2016 (2) TMI 775 - HC - Indian Laws

Bank's Security Rights Upheld in Liquidation Case; SARFAESI Act Applicable; Deed Validity Confirmed

The court directed the Provisional Liquidator to hand over possession of the secured assets to the applicant, a bank, allowing them to enforce their ... Entitlement to proceed against the secured assets - SARFAESI Act - Held that:- In the present case, SBI has registered its charge under Section 125 of the Companies Act before ROC over the secured assets of company, the applicant is an assignee and, therefore, if the applicant has not registered its charge over the secured assets before the Registrar of Companies, it cannot be said that the applicant is not entitled to proceed against the secured assets. Account of the company in liquidation was declared NPA in the year 2001 by SBI - whether the applicant-bank cannot now initiate the proceedings under the SARFAESI Act against the company in liquidation after a period of five years - Held that:- The aforesaid contention is misconceived. It is true that the account of the company in liquidation was declared NPA in the year 2001. However, at the request of the company in liquidation, the SBI has restructured the credit facilities. However, so far as that facility is concerned, also, the company in liquidation has not complied with the terms. SBI has, therefore, issued the notice on 7.9.2005 to the company in liquidation and called upon the borrower to make the payment. However, the borrower-company in liquidation has not made the payment as per the notice. Thereafter, the SBI assigned its debts in favour of the applicant-bank by Deed of Assignment dated 23.3.2006. Thereafter, the applicant-bank has issued the notice under SARFAESI Act on 15.11.2006. Thus, there is no delay in initiation of the proceedings nor it can be said that SBI had waived its right to initiate action against the company in liquidation. It is further required to be noted that the Official Liquidator filed Appeal No.27 of 2007 before the DRT against the applicant-bank. However, learned advocate Mr. Pahwa has placed on record the order dated 17.7.2014 passed by DRT below Exh.23 whereby the said appeal was disposed off as dismissed for default due to want of prosecution. The Official Liquidator or the intervenor has not placed any other material on record to show that the said appeal has been restored. Thus, the fact remains that the Liquidator did file an appeal before the DRT. It is clarified that if the said appeal is restored on file of DRT, it is open for the Official Liquidator to take all available contentions before the learned Tribunal. Thus, the relief prayed for in this Judges' summons is required to be allowed. The respondent no.1 herein is hereby directed to hand over the possession of the secured assets particularly described in schedule annexed at Annexure 'A' to the applicant who has already initiated measures under the provisions of the SARFAESI Act. The applicant is also permitted to proceed further in relation to the secured assets subject to compliance of provisions of proviso to Section 13(9) of the Act. However, it is clarified that the applicant-bank has to inform the Official Liquidator about the steps which it will take against the secured assets. Issues Involved:1. Whether the Provisional Liquidator can be directed to hand over the possession of the secured assets to the applicant based on the Deed of Assignment between SBI and the applicant.2. Validity and enforceability of the Deed of Assignment.3. Compliance with the provisions of the Companies Act, 1956, specifically Sections 125 and 135.4. Applicability of SARFAESI Act and its provisions in the context of company liquidation.5. Jurisdiction of the Company Court vis-a-vis the Debts Recovery Tribunal (DRT) under SARFAESI Act.Detailed Analysis:1. Whether the Provisional Liquidator can be directed to hand over the possession of the secured assets to the applicant based on the Deed of Assignment between SBI and the applicant:The court examined whether the applicant, Kotak Mahindra Bank, as a secured creditor, could enforce its security interest under the SARFAESI Act despite the company being in liquidation. It was established that the applicant had initiated measures under the SARFAESI Act and had taken symbolic possession of the assets before the Official Liquidator took physical possession. The court concluded that the applicant is entitled to proceed with the enforcement of the securities under the SARFAESI Act.2. Validity and enforceability of the Deed of Assignment:The Deed of Assignment executed between SBI and the applicant on 23.3.2006 was scrutinized. The court observed that the Deed was registered by the competent authority and no objections were raised by the said authority. It was also noted that the stamp duty was adjudicated and duly paid by the applicant. The court dismissed the objections regarding the validity of the Deed of Assignment, stating that such issues could be raised before the appropriate forum but not in the current proceedings.3. Compliance with the provisions of the Companies Act, 1956, specifically Sections 125 and 135:The court addressed the contention that the applicant had not registered the charge under Sections 125 and 135 of the Companies Act. It was noted that SBI had registered the charge over the secured assets, and as an assignee, the applicant was not required to register the charge again. The court relied on various judgments from different High Courts, concluding that the non-registration of the assignment did not affect the applicant's rights to enforce the security interest.4. Applicability of SARFAESI Act and its provisions in the context of company liquidation:The court referred to several judgments, including those from the Supreme Court, to establish that the SARFAESI Act allows secured creditors to enforce their security interests without the intervention of the company court. It was emphasized that the SARFAESI Act overrides the Companies Act to the extent of any inconsistency, allowing the secured creditor to proceed with the sale of secured assets even when the company is in liquidation.5. Jurisdiction of the Company Court vis-a-vis the Debts Recovery Tribunal (DRT) under SARFAESI Act:The court clarified that the jurisdiction to challenge actions under the SARFAESI Act lies with the DRT and not the Company Court. It was noted that the Official Liquidator had filed an appeal before the DRT, which was dismissed for default. The court reiterated that the appropriate forum for challenging the actions under the SARFAESI Act is the DRT, and the Company Court does not have the jurisdiction to interfere in such matters.Conclusion:The court directed the Provisional Liquidator to hand over possession of the secured assets to the applicant and allowed the applicant to proceed further under the SARFAESI Act, subject to compliance with the provisions of Section 13(9) of the Act. The judgment was stayed for three weeks to allow the intervenor to approach the Division Bench.