2016 (2) TMI 1102 - HC - Companies Law

Court allows appeal against rejection of claim by Official Liquidator, acknowledges creditor payment

M.K. Chatterjee Versus Emkay International Limited.

The Court allowed the appeal against the rejection of the claim by the Asstt. Official Liquidator (OL). It was found that the OL was aware of the ... Settlement arrived at by the appellant in his capacity as guarantor without the leave of the court - whether the appellant paid the money to the secured creditor i.e. Punjab & Sind Bank only to save his personal immovable property from coercive action? - Held that:- The appellant in his capacity as the guarantor paid the debt, which was owed by the company (in liquidation). The OL, in fact, was aware of the appellant’s involvement as is evident from the communication dated 30.11.2006 addressed to the Asst. O.L, which is appended as Annexure-D to the appeal. As a matter of fact, in the meeting held in the office of the OL, on 22.9.2011, these aspects squarely came to fore when, payments made by the appellant to Punjab & Sind Bank i.e. the secured creditor, were noted. A perusal of the minutes dated 22.09.2011 would show that, amongst others, Mr Sanjay Yadav, Dy. O.L. was present at the said meeting.A perusal of order dated 26.08.2011 would show that the date of appearance of ex-directors before the OL and the chartered accountant was changed from 29.08.2011 to 22.09.2011, which is when, the meeting was held and the minutes were drawn up. The argument that the OL was unaware of the payments made by the appellant i.e. the ex-director is, according to me, not tenable. Second, the submission of Mr Choudhary is equally unsustainable for the reason, which is, that irrespective of the motivation for payment of debts of the company (in liquidation), once, moneys are paid by the appellant, he should be allowed to take recourse to its assets. The principal debtor being the company (in liquidation), and the appellant having paid its creditor (i.e. the Punjab & Sind bank), it falls to reason that it should be entitled to seek recovery by lodging its claim with the OL. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a person who, as guarantor/ex-director, pays debts of a company in liquidation to a secured creditor without obtaining the court's leave or the Official Liquidator's prior consent can lodge a claim before the Official Liquidator in respect of sums paid. 2. Whether the motive for payment (viz., to save the guarantor's personal immovable property from coercive action by the secured creditor) defeats the person's right to claim against the company in liquidation for the amount paid. 3. Whether the Official Liquidator's prior knowledge of the payments and related negotiations affects the permissibility of the claimant's proof of debt. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to make a claim in liquidation after paying company's debt as guarantor without court leave Legal framework: The Companies Act provisions relating to categories of creditors (sections referenced in the order: 529, 529A, 530 of the Companies Act, 1956) and the law on proof of debt in a liquidation proceed govern who may claim and in what capacity. Principles of subrogation and right of indemnity of a guarantor who pays the creditor of the principal debtor are implicated. Precedent treatment: No prior authority was cited or relied upon in the impugned order or in the Court's reasoning; the Court proceeded to decide on principles rather than by reference to binding precedents. Interpretation and reasoning: The Court reasoned that the sums were paid in discharge of obligations owed by the company (the principal debtor) and, therefore, the payer - though a guarantor/ex-director - has a substantive entitlement to seek recovery from the company's estate. The formal absence of leave of the court for the settlement with the secured creditor did not extinguish the payer's right to claim; payment of the company's debt gives the payer recourse against the company (subrogation/right of indemnity), and such a payer can lodge a claim with the Official Liquidator. Ratio vs. Obiter: Ratio - A guarantor who pays a company's creditor in liquidation is entitled to file a claim against the company for the amount paid; absence of prior court leave to settle with the creditor does not, per se, bar such a claim. Obiter - No detailed treatment of competing statutory doctrines (e.g., priorities between secured and unsecured claims) or hypothetical limits on subrogation were necessary for the decision. Conclusions: The Court allowed the claim to be considered: payment by a guarantor to discharge the company's debt entitles the payer to present a claim against the company in liquidation. Issue 2 - Effect of motive for payment (to protect personal property from sale) on right to claim Legal framework: Principles distinguishing motive from substantive legal effect of payment; guarantor's right of recourse/indemnity irrespective of subjective reasons for payment. Precedent treatment: None cited; the Court applied principles of indemnity/subrogation rather than distinguishing or following prior authorities. Interpretation and reasoning: The Court held that the subjective motivation for making the payment (saving personal immovable property from coercive measures) is irrelevant to the legal consequence that the payer discharged an obligation of the company. Once payment has been made, the payer acquires the right to be reimbursed by the principal debtor or to prove its claim in the liquidation; the motive does not nullify that right. Ratio vs. Obiter: Ratio - Motive for payment to protect the guarantor's personal assets does not preclude the guarantor from claiming against the company in liquidation for sums paid. Obiter - The Court did not elaborate on circumstances (if any) in which inequitable conduct or collusion in compromise might bar relief. Conclusions: The payer's motive is immaterial; entitlement to claim survives despite payments motivated by personal asset protection. Issue 3 - Effect of Official Liquidator's prior knowledge of payments/meetings on claim admissibility Legal framework: Principles of estoppel, waiver, and fairness in insolvency administration; the Official Liquidator's procedural role in inviting and adjudicating proofs of debt. Precedent treatment: No precedent invoked; the Court relied on documentary evidence of the OL's knowledge (minutes and communications) to assess whether the OL could maintain ignorance as a basis to reject the claim. Interpretation and reasoning: The Court examined the record (communication dated 30.11.2006 and minutes of meeting dated 22.09.2011 which recorded payments and were attended by OL personnel) and concluded that the OL was aware of the payments. Given that awareness, the OL's rejection on the ground of non-disclosure was unsustainable. The Court emphasized that the OL's knowledge and participation in noting payments undermined the rationale for rejecting the claimant's proof solely because leave had not been sought or because payments were made by the guarantor. Ratio vs. Obiter: Ratio - When the Official Liquidator is aware of and has noted payments made by a party in discharge of the company's debts, the OL cannot reject the party's claim on the basis that such payments were undisclosed; prior knowledge is material to admissibility. Obiter - The decision does not quantify when mere knowledge converts into estoppel or waiver in all contexts. Conclusions: The Official Liquidator's prior awareness of the payments negates the ground of rejection founded on lack of disclosure; the OL must consider the claim on its merits and in accordance with law. Procedural/Dispositional Point Legal framework & Interpretation: The Court directed that the impugned order rejecting the proof be set aside and remitted the claim to the Official Liquidator for consideration in accordance with law, thereby leaving open proper statutory adjudication of the claim and any necessary classification (secured vs unsecured) consistent with insolvency principles. Ratio vs. Obiter: Ratio - The rejected proof must be reconsidered by the OL in accordance with applicable law; the Court did not itself adjudicate quantum or priority. Obiter - The Court's directive contemplates procedural compliance but does not specify detailed criteria for allowance or ranking of the claim. Conclusions: The matter is remitted for lawful consideration by the Official Liquidator; the impugned rejection is set aside and the appellate relief is granted accordingly.