2016 (5) TMI 909 - HC - Companies Law

Court upholds DRT judgment, dismisses applications lacking statutory remedies.

The Court dismissed the applications seeking to set aside the judgment passed by the Debts Recovery Tribunal (DRT) and the subsequent orders. The Court ... Suspension of proceedings under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 - Effect of winding up order and requirement of leave under Section 446 of the Companies Act, 1956 - Jurisdiction and powers of Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 in relation to a company in liquidation - Duty to give notice to and hear the Official Liquidator before sale or recovery proceedings affecting assets of a company in liquidation - Availability and exhaustion of statutory remedies under the RDDB Act as a constraint on High Court interference - Applicability of preferential distribution principles in winding up (Section 529A/Section 529) where assets are realizedSuspension of proceedings under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 - Effect of winding up order and requirement of leave under Section 446 of the Companies Act, 1956 - Duty to give notice to and hear the Official Liquidator before sale or recovery proceedings affecting assets of a company in liquidation - Whether the judgment and decree dated 22.12.2003 of the Debt Recovery Tribunal in O.A.872/1999 is liable to be set aside on the ground of pendency of winding up and SICA/Companies Act protections. - HELD THAT: - The Court considered Section 22 of SICA and the consequential provisions of the Companies Act regarding winding up and stays (including Section 446), and the authorities on interaction between company liquidation and recovery proceedings. The record showed that the Official Liquidator had been notified and had appeared before the DRT and filed a written statement informing the DRT of the winding up order and that the Official Liquidator was in charge of the assets. The Court noted binding precedents that a DRT may proceed in relation to a company in liquidation only after notice to and hearing of the Official Liquidator, and that distribution issues fall under the company court's supervision. However, on the facts, notice was given and the Official Liquidator was heard; the applicants and the deceased guarantor did not challenge the DRT decree by pursuing the statutory remedy of appeal under the RDDB Act. In these circumstances, and having regard to the rule of exhaustion of alternative statutory remedies and the need for High Courts to exercise restraint, the Court concluded that the applicants were not entitled to have the DRT judgment set aside. [Paras 17, 20, 21]The challenge to the DRT judgment dated 22.12.2003 is rejected and the prayer to set aside that decree is dismissed.Jurisdiction and powers of Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 in relation to a company in liquidation - Availability and exhaustion of statutory remedies under the RDDB Act as a constraint on High Court interference - Whether execution/recovery proceedings in DCP No.3096 of O.A.872/1999 and orders dated 27.05.2015 and 24.06.2015 by the Recovery Officer should be set aside or stayed. - HELD THAT: - The Court examined the procedure under the RDDB Act including the appellate remedy and the established principle that High Courts should ordinarily refrain from granting stays where an effective statutory remedy exists. The applicants had not availed the statutory remedy of appeal under the RDDB Act against the DRT judgment and there was no satisfactory explanation for such omission. The Court also observed that the Official Liquidator had been heard by the DRT and there was no allegation that the recovery officer proceeded without hearing the Official Liquidator. In light of these facts and the need for restraint in exercising jurisdiction when alternative remedies exist, the Court found no ground to stay or set aside the execution orders impugned. [Paras 20, 21]The applications for stay of execution and for setting aside the orders dated 27.05.2015 and 24.06.2015 are dismissed.Final Conclusion: The Company Applications C.A.Nos.54/2016 and 55/2016 are dismissed; the challenge to the DRT decree and the applications to stay or set aside the recovery proceedings are refused. Issues Involved:1. Setting aside the judgment dated 22.12.2003 passed by the Debts Recovery Tribunal (DRT) in O.A.872/1999.2. Setting aside the orders dated 27.05.2015 and 24.06.2015 passed by respondent No.2 in DCP No.3096 of O.A.No.872/1999.3. Staying the execution/recovery proceedings in DCP No.3096 of O.A.No.872/1999 pending before respondent No.2.Issue-Wise Detailed Analysis:1. Setting aside the judgment dated 22.12.2003 passed by the Debts Recovery Tribunal (DRT) in O.A.872/1999:The applicants sought to set aside the judgment dated 22.12.2003 passed by the DRT in O.A.872/1999 on the grounds that the proceedings were initiated without obtaining the leave of the Court as required under Section 446 of the Companies Act, 1956, and Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The respondent-company was declared a Sick Industrial Company by the BIFR on 26.10.1988, and the winding-up order was passed by the High Court on 09.03.2000. The DRT continued with the proceedings and passed the judgment without adhering to the mandatory provisions requiring leave of the Court. The applicants argued that the judgment and decree passed by the DRT were non-est in the eye of law and liable to be set aside.2. Setting aside the orders dated 27.05.2015 and 24.06.2015 passed by respondent No.2 in DCP No.3096 of O.A.No.872/1999:The applicants contended that the orders dated 27.05.2015 and 24.06.2015 passed by respondent No.2 were illegal and arbitrary. The order dated 27.05.2015 allowed the application of respondent No.3-IARC to furnish security and attach equity shares in Cauvery Hydro Energy Limited, which were in the name of the deceased judgment debtor No.2. The order dated 24.06.2015 allowed the application to bring the legal representatives of the deceased judgment debtor No.2 on record without issuing notice to the applicants, violating Rule 60 of the Income Tax (Certificate Proceedings) Rules, 1962. The applicants argued that since the respondent company was represented by the Official Liquidator, respondent No.3-IARC could not recover amounts from the applicants as legal representatives of the deceased judgment debtor No.2.3. Staying the execution/recovery proceedings in DCP No.3096 of O.A.No.872/1999 pending before respondent No.2:The applicants sought to stay the execution/recovery proceedings in DCP No.3096 of O.A.No.872/1999 on the grounds that the proceedings were initiated without obtaining the leave of the Court as required under Section 446 of the Companies Act, 1956. The applicants argued that the execution proceedings were in violation of the mandatory provisions of the Companies Act and SICA, and hence, liable to be stayed.Judgment:The Court, after hearing the arguments of the learned counsel for the applicants and respondents, and perusing the materials on record, including the relevant provisions of the Companies Act, 1956, and SICA, 1985, observed that the DRT had jurisdiction to entertain and decide applications for recovery of debts due to banks and financial institutions. The Court noted that the Official Liquidator had appeared before the DRT and filed his statement. The Court further observed that the applicants, who were the legal representatives of the deceased director and guarantor, had not challenged the judgment and decree passed by the DRT by preferring an appeal to the appellate tribunal. The Court referred to the decisions of the Hon'ble Supreme Court, which emphasized the importance of exhausting statutory remedies before invoking the jurisdiction of the High Court. The Court concluded that the applicants had not availed the statutory remedies available to them under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and there were no reasons forthcoming in the applications for not availing such remedies. Consequently, the Court dismissed the applications, finding no merit in the applicants' case.Conclusion:The applications C.A.Nos.54/2016 and 55/2016 in C.O.P.No.67/1997 were dismissed, and the judgment dated 22.12.2003 passed by the DRT in O.A.872/1999, and the orders dated 27.05.2015 and 24.06.2015 passed by respondent No.2 in DCP No.3096 of O.A.No.872/1999, were upheld. The execution/recovery proceedings in DCP No.3096 of O.A.No.872/1999 were allowed to continue.