2013 (3) TMI 406 - SC - Companies Law

Supreme Court: Company Court lacks jurisdiction in Recovery of Debts Act auctions

The Supreme Court held that the Company Court lacks jurisdiction to set aside auctions or sales conducted by the Recovery Officer under the Recovery of ... Whether the Company Judge has jurisdiction at the instance of the Official Liquidator to set aside the auction or sale held by the Recovery Officer under the Recovery of Debts due to Banks and Financial Institutions Act, 1993(RDB) or whether the Official Liquidator is required to follow the route as engrafted under the RDB Act by filing an appeal assailing the auction and the resultant confirmation of sale - Held that:- The Official Liquidator whose association is mandatorily required can indubitably be regarded as a person aggrieved relating to the action taken by the Recovery Officer which would include the manner in which the auction is conducted or the sale is confirmed. Under these circumstances, the Official Liquidator cannot even take recourse to the doctrine of election. It is difficult to conceive that there are two remedies. It is well settled in law that if there is only one remedy, the doctrine of election does not apply and the Official Liquidator has only one remedy, i.e., to challenge the order passed by the Recovery Officer before the DRT. Be it noted, an order passed under Section 30 of the RDB Act by the DRT is appealable. Thus, we are inclined to conclude and hold that the Official Liquidator can only take recourse to the mode of appeal and further appeal under the RDB Act and not approach the Company Court to set aside the auction or confirmation of sale when a sale has been confirmed by the Recovery Officer under the RDB Act. Taking notice of the decision in M.V. Janardhan Reddy (2008 (5) TMI 401 - SUPREME COURT OF INDIA) wherein the sale was aside by the Company Judge. It may be stated here that the Company Court had imposed a condition that the permission of the Company Court shall be obtained before the sale of the properties, immoveable or moveable, is confirmed or finalized. On the aforesaid basis, this Court opined that when the bank was permitted to go ahead with the proposed sale of the assets of the company under liquidation by way of auction but such sale was subject to confirmation by the Company Court and all the parties were aware about the condition as to confirmation of sale by the Company Court, it was not open to the Recovery Officer to confirm the sale and, therefore, the sale was set aside by the Company Court, being in violation of the order. Thus, the facts in the said case were absolutely different and further this Court did not deal with the jurisdiction of the Company Court vis-à-vis DRT as the said issue really did not arise. Hence, it is not an authority for the proposition that the Official Liquidator can approach the Company Court to set aside the auction or sale conducted by the Recovery Officer of the DRT. Thus to conclude the Official Liquidator can prefer an appeal before the DRT. As he was prosecuting the lis in all genuineness before the Company Court and defending the order before the Division Bench, four weeks' time to file an appeal after following the due procedure is allowed. On such an appeal being preferred, the DRT shall deal with the appeal in accordance with law. Issues Involved:1. Jurisdiction of the Company Judge under the Companies Act, 1956 versus the Recovery Officer under the Recovery of Debts due to Banks and Financial Institutions Act, 1993.2. Role and rights of the Official Liquidator in the auction and sale proceedings.3. Appropriate forum for the Official Liquidator to agitate grievances regarding auction and sale.4. Interpretation and application of Sections 17, 18, 19, 25-30, and 34 of the RDB Act.5. Interaction between the RDB Act and the Companies Act, 1956, particularly Section 529-A.Detailed Analysis:1. Jurisdiction of the Company Judge vs. Recovery Officer:The primary issue was whether the Company Judge under the Companies Act, 1956, has the jurisdiction to set aside an auction or sale conducted by the Recovery Officer under the RDB Act, or whether the Official Liquidator must appeal under the RDB Act. The judgment clarified that the RDB Act is a comprehensive code for adjudication and recovery of debts due to banks and financial institutions. The RDB Act's Section 34 provides it with overriding effect over other laws, including the Companies Act, 1956. Consequently, the Company Court does not have jurisdiction to set aside sales confirmed by the Recovery Officer under the RDB Act.2. Role and Rights of the Official Liquidator:The Official Liquidator's role is to protect the interests of the workmen and creditors, and his association is mandatory during the auction and sale process conducted by the DRT. The Official Liquidator can object to the manner of auction and sale, but any grievances must be addressed through an appeal to the DRT, not the Company Court. The judgment emphasized that the Official Liquidator has a role in ensuring the auction is conducted fairly and transparently.3. Appropriate Forum for Grievances:The judgment underscored that the Official Liquidator must file an appeal with the DRT if aggrieved by the auction or sale conducted by the Recovery Officer. The DRT has exclusive jurisdiction to address such grievances, and the Company Court cannot be approached to set aside the auction or sale. This prevents dual jurisdiction and ensures prompt realization of dues by banks and financial institutions.4. Interpretation and Application of RDB Act Provisions:The judgment elaborated on the RDB Act's provisions, particularly Sections 17, 18, 19, 25-30, and 34, highlighting their comprehensive nature in dealing with adjudication, appeal, and recovery processes. Section 34's overriding effect was emphasized, ensuring that the RDB Act prevails over the Companies Act in case of inconsistencies. The DRT's exclusive jurisdiction for execution of recovery certificates and sale of properties was reaffirmed.5. Interaction between RDB Act and Companies Act, 1956:The judgment referred to previous rulings, particularly Allahabad Bank v. Canara Bank, which established that the RDB Act, being a special law, overrides the Companies Act. The judgment also noted the requirement under Section 19(19) of the RDB Act for distribution of sale proceeds in accordance with Section 529-A of the Companies Act, ensuring workmen's dues are prioritized. The judgment clarified that while the Company Court has a supervisory role, it does not have jurisdiction to interfere with the DRT's sale processes.Conclusion:The Supreme Court concluded that the Official Liquidator must appeal to the DRT for any grievances regarding the auction or sale conducted by the Recovery Officer. The Company Court does not have jurisdiction to set aside such sales. The judgment provided the Official Liquidator four weeks to file an appeal with the DRT, which is directed to decide the appeal within two months. The interim order remains in force until the appeal is disposed of. The appeal was disposed of with no costs awarded.