2011 (3) TMI 1458 - HC - Companies Law

Court upholds sale validity under Securitisation Act, emphasizes proper proceeds distribution.

The court dismissed the company's application, affirming the validity of the sale conducted by ARCIL under the Securitisation Act. It was held that ARCIL ... Winding up - Overriding preferential payments - Whether secured creditor, while selling and disposing of and transferring secured assets by taking recourse to Securitisation Act, is obliged to seek prior approval or permission of company court in case secured assets belong to a company-in-liquidation - Whether section 529A is attracted only in event of winding up and particularly while determining proof and ranking of claims under Chapter V entitled ‘provisions applicable to every mode of winding up’ and only effect of provisions particularly sections 529A and 530 of Companies Act is that sale will have to abide by provisos to section 13(9) of Securitisation Act which make a specific reference to these provisions of Companies Act, 1956 – Held that:- section 529A is attracted only in the event of winding up and particularly while determining proof and ranking of claims under chapter V entitled 'provisions applicable to every mode of winding up'. sale conducted by the respondent No. 2 ARCIL cannot be said to be void. Once, the sale conducted by the ARCIL is in terms of Securitisation Act, then, bearing in mind the object and purpose sought to be achieved by the said Act and it being latter act and also a special Statute, there was no necessity of taking prior permission or leave of this Court before auctioning and selling the property. section 13(9) have been inserted to cover cases of company in liquidation, whose assets might be secured with secured creditors. In that event, the right exercised by the secured creditors under the Securitisation Act should not ignore the claims of workmen and that is the sole object in making reference to sections 529 and 529A in the subject provisos. company application fails and it is accordingly dismissed. respondent No. 2 ARCIL will have to abide by the provisos to section 13(9) of the Securitisation Act and remit the workmen’s dues in terms thereof by giving an appropriate undertaking to the official liquidator. The liquidator shall have the power to call upon ARCIL to abide by it and remit the dues as quantified by him in terms of the applicable proviso. Issues Involved:1. Maintainability of the application.2. Jurisdiction of the Company Court under the Companies Act, 1956 versus the Securitisation Act, 2002.3. Validity of the sale of secured assets by ARCIL.4. Rights and obligations of secured creditors and the role of the Official Liquidator.5. Applicability of sections 529A and 537 of the Companies Act, 1956.Issue-wise Detailed Analysis:1. Maintainability of the Application:The court did not provide a ruling on the preliminary objection regarding the maintainability of the application. It was agreed that all contentions, including the merits of the application, would be addressed. Thus, the question of whether the proceedings are maintainable and whether the court has jurisdiction to set aside the sale of secured assets under the Securitisation Act, 2002, was left open.2. Jurisdiction of the Company Court:The applicant argued that the Company Court has jurisdiction to set aside the sale of secured assets by ARCIL, as the assets were in the custody of the Official Liquidator. The applicant relied on various sections of the Companies Act, including sections 441, 447, 450, 457(1)(a), 528 to 530, 536, and 537. It was contended that the Securitisation Act does not override the Companies Act, especially when section 37 of the Securitisation Act specifically refers to the Companies Act. The respondent (ARCIL) argued that the Securitisation Act is a latter Act and prevails over the Companies Act. The court held that the provisions of the Securitisation Act prevail and no leave of the Company Court is required for selling the secured assets, even after the winding-up order is passed.3. Validity of the Sale by ARCIL:The applicant contended that the sale conducted by ARCIL was fraudulent and illegal, as it was done at a gross undervaluation and without the consent of the Official Liquidator. The sale was conducted for Rs. 14 crores, while the market value was assessed at Rs. 29 crores. The court held that the sale conducted by ARCIL under the Securitisation Act is valid and not void. The Securitisation Act is a special statute and prevails over the Companies Act. The sale was conducted before the winding-up order was passed, and therefore, it is not void.4. Rights and Obligations of Secured Creditors and the Role of the Official Liquidator:The applicant argued that the sale of secured assets should involve the Official Liquidator to ensure a proper price is fetched. The court held that the secured creditor (ARCIL) can exercise its right to sell the secured assets without the involvement of the Official Liquidator, as per the Securitisation Act. However, ARCIL must abide by the provisos to section 13(9) of the Securitisation Act, which mandates the distribution of sale proceeds in accordance with section 529A of the Companies Act.5. Applicability of Sections 529A and 537 of the Companies Act:The court held that sections 529A and 537 of the Companies Act are applicable only when the company is in liquidation. The Securitisation Act makes a specific reference to these provisions to ensure that the claims of workmen are not ignored. The sale conducted by ARCIL must comply with the provisos to section 13(9) of the Securitisation Act, which requires the secured creditor to remit the workmen's dues to the Official Liquidator.Conclusion:The company application was dismissed. The sale conducted by ARCIL was held to be valid and not void. ARCIL must comply with the provisos to section 13(9) of the Securitisation Act and remit the workmen's dues to the Official Liquidator. The court emphasized that the Securitisation Act prevails over the Companies Act in matters of selling secured assets.