TaxTMI 
TaxTMI 
2000 (4) TMI 757
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.... Debt Recovery Tribunal at Delhi, under the RDB Act and the Canara Bank on the other, whose claim as a secured creditor is still pending before the same Tribunal at Delhi, against the same company. The Allahabad Bank has appealed before us against an order passed by the learned company judge under sections 442 and 537 of the Companies Act (in a winding up petition by Ranbaxy Ltd.) staying the sale proceedings taken out by the Allahabad Bank before the Recovery Officer under the RDB Act. Applications for winding up the defendant-company are pending in the Delhi High Court. As yet no winding up order has been passed nor a provisional liquidator appointed as contemplated by section 446(1). The point has been raised by the respon-dent-Canara Bank that the appellant Allahabad Bank is obliged to seek leave of the company court under the Companies Act, 1956, and the company court can stay these proceedings as aforesaid under sections 442 and 537 for the ultimate purpose of deciding the priorities, in the event of a winding up order or other order appointing a provisional liquidator being "passed under section 446(1) of the Companies Act, 1956. After the appellant obtained the decree from ....
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....s, it was observed that that question was premature and that the said issue could be considered after the sale proceeds were received by the Tribunal. These applications were dismissed on September 28, 1998. The property of the debtor company situated at village Kherki Daula, admeasuring Ac 32.64 was sold on January 8, 1999, for Rs. 2,30,11,200. The sale was confirmed on February 16, 1999, by the Recovery Officer. The property of the company at village Dundahera admeasuring Ac 4.23 was also sold on January 15, 1999, for Rs. 3,17,34,375, but the Recovery Officer declined to confirm that sale and directed fresh auction and the appellant-bank filed W.P. under articles 226, 227. Canara Bank then filed applications in the Debt Recovery Tribunal under section 22 of the RDB Act in January, 1999, seeking stay of recovery proceedings in R.C. No. 9 of 1998. They were heard on February 25, 1999, adjourned to March 3, 1999, then to March 5, 1999. On March 5, 1999, counsel for Canara Bank informed the Recovery Officer that it had filed Company Application No. 296 of 1999 in Company Petition No. 141 of 1995 (being a winding up petition filed by Ranbaxy Ltd. against M.S. Shoes Co.) under se....
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....eposit in this court. Now, the position is that some sale proceeds are in deposit in the Tribunal and some in this court, all such sales having been held at the instance of the appellant-bank alone. Questions have been raised by the respondent as to whether the Tribunal can entertain proceedings for recovery, execution proceedings, and also for distribution of monies realised by sales of properties of a company against which winding up proceedings are pending, whether leave is necessary and as to which court is to distribute the sale proceeds and according to what priorities among various creditors? In this appeal, Soli Sorabjee, the learned Attorney-General for India appearing for the appellant, Allahabad Bank has submitted that the RDB Act of 1993 is a special statute intended for expeditious adjudication and recovery of debts due to banks and financial institutions and it contains two crucial provisions. One of them is section 18 which ousts the jurisdiction of all courts or other authorities (except the Supreme Court and the High Court exercising powers under articles 226, 227) in relation to matters covered by section 17 and that section 17 covers the entire procedure from ....
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....neral as to the effect of section 19(19) introduced by Ordinance No. 1 of 2000. It is contended by the learned Attorney-General that only section 529A of the Companies Act is attracted and that too for a limited purpose if a question of the "workmen's portion" is involved. No such question has arisen so far. Hence no other provision of the Companies Act, much less section 529(1) or (2) are attracted. In the company court, any secured creditor who has not stood out of winding up but wants to come before the company court has to give up his security and prove his debt before the liquidator to seek dividends as per the insolvency rules mentioned in section 529(1), read with sections 45 to 50 of the Provincial Insolvency Act and stand in the queue along" with all unsecured creditors under section 529(2). Even that procedure is applicable only in respect of any monies realised by the company court and not by the Tribunal. The limited extent to which secured creditors can claim priority under the RDB Act is as limited by section 19(19) of the RDB Act and this is covered by section 529A alone read with sub-clause (c) to the proviso to section 529(1). The effect of these provisions is that....
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....ing points arise for consideration: (1)Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres ? (2)Whether for initiation of various proceedings by the banks and financial institutions under the RDB Act, leave of the company court is necessary under section 537 before a winding up order is passed against the company or before a provisional liquidator is appointed under section 446(1) and whether the company court can pass orders of stay of proceeding's before the Tribunal, in exercise of powers under section 442 ? (3)Whether after a winding up order is passed under section 446(1) of the Companies Act or a provisional liquidator is appointed, the company court can stay proceeding's under the RDB Act, transfer them to itself and also decide questions of liability, execution, and priority under section 446(2) and (3) read with sections 529, 529A and 530 etc. of the Companies Act or whether these questions are all within t....
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.... and corresponding" new bank is defined in section 2(f) and it refers to section 5(da) of the Banking Regulation Act, 1949. Clause (da) of section 5 of the Banking Regulation Act, 1949, defines "corresponding new banks" as banks constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. About 20 nationalised banks have come under the purview of the RDB Act. Section 2(h) defines "financial institutions" and refers to public financial institutions falling within section 4A of the Companies Act, 1956-namely (i) the Industrial Credit and Investment Corporation of India Ltd.; (ii) the Industrial Finance Corporation of India ; (iii) the Industrial Development Bank of India ; (iv) the Life Insurance Corporation of India and (v) the Unit Trust of India. Other financial institutions since notified are large in number. Section 2(g) as amended by Ordinance No. 1 of 2000 defines "debt" as meaning any liability which is "claimed" as due from any person to a bank or financial institution. It includes the liability and interest in cash or otherwise, whether secured or....
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.... the Act. The suits and proceedings so pending" on the date of the Act stand transferred to the Tribunal and have to be disposed of "in the same manner" as applications under section 19. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under section 19(22) (formerly under section 19(7) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word "recovery" in section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under section 19(22). Under section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a ....
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....he jurisdiction of the Recovery Officer is exclusive. The Tiwari Committee which recommended the constitution of a Special Tribunal in 1981 for recovery of debts due to banks and financial institutions stated in its report that the exclusive jurisdiction of the Tribunal must relate not only in regard to the adjudication of the liability but also in regard to the execution proceedings. It stated in annexure XI of its report that all "execution proceedings" must be taken up only by the Special Tribunal under the Act. In our opinion, in view of the special procedure for recovery prescribed in Chapter V of the Act, and section 34, execution of the certificate is also within the exclusive jurisdiction of the Recovery Officer. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other court or authority much less the civil court or the company court can go into the the said questions relating to the liability and the recovery except as provided in the Act. Point No. 1 is decided accordingly. Points Nos. 2 and 3: Does the Act override th....
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....t shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of (a ) any suit or proceeding by or against the company (b) any claim made by or against the company (including claims by or against any of its branches in India) ; (c) any application made under section 391 by or in respect of the company ; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in the course of the winding up of the company. This provision applies whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. Sub-clause (3) of section 446 is important. It states that any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is proceeding, may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that....
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....nder the Act to entertain and decide matters raised in the petition filed by the Corporation under section 15 of the Life Insurance Corporation Act. It must follow that the consequential provisions of sub-section (1 ) of section 446 of the Companies Act will not operate on the proceedings which may be pending before the Tribunal or which may be sought to be commenced before it". Just as the company court was held incompetent to stay or transfer and decide the claims made before the Life Insurance Corporation Tribunal because the company court could not decide the claims before the Life Insurance Corporation Tribunal, the said court cannot, in our view, decide the claims of banks and financial institutions. On the same parity of reasoning as in Damji Valji Shah's case [1965] 35 Comp. Cas. 755 (SC) there is no need for the appellant to seek leave of the company court to proceed with its claim before the Debt Recovery Tribunal or in respect of the execution proceedings before the Recovery Officer. Nor can they be transferred to the company court. It may also be noticed that in the Life Insurance Corporation Act of 1956, there was no provision like section 34 of the RDB Act givin....
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....urt to entertain suits and proceedings in respect of claims for and against the company. That being the object behind enacting section 446(2), it was held that the Companies Act "must receive such construction at the hands of the court as would advance the object and at any rate not thwart it". In other words, the principle of purposive interpretation was, as contended by the respondent's counsel, applied while construing these provisions of the Companies Act. This principle was applied by some High Courts to hold that the provisions of the Companies Act can be invoked against the Tribunal. While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour of jurisdiction and powers, of the company court in Sudarsan Chits ( India) Ltd.'s case [1985] 57 Comp. Cas. 85 (Ker) and other cases the said principle, in our view, cannot be invoked in the present case against the Debt Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion, the very same principle mentioned above equally applies to the Tribunal/Recovery Officer under the RDB Act, 1993, because the purpose of t....
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....ons entitled thereto in accordance with the priorities in the law". The above recommendations as to working out "priorities" have now been brought into the Act with greater clarity under section 19(19) of Ordinance 1 of 2000. Priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act. Section 19(19) of the RDB Act reads as follows: "Where a certificate of recovery is issued against a company registered under the Companies Act, 1956 (1 of 1956), the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors in accordance with the provisions of section 529A of the Companies Act, 1956, and to pay the surplus, if any, to the company". Section 19(19) is clearly inconsistent with section 446 and other provisions of the Companies Act. Only section 529A is attracted to proceedings before the Tribunal. Thus, on questions of adjudication, execution and working our priorities, the special provisions made in the RDB Act have to be applied. Special law v. general law: At the same time, some High Courts have rightly held that the Companies Act is a general Act and d....
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....ing effect to its provisions and was held to prevail over the former. It was pointed out by Ahmadi J. that both special statutes contained non obstante clauses but that the "1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obstante clause in section 46B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 statute is a special one". Therefore, in view of section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts. Other rulings of Supreme Court and High Courts cited by counsel: It was then argued for the respondents that the proceedings before the Tribunal/Recovery Officer under the RDB Act, 1993, are "legal proceedings" and could be stayed under section 537 read with section 442 and reliance was placed on the decision of the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. (In Liquidation) [1946] 16 Comp. Cas. 71 ; AIR 1946 FC 16. In our view, this judgment cannot help the respondents. In the above case the Income-tax Officer tried to demand income-tax from the company through a certifica....
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.... creditor standing outside the winding up proceedings was valid without the leave of the company court. Learned counsel for the respondent relied upon para. 24 of the judgment which stated that section 171 (corresponding to section 446(1)) was supplementary to sections 232 and 229 (corresponding to section 529 of the new Act). But the said observations, in our view, cannot help the respondents, in view of the reasons given above. When the matter was listed for fresh arguments, learned counsel for the respondent relied upon Ram Narain v. Simla Banking and Industrial Co. Ltd., AIR 1956 SC 614, to contend that in that case the court (the High Court of Punjab) which was winding up the banking company was held entitled to transfer the execution case pending before a Tribunal to the High Court and to dispose of the same. That case is, in our view, distinguishable. The facts there were that the Tribunal was one constituted under the Displaced Persons (Debt Adjustment) Act, 1951, while the High Court of Punjab was excising special powers under sections 45A, 45B and 45C of the Banking Companies Act, 1949 (as amended in 1953), for winding up a banking company. Earlier, under the 1913 Act,....
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.... only issues which arose in that case, as stated in para. 5 of the judgment, were, viz., (1) when should leave of the winding up court be granted to a secured creditor to proceed with the suit after an order of winding up has been made (2) when should a winding up court transfer to itself any suit or proceedings by or against the company during the period of the winding up ? It was in that connection that in para. 9, a reference was made to an argument by one of the counsel that in the case of suits which were pending before the date of liquidation, the court could grant leave imposing reasonable conditions even against secured creditors so that genuine claims of other secured creditors were not affected. As appears from para. 10 of the judgment, learned counsel appearing for one of the parties in that case, appears to have incidentally referred to the provisions of the RDB Act, 1993, which had by then come to be enacted, for contending that while staying suits, the company court could impose reasonable conditions, keeping the rationale of the provisions of the RDB Act in mind. In para. 12, this court accepted the submission of counsel and in para 13, it was observed that while gra....
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....a suit which was filed in the High Court by the bank against the company stood transferred to the Tribunal under the RDB Act by virtue of section 31. Later on, the company went into liquidation. The High Court held that in view of section 446 of the Companies Act, 1956, the suit had to be transferred back to the company court. This was done on the basis that the Companies Act applied even to proceedings before the Tribunal. This is not correct. In our view, the decision of the Kerala High Court in Industrial Credit and Investment Corporation of India v. Vanjinad Leathers Ltd. (In Liquidation) , AIR 1997 Ker 273 ; [1998] 91 Comp. Cas. 625 relied upon for the appellant, is correctly decided. It was pointed out in that case that the records leading to the decision in Industrial Credit and Investment Corporation of India v. Srinivas Agencies [1996] 86 Comp. Cas. 255 ; [1996] 4 SCC 165 show that suits filed by banks and financial institutions were pending in civil courts and a winding up petition was filed later on in the High Court. The Kerala High Court held that the suits would stand transferred to the Debt Recovery Tribunal under section 31 of the RDB Act automatically and that s....
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....on against the debtor company and also after a winding up order is passed. No leave of the company court is necessary for initiating or continuing the proceeding's under the RDB Act, 1993. Points Nos. 2 and 3 are decided accordingly in favour of the appellant and against the respondents. Points 4 and 5: We have already held that the adjudication, execution and distribution of the sale proceeds and working out priorities as between banking and financial institutions and other creditors of the defendant-company-so far as the monies realised under the RDB Act are concerned-has to be done only by the Tribunal and not by the company court. The next question is as to the manner of distribution of these monies between the banks or financial institutions on the one hand and the other creditors, secured or unsecured of the company under winding up. This question depends upon the effect of section 19(19) of the RDB Act as introduced by Ordinance No. 1 of 2000. Before we go to section 19(19), we would like to dispose of another minor point raised by the respondent on the basis of section 19(2). That sub-section permits other banks or financial institutions to be impleaded in the main....
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....o invoke the principles underlying section 73 of the Civil Procedure Code because it has not yet obtained any decree or adjudication of its debt from the Tribunal. Nor has it complied with other provisions underlying section 73 of the Civil Procedure Code. Hence no relief can be granted on the basis of the said principles. (b) Position of secured creditors standing outside winding up and also not so standing out: The discussion here is confined to sharing the realisations made by the Recovery Officer under the RDB Act where winding up proceedings are pending in the company court against the defendant-company. This is the crucial aspect of the case upon which detailed arguments have been advanced by both sides. Learned counsel for the respondent contended that other secured creditors of the defendant-company could seek or share in the realisations made by the Recovery Officer. Counsel relied upon the following words in section 19(19) "to be distributed among its secured creditors" and contended that though the said words are followed by the words "in accordance with the provisions of section 529A of the Companies Act, 1956", it is implicit that out of the sale proceeds secu....
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....d creditor and not merely the "workmen's portion". To understand the submission, it is necessary to refer to section 529A as well as section 529, to the extent relevant for this discussion. They read as follows: "529A. Overriding preferential payments.- ( 1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company, - (a)workmen's dues ; and (b)debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues ; shall be paid in priority to all other dues. (2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 529. Application of insolvency rules in winding up of insolvent companies.- (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to, - (a)debts provable ; (b)the valuation of annuities and future and contingent liabilities ; and (c)the respective rights of secured and unsecured credit....
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....s of secured creditors who have priority over all others in accordance with section 529A. Secured creditors fall under two categories. Those who desire to go before the company court and those who like to stand outside the winding up. The first category of secured creditors mentioned above are those who go before the company court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in section 529. The insolvency rules are those contained in sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in section 529(2). Till today, the Canara Bank has not made it clear whether it wants to come under this category. The second class of secured creditors referred to above are those who come under section 529A(1)(b) read with proviso (c) to section 529(1). These are those who opt to stand outside the winding up....
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....ty of the secured creditor is only to the extent that any part of the said security is lost in favour of the workmen consequent to demands made by the liquidator under clauses (a), (b ) or the said proviso to section 529(1). No such situation has arisen so far. It is contended that where a secured creditor keeps himself outside as stated in the proviso to section 529(1) and seeks to recover his dues outside the company court, if he loses part of his security towards workmen's dues, he gets reimbursed to that extent as a secured creditor, with an overriding priority under section 529A(1)(b). He gets priority over all other creditors before the Tribunal, to be compensated for this loss out of the monies that may have been realised at the instance of other creditors before the Tribunal. It is pointed out that the Canara Bank has neither realised any amount outside winding up nor has it lost any part of its security towards workmen's dues. In our view, this contention of the learned Attorney-General is well founded and is entitled to be accepted. In our opinion, the words "so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing pro....
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.... total dues are Rs. 1.10 lakhs. In other words, Rs. 10,000 are not secured. Other facts are as in illustration to section 529(3). He is made to part with Rs. 25,000 towards workmen's dues rateably. He has Rs. 75,000 available from his security but he has to meet Rs. 1,10,000 and that leaves a balance of Rs. 35,000 (Rs. 1,10,000-Rs. 75,000) to be recovered. He can claim overriding priority only up to Rs. 25,000 as a secured creditor, under clause (c) of proviso to section 529(1). The priority is restricted to Rs.35,000 only because as between Rs. 25,000 and Rs. 35,000, the amount of Rs. 25,000 answers the description whichever is less. It will be noticed that, after claiming Rs. 25,000 as a secured creditor out of the realisation of other creditors before the Tribunal, he has still dues up to Rs. 10,000 which remain unsecured. That was also the unsecured amount to start with initially. The above examples show that the secured creditor who stands outside the winding up and whose claims are restricted to section 529A read with the clause (c) of proviso to section 529(1), does not in the ultimate analysis stand to lose any part of his security merely because the "workmen's portion" ....