2006 (4) TMI 257 - HC - Companies Law

Appeals Resolved: ARC to Assist in Debtor's Asset Sale, Court Approval Required, New Bidding Terms Set for Properties.

The appeals were resolved by directing the Official Liquidator to associate the appellant, an Asset Reconstruction Company (ARC), in the sale process of ... Enforcement of security interest - Whether an Asset Reconstruction company formed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,( ‘Securitisation Act’), is entitled to be associated in the process of the sale of assets of a company under liquidation along with the Official Liquidator ? - HELD THAT:- In the instant case, the Official Liquidator has taken possession of the assets and certain movables have already been sold. The Official Liquidator has also got valuation of some of the assets by ITCOT Consultancy Services, Chennai. A sum of Rs. 2 lakhs has been paid as valuation fee for valuation of the assets. In our opinion, the ends of justice would be served if the Official Liquidator is directed to associate the appellant-company in sale of the assets in terms of paragraph 18(iii) of the Rajasthan State Financial Corpn.’s case [2005 (10) TMI 280 - SUPREME COURT]. The appellant through its counsel makes a statement that in view of the facts and circumstances of the case the appellant shall not claim any commission on the sale of the assets. The appeals are accordingly disposed of. No costs. Consequently, connected C.M.Ps. are closed. ORDER - A further bid was held in the Court. Mr. M. Palanisamy residing at Coimbatore, has bid for a sum of Rs. 27.50 crores for C-1, Viscose Towers, which is accepted. The successful bidder agrees to pay the balance amount within a period of three months from today, failing which the EMD will be forfeited. As regards the property located at C-2, Mettupalayam is concerned, one Mr. P. Shanmugam, residing at Sankari-632 301, has bid for a sum of Rs. 1.55 crores, which is accepted. The successful bidder agrees to pay the balance amount within a period of three months from today, failing which the EMD will be forfeited. The EMDs of unsuccessful bidders shall be returned to them by today itself. M/s. Asset Reconstruction Company (India) Limited and the Official Liquidator are directed to approach the learned Company Judge for further directions in the matter. Issues Involved:1. Whether an Asset Reconstruction Company (ARC) formed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) is entitled to be associated in the process of the sale of assets of a company under liquidation along with the Official Liquidator.Issue-wise Detailed Analysis:1. Entitlement of ARC to be Associated in the Sale Process:The primary issue in these appeals is whether an ARC, formed under the Securitisation Act, is entitled to be associated in the sale process of a company's assets under liquidation alongside the Official Liquidator. The facts leading to this appeal involve SIV Industries Limited, which was declared a sick industrial company and subsequently ordered to be wound up. The Official Liquidator took possession of the assets and initiated the sale process. The appellant, Asset Reconstruction Company (India) Limited, sought to be appointed as an agent to complete the sale modalities along with the Official Liquidator. The Company Court rejected the applications, stating that the Official Liquidator, under the Companies Act, has the exclusive power to manage the sale of assets once the company is ordered to be wound up.2. Appellant's Argument:The appellant argued that they have special rights under the Securitisation Act and were not notified of the liquidation proceedings. They cited the Supreme Court's decisions in Allahabad Bank v. Canara Bank and Rajasthan State Financial Corpn. v. Official Liquidator, asserting that the Securitisation Act should prevail over the Companies Act in the event of any inconsistency. The appellant claimed that as a securitisation company, they are entitled to be associated in the sale of assets along with the Official Liquidator.3. Respondent's Argument:The respondent contended that the power under section 9 of the Securitisation Act does not override the provisions of the Companies Act. They emphasized that the Official Liquidator has the authority to take charge of and sell the assets, as per sections 456 and 457 of the Companies Act. The respondent also argued that the appellant failed to sell the assets despite an order by the BIFR and approached the Company Court only to claim commission from the sale proceeds.4. Relevant Legal Provisions:The court reviewed the relevant provisions of the Securitisation Act, including sections 34, 35, and 13, which outline the rights of secured creditors and the enforcement of security interests. The court also considered the amendments to section 15 of the SICA and section 424A of the Companies Act, which reflect the interplay between the Securitisation Act and the Companies Act.5. Supreme Court Precedents:The court referred to the Supreme Court's decision in Allahabad Bank v. Canara Bank, which established that the Debts Recovery Tribunal has exclusive jurisdiction over debts payable to banks and financial institutions, even in the context of a winding-up order. The court also cited Rajasthan State Financial Corpn. v. Official Liquidator, which held that financial institutions must associate the Official Liquidator and act under the supervision of the Company Court when selling assets of a company under liquidation.6. Court's Conclusion:The court concluded that the ARC could exercise its power to sell or transfer assets of a debtor company-in-liquidation only after obtaining appropriate permission from the Company Court and acting in accordance with its directions. The court directed the Official Liquidator to associate the appellant-company in the sale of assets, as outlined in paragraph 18(iii) of the Rajasthan State Financial Corpn. case. The appellant agreed not to claim any commission on the sale of the assets.Final Order:The appeals were disposed of with the direction that the Official Liquidator associate the appellant in the sale process. The court also conducted a further bid for the properties, accepting bids for C-1, Viscose Towers, and C-2, Mettupalayam, with specific terms for payment and forfeiture of EMDs. The ARC and the Official Liquidator were instructed to seek further directions from the Company Judge.