Times Guarantee Ltd. vs Branch Manager, Industrial Development Bank of India and Others

K. Raviraja Pandian, J.—The secured creditor Industrial Development Bank of India, Chennai, obtained a decree on November 21, 2001,

against the debtor Rajalakhmi Mills Limited, Singanallur, Coimbatore, in O.A. No. 91 of 2000 from the Debts Recovery Tribunal-I, Chennai. As

the debtor failed to pay the amount, the Recovery Officer brought the mortgaged property in an extent of 20 acres 87 cents of land situated at

Uppilipalayam village, Coimbatore District for sale in D.R.C. No. 79 of 2002. In that sale, one Ramajeyam, the fourth respondent in W.P. No.

25636 of 2004 has knocked down the property for a sum of Rs. 15.08 crores. The said auction purchaser deposited 25 per cent of the amount

on the date of sale on August 30, 2004, and the balance amount of Rs. 11.31 crores on September 30, 2004, as per the terms of the sale notice.

While that being so, on September 7, 2004, writ petition in W.P. No. 25635 of 2004, was filed by Times Guarantee Limited seeking for the relief

of writ of mandamus forbearing the second respondent-the Recovery Officer, Debts Recovery Tribunal-I, Chennai, from proceeding against the

properties set out in the auction sale notice in D.R.C. No. 79 of 2002, by arraying the Industrial Development Bank of India, the Recovery

Officer, Debts Recovery Tribunal-I, Chennai, and the official liquidator representing Rajalakshmi Mills Limited as respondents Nos. 1 to 3

respectively, on the premise that they are the unsecured creditors in a sum of Rs. 50 lakhs by way of discounting of bills of exchange and the

debtor Rajalakshmi Mills failed to honour the bills. In spite of repeated promises, the company Rajalakshmi Mills was unable to pay the amount.

Thus, the writ petitioner Times Guarantee Limited filed a company petition in C.P. No. 122 of 1997, u/s 433 of the Companies Act for winding up

of the company. The company court passed an order of winding up of the company on April 7, 2000. The Division Bench in O.S.A. No. 179 of

2001, at the instance of the writ petitioner and in terms of the compromise memo filed by the writ petitioner Times Guarantee Limited and the

debtor Rajalakshmi Mills, passed an order dated June 26, 2001, setting aside the winding up order dated April 7, 2000, and directed the appellant

to pay a sum of Rs. 5,000 by way of reimbursement of the money expended by the official liquidator within a week from the date of order. In the

joint memo filed before the Division Bench, the debtor Rajalakshmi Mills agreed to pay Rs. 50 lakhs on or before July 31, 2001, to the writ

petitioner and discharged the official liquidator appointed by the company court, with a covenant that in the event of default of payment of the

amount as agreed by the debtor, the winding up order passed on April 7, 2000, in C.P. No. 122 of 1997, shall stand revived. Again, the Division

Bench by its order dated April 30, 2003, in C.M.P. No. 18534 of 2002, revived the order passed by the company court dated April 17, 2000,

winding up the debtor Rajalakshmi Mills. Thus, the action of the secured creditor Industrial Development Bank of India moving the Debts

Recovery Tribunal by filing O.A. No. 91 of 2000, and obtaining a decree on November 28, 2001, is all against the statutory provisions of the

Companies Act. Once the winding up proceedings are initiated before the company court, without the leave of the company court, no action could

be taken by the secured creditors. It is still worse on the part of the secured creditor to move the Debts Recovery Tribunal and proceed against

the property mortgaged to it, de hors the provisions of the Companies Act, particularly, when the winding up order is passed and on that basis,

obtained an order of interim stay of confirmation of auction sale from this Court on September 9, 2004, i.e., on the date the writ petition was

admitted.

The auction purchaser, who got himself impleaded as the fourth respondent by order dated September 29, 2004, filed W.V.M.P. No. 1757 of

2004, to vacate the interim order dated September 9, 2004, passed in W.P.M.P. No. 31147 of 2004.

While the matters stand thus, the secretary of Rajalakshmi Mills High School filed another writ petition in W.P. No. 27208 of 2004, by arraying

the Recovery Officer, Debts Recovery Tribunal-I, Chennai, Industrial Development Bank of India, Coimbatore, the Director of School Education,

Chennai, the District Educational Officer, Gopalapuram, Rajalakshmi Mills Limited and the auction purchaser Ramajeyam as respondents seeking

for the relief of writ of declaration declaring the public auction held in D.R.C. No. 79 of 2002, on August 30, 2004, by the second respondent

therein the Recovery Officer in respect of the land measuring 3.35 acres in S. No. 564/3, 566/1, 566/2, Uppilipalayam village, Coimbatore Taluk

and District and bearing door No. 652/1, Trichy Road, Singanallur, Coimbatore-5 and the school buildings and play ground thereon is illegal and

arbitrary and in violation of Section 31 of the Tamil Nadu Recognised Private Schools (Regulation) Act, 1973, and consequently cancel the sale of

the above asset in favour of the sixth respondent on the premise that the fifth respondent debtor, Rajalakshmi Mills passed a resolution to hand

over the building and play ground along with 3.35 acres for the purpose of running of the school and the school is running there for several years

and catering to the needs of the children of the employees of the mill. As per Section 31 of the Tamil Nadu Recognised Private Schools

(Regulation) Act, the property in an extent of 3.35 acres comprised in the above survey numbers in which the school is running cannot be brought

for sale without prior approval of the educational authorities arrayed as respondents Nos. 3 and 4 in the writ petition and on that basis sought for

interim injunction restraining the first respondent from confirming the sale. The said writ petition was filed on September 21, 2004, and was

admitted on September 24, 2004, and interim injunction was granted on the same day.

Thereupon, one K.P. Natarajan filed a writ petition in W.P. No. 35296 of 2004, on December 1, 2004, by arraying the Recovery Officer,

Debts Recovery Tribunal-I, Chennai, Industrial Development Bank of India, Coimbatore, and the auction purchaser K.N. Ramajeyam seeking for

the relief of writ of declaration declaring that the public auction held in D.R.C. No. 79 of 2002 by the first respondent--Recovery Officer, Debts

Recovery Tribunal--I, Chennai, bringing the land measuring 1757 Sq.ft. in S. No. 494/2, Uppilipalayam village, Coimbatore taluk and district and

bearing Nos. 12-A, 25 and 26, Kalliamadai Road, Singanallur, Coimbatore, and the petitioner''s land, building thereon as illegal and arbitrary on

the premise that the petitioner is the owner of the property in the abovesaid extent in Survey No. 494/2 bearing door Nos. 12-A, 25 and 26. The

said writ petition was admitted and interim injunction for confirmation of sale is granted on December 2, 2004.

Now, all the three writ petitions came up for orders. The auction purchaser filed applications in W.V.M.P. Nos. 1757 and 2103 of 2004, to

vacate the interim order in W.P. Nos. 25635 and 27208 of 2004, respectively.

When the matter is taken up for orders, earned Counsel on either side argued on the merits and consented for disposal of the main writ

petitions.

The petitioner in W.P. No. 25635 of 2006, through his counsel submitted that the petitioner is not interested in prosecuting the writ petition and

the writ petition may be dismissed as withdrawn. However, counsel appearing for the auction purchaser has submitted that because of the filing of

the writ petition and obtaining of interim order by the petitioner, great prejudice has been caused to the auction purchaser from getting the auction

confirmed in his name in spite of the fact the entire amount as required in a sum of Rs. 15.08 crores has been paid by him. This sort of filing writ

petition and causing hardship to the third party and withdrawing the writ petition for extraneous reason at the time of disposal cannot be allowed.

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 to 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 529, Section 530 of the

Companies Act also apply--apart from Section 529A--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 Comp 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 (page 80):

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.

The Supreme Court further strengthened their view by pointing out as follows (page 80):

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 (page 763):

''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 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.

In the proceedings 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) Ltd. v. Official Liquidator 2006 134

Comp Cas 267 (Mad) infra : 2006 2 LW 442.

In view of the above said position, the challenge of the petitioner in W.P. No. 25635 of 2004, has to fail and the writ petition has to be

dismissed.

The writ petition filed by Rajalakshmi Mills School is a case having a chequered history. The petitioner relied on Section 31 of the Tamil Nadu

Recognised Private Schools (Regulation) Act, 1973, and contended that in view of the said provision, the property of the school could not be put

to sale under public auction. I am not able to agree with the reasoning. The petitioner is well aware that the auction taken by the secured creditor,

the Industrial Development Bank of India was under Central legislation and that alone would prevail. The exclusive jurisdiction of the Tribunal

created under the Act and the Recovery Officer has been upheld by the Supreme Court in Allahabad Bank v. Canara Bank [2000] 101 Comp

Cas 64 : AIR 2000 SC 1535 referred above.

Further, Section 31 of the Tamil Nadu Recognised Private Schools (Regulation) Act provides that notwithstanding anything contained in any

other law for the time being in force or in any deed, document or instrument having effect by virtue of such other law--(a) no property of a private

school, shall except with the previous permission in writing of the competent authority, be transferred by way of sale, exchange, mortgage, charge,

pledge, lease, gift or any other manner whatsoever ; and (b) if any such property is transferred without such permission, the transfer shall be null

and void.

In this case, it is the case of the secretary of the petitioner school that the debtor Rajalakshmi Mills passed necessary resolution and signed the

agreement to hand over the building and playground in an extent of 3.50 acres to the school. On that basis, they claimed that the property is a

private school property. It is unfortunate that no document, whatsoever, has been filed by the petitioner to prove that the property and the school

are separate and different entities than the debtor Rajalakshmi Mills. On the other hand, one of the documents filed by them i.e., Form 5-F under

Rule 17(31) of the Tamil Nadu Urban Land Tax Act, 1966, made available at page No. 10 clearly states that the debtor Rajalakshmi Mills Private

Limited, Trichy Road, Singanallur, Coimbatore, is the owner of the property in which the school is running. So, the secretary of the school

committee cannot claim that the property is the private property of the school itself, so as to attract Section 31 of the Private Schools Regulation

Act.

Yet another obstacle is also there against the petitioner school, which cannot be get over by them easily. The parent-teacher association of the

same school had filed a pro bono publico by way of writ petition in W.P. No. 24486 of 2004, before the Division Bench of this Court seeking for

the very same relief by raising the very same ground of violation of Section 31 of the Tamil Nadu Recognised Private Schools (Regulation) Act as

ground No. (c) in the said writ petition. In order to have a clarity, the prayer in the pro bono publico is extracted here, which reads as follows:

For the reasons stated in the accompanying affidavit, it is prayed that this hon''ble court may be pleased to issue a writ of mandamus or any other

writ or direction in the nature of writ forbearing respondents Nos. 1 and 2 herein from in any manner proceeding with S. Nos. 564/3, 566/1,

566/2, bearing door No. 652/1, Tiruchy Road, Singanallur, Uppilipalayam village, Coimbatore-5 wherein the Rajalakshmi Mills High School,

elementary school and the play grounds are located pursuant to the auction notification issued by the second respondent and published in the Dina

Mani (Tamil) newspaper dated August 30, 2004, and described as item No. 2 either on August 30, 2004, or in any other date contrary to the

mandatory provisions of the Tamil Nadu Recognised Private Schools (Regulation) Act, 1973, and the rules made thereunder.

The prayer of the present writ petition in W.P. No. 27208 of 2004, is also one and the same in respect of the very same property, though

differently moulded.

The Division Bench in its order dated August 30, 2004, made in W.P. No. 24486 of 2004, non-suited them for maintaining the writ petition

and directed them to agitate the matter under Order 1, Rule 8 of the CPC before the competent civil court. What the school could not achieve

before the Division Bench cannot be now reagitated before this Court by the secretary of the school. On these grounds, the petitioner cannot

succeed in this writ petition.

However, the students and the staff of the petitioner school cannot be left in the lurch during the middle of the academic year. In this regard, it

is worthwhile to note the averments made in the solemn affidavit filed by the auction purchaser in W.V.M.P. No. 2103 of 2004, seeking to vacate

the interim injunction granted in W.P.M.P. No. 33104 of 2004, in W.P. No. 27208 of 2004. In paragraph No. 10 of the said affidavit, it is

averred as follows:

. Presently, I have given a letter dated September 25, 2004, to the chief educational officer that I intend to run the school after the sale is confirmed

in my name in the same place till the alternative place is located by me at my cost. Though, the school does not have independent right to claim

rights or ownership over the subject lands, on humanitarian grounds, and as an educationalist I hereby undertake to take over the management and

to run the school in the present place till the alternative site is located by me and shifting the school to the said alternative site. It is significant to note

that at this juncture that I have already sent a letter to this effect to the petitioner as well as the educational authorities on September 25, 2004.

The abovesaid averments are recorded and the undertaking given by the auction purchaser would take care of the interest of the students and

staff working in the school. With this observation, W.P. No. 27208 of 2004, has to be dismissed.

The affidavit filed by K.P. Natarajan, the petitioner in W.P. No. 35296 of 2004, is not so happily worded. However, from paragraphs Nos. 2

to 5, it could be discerned that the petitioner claimed ownership over the property at Nos. 12-A, 25 and 26, Kalliamadai Road, Singanallur,

Coimbatore, in S. No. 494/2 in Uppilipalayam village from 1960 onwards, that he was conferred title by settlement deed dated March 16, 1979,

registered as document No. 609 of 1979, in sub-registrar''s office, Singanallur and the settlement deed dated April 1, 1981, registered as

document No. 582/81 in the sub-registrar''s office, Singanallur. The third respondent--auction purchaser claimed that he is the owner of the

property being the purchaser of the same in the auction sale conducted by the Recovery Officer of the Debts Recovery Tribunal-I, Chennai.

I am afraid whether a writ petition can be maintained by the petitioner with these factual averments to stall the auction conducted by the

Recovery Officer, who is exercising his exclusive jurisdiction as decided by the Supreme Court. If any encroachment or misclaim is made by the

auction purchaser, the remedy of the petitioner is elsewhere and not by way of writ petition.

It was argued by counsel for the debtor company that the auction purchaser has withdrawn most part of the amount deposited by him leaving a

small fraction so as to keep the litigation alive. Per contra, it is submitted by the auction purchaser that the Industrial Development Bank of India

has not shown any interest to get the stay order vacated. The petitioner got impleaded himself as a party in W.P. No. 25635 of 2004, on

September 29, 2004, and filed applications to vacate the interim orders granted in W.P. Nos. 25635 and 27208 of 2004, and to vacate stay

petition was not listed on October 6, 2004. As the matter has not been taken up for final orders, the auction purchaser withdrawn portion of the

amount by giving an unconditional undertaking to deposit the entire amount within seven days of the disposal of the writ petitions in his favour.

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 be 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 Comp 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.

The order of the court should not prejudice the interest of the parties. The well established maxim of law is that ""actus curiae neminem

gravabit"". As stated above, the auction purchaser was a successful bidder for a sum of Rs. 15.08 crores and he paid the entire amount as per the

sale notification. Because of the litigation, he was allowed to withdraw a major portion of the amount on condition that he should repay within 7

days on conclusion of the writ proceedings. Now, it is for the auction purchasers to comply with the undertaking and if the undertaking is so

complied with, it is open to the Recovery Officer to proceed further in terms of the auction conducted on August 30, 2004.

In the result, all the writ petitions are dismissed with the observations made above. No costs. Consequently, the connected miscellaneous

petitions are also dismissed and W.V.M. Rs. are allowed by vacating the interim orders granted in favour of the petitioners.