquidator ought to have participated in the proceedings
pending before the Debt Recovery Tribunal-I, Mumbai, even before the sale was effected. Nevertheless, in the interest of the company and,
particularly, in the interest of the secured creditors and the workmen, the official liquidator shall effectively represent the proceedings initiated by
the ICICI Ltd., before the Debt Recovery Tribunal-I, Mumbai, in OA No. 355 of 2001 for the distribution of the sale consideration to the secured
creditors, workers and the shareholders of the company. Accordingly, the application is allowed, and there will be a direction as prayed for.
In Asset Reconstruction Company (India) Limited Vs. The Official Liquidator, High Court as the liquidator of SIV Industries Ltd. (in
liquidation), as the Liquidator of SIV India Ltd. (in liquidation) a Division Bench of this Court held as under:
PARA : 13 : In the light of the law laid down by the Rajasthan State Financial Corporation Case(supra) it is clear that where the bank or the
financial institution has initiated proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Debts Recovery
Tribunal would be entitled to order sale even if a company is under liquidation through its Recovery Officer, but only after notice to the Official
Liquidator or the Liquidator appointed by the Company Court and after hearing him. Where, however, no proceedings have been initiated under
the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 the case would fall under paragraph 18(iii) of the judgment of the
Supreme Court in Rajasthan State Financial Corporation Case (supra). In that event if the securitisation company acting u/s 13 of the Securitization
Act seeks to sell or otherwise transfer the assets of a debtor-company in liquidation, the said power could be exercised by it only after obtaining
the appropriate permission from the Company Court and acting in terms of the directions issued by that Court as regards associating the Official
Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the sale, holding of the sale proceeds and distribution
thereof among the creditors in terms of Section 529-A and 529 of the Companies Act.
In the unreported judgment dated 10-08-2007, made in WA(MD). Nos. 145 and 146 of 2007 K. Chidambara Manickam v. Shakeena and
Ors. a Division Bench of this Court held as under:
PARA : 10.7 : At the outset, it is to be stated that nothing survives in the notice dated 14-11-2005 to adjudicate, as, on the date of filing of the writ
petitions, the entire proceedings u/s 13(4) of the Act have come to an end and become final, by issuance of sale certificate under Sub-rule (7) of
Rule 9 of the Rules on 06-01-2006. The writ petitions have been prepared and signed by the parties only on 19-01-2006. In such circumstances,
the proper course for the borrowers would be to prefer an appeal before the Appellate Tribunal against the order of the Tribunal dated 10-01-
2006, under the provisions of the SARFESI Act. The borrowers, however, have approached this Court invoking Article 226 of the Constitution of
India.
PARA 10.9 : In our considered view, the borrowers should have approached the secured creditor or the authorised officer before the date fixed
for sale and not after the sales, as provided under Sub-section (8) to Section 13 of the SARFESI Act. As discussed earlier, only if the borrowers
approach the secured creditor or the authorised officer before the date fixed for sale or transfer and tender or pay all the dues to the secured
creditor, the section creates a bar on the secured creditor or authroised officer to proceed further with the proposed sale or transfer. In this case,
admittedly, the date fixed for the sale was 19-12-2005. But, even according to the version of the borrowers they approached the secured creditor
only on 02-01-2006. In such circumstances, the contention of the learned Counsel for the borrowers is without any basis and contrary to the
provisions contained in Sub-section (8) of Section 13 of the Act.�
PARA : 10.12 : The learned single judge, agreeing with the argument advanced by the learned Counsel for the borrowers that the right of
redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor, unless it has been extinguished by the
act of parties and until the sale is complete by registration, and that the mortgagor does not lose their right of redemption came to the conclusion
that the sale take complete shape only after it gets registered and it does not come to end by issuance of a sale certificate. But, after considering the
relevant provisions in the Registration Act, 1908, we are not in agreement with the conclusion arrived by the learned Single Judge in allowing the
writ petitions.
PARA : 10.15 : When the effect and validity of the sale Certificate issued to a purchaser of a property; sold in public auction came up for
consideration before the Supreme Court in the recent decision in B. Arvind Kumar Vs. Government of India and Others, , the Supreme Court,
after referring to Section 17(2)(xii) of the Registration Act, held that when a property is sold in public auction in pursuance of an order of the Court
and the bid is accepted and the Court confirms the sale in favour of the purchaser, the sale becomes absolute and the title vests in the purchaser.
PARA : 10.17 : The ratio laid down by the Division Bench of this Court in Arumugam. S and two Ors. v. C.K. Venugopal Chetty and 5 Ors. and
the Supreme Court in B. Arvind Kumar v. Government of India and Ors., referred supra, squarely applies to the case on hand and we therefore,
have no incertitude to hold that the sale which took place on 19-12-2005 has become final when it is confirmed in favour of the auction purchaser
and the auction purchaser is vested with rights in relation to the property purchased in auction on issuance of the sale certificate and he has become
the absolute owner of the property. Further, as held by the Division Bench of this Court in Arumugham. S and two Ors. v. C.K. Venugopal Chetty
and 5 Ors. and the Supreme Court in B. Arvind Kumar v. Government of India and Ors., referred supra, the sale certificates issued in favour of
the appellant does not require any registration in view of Section 17(2) (xii) of the Registration Act as the same has been granted pursuant to the
sale held in public auction by the authorised officer under SARFESI Act.
PARA : 10.18 : The finding of the learned single judge that the sale is not complete without registration of sale certificate, therefore, is not
sustainable in law and the same is liable to be set aside.
PARA : 10.20 : In view of our finding on this point, we hold that the sale of the secured asset in public auction as per Section 13(4) of SARFESI
Act, which ended in issuance of a sale certificate as per Rule 9(7) of the Rules is a complete and absolute sale for the purpose of SARFESI Act
and same need not be registered under the provisions of the Registration Act.
In the unreported judgment dated 06-11-2006, made in CA. Nos. 461, 1167, 1411 and 1412 of 2006, in C.P. No. 122 of 1997 Times
Guarantee Financials Ltd. v. Rajalakshmi Mills Ltd. and Ors., this Court held as under:
PARA-29 : It may be seen that Section 29 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 adopted Schedule -I and
III of the Income Tax (Certificate Proceedings) Rules 1962, as regards the recovery proceedings. In the context of this decision by the Division
Bench and in terms of Rule 40 of the Income Tax (Certificate Proceedings) Rules, 1962, all that the auction purchaser gets under the sale by the
Debts Recovery Tribunal is only a symbolic delivery. Hence, given the scope of Section 446 of the Companies Act and in the face of the decision
of the Supreme Court reported in Rajasthan Financial Corporation and Another Vs. The Official Liquidator and Another, , the question of
delivery, hence, has to be only from the Company Court which is the custodian of the property of the company in liquidation and unless and until
there is a specific order by this Court to put the auction purchaser in possession, the question of the purchaser entering into the property and taking
possession on the strength of the sale does not arise. The scope of the proceedings before the Debts Recovery Tribunal, hence has to be
understood in the framework within which it is done.
PARA-30 : In the light of the categorical pronouncement as regards the jurisdiction of the Debts Recovery Tribunal and this Court u/s 446 of the
Companies Act, it is not open to the auction purchaser to assume possession of the property under the sale conducted by the Debts Recovery
Tribunal.
PARA : 31 : Considering the decision of the Apex Court on the nature of extent of exclusive jurisdiction of the Debts Recovery Tribunal as regards
matters before them of the pendency of appeal filed by the Company, I do not find any merit in the plea of the applicant for possession. As rightly
contended by the learned Senior Counsel placing reliance on the decision reported in 2000-II LW 216 Nilan U v. Kannayyan (Dead) through
LRS, unless and until the appeal filed by the respondent company is disposed of before the appellate forum, the question of treating the sale as
absolute does not arise. As the Apex Court pointed out, the appeal is a continuation of the proceedings initiated in the lower Court. The Apex
Court referring to Order 21 Rule 92 CPC held as follows:
The entire legal position was reviewed by the Court in Maganlal Vs. Jaiswal Industries, Neemach and Others, and it was held that the sale does
not become absolute or irrevocable merely on passing an order confirming the sale under Order 21 Rule 92 but it would attain finality on the
disposal of the appeal, if any, filed against an order refusing to set aside the sale.
PARA : 34 In the circumstances, the application preferred by the auction purchaser in C.A. No. 1412 of 2006 is hereby rejected, reserving
however, the liberty to move this Court as and when the Appeal No. 6 of 2006 is disposed of. The order of stay granted shall continue until further
orders. C.A. No. 1411 of 2006 to implead the auction purchaser is ordered. As far as C.A. No. 1167 of 2006 is concerned, the Official
Liquidator shall hand over possession of the documents, books of Accounts and records to the ex-Directors. It is hereby made clear that in view
of the pendency of the proceedings before the appellate Tribunal on the sale effected to the applicant in C.A. No. 1412 of 2006, till a final decision
is taken in the proceedings, the applicant in C.A. No. 1167 of 2006 shall file a report before this Court as to the state of affairs on the running of
the company once in six months, till a final decision is taken on the properties sold. With this observation, C.A. No. 1412 of 2006 is also rejected.
There will, however, be no order as to costs.
In Raghunath Rai Bareja and Another Vs. Punjab National Bank and Others, the Honourable Supreme Court held as under:
PARA : 21 : In this connection learned Counsel for the appellant has relied on the decision of this Court in Allahabad Bank Vs. Canara Bank and
Another, . In the aforesaid decision this court observed that the word ""proceedings"" in Section 31 of RDB Act includes ""execution proceedings
pending before a civil Court before the commencement of the Act. In para 50 of the aforesaid decision this Court observed that the RDB Act,
1993 confers exclusive jurisdiction on the Debts Recovery Tribunal both at the stage of adjudication of the claim u/s 17 of the Act as well as
execution of the claim. The Court observed that the provisions of the RDB Act, 1993 are to an extent inconsistent with the provisions of the
Companies Act, 1956, and the latter Act has to yield to the provisions of the Companies Act, 1956, and the latter Act has to yield to the
provisions of the former. This position holds goods during the pendency of the winding up petition against the debtor company and also after a
winding up order is passed. The Court further held that no leave of the Company Court is necessary u/s 446 of the Companies Act, 1956 for
initiating or continuing the proceedings under the RDB Act, 1993.�
PARA-22 : In the aforsaid decision this Court also upheld the view of some of the High Courts that the Companies Act is a general statute, and
hence the RDB Act which is a special Act, overrides the general statute. At any event, in view of Section 34 of the RDB Act, the said Act will
prevail to the extent of inconsistency over the Companies Act.
PARA-23 : Since the aforesaid decision this Court has held that even with regard to execution the jurisdiction under the RDB Act is exclusive, we
cannot agree with the view taken by the High Court merely because the appellant had given his consent to the transfer of the execution petition to
the Tribunal. It is well-settled in law that consent cannot confer jurisdiction.
PARA : 26 : Learned counsel for the respondent-bank relied on Section 446(1) of the Companies Act, which states that when a winding up order
is passed or the official liquidator is appointed as a provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the
date of winding up order, shall be proceeded with against the company, except by leave of the court and subject to such terms as the court may
impose.
PARA : 27 : Learned Counsel for respondent-bank relied on Sub-section (3) of Section 446 of the Companies Act, 1956 which states:
(3)Any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is
proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court.
PARA : 28 : In this connection, it may be mentioned that Section 446(3) of the Companies Act was omitted by the Companies (Second
Amendment) Act, 2002 and evidently the High Court has overlooked this amendment. As a result in our opinion the High Court has no power to
transfer the execution petition to the Debts Recovery Tribunal. At any event as held in Allahabad Bank v. Canara Bank (supra) Section 446 has no
application once the RDB Act applies because Section 34 expressly gives overriding effect to the provisions of the RDB Act. Also, the RDB Act
is a special law and hence will prevail over the general law in the Companies Act as held in Allahabad Bank v. Canara Bank (supra)
PARA : 29 : In this connection, we may mention that in the impugned order dated May 26, 2005 the High Court has, while admitting that in view
of the decision of this Court in Allahabad Bank v. Canara Bank (supra), it had no jurisdiction to deal with the execution application, it has,
however, in the same order relied on the so called �inherent powers� of the court. In our opinion there are no such inherent powers of the
court of transferring the execution proceedings to the Debts Recovery Tribunal, Chandigarh. Whatever powers there are of transfer of proceedings
to the Tribunal are contained in Section 31 of the RDB Act, and no transfer is permissible de hors Section 31. Hence, we respectfully disagree
with the High Court that it has inherent powers apart from Section 31 for transferring the execution petition to the Debts Recovery Tribunal.
In 2006 (133) COMP Cas 736 (P & H) Avi Exports (India) Ltd. v. Industrial Finance Corporation of India Ltd. and Ors. the Punjab &
Haryana High Court held as under:
PARA : 10 : In view thereof, the permission of the Company court was not required by a bank or financial institution while proceeding under the
Act, the Act being a special and subsequent legislation will prevail over the provisions of the Companies Act. The judgment in Rajasthan Financial
Corporation''s case (2005)128 Comp Cas 387 is not applicable as the question involved in the said case was arising between an earlier statute
i.e., the State Financial Corporations Act, 1951 and Section 529A of the Companies Act. Since the said provision of the Companies Act is
subsquent legislation, it was held that the latter statute will prevail over the earlier Act.
PARA : 11 : However, the official liquidator has a right to determine the dues of the workmen as provided u/s 529A of the Companies Act.
Therefore, as and when the official liquidator determines the dues, if any, payable to the workmen, it shall have a right to seek apportionment of the
sale proceeds of the assets of the company from respondent No. 1.
PARA : 12 : Thus, it is held that the financial institution possesss right to sell the property in terms of the provisions of the Act, thus, the issuance of
the sale certificate on February 9,2005 after its confirmation by the Recovery Officer on January 12, 2005 cannot be said to be illegal or void.
In Times Guarantee Ltd. Vs. Branch Manager, Industrial Development Bank of India and Others, this Court observed as under:
PARA-8 : I heard learned Counsel. The point on which the writ petition was filed by the unsecured creditor, who filed company petition and
thereupon taking the matter to the Division Bench in O.S.A and getting the order of winding up setting aside on the false promise that the amount
would be paid and thereby getting time and even thereafter failed to perform the promise and thereafter the order of the company court was got to
be revived cannot be appreciated. Even on the merits, the entire issue as to (1) whether in respect of proceedings under the RDB Act at the stage
of adjudication for the money due to the banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the
Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres? (2)Whether for initiation of various proceedings
by the banks and financial institutions under the RDB Act, leave of the company court is necessary u/s 537 before a winding up order is passed
against the company or before provisional liquidator is appointed u/s 446(1) and whether the company Court can pass orders of stay of
proceedings before the Tribunal, in exercise of powers u/s 442(3) Whether after a winding up order is passed u/s 446(1) of the Companies Act or
a provisional liquidator is appointed, whether the company Court can stay the proceedings under the RDB Act, transfer them it itself and also
decide questions of liability, execution, and priority under Sections 446(2) and (3) read with Sections 529, 529A and 530 etc., of the Companies
Act or whether these questions are all within the exclusive jurisdiction of the Tribunal? (4) Whether, in case it is decided that the distribution of
monies is to be done only by the Tribunal, the provisions of Section 73 CPC, and Sub-clauses (1) and (2) of Section 529A, Section 530 of the
Companies Act also apply apart from Section 529-A to the proceedings before the Tribunal under the RDB Act, are all decided by the Supreme
Court against the petitioner at paragraph No. 30 of the judgment in the case of Allahabad Bank v. Canara Bank (2000) 101 Com Cas. 64 : AIR
2000 SC 1535 , wherein after referring the earlier case of the Supreme Court in Damji Valji Shah and Another Vs. Life Insurance Corporation of
India and Others, , the Supreme Court has held as follows:
Just as the company court was held in competent to stay or transfer and decide the claims made before the LIC Tribunal because the company
Court could not decide the claims before the LIC Tribunal, the said Court cannot, in our view, decide the claims of banks and financial institutions.
On the same parity of reasoning as in Damji Valji Shah and Another Vs. Life Insurance Corporation of India and Others, , there is no need for the
appellant to seek leave of the company Court to proceed with its claim before the Debts Recovery Tribunal or in respect of the execution
proceedings before the Recovery Officer. Nor can they be transferred to the company court
PARA : 9 : The Supreme Court further strengthened their view by pointing out as follows:
It may also be noticed that in the LIC Act of 1956, there was no provision like Section 34 of the RDB Act giving overriding effect to the
provisions of the LIC Act. Still this Court upheld the exclusive jurisdiction of the LIC Tribunal observing as follows:
the provisions of the Special Act, i.e., the LIC Act will override the provisions of the general Act, the Companies Act which is an Act relating to
Companies in general.
We are of the view that the appellant''s case under the RDB Act-with an additional section like Section 34 -is on a stronger footing for holding that
leave of the company court is not necessary u/s 537 or u/s 446 of the same reasons. If the jurisdiction of the Tribunal is exclusive, the company
court cannot also use its powers u/s 442 against the Tribunal/Recovery Officer. Thus, Sections 442, 446 and 537 cannot be applied against the
Tribunal.
PARA : 10 : In the procedings, before the Debts Recovery Tribunal-I, Chennai, the company in liquidation was represented by the official
liquidator and even in the proceedings before the Recovery Officer, the official liquidator was a party. Therefore, the writ petition cannot be
sustainable. Useful reference can be had to the judgment of the Supreme Court in the case of Rajasthan Financial Corporation and Another Vs.
The Official Liquidator and Another, and of the Division Bench of this Court in Asset Reconstruction Company (India) Limited Vs. The Official
Liquidator, High Court as the liquidator of SIV Industries Ltd. (in liquidation), infra : (2006) 2 LW 442.
PARA : 23 : Having regard to the above submission made on either side, I am of the view that some sanctity should be attached to the auction sale
conducted for recovery of debt due to the banks and financial institutions . If such sales are disputed in courts for extraneous reasons, the intending
purchasers would be forced to think twice before participating in the auction sale as they are also purchasing litigation. In such case the object of
the Debt Recovery Act as adumbrated by the Supreme Court in Canara Bank case (2000) 101 Com Cas. 64 : AIR 2000 SC 1535 and
Rajasthan Financial Corporation and Another Vs. The Official Liquidator and Another, would be defeated. In this case, for recovery of a sum of
Rs. 4,27,12,957, the property was offered in auction thrice on August 30, 2003, October 29, 2004 and February 27,2004 by fixing the upset
price as Rs. 18 crores, Rs. 15.50 crores and Rs. 13 crores respectively, but there were no takers. When the property was offered for sale for the
fourth time on August 30,2004, by fixing the upset price to Rs. 12.50 Crores, the auction purchaser offered Rs. 15,08 crores and paid 25 per
cent(Rs. 3.77 crores) of the amount on same date and the balance 75 per cent(Rs. 11.31 crores) on September 13, 2004, within the time granted
to him. Thereafter, spate of writ petitions as stated above were filed and interim orders of stay/injunction were granted on September 9, 2004,
September 24, 2004 and December 2, 2004, by this court from confirming the sale in favour of the auction purchaser. Thereupon, the auction
purchaser withdrawn the amount except 10 per cent of the bid amount with the permission of the bank on the promise that he would repay the
entire amount within 7 days on the conclusion of these writ petitions. Hence, he cannot be faulted for the same.
From the above judgments, the following legal principles are settled by the Supreme Court and the High Courts:
A tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is entitled to order the sale and to sell the
properties of the debtor even if a company in liquidation through its recovery officer, but, only after notice to the Official Liquidator or the
Liquidator appointed by the Company Court and after hearing him.
Even where a winding up petition is pending (or) a winding up order has been passed against the debtor company, the adjudication of law and
execution of the certificate in respect of the debt payable to banks and financial institutions are respectively within the exclusive jurisdiction of the
DRT and the Recovery Officer and in such a case, the company Court jurisdiction under Sections 442, 537 and 446 of the Companies Act stands
ousted.
No leave of the Company Court is necessary for initiating proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act
1993 (RDB Act), nor can be company Court transfer to it (or) otherwise interfere with such proceedings.
Even the priorities among various creditors can be decided only by the DRT in accordance with Section 19(10) RDB Act r/w. Section 529A of
the Companies Act.
Provisions of RDB Act in this regard being inconsistent with those of the Companies Act override the provisions of the Companies Act.
In case of conflict between two special laws, the latter one prevails over the former.
Section 446 and 518 of the Companies Act confers wide and extraordinary powers on the Company Court on any matter arising in the course
of winding up.
A secured creditor stands outside the winding up proceeding and under the law, he can proceed to realise his security without the leave of the
winding up Court, if by that time he initiated action, the company has not been wound up.
When should a company court grant leave to secured creditor to proceed with the suit against the company after winding up order was made
and when should a company court transfer the dues of such suit during the pendency of winding up proceedings, would depend upon facts and
circumstances of each case having regard to the position of the plaintiff secured credit vis-a-vis other secured creditors.
Company Court should not transfer a suit merely for its own convenience.
The right exercisable u/s 129 of the State Financial Corporations Act 1951 (SFC) is available against the debtor, if a company, only so long as
there is no order of winding up.
Financial Corporations under the SFC Act, cannot unilaterally act to realise the mortgaged properties without the consent of the Official
Liquidator representing workmen for the pari passu charge in their favour under the proviso to Section 529 of the Companies Act 1956.
If the Official Liquidator does not consent, then the Financial Corporations under the SFC Act have to move the company court for
appropriate direction to the official liquidator who is the pari passu charge holder on behalf of the workmen.
The official liquidator cannot act in this regard without seeking directions from the company court and under its supervision.
15.The decision of the Andhra Pradesh High Court reported in 2001 Vol. 106 COMP Cas 338 Pennar Paterson Ltd. v. State Bank of
Hyderabad and Ors. is not a good law in lieu of the judgment of the Hon''ble Supreme Court in Allahabad Bank Vs. Canara Bank and Another, .
The sale proceedings with regard to the assets of the company in liquidation will have to be continued only by the DRT and not by the Official
Liquidator.
The official liquidator is to be consulted by the Recovery Officer while finalising the secured assets and distribution of the sale proceeds.
In a case where Recovery Certificate is not yet issued by DRT, but, proceedings for recovery of debts are pending before the DRT, the
Official Liquidator cannot proceed and dispose off the immovable assets which are secured in favour of banks and financial institutions.
Once the recovery certificate is issued by DRT in favour of the banks and financial institutions, who are secured creditors, then sale of
immovable properties cannot be carried out by the Official Liquidator in winding up proceedings and such sale is to be conducted by the Recovery
Officer in execution of recovery certificate issued by the DRT.
Claims of Secured Creditors would rank pari passu with those of the workmen and the observation made by the Supreme Court to the
contrary in Allahabad Bank Vs. Canara Bank and Another, , did not lay down the correct law.
The participation of the Official Liquidator in the proceedings before the DRT is in discharge of his duties and as a necessary corollary, non-
participating in the proceedings and not defending the interest of the company or the secured credits or the workmen, would amount to failure in
discharging the duties.
Right to sell under the SFC Act (or) RDB Act by a creditor coming within those acts and standing outside the winding up is different from
distribution of proceeds of the sale of securities.
DRT and the Recovery Officer can sell the property, but, only after issuing notice to the Offficial Liquidator and after hearing him.
There is no inconsistency between the decisions in Allahabad Bank Vs. Canara Bank and Another, and in International Coach Builders Ltd.
Vs. Karnataka State Financial Corpn., in respect of the applicability of Section 529 and Section 529-Aof the Companies Act in the matter of
distribution among the creditors.
To ensure proper working with the scheme under the SFC Act, it is necessary to associate the official Liquidator with the process of sale so
that he could ensure in the light of the directions of the company court that a proper price is fetched for the aspects of the company in liquidation.
When the property is sold in public auction in pursuance of an order of the company and the bid is accepted and the court confirms the sale in
favour of the purchaser, the sale becomes absolute and the title vests with the purchaser.
The sale certificate issued does not require any registration in view of Section 17(2)(xii) of the Registration Act as the same has been granted
pursuant to the sale held in public auction by the authorised officer under the SARFAESI ACT.
The sale of a secured asset in public auction as per Section 13(4) of the SARFAESI Act which ended in issuance of a sale certificate as per
Rule 9(7) of the Rules is a complete and absolute sale for the purpose of SARFAESI Act.
All that the auction purchaser gets under the sale by the DRT is only a symbolic delivery and the question of actual delivery has to be only from
the company court which is the custodian of the property of the company in liquidation.
Unless and until there is a specific order by the company court to put the auction purchaser in possession, the question of the purchaser
entering into the property and taking possession on the strength of the sale does not arise.
Unless and until the appeal filed is disposed off before the forum, the question of treating the sale as absolute does not arise.
Till the disposal of the appeal, the proceedings for sale need not be taken up to be finally decided.
Section 446(3) of the Companies Act was omitted by the Companies (Second Amendment) Act, 2002 and as a result, the High Court has no
power to transfer the Execution Petition to the DRT.
Section 446 has no application, once the RDB Act applies because Section 34 expressly gives over-riding effect to the provisions of 1993
Act.
RDB Act 1993 is a special law and hence will prevail over the general law, in the Companies Act.
Financial Institutions possess right to sell the property in terms of the provisions of RDB Act, 1993.
Once the sale is confirmed by the Recovery Officer and the Sale Certificate is issued, it cannot be said to be illegal or void.
Sanctity should be attached to the auction sale conducted for recovery of debt due to the banks and financial institutions. If such sales are
disputed in courts for extraneous reasons, the intending purchasers would be forced to think twice before participating in the auction sale as they
are also purchasing litigation.
In the light of the above legal principles, now let me consider the facts of the present case.
C.A. No. 854 of 2006 has been filed by the Official Liquidator to set aside the sale confirmed by the DRT and also to permit the Official
Liquidator to sell the assets of the company in liquidation afresh. It is not in dispute the Official Liquidator was a party before the DRT and also
before the Recovery Officer. In such circumstances, the Official Liquidator should have taken steps to challenge the sale as per the provisions of
the RDB Act and he could not maintain this petition before this Court, that too, in January 2006. It is an admitted fact that the auction was
conducted on 11.08.2005 and the sale was confirmed on 12.9.2005 itself. In such circumstances, the Official Liquidator ought to have challenged
the sale before the DRT as the DRT has got the exclusive jurisdiction to decide the matter of this nature and to that extent, the provisions of the
RDB act will prevail over the provisions of the Companies Act. Therefore, I am of the considered view that C.A. No. 854 of 2006 filed by the
Official Liquidator before this Court is not maintainable and accordingly, the same is dismissed. No costs.
C.A. Nos. 2740 to 2742 of 2007 have been filed by an ex-director of the company in liquidation praying to transfer the proceedings before
the DRT to the company court and also to set aside the sale made in favour of the third respondent in DCP. No. 1912, on 10.08.2001. This
application is also not maintainable for the very same reasons given by me for dismissing the application filed by the Official Liquidator in C.A. No.
854 of 2006.
It was mainly contended by the Learned Counsel appearing for the applicant in the above Company Applications that the leave granted by this
Court on 10.03.2000 in C.A. Nos. 1251 to 1253 of 1999 is a conditional leave subject to the condition that the Official Liquidator is impleaded
and no coercive steps are taken against the assets of the company during or after the conclusion of the proceedings before the Tribunal. This order,
according to the Learned Senior Counsel is neither cancelled nor modified and therefore, the sale made on 11.08.2005 will not bind the company
in liquidation or the Official Liquidator.
I am unable to accept this submission for the reason that now the law has been settled by the Honourable Supreme Court that the secured
creditor need not get any leave from the Company Court to proceed with the sale proceedings of the assets of the company in liquidation. What is
mandatory is that the Official Liquidator should be a party and notice should be issued to him. This was undoubtedly complied with by the secured
creditor and the DRT in this case and in such circumstances it cannot be said that the sale is not binding the company in liquidation because of the
order passed by this Court on 10.03.2000.
Further, now it is also settled that it is the DRT which has the exclusive jurisdiction to decide a matter of this nature and therefore, the pending
proceedings before the DRT could not be transferred to the company court to be decided along with C.P. No. 170 of 1995. When there is an
effective and alternative remedy provided in the Act itself and a Tribunal was already constituted clothing with all the powers and jurisdiction, if any
party is aggrieved that any of the provisions of the Special Act is violated, then that party should only approach that particular special tribunal even
if the assets are owned by the company in liquidation and they are under the custody of the Official Liquidator. Therefore, I do not find any merits
in the above three applications and accordingly, C.A.Nos. 2740 to 2742 of 2007 are dismissed. No cost. Consequently, the interim order of stay
granted by this Court in C.A. No. 2741 of 2007 is vacated.
Now, let me consider the application filed by the auction purchaser in C.A. No. 1811 of 2005. According to the auction purchaser, the
auction was conducted on 11.8.2005 and the Official Liquidator was heard and his objections dated 10.08.2005 were also considered by the
DRT, Bangalore. His price of Rs. 10.25 crores being the highest, was accepted by the Recovery Officer and on that day itself, he deposited 25%
of Rs. 10.25 crores and thereafter, deposited the entire money within the time before the DRT. It is an admitted fact that the auction was not at all
challenged by anyone and the sale was confirmed by the Recovery Officer on 12.9.2005 itself. In spite of the fact that auction has been confirmed
on 12.9.2005 itself, he was not handed over the possession inspite of the steps taken by him.
This application was resisted by the Workers Union who were impleaded in the application. The reasons given by the Workers Union for
opposing C.A. No. 1811 of 2005 is that challenging the sale they filed a Writ Petition. But, on 27.10.2006, the Writ Petition filed by the Workers
Union in W.P. No. 37991 of 2004 was heard along with another writ petition filed in W.P. No. 26564 of 2005 by the Karnataka High Court. The
High Court found that M/s. Tapti Machineries (P) Ltd. has taken over the assets and liabilities of M/s. Tungabadra Sugar Works Limited. When
Tapti Machineries (P) Ltd. had defaulted in re-payment of its dues, recovery proceedings were initiated by the State Bank of Mysore before the
DRT by filing O.A. No. 440 of 1997 for recovery of Rs. 22.31 crores. The High Court adverted to the fact that the Official Liquidator was heard
and he also filed his objections. The High Court was of the view that the objections submitted by the Official Liquidator and the Workers Union
were rejected by the Tribunal in a casual and lackadisical manner. But, the High Court did not entertain the Writ Petition as there is an alternative
and efficacious remedy under the RDB Act and therefore, the High Court disposed off both the Writ Petitions with a direction to avail the
alternative remedy within a period of six weeks. Since some adverse remarks were made by the Learned Single Judge of the High Court, the
auction purchaser filed an appeal in W.A. No. 2051 of 2006 and the Division Bench, on 23.02.2007, disposed off the appeal by making it clear
that the Appellate authority is required to examine the case of the parties independently without being influenced by the observations made by the
Learned Single Judge in order dated 27.10.2006. It is also an admitted fact that appeals were already filed before the DRT, Bangalore and the
same were already heard and the orders were reserved. It is submited that because of the stay order granted by this Court, final orders could not
be passed by the DRT, Bangalore in the appeal petitions. In such circumstances, when there is an effective alternative remedy to challenge the sale
and the same has been availed by filing a statutory appeal, it is not open to the Workers Union to maintain their objections to the application filed
by the auction purchaser in C.A. No. 1811 of 2005.
M/s. Tapti Machineries (P) Ltd. also got themselves impleaded as respondent in C.A. No. 1811 of 2005 and their objections are also more or
less similar to the objections raised by the official liquidator in C.A. No. 1811 of 2005 as well as the report of the official Liquidator in C.A. No.
854 of 2006. Therefore, I do not find any merits in those objections also.
Having rejected the objections raised by the respondents in C.A. No. 1811 of 2005, now the question that arises for consideration is whether
the auction purchaser is entitled to get possession of the subject property and a direction is to be issued to the official liquidator to remove the
security guards and hand over the possession of the property.
In this regard reliance was placed on the decision of this Court dated 06.11.2006 made in C.A. Nos. 461, 1167, 1411 and 1412 of 2006
(cited supra), wherein a learned Single Judge held that unless and until the appeal filed by the company is disposed off before the appellate forum,
the question of treating the sale as absolute does not arise. Therefore, it was submitted that until the appeals pending before the DRT, Bangalore
are disposed off, the auction purchaser is not entitled to get possession and at the most, he could be given the liberty to approach the company
court again after the disposal of the appeals.
Against this, it was argued on behalf of the auction purchaser that the sale has already become final as the sale was already confirmed by the
Recovery Officer and therefore, the auction purchaser is entitled to take possession of the property. The decision of the Division Bench of this
Court dated 10-08-2007 made in WA. No. 145 and 146 of 2007(cited supra) was very much relied on in this regard.
In the above judgment, the Division Bench held that the sale of the secured asset in public auction as per Section 13(4) of the SARFAESI Act
which ended in issuance of a sale certificate is a complete and absolute sale for the purposes of the Act. If that being so, even in the present case, it
is to be considered that after the sale was confirmed in favour of the auction purchaser, the sale is a complete and absolute one. It is true that
challenging the sale, an appeal has been filed and the same is pending before the Debt Recovery Tribunal (DRT). But merely filing an appeal
without obtaining any order of stay of further proceedings will not operate against the interest of the auction prucahser in taking possession of the
property. I am of the considered view that filing an appeal itself will not automatically stay all further proceedings. A petition for stay should be filed
and orders should be obtained staying all further proceedings. Only then, it can be stated that the sale has not become final and the auction
purchaser could not get possession. Therefore, in the absence of any order of stay by the Debt Recovery Tribunal (DRT), the appeals filed
challenging the auction sale, nothing can be put against the auction purchaser in taking possession of the property. Therefore, in view of the Division
Bench judgment dated 10-08-2007, I am unable to follow the order of the learned single Judge dated 06-11-2006.
In the light of the above discussion, and the settled principles of law, I am statisfied that the auction purchaser has made out a case for getting
possession of the subject property and accordingly, the Official Liquidator is directed to remove the security guards and handover the possession
of the subject property to the applicant in C.A. No. 1811 of 2005 within four weeks from the date of receipt of a copy of this order.
In the result, C.A. No. 1811 of 2005 is allowed as prayed for. No costs.