2014 (3) TMI 1240 - HC - Indian Laws

Court Permits Bank Property Sale Under SARFAESI Act, Emphasizes Involving Official Liquidator for Worker Claims, Pending SC Decision.

Syndicate Bank Versus Vasuda Pharma Chem Ltd. and another

The court allowed the applicant bank to proceed with the sale of properties under the SARFAESI Act by adhering to the guidelines established in the ... Permission to authorised officer of the applicant-Bank to continue in possession of respondent No.2’s movable and immovable properties till they are sold - whether the ratio laid down in Rajasthan Financial Corporation and another v. The Official Liquidator and another [2005 (10) TMI 280 - SUPREME COURT] applies to the sales to be held by the secured creditor under the SARFAESI Act? HELD THAT:- In Rajasthan Financial Corporation, the Apex Court held that in respect of the dues recoverable under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and also under the State Financial Corporations Act, 1951 the Official Liquidator is bound to be associated by the secured creditor as he represents the workmen dues for which a pari pasu charge is held by him. This question, however, was considered by a Division Bench of the Delhi High Court in Kotak Mahindra Bank Ltd., v. Megnostar Telecommunications [2012 (9) TMI 1092 - DELHI HIGH COURT]. By its judgment the Division Bench held that the ratio in Rajasthan Financial Corporation has no application to the dues recoverable under the SARFAESI Act. The applicant is permitted to sell the properties of the company in liquidation by scrupulously following the directions issued in Rajasthan Financial Corporation. Conclusion - The sale of properties under the SARFAESI Act allowed, following the Rajasthan Financial Corporation guidelines. The applicant bank was directed to associate with the Official Liquidator during the sale process, ensuring compliance with relevant legal frameworks. Application disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in this judgment are:Whether the ratio laid down in Rajasthan Financial Corporation and another v. The Official Liquidator and another applies to sales conducted by a secured creditor under the SARFAESI Act.Whether a secured creditor, while exercising rights under the SARFAESI Act, must associate with the Official Liquidator concerning dues under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the State Financial Corporations Act, 1951.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Applicability of the Rajasthan Financial Corporation Ratio to SARFAESI Act SalesRelevant legal framework and precedents:The SARFAESI Act allows secured creditors to enforce security interests without court intervention. The Rajasthan Financial Corporation case established that the Official Liquidator must be associated by the secured creditor to represent workmen dues, which hold a pari passu charge.Court's interpretation and reasoning:The court considered conflicting judgments from various High Courts regarding the applicability of the Rajasthan Financial Corporation ratio to SARFAESI Act sales. The Delhi High Court in Kotak Mahindra Bank Ltd. v. Megnostar Telecommunications opined that the ratio does not apply to the SARFAESI Act. However, other High Courts, including Punjab & Haryana and Madras, disagreed.Key evidence and findings:The Supreme Court's order in the SLP against the Delhi High Court's judgment highlighted inconsistencies between different High Court rulings, indicating ongoing judicial debate on the issue.Application of law to facts:The applicant bank, facing conflicting legal opinions, opted to adhere to the Rajasthan Financial Corporation directions to avoid entanglement in ongoing controversies.Treatment of competing arguments:The court acknowledged the conflicting judgments and the pending Supreme Court decision, allowing the applicant to proceed with the sale while following the established directions from the Rajasthan Financial Corporation case.Conclusions:The court permitted the applicant to sell the properties by adhering to the Rajasthan Financial Corporation guidelines, pending the Supreme Court's final decision on the matter.Issue 2: Obligation to Associate with Official LiquidatorRelevant legal framework and precedents:The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the State Financial Corporations Act, 1951, were considered in conjunction with the SARFAESI Act regarding the association of the Official Liquidator.Court's interpretation and reasoning:The applicant bank's counsel expressed willingness to follow the Rajasthan Financial Corporation directions, reflecting a cautious approach due to ongoing legal uncertainties.Key evidence and findings:The court noted the valuation report by Mr. Pradeep Kapaarthi, which was undisputed by the Official Liquidator, allowing the sale process to proceed with the Official Liquidator's association.Application of law to facts:The court allowed the sale of properties by issuing advertisements in compliance with the Companies (Court) Rules, 1959, ensuring the Official Liquidator's involvement.Treatment of competing arguments:The court's decision balanced the applicant's rights under the SARFAESI Act with the need to address legal ambiguities and potential claims by workmen, as represented by the Official Liquidator.Conclusions:The court disposed of the company applications, permitting the sale of properties with the Official Liquidator's association, aligning with the Rajasthan Financial Corporation precedent.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The applicant is permitted to sell the properties of the company in liquidation by scrupulously following the directions issued in Rajasthan Financial Corporation (1 supra).'Core principles established:The court emphasized adherence to existing legal directions amidst conflicting judgments and pending Supreme Court decisions.The necessity of associating the Official Liquidator in sales under the SARFAESI Act was underscored, reflecting cautious legal compliance.Final determinations on each issue:The court allowed the sale of properties under the SARFAESI Act, following the Rajasthan Financial Corporation guidelines, pending further clarification from the Supreme Court.The applicant bank was directed to associate with the Official Liquidator during the sale process, ensuring compliance with relevant legal frameworks.