2013 (11) TMI 334 - HC - Companies Law

Court appoints new Committee to re-examine workmen's claims, involving Official Liquidator in sale and disbursal processes.

Societe Generale Versus Daewoo Motors India Ltd.

The Court set aside the Committee's report on workmen's claims and appointed a new Committee to re-examine the claims. The Official Liquidator ('OL') must ... Disposal of assets and clearance of dues - liquidation of company - Validity of Report – The Committee appointed by the Court to examine the workmen's claims should be rejected and this exercise be undertaken by another Committee with the participation of the two CAs - The Court sets aside the report submitted by the Committee which examined the workmen's claims and directs that all the workmen's claims that have thus far been lodged with the OL will be examined afresh - The Committee will endeavour to complete its exercise within a period of two months. Directions Issued - Whether the direction should be issued at this stage on the application filed by the OL - Held that:- If and when the stage reached for disbursal of any further amounts with the DRT, it will be done only after hearing the OL and strictly in accordance and, in particular, the scheme of Section 529A of the Act - any monies that remained for disbursal as a result of the final orders in the proceedings arising from the orders of the DRT setting aside the sale to the AP and any fresh sums that might be received hereafter should be placed under the control of the OL and be disbursed only by the OL subject to the supervision of the Court - what required to be done was to associate the OL both at the stage of bringing the properties of the company in liquidation to sale as well as at the stage of the disbursal of the amounts. Jurisdiction of the Court - The question as to the jurisdiction of the Company Court vis-à-vis the powers of the DRT in relation to the company in liquidation was examined - The matter came to be referred to a three-Judge Bench as a result of the apparent conflict - The company in question was already under liquidation pursuant to the order passed by the Company Court - It was held by the Supreme Court that 'whether the assets were realised by a secured creditor even if it be by proceeding under the SFC Act or under the Recovery of Debts Act, the distribution of the assets could only be in terms of Section 529 A of the Act and by recognising the right of the liquidator to calculate the workmen's dues and collect it for distribution among them pari pasu with the secured creditors. The OL had certainly to be associated in all the proceedings of sale by public auction or otherwise of the properties of the company in liquidation and the orders of the DRT - the DRT had issued notices to the OL at every stage - since 2012, the OL had been participating in the proceedings before the DRT and now before the DRAT - Therefore, there may be no apprehension that the orders might be passed in the proceedings under the RDDB Act without the participation of the OL – It was for the OL to diligently pursue those proceedings. The exercise of disbursal of the sums by the DRT can be undertaken only with the participation of the OL - It was the OL who will settle the claims of the workmen and of all the secured, preferential and unsecured creditors - This disbursal of the amounts should happen only with the full participation of the OL. There was an opportunity for the OL to have participated at that stage, but for the reasons best known to him, he did not choose to do so - The payments made to the Customs authorities in terms of the MoU also cannot be interfered with unless the sale was set aside or an appellate court holds that the amount cannot be forfeited - it should be returned to the AP – The action will have to await the outcome of the orders passed in those proceedings. ISSUES PRESENTED AND CONSIDERED 1. Whether a Debts Recovery Tribunal (DRT) can proceed to sell assets of a company already in liquidation and distribute sale proceeds without effective association and participation of the Official Liquidator (OL) appointed by the Company Court. 2. Whether amounts realised by a DRT Receiver (including upfront/deposit sums) and disbursed pursuant to DRT orders can be treated as beyond the supervisory control of the Company Court and the OL, and whether the Company Court may direct that such sums be placed under the control of the OL for distribution in accordance with Section 529A of the Companies Act. 3. Whether the report of a Committee constituted by the Company Court to scrutinise and admit/reject workmen's claims should be accepted where (a) the Committee used random sample scrutiny, (b) Chartered Accountants were not associated in claim scrutiny, and (c) the OL contests the thoroughness of the examination. 4. Whether, in the factual matrix where a portion of sale proceeds has been segregated by a Receiver in a fixed deposit purportedly for workmen, the Company Court may order immediate disbursal of that portion to admitted workmen in advance of resolution of challenges to the DRT sale and the Committee's report. ISSUE-WISE DETAILED ANALYSIS Issue 1: Authority of DRT to sell assets of a company-in-liquidation and necessity of OL's association Legal framework: The RDDB Act empowers DRTs and their Recovery Officers to order sale of debtor's properties. The Companies Act (Section 529A and related provisions) governs distribution of assets/proceeds in liquidation. Principles require association of the OL/Company Court when a company is in liquidation. Precedent treatment: The Court follows the three-Judge Supreme Court decision in Rajasthan State Financial Corporation v. Official Liquidator, which resolved apparent conflict among earlier Supreme Court decisions and held that a DRT/Recovery Officer may sell properties of a company-in-liquidation only after notice to and hearing of the OL and with the OL associated in the process; distribution of proceeds must be in terms of Section 529A and under the supervision of the Company Court. Other authorities (including decisions under the SFC Act and High Court summaries) are cited and treated as consistent with this principle; a decision relied on by parties (Bakemans) is noted but not held to be directly determinative on disbursement mechanics. Interpretation and reasoning: The Court interprets the precedents to require: (i) notice to OL and hearing before sale; (ii) association of OL in the sale process so OL can protect interests of workmen and ensure proper price; and (iii) distribution of proceeds under Company Court supervision and in accordance with Section 529A. The Court reasons that absence of OL participation does not render the DRT without power to sell, but limits the validity of distribution and necessitates subsequent association in disbursal. Ratio vs. Obiter: Ratio - a DRT may order sale of assets of company-in-liquidation only after notice to and hearing of the OL and with OL associated; distribution of proceeds must follow Section 529A under Company Court supervision. Observations regarding comparative utility of Bakemans are obiter on that decision's narrow relevance. Conclusion: DRT has jurisdiction to sell but must involve OL; Company Court/OL retain supervisory role over distribution of sale proceeds under Section 529A. Issue 2: Control and disbursal of sale proceeds already realised by DRT Receiver; entitlement of OL to custody/disbursal Legal framework: Section 529A scheme for distribution of assets/proceeds in winding up; supervisory powers of Company Court; statutory powers of DRT/Recovery Officer under RDDB Act; contractual/Agreed settlements (e.g., MoU with Government) affecting distribution to statutory claimants like Customs. Precedent treatment: The Rajasthan State Financial Corporation decision is followed to the extent that distribution must occur with OL association and under Company Court oversight. Madras High Court summaries and other authorities are referenced to show that RDDB Act is a special law but OL's participation is a necessary corollary when company is in liquidation. Interpretation and reasoning: The Court examines the factual sequence where the DRT Receiver deposited and disbursed portions of the upfront payment (payments to Customs under an MoU, reimbursements to secured creditors, segregated sum for workmen held in FD). The Court reasons that retrospective interference with amounts already paid pursuant to DRT orders is premature where appeals/challenges to the DRT sale and disbursement remain pending. Simultaneously, the Court holds that for any future disbursals the OL must be heard and participate; the OL has to settle claims of secured, preferential and unsecured creditors and exercise control consistent with Section 529A only when monies become available for disbursal. Ratio vs. Obiter: Ratio - monies to be disbursed in future shall be disbursed only after hearing the OL and in accordance with Section 529A. Observations that payments already made and payments pursuant to a sanctioned MoU cannot be disturbed at this stage are pragmatic, fact-specific directions (binding in this matter; not a broad precedent overruling any appellate determination). Conclusion: The Company Court will not order retrospective re-appropriation of sums already disbursed pursuant to DRT orders where the validity of the sale is under challenge; any further disbursal by DRT/Receiver will require OL participation and conformity with Section 529A; OL must diligently pursue association in RDDB Act proceedings going forward. Issue 3: Validity of Committee report on workmen's claims where sampling and absence of CAs were shown Legal framework: The Company Court has power to appoint committees/inspectors to scrutinise claims under its supervisory jurisdiction in liquidation; Section 529A prescribes priority and method of distribution among workmen and other creditors. The OL is responsible for adjudicating preferential claims including workmen's dues. Precedent treatment: No specific authority is required beyond general supervisory powers of the Company Court over liquidation processes and need for rigorous scrutiny of preferential claims. Interpretation and reasoning: The Court finds procedural deficiencies in the Committee's methodology: random sampling (40 per 100) rather than examination of each claim; CA expertise was not associated though necessary for examination of books/accounts; OL itself had questioned the thoroughness and sought re-examination. Given the importance of accurate determination of workmen's dues and competing claims upon limited proceeds, Court concludes that the earlier Committee report cannot be accepted. Ratio vs. Obiter: Ratio - where claim-adjudication procedures lack adequate examination and requisite professional participation, the Company Court may set aside such report and direct re-examination by a properly constituted committee including CAs and an OL representative. This is applied in the present matter. Conclusion: The Committee's report is set aside; a fresh committee including two Chartered Accountants and OL representation is appointed with timelines and remuneration directions to re-examine all workmen claims comprehensively. Issue 4: Immediate disbursement of segregated FD amount for workmen pending resolution of DRT/DRAT proceedings and Committee re-examination Legal framework: Same as Issues 1-2; interplay of interim segregation by DRT Receiver and Company Court supervisory jurisdiction. Precedent treatment: Principles from Rajasthan State Financial Corporation govern; Court considers finality/appeal status of DRT orders and pending challenges before appellate fora. Interpretation and reasoning: The Court reasons that immediate disbursement from the segregated sum is impermissible because: (a) the validity of the underlying sale and forfeiture/forfeiture consequences are pending before appellate forums, and (b) the Committee report that would determine admissibility/quantum of workmen claims has been set aside and must be re-examined. Interference with segregation would be premature and potentially inconsistent with appellate determinations. Ratio vs. Obiter: Ratio - segregation by a Receiver does not grant immediate right to disbursal by Company Court where legal challenges to sale/disbursement persist; distribution must await resolution of those challenges and re-adjudication of claims under an approved process. Conclusion: No immediate order for disbursal of the segregated FD to admitted workmen; disposition of such funds will await outcome of RDDB Act proceedings and the fresh Committee's report; ARCIL's willingness to settle subject to orders under RDDB Act is recorded but not directed to be acted upon now. Administrative and consequential directions 1. OL must participate diligently in RDDB Act proceedings going forward; future disbursals by DRT will occur only with OL's participation and under Company Court supervision in line with Section 529A. 2. The previous Committee report is set aside; a new multi-member Committee (including two CAs and OL representation) is appointed with prescribed fees and a strict timeline for completion. 3. The OL's application seeking custody/disbursement control over future available monies is disposed of subject to the above legal position: future disbursal only after hearing OL and in accordance with Section 529A; past disbursements are not interfered with at this stage.