2015 (8) TMI 434 - SC - Companies Law

Supreme Court upholds Official Liquidator's jurisdiction over asset sales, emphasizes secured creditors' rights

Laxmi Fibres Ltd. Versus A.P. Industrial Dev. Corpn. Ltd. & Others

The Supreme Court dismissed the appeal, upholding the Division Bench's decision on the jurisdiction of the Official Liquidator and conditions for ... Jurisdiction of Official liquidator - whether the Official Liquidator can claim any power or jurisdiction in itself to adjudicate and quantify the claim of statutory corporations such as respondents when the Company Judge has permitted them to stand outside the liquidation proceeding subject to certain conditions under which the respondent Corporations may pursue the powers available to them under Section 29 of the State Financial Corporations Act, 1959 - Held that:- Official Liquidator does not have jurisdiction to ascertain or adjudicate the claim of a secured creditor who has been permitted by the Company Judge to stand outside the liquidation proceeding with liberty to pursue its remedy as per statutory rights available under the SFC Act, subject only to the conditions imposed by the court - no doubt the changes brought about in the Companies Act through amendments of 1985 impede even the statutory powers available to a secured creditor like SFCs under Section 29 and the other relevant sections of the SFC Act but the impediment is indeed of a limited nature; its specific purpose being to protect the pari passu charge of the workmen’s dues. After ensuring that this purpose is achieved or ensured, the State Financial Corporations can continue to enjoy their statutory rights as secured creditors. They will not be reduced to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors. Rights of a financial corporation available under the provisions of the SFC Act have been compromised or impeded by the amendment of 1985 in the Companies Act, particularly the proviso added to Section 529(1) and Section 529A, only to a limited extent and for the limited purpose of securing the right of the workers for distribution of their wages as pari passu charge. But such limited impediment to their rights under the SFC Act will not alter the status of State financial corporations as secured creditors and they will not be required to prove their debt which they are entitled to realize under the provisions of the SFC Act subject to right of the workers to receive their wages also as secured creditors on pari passu basis. The control of the Company Judge and the Official Liquidator if authorized, can extend only to ensure that the aforesaid purpose of Section 529A is effectively achieved. - no error in the impugned order of the Division Bench - Decided against appellant. Issues:1. Jurisdiction of Official Liquidator to adjudicate and quantify claims of statutory corporations.2. Confirmation of sale of assets subject to conditions imposed by the court.3. Appeal against conditions imposed on confirmation of sale.Issue 1: Jurisdiction of Official LiquidatorThe Supreme Court considered whether the Official Liquidator had the power to adjudicate and quantify the claims of statutory corporations when the Company Judge had allowed these corporations to stand outside the liquidation proceeding. The Court noted that the Official Liquidator had taken over the company under the Companies Act and that the property of the company was seized by the respondent corporations under the State Financial Corporations Act. The Court highlighted that the corporations were required to deposit workmen's dues with the Official Liquidator for quantification. The Court analyzed previous judgments to establish that the Official Liquidator did not have jurisdiction to ascertain the claims of secured creditors who were permitted to stand outside the liquidation proceeding.Issue 2: Confirmation of Sale of AssetsThe Court discussed the conditions imposed by the court for the confirmation of the sale of assets, including the requirement for the corporations to prove their claims before the Official Liquidator and to deposit a portion of the sale proceeds with the Official Liquidator. The Court examined the role of the Official Liquidator in adjudicating the claims of workmen and ensuring proper distribution of proceeds. It was highlighted that the Division Bench had directed that the confirmation of sale would be subject to the Official Liquidator quantifying the amounts payable to the workmen.Issue 3: Appeal Against ConditionsThe respondent corporation appealed against the conditions imposed on the confirmation of the sale of assets. The Division Bench modified the conditions, stating that the corporation, as a secured creditor, did not need to establish its claim before the Official Liquidator. The Court upheld the Division Bench's decision, emphasizing that the amendments to the Companies Act in 1985 restricted the powers of secured creditors like the respondent corporations but only to protect the rights of workmen. The Court clarified that the impediment to the corporations' rights was limited and did not change their status as secured creditors.In conclusion, the Supreme Court dismissed the appeal, finding no error in the Division Bench's decision regarding the jurisdiction of the Official Liquidator and the conditions for the confirmation of the sale of assets. The Court upheld that the amendments to the Companies Act aimed to protect the rights of workmen and did not diminish the status of secured creditors like the respondent corporations.