2016 (9) TMI 266 - HC - Companies Law

Court dismisses appeal, denies secured creditor status, deems transaction against public interest

SUZUKI PARASRAMPURIA SUITINGS PRIVATE LIMITED Versus OFFICIAL LIQUIDATOR OF M/s. MAHENDRA PETROCHEMICALS LTD (INLIQN) AND 4

SUZUKI PARASRAMPURIA SUITINGS PRIVATE LIMITED Versus OFFICIAL LIQUIDATOR OF M/s. MAHENDRA PETROCHEMICALS LTD (INLIQN) AND 4 - [2019] 212 Comp Cas 480 (Guj) Issues Involved:1. Validity of the Deed of Assignment executed by IFCI Ltd. in favor of the appellant.2. Applicability of SARFAESI Act to the appellant.3. Rights of the appellant to be substituted as a secured creditor.4. Allegations of fraud and defrauding secured creditors.5. Powers of the Company Court under Rule 9 of the Companies (Court) Rules, 1959.6. Public interest and the role of the Official Liquidator.Detailed Analysis:1. Validity of the Deed of Assignment:The appellant argued that they were assigned the debts due from the company in liquidation by IFCI Ltd. through a Deed of Assignment dated 28.07.2010. The Deed of Assignment was duly registered, and the appellant sought substitution before the Official Liquidator. The court noted that the assignment of debts was made after the company was ordered to be wound up, which raised concerns about the timing and the legitimacy of the transaction.2. Applicability of SARFAESI Act:The appellant contended that they did not seek any benefits under the SARFAESI Act but merely sought substitution based on the Deed of Assignment. The Company Court dismissed the application on the grounds that the appellant was not entitled to benefits under the SARFAESI Act and could not be termed a secured creditor. The court highlighted that the appellant was neither a banking company nor a financial institution, and thus, the provisions of the SARFAESI Act were not applicable.3. Rights of the Appellant to be Substituted as a Secured Creditor:The appellant argued that the substitution was sought under the provisions of the Contract Act and the Transfer of Property Act, not the SARFAESI Act. The court noted that the appellant's status as a secured creditor was not established, and the Deed of Assignment did not confer such status. The court also emphasized that the assignment of debts for a paltry sum of Rs. 58 lakhs against outstanding dues of more than Rs. 160 crores was unconscionable and against public interest.4. Allegations of Fraud and Defrauding Secured Creditors:The respondent, Bank of Baroda, argued that the agreement between the appellant and IFCI Ltd. was intended to defraud the rights of secured creditors and violated Sections 531 and 536 of the Companies Act, 1956. The court noted that the appellant had not produced the Deed of Assignment in earlier proceedings and that the transaction appeared to be an attempt to defeat the measures undertaken by respondent banks under the SARFAESI Act and the winding-up proceedings.5. Powers of the Company Court under Rule 9 of the Companies (Court) Rules, 1959:The appellant filed an application under Rule 9 of the Companies (Court) Rules, 1959, seeking to recall the CAV judgment. The court rejected the application, stating that the inherent powers under Rule 9 did not extend to granting substitution based on an invalid Deed of Assignment. The court emphasized that the Company Court must protect the interests of all stakeholders, including secured creditors and workers.6. Public Interest and the Role of the Official Liquidator:The court highlighted the role of the Official Liquidator as a watchdog of the Company Court, ensuring that the affairs of the company in liquidation are not carried out in a manner prejudicial to public interest. The court noted that the assignment of debts for a nominal consideration raised doubts about the bona fides of the transaction and was not in public interest. The court also referred to the judgment in Sesa Industries Ltd. v. Krishna H. Bajaj, emphasizing the importance of the Official Liquidator's report in protecting public interest.Conclusion:The court dismissed the appeal, stating that the appellant's application for substitution as a secured creditor was rightly rejected by the Company Court. The court found that the Deed of Assignment was not valid, the appellant was not entitled to benefits under the SARFAESI Act, and the transaction was not in public interest. The court also dismissed the civil application related to the appeal.