Secured creditor's rights upheld in debt recovery case, bank authorized to sell assets

Akola Oil Industries Versus State Bank of India

Akola Oil Industries Versus State Bank of India - [2006] 66 SCL 147 (BOM.) Issues Involved:
1. Jurisdiction of the Debt Recovery Tribunal (DRT) and necessity of leave from the Company Court.
2. Applicability of the Securitisation Act and its retrospective operation.
3. Validity of the bank's actions in publishing advertisements for the sale of the company's assets.
4. Registration of charges with the Registrar of Companies.
5. Rights of secured creditors under the Securitisation Act and their ability to stay out of winding up proceedings.
6. Distribution of sale proceeds and workmen's dues.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Debt Recovery Tribunal (DRT) and necessity of leave from the Company Court:
The Official Liquidator contended that the orders obtained from the DRT were illegal as they were obtained without notifying the Company Court or obtaining its leave, as required under section 446(1) of the Companies Act. The bank argued that leave was unnecessary since the RDB Act and the Securitisation Act, being special enactments, prevail over the Companies Act. The court referred to the Supreme Court's judgment in *Allahabad Bank v. Canara Bank*, which established that the jurisdiction of the DRT under the RDB Act is exclusive and does not require leave from the Company Court. Therefore, the court concluded that the bank did not need leave to proceed with its claims before the DRT.

2. Applicability of the Securitisation Act and its retrospective operation:
The Official Liquidator argued that the Securitisation Act could not be applied retrospectively to defaults committed by Akola Oil Mills. The bank countered that the Act applies prospectively even to past liabilities if the requirements are met. The court upheld the bank's position, stating that the Securitisation Act applies prospectively and the bank's actions were within the limitation period as per the Limitation Act, 1963.

3. Validity of the bank's actions in publishing advertisements for the sale of the company's assets:
The Official Liquidator claimed that the advertisements published by the bank for the sale of the company's assets were illegal and should be quashed. The court noted that the bank had taken possession of the properties under the Securitisation Act and had the right to proceed with the sale. However, the court restricted the bank from selling movables that were in the custody of the Official Liquidator.

4. Registration of charges with the Registrar of Companies:
The Official Liquidator contended that the mortgage in favor of the bank was void as it was not registered with the Registrar of Companies as required by section 125 of the Companies Act. The bank argued that it had complied with the necessary procedures. The court found that the charge was initially registered for 11 acres and was later modified to 18 acres, but due to procedural issues, the Registrar did not update the records. The court held that the Securitisation Act, being a special enactment, overrides the Companies Act in this respect.

5. Rights of secured creditors under the Securitisation Act and their ability to stay out of winding up proceedings:
The court emphasized that the Securitisation Act and the RDB Act provide secured creditors with the right to realize their security without the intervention of the Company Court. The court referred to sections 34 and 35 of the Securitisation Act, which give it overriding effect over other laws. Consequently, the bank was allowed to stay out of the winding up proceedings and proceed with the sale of the secured assets, subject to compliance with sections 529 and 529A of the Companies Act regarding workmen's dues.

6. Distribution of sale proceeds and workmen's dues:
The court directed the Official Liquidator to communicate the amount of workmen's dues to the secured creditor, who must deposit the same with the Official Liquidator and furnish an undertaking as required by law. The bank was permitted to retain the sale proceeds after depositing the workmen's dues with the Liquidator.

Conclusion:
The court concluded that the secured creditor, State Bank of India, did not need leave from the Company Court to proceed with its claims before the DRT or under the Securitisation Act. The bank was allowed to sell the secured assets, excluding movables in the custody of the Official Liquidator, and was required to comply with the provisions regarding workmen's dues. The court rejected the applications filed by the Official Liquidator and other intervenors seeking to recall the order permitting the bank to proceed under the Securitisation Act. The effect and operation of the judgment were stayed for six weeks to allow the Official Liquidator to take further steps.