2023 (2) TMI 188 - HC - Companies Law

Bank autonomy under SARFAESI Act upheld: No need for Company Court approval to possess & sell assets.

Jatin Bhupendra Shah Versus Morya Grain Distilleries Pvt Ltd (In Liqn) and Ors

The court held that Union Bank of India did not require permission from the Company Court to possess and sell the company's assets, as the SARFAESI Act ... Liquidation proceedings - Right of secured creditors - Legality of declaration that the action of Union Bank of India, the respondent No. 3, of taking possession of the assets of the company in liquidation including the plant and machinery situated at Aurangabad and sale of the said assets without the order of this Court - HELD THAT:- A conjoint reading of the provisions contained in Sections 529 and 529A, would indicate that the secured creditor has an option to realise or relinquish his security. If the secured creditor exercises the option to realise his security, he is entitled to do so in a proceeding other than the winding up proceeding. But he has to pay to the liquidator the costs of preservation of the security till he realises the security. The workmen of the company in winding up also acquire the status of secured creditor. Where a company is in liquidation, a statutory charge is created in favour of workmen in respect of dues over the security of every secured creditor and this charge is pari passu with that of the secured creditor. Such statutory charge is to the extent of workmen’s portion in relation to the security held by the secured creditors of the company as illustrated by Section 529 of the Act. In the light of the provisions contained in RDB Act, which has an overriding effect, two propositions emerge. First, RDB Act confers exclusive jurisdiction upon DRT for determination of the matters specified in Section 17. Second, the Act ousts jurisdiction of all other Courts in determining and deciding the issues which are within the province of the Authorities under RDB Act, save and except the powers of the Supreme Court and High Court under Articles 226 and 227 of the Constitution. Both the submissions on behalf of the applicant that the Official Liquidator ought to have taken physical possession of the subject assets, despite the secured creditor having initiated steps to enforce the security interest therein, and before sale respondent No. 3 must have obtained the permission of the Company Court, fell through. Application dismissed. Issues Involved:1. Legality of Union Bank of India's possession and sale of the company's assets without the court's order.2. Official Liquidator's duty to take possession of the company's assets.3. Whether Union Bank of India 'opted in' the liquidation proceedings.4. Requirement of Company Court's permission for possession and sale of assets by a secured creditor.Detailed Analysis:1. Legality of Union Bank of India's Possession and Sale of Assets:The applicant, an ex-director of the company in liquidation, filed an application seeking a declaration that Union Bank of India's action of taking possession and selling the company's assets without the court's order is void and illegal. The applicant argued that the bank's actions were in violation of the Companies Act and the SARFAESI Act, as the assets became custodia legis post the winding-up order, requiring the Company Court's permission for any dealings.2. Official Liquidator's Duty to Take Possession:The applicant contended that the Official Liquidator failed to take possession of the company's assets despite being statutorily bound by the Companies Act, 1956, and the Companies (Court) Rules, 1959. The applicant alleged collusion between the Official Liquidator and Union Bank of India, leading to the District Magistrate taking forcible possession of the assets and handing them over to the bank.3. Whether Union Bank of India 'Opted In' the Liquidation Proceedings:The applicant asserted that Union Bank of India had 'opted in' the liquidation proceedings by participating in a meeting held by the Official Liquidator and filing an Affidavit of Proof of Debts. However, the court found that these actions did not constitute relinquishment of security. The bank had already taken symbolic possession of the assets under the SARFAESI Act and filed a proceeding before the DRT, indicating its intention to stand outside the liquidation process.4. Requirement of Company Court's Permission:The court examined whether Union Bank of India needed the Company Court's permission to take possession and sell the assets. The court referred to the Supreme Court's judgment in Pegasus Assets Reconstruction Private Limited Vs. Haryana Concast Limited, which clarified that a secured creditor could enforce its security interest under the SARFAESI Act without the intervention of the court or tribunal. The court held that the SARFAESI Act provides a complete code for secured creditors to enforce their security interests, and the Company Court's permission was not required.Conclusion:The court concluded that Union Bank of India had taken all necessary steps to enforce its security and stood outside the winding-up proceedings. The actions of the bank in taking possession and selling the assets were found to be in accordance with the SARFAESI Act. Consequently, both applications filed by the applicant were dismissed.