Union Bank of India vs O.L. of Gujarat Perstorp Electronics Ltd. (in Liquidation) and Others

K.A. Puj, J.—The applicant Union Bank of India has taken out this Judges Summons praying for the direction to the Official Liquidator to distribute the sale proceeds of Rs. 814 lacs with interest earned thereon lying with the office of the Official Liquidator to the secured creditors subject to the provisions of Section-529(A) of the Companies Act, 1956. The applicant has also prayed for the direction for adhoc payments towards its claim against the usual undertaking till the final disbursement.

This Court has issued notice on 13.5.2010 and directed the Official Liquidator to file additional report pointing out fund position in the account of the Company in liquidation. The Official Liquidator has initially filed his report on 12.5.2010. Pursuant to the order passed by this Court on 13.5.2010 the Official Liquidator has filed his additional report on 10.6.2010. An affidavit-in-reply is filed on behalf of the respondent No. 3 i.e. IDBI Trusteeship Services Ltd., on 29.6.2010. On behalf of the applicant, an affidavit-in-rejoinder is filed on 28.7.2010.

Since the pleadings of the parties are completed the matter is taken up for hearing.

Ms. Nalini Lodha, learned advocate appearing for the applicant has submitted that this Court by an order dated 9.3.2005 passed in Company Petition No. 169 of 2004 appointed the Official Liquidator attached to this Court as Liquidator of Gujarat Perstorp Electronics Ltd., with direction to take possession of the assets of the Company. By an order dated 12.9.2006 passed in OLR No. 70 of 2006 the Court has appointed the Sale Committee comprising of the Official Liquidator, representatives of the secured creditors and workers union, as members thereof for disposal of the assets and properties of the company in liquidation. By an order dated 1.2.2008 passed by this Court in OLR No. 92 of 2007 the sale of the factory land, building, plant, machinery and all other movables situated at GIDC Electronics Estate, Sector-25, Gandhinagar was confirmed in favour of HPV Developers for Rs. 8.04 crores and the said HPV Developers made payment of Rs. 8.14 crores including interest for late payment.

Ms. Lodha has further submitted that the applicant Bank in joint participation with Bank of Baroda had granted various credit facilities to the company in liquidation and the said credit facilities are secured by the movable and immovable assets of the Company in liquidation. The outstanding dues of the applicant Bank as on the date of winding up of the Company in liquidation i.e. 9.3.2005 are to the tune of Rs. 1,24,54,004/ -. The applicant Bank has filed Original Application No. 156 of 2005 against the Company in liquidation and others before the Debt Recovery Tribunal, Ahmedabad for a sum of Rs. 1,36,90,400/- with future interest and costs and which has been allowed with simple interest @ 7% thereon from 1.8.2005 until realization and costs vide judgment and order dated 27.4.2009 holding inter alia that the applicant Bank and respondent No. 2 are having first pari passu charge on the current assets i.e. stocks and book-debts and the applicant bank and respondent No. 3 have pari passu charge on the properties being factory land, building plant and machinery of the Company in liquidation. She has, therefore, submitted that the applicant is a secured creditor having first charge on pari passu basis on the assets of the Company-in-liquidation. She further submitted that the amount Rs. 814 lacs has been lying with the office of Official Liquidator since August, 2008.

The applicant Bank had earlier taken out Judge''s Summons seeking direction to the Official Liquidator to distribute the sale proceeds to the secured creditors subject to the provisions of Section-529A of the Companies Act, 1956 vide Company Application No. 241 of 2009, when one of the secured creditor - IDBI Trusteeship Services Ltd., - respondent No. 3 have disputed the status of the applicant as secured creditor and alleged that he is the only secured creditor and Union Bank of India and/or Bank of Baroda are not the secured creditors of the Company in liquidation. This Court by an order dated 11.9.2009 passed in Company Application No. 241 of 2009 permitted the Official Liquidator to engage a Chartered Accountant for verification of claim of the secured creditors and workers'' claim and to file appropriate report for disbursement. Pursuant to the said order the Official Liquidator engaged M/s. Talati and Talati - Chartered Accountant for verification of claim of the secured creditors. Since the Official Liquidator has not filed any report for disbursement of the amount in terms of the order dated 11.9.2009 passed in Company Application No. 241 of 2009 the applicant has taken out the present Judges Summons praying for disbursement.

The Official Liquidator has filed his report on 12.5.2010. Based on this report, Mr. Mrugesh Jani, learned advocate appearing for the Official Liquidator has submitted that as per the order of this Court the Official Liquidator invited claims of the workers and other creditors of the Company through an advertisement on 7.7.2009. He has further submitted that the Official Liquidator was in receipt of following claims against the Company in liquidation.

Sr. No. Name of the Creditor Amount Rs. 1. Union Bank of India 1,24,54,004/ - 2. IDBI 5,58,05,086/ - 3. Bank of Baroda 2,84,49,584/ - 4. Workers (84) 98,61,520/ - Total 10,65,70,194

The aforesaid claim of the secured creditors of the Company and workers was forwarded to M/s. Talati and Talati Chartered Accountant vide Official Liquidator''s letter dated 18.9.2009. The said Chartered Accountant has submitted his report on 1.5.2010 regarding verification of claim of the secured creditors and workers of the company and also ratio of disbursement amongst the secured creditors and workers. He has further submitted that on perusal of the report dated 1.5.2010 of the Chartered Accountant, the claim of the secured creditors verified by him are as under:

Bank of Baroda:

Amount claimed on 29.9.2004 Rs. 2,64,22,143/ -

Amount ordered by DRT Rs. 2,64,22,143/ -

with simple interest @ 8% per annum until realization.

Union Bank of India:

Amount claimed on 1.8.2005 Rs. 1,36,90,400/ -

Amount ordered by DRT Rs. 2,64,22,143/ -

on 27.4.2009

with simple interest @ 8% per annum until realization.

IDBI:

Amount claimed as on 18.3.2004 Rs. 6,59,77,813/ -

From the above, total claim of the secured creditors is as under:

Particulars Security Amount of Claim Amount admitted Workers claim Preferential 74,62,197/ - 74,62,197/ - BOB First Charge 2,67,74,438/ - 2,67,74,438/ - UBI First Charge 1,30,51,515/ - 1,30,51,515/ - IDBI Second Charge 6,59,77,813/ - 6,59,77,813/ - TOTAL 11,32,65,963/ - 11,32,65,963/ -

Based on aforesaid amount Chartered Accountant has worked out the ratio of disbursement of sale proceeds under Section-529A as under:

Secured Creditors Workers 93.41% 06.59% TOTAL 100.00%

On the basis of aforesaid ratio disbursement, taking into consideration the amount of Rs. 8.00 crores to be disbursed amongst the secured creditors and worker, the said Chartered Accountants have also worked out following amount to be paid to the secured creditors and workers of the Company is as under:

Sr. No. Particulars Security Amount(Rs.) 1 Bank of Baroda First Charge 2,67,74,438/ - 2 Union Bank of India First Charge 1,30,51,515/ - 3 IDBI Second Charge 3,49,02,047/ - 4 Workers 52,72,000/ - TOTAL 8,00,00,000/ -

The Official Liquidator has filed his further report on 10.6.2010 wherein it is stated that he is having total fund of Rs. 8,49,41,226/ - in the Company''s Account as on 31.5.2010.

Mr. R.M. Desai, learned advocate appearing for IDBI Trusteeship Services Ltd., respondent No. 3 herein has disputed the claim of the applicant Bank to be the first charge holder on the assets of the Company in liquidation and also disputed the report of the Chartered Accountants considering the respondent No. 3 as the second charge holder. He has submitted that the respondent No. 3 is secured creditor of Company in liquidation having first charge. The applicant Union Bank of India and/or Bank of Baroda and/or any of the Financial Institutions are second charge holders. He has further submitted that any amount to be distributed to Union Bank of India and/or Bank of Baroda only after dues of respondent No. 3 are satisfied. The amount lying with the Official Liquidator is required to be distributed between the respondent No. 3 and the workers as per provisions of law. He has further submitted that dues of Banks and Financial Institutions in respect of term loan facility are settled and as such assets which are sold are secured in favour of the respondent No. 3 as first charge holders and Union Bank of India and/or Bank or Baroda are not entitled to participate in the distribution. He has further submitted that Union Bank had pari passu charge for their term loan and not for working capital facilities. The pari-passu charge is satisfied. The working capital facilities were secured by way of second charge pari-passu with Bank of Baroda. The respondent No. 3 had agreed for sharing of sale proceeds on pari-passu basis for term loan and not for working capital facilities.

For working capital facilities Union Bank of India has admitted second charge in the application filed in the Debts Recovery tribunal being Original Application No. 156 of 2005. In Schedule-II of the application, the Union Bank of India has clearly stated the description of movable and immovable property of the Company in liquidation mortgaged by way of second charge. It is specific statement and admission that the Union Bank of India has second charge on the property of Company in liquidation as described in Schedule-II of the said application. He has further submitted that despite the aforesaid statement being made by the Union Bank of India the Chartered Accountants, in their report stated that Union Bank of India and Bank of Baroda are first charge holder and the respondent No. 3 is the second charge holder. He has, therefore, submitted that the Chartered Account has given his report without any application of mind and hence no disbursement can be made on the basis of said report. He has further submitted that as per provisions of Section-48 of Transfer of Property Act, 1982, where a person purports to create by transfer at different times rights in or over the same Immovable property, and such rights cannot all exist or be exercised to their full extent together, each later created right, shall in the absence of a special contract or reservation binding the earlier transferees, be subject to rights previously created. The charge was created in favour of the respondent No. 3 on 24.4.1993 and in favour of Union Bank of India on 27.4.1997 which is subsequent to the charge created in favour of the respondent No. 3. He has, therefore, submitted that the respondent No. 3 is required to be paid first and balance be paid to Union Bank of India and/or Bank of Baroda.

Mr. B.D. Karia, learned advocate appearing for Bank of Baroda respondent No. 2 herein has virtually adopted the arguments of Ms. Lodha and submitted that Bank of Baroda is rightly treated as first charge holder and disbursement be made accordingly.

Ms. Nalini Lodha, learned advocate appearing for the applicant in rejoinder has submitted that the attempt on the part of the respondent No. 3 to claim that Union Bank of India has second charge on properties of the Company in liquidation on the basis of averments made in the Original Application No. 156 of 2005 is of no avail in view of the specific finding given in para-3 of the operative part of the order dated 27.4.2009 passed by the Debt Recovery Tribunal, Ahmedabad wherein respondent No. 3 is a party. The said finding is based on the written statement filed by the respondent No. 3 before DRT in response to the averments made by the applicant in the said Original Application. She has, therefore, submitted that there is no substance in the contention raised by the respondent No. 3 that the respondent No. 3 had agreed for sharing of sale proceeds on pari passu basis for term loan and not for working capital facilities. She has further submitted that the judgment and order passed by the DRT is binding to the respondent No. 3 and it is not open to the respondent No. 3 to dispute the rank on the basis of what is stated in the Original Application ignoring the written statement filed in reply to the memo of Original Application and judgment and order dated 27.4.2009 passed by the DRT. She has, therefore, submitted that the disbursement be made on the basis of report submitted by the Chartered Accountant.

Having heard the learned Counsels appearing for the parties and having considered their rival submission in light of the documents produced on record, their respective claims with proof of debts, creation of charge over the assets of the Company in liquidation, proceedings before Debt Recovery Tribunal and orders passed therein, verification of claims made by the Chartered Accountants, the Court is of the view that there does not appear to be any error or infirmity in the report of the Chartered Accountant and disbursement can be made on that basis.

It is true that the applicant Bank, in its Original Application No. 156 of 2005 filed before the Debt Recovery Tribunal, Ahmedabad has stated that the Company in liquidation has mortgaged its movable plant and machinery and immovable properties situate at B/1 to B/3, GIDC Electronics Estate, Gandhinagar to the applicant Bank and Bank of Baroda to secure the working capital facilities advanced to the Company in liquidation by way of second charge on pari-passu basis with Bank of Baroda subject to the first change of Industrial Development Bank of India, Industrial Finance Corporation of India, Industrial Credit and Investment Corporation of India Ltd., Bank of Baroda and the applicant Bank for their respective term loans/foreign currency loans. However, the said loans of the said Financial Institutions appeared to have been repaid. It is equally true that the respondent No. 3 has filed its written statement in the said Original Application No. 156 of 2005, wherein, it is stated that the charges and mortgages created by the Company in liquidation on all its fixed assets, in favour of the present respondent No. 3 for securing the debentures are to be ranked as first charge in favour of the present respondent No. 3 and the applicant Bank, without any preference or any priority of one over the other or others. It is also stated by the respondent No. 3 that whatever amounts paid and/or to be paid by the Official Liquidator to the applicant after filing of the said application, are required to be shared by the applicant with the respondent No. 3 on pro-rata basis.

Based on the above pleadings of the parties the Debt Recovery Tribunal in its order dated 27.4.2009 held that the applicant and respondent No. 2 i.e. Bank of Baroda have first pari-passu charge over the assets described in Schedule-I of the application, which refers to description of hypothecated movable properties of the Company in liquidation. It is further held by the Debt Recovery Tribunal that the applicant, respondent No. 2 and respondent No. 3 have first pari-passu charge over the properties described in Schedule-II of the application, which refers to the description of movable and immovable properties of the Company in liquidation mortgaged by way of second charge.

Even in the Debenture Trust Deed dated 18.3.1994 executed by the Company in liquidation in favour of the respondent No. 3, it is clearly revealed that the charge operates as security by way of second charge, inter alia, for the redemption by the Company of the 15% secured partly convertible debenture at the aggregate value of Rs. 228 lacs, together with interest liquidated damages and all other money''s payable by the company to the trustees.

After considering the various documents the Chartered Accountant arrived at the conclusion that the applicant Bank and Bank of Baroda have first charge and the respondent No. 3 had executed Trust Deed and as per the agreement in he Trust Deed and as per Form No. 10 filled by the respondent No. 3 it stands as a second charge-holder. He has worked out the ratio of secured creditors and workers at 93.41 : 06.59. Based on this ratio and taking into account the available fund of Rs. 8/ - crores for disbursement, he has determined the amount to be disbursed amongst secured creditors and workers as under:

Sr. No. Name of the Creditor Amount Rs. 1. Bank of Baroda 2,57,74,438/ - 2. Union Bank of India 1,30,51,515/ - 3. IDBI 3,49,02,047/ - 4. Workers (84) 52,72,000/ - Total 800,00,000/ -

In view of the above discussion, the Official Liquidator is hereby directed to disburse the above amount in favour of the three secured creditors, after obtaining an usual undertaking from them. The workers shall be paid their dues as indicated above after proper verification and identification, either by Account Payee Cheque/Bankers'' Cheque or by availing E-Banking facilities. The secured creditors shall be paid the amount on or before 15.10.2010 and the workers shall be paid on or before 25.10.2010.

With this directions and observations, the application is accordingly disposed off.