TaxTMI 
TaxTMI 
2005 (5) TMI 334
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....fter two valuers were appointed and their report in relation to valuation of above properties is also received. On 17-10-2003 this Court directed its office to renew Fixed Deposit Receipt (FDR) which had matured for another period of 90 days and directed the matter to be listed after the courts reopened after the Diwali Vacation of 2003. On same day, State Bank of India, one of the secured creditors obtained orders permitting them to proceed against the company under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (Referred to as 'Securitisation Act' hereafter). Grievance of Official Liquidator is that said orders have been obtained behind his back and thereafter said bank i.e., State Bank of India also published advertisements for sale of movable and immovable properties for recovery of its loan. Official Liquidator filed OLR No. 62 of 2003 for sale of properties as per valuation report. Winding up order in this case has been passed on 23-4-2004 and Provisional Liquidator was appointed as Official Liquidator. It appears that in the meanwhile bank was prosecuting its remedy against Akola Oil Mills before Debt Recovery Tribun....
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.... with bank. Learned Advocate argues that possession has been taken with the consent of bank and as such bank had no authority to issue the advertisements. He further states that when possession of property was with Liquidator, bank could not have taken it without the leave of the Court and bank could not have proceeded to sale that property. In support of his contention, he has placed reliance upon provisions of Companies Act and also decided cases. Reference to the same will be made at appropriate places in the body of the judgment. He further argues that Securitisation Act has come into force recently while the defaults committed by Akola Oil Mills are old and hence provisions of Securitisation Act cannot be made applicable retrospectively in case of such defaults. He has also contended that the bank is acting mala fide in the matter inasmuch as it has to charge over the entire area of land which it has put to auction and its charge as registered is only for 11 acres. He further states that the bank cannot proceed to auction movables by taking recourse to Securitisation Act. He states that the bank has tried to mislead this Court and the purchasers and therefore appropriate actio....
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....nk issued notice under section 13(2) of Securitisation Act and on 8-4-2004 obtained the possession under section 13(4) thereof. He states that notice to this effect was published in newspapers on 22-4-2004 and the Akola Oil Mills was ordered to be wound up by this Court on 23-4-2004. He further states that though Official Liquidator, after appointment as a Provisional Liquidator took the possession, he handed over the possession to the bank as caretaker. He therefore contends that Official Liquidator was not in possession at all insofar as mortgaged property is concerned. The advertisements in dispute are published by State Bank in furtherance of notice under section 13(4) of Securitisation Act. 4. Two bidders at auction of bank have filed Company Application 94/2004, 2/05 and 13/05. They have participated in auction conducted by bank in pursuance of the advertisements mentioned above. However none of them remained present when the matter was taken up for hearing. 5. I have reproduced in brief above, the arguments of respective sides. It is apparent that the real issue is whether bank is required to take leave to enforce its security for recovery of its loan by remaining out of wi....
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.... 129 of Bombay Village Panchayats Act (1958) shall not lie without consent of the Board for Industrial and Financial Reconstruction, in view of sub-section (1) of section 22 of the Act (1 of 1986). Section 22(1) provides that in case the enquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration by the Board or any appeal under section 22 is pending then certain proceedings against the sick industrial company are to be suspended or presumed to be suspended. The nature of proceedings which are automatically suspended are : (1) winding up of the industrial com- pany; (2) proceedings for the execution distress or the like against the properties of sick industrial company; and (3) proceedings for the appointment of Receiver. The proceedings in respect of these matters could, however, be continued against the sick industrial company with the consent or approval of the Board or of the Appellate Authority as the case may be. In the light of the steps taken by the Board under sections 16 and 17 of the Act no proceedings for execution distress or the like proceedings against any of the properties of the company could lie or be procee....
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....ad already moved this Court in 2001 itself for remaining out of winding up proceedings vide Company Application 57/2001. It was appointed as operating agency by BIFR on 17th August, 2000, and it took possession from Messers Akola Oil Mills on 15th November, 2000. The inference which Official Liquidator wants to draw from his possession on 11-6-2003 is therefore unwarranted. The security and the right of State Bank in it is not destroyed by such possession. 9. Advocate Kumar, has relied upon Executive Engineer, Jai Nigam Central Stores v. Suresha Nanda Juyal AIR 1997 SC 2180, to contend that when symbolic possession is taken, the property vested in secured creditor. The reported case considers provisions of Land Acquisition Act and holds that land stood vests in the State free from all encumbrances from the date of symbolic possession. However, I do not find any provision in Securitisation Act which vested the property with secured creditor after he takes symbolic possession. On the contrary, aggrieved person has got remedy of filing appeal under section17 before DRT and as such, this case law has no application here. 10. This brings me to the arguments that sale by State Bank in ....
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....99. The learned Single Judge of this Court has held that by virtue of operation of provisions contained in section 456 of the Companies Act, the Official Liquidator is entitled to the custody and control of all the properties, effects and claims to which company under winding up is entitled. By virtue of the operation of section 456(2) of said Act, all the properties and effects of the company are deemed to be in the custody of the Company Court as from the date of the order for the winding up of the company. It has, therefore, held that section 29(1) of the State Financial Corporation Act, 1951 cannot be invoked by State Financial Corporation once the debtor company is directed to be wound up and the Company Court is deemed to be in custody of all assets of the company by virtue of the operation of section 456(2) of the Companies Act. Section 29(1) of the State Financial Corporation Act, 1951 can be invoked by State Financial Corporation in an appropriate case only before such an eventuality has taken place and not thereafter. This Court has held that such a course was not open without obtaining prior leave of the Company Court winding up the company. It was found that powers in t....
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.... respect of the execution proceedings before the Recovery Officer. Nor can they be transferred to the Company Court." (p. 1547) [Emphasis supplied] In paragraph 31 of the Hon'ble Apex Court observes- "31. It may also be noticed that in the LIC Act of 1956, there was no provision like section 34 of the RDB Act giving overriding effect to the provisions of the LIC Act. Still this Court upheld the exclusive jurisdiction of the LIC Tribunal observing as follows : 'The provisions of the Special Act, i.e., the LIC Act will override the provisions of the general Act, the Companies Act which is an Act relating to companies in general.' We are of the view that appellant's case under the RDB Act with additional section like section 34 is on a stronger footing for holding that leave of Company Court is not necessary under section 537 or under section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive the Company Court cannot also use its powers under section 442 against the Tribunal/Recovery Officer. Thus, sections 442, 446 and 537 cannot be applied against the Tribunal." (p. 1547)[Emphasis supplied] In paragraph 34 of the Hon'ble Apex Court has held that purpose ....
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....articularly section 71 thereof provide restrictive mode of investment by co-operative banks and said provision is not to derogation but in addition to Banking Regulation Act. Gujarat Act is assumed to by President and there is no repugnancy or inconsistency between Gujarat Act and Banking Regulation Act. The Hon'ble Apex Court therefore found that Co-operative Bank has to make investment according to norms in Gujarat Act and not in Banking Regulation Act. (G) In Maharashtra State Financial Corpn. v. Swift Industries 1992(3) Bom. C.R. 165 : 1992 Mh.L.J. 925, this Court has held that the appellant before it are not precluded from taking recourse to section 29 though there have already invoked section 31 of State Finance Corporation Act. However, in view of the judgment of Hon'ble Apex Court in Canara Bank's case (supra), it is not necessary for this Court to consider this question in more details. (H) Advocate Kumar has also relied upon judgment of Hon'ble Apex Court in M.K. Ranganathan v. Government of Madras AIR 1955 SC 604. However this ruling is considered by Hon'ble Apex Court in Canara Bank's case (supra) and in paragraph 42 it negated the argument that section 171 correspond....
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....th the applicable rules. This has been laid down by Division Bench of this Court in Harinagar Sugar Mills v. M.W. Pradhan, 12, 67 Bombay Law Reports 294. A secured creditor who seeks to prove whole of his debt in the course of winding up proceedings is necessarily required to relinquish the security. That, however, cannot be construed to mean that when he files a petition for winding up, a secured creditor must relinquish his security. In the present case, the petitioner has filed a suit in this Court and made it clear, therefore that he seeks to enforce the security. When the stage for providing of debt will arise, the petitioner would necessarily have to prove for the balance of the debt which is due and owing to it alter the security in respect of which the petitioner is a secure creditor is realized." [Emphasis supplied] The learned Single Judge therefore admitted the winding up petition filed by petitioner. Here also by filing Company Application No. 57/2001 to remain out of winding up and by obtaining order on 17-10-2003 from this Court, State Bank has demonstrated similar intention. (K) In (I) State Industrial & Investment Corporation of Maharashtra v. Maharashtra State F....
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.... to the Court, no longer holds true as the right vested in the Official Liquidator is a statutory impediment to such exercise and has to be reckoned with. And since the Official Liquidator can do nothing without the leave or concurrence of the Court, all necessary applications must, therefore, come to the Company Court. However in both these rulings the provisions of law considered are not pari materia. The case International Coach Builders Ltd. (supra) considered in not that of a secured creditor and not in the light of provisions of RDB Act. In view of the verdict of Hon'ble Apex Court in case between Canara Bank ( supra), this ruling of Hon'ble Apex Court has got no insofar as present controversy is concerned. (M) The Action of Parliament in enacting Securitisation Act, i.e., Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act (54 of 2002) has further improved the position in favour of secured creditor. Reference in this respect can be made to the judgment of Hon'ble Apex Court on this enactment Mardia Chemicals v. Union of India AIR 2004 SC 23711. The important observations are :- "34. Some facts which need be taken note of are that t....
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....he Narasimham Committee was constituted in 1991 relating to the Financial System prevailing in the Country. It considered wide ranging issues relevant to the economy, banking and Financing etc. Under Chapter V of the Report under the heading 'Capital Adequacy, Accounting Policies and other Related Matters' it was opined that a proper system of income recognition and provisioning is fundamental to the preservation of the strength and stability of banking system. It was also observed that the assets are required to be classified, it also takes note of the fact that the Reserve Bank of India had classified the advances of a Bank, one category of which was bad debts/doubtful debts. It then mentions that according to the international practice an asset is treated as non-performing when the interest is overdue for at least two quariers. Income of interest is considered as such only when it is received and not on the accrual basis. The Committee suggested that the same should be followed by the Bank and financial institutions in India and an advance is to be shown as non-performing assets where the interest remains due for more than 180 days. It was further suggested that the Reserve Bank....
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....ermediation. In our system, the evolution of the legal framework has not kept pace with changing commercial practice and with the financial sector reforms. As a result, the economy has not been able to reap the full benefits of the reforms process. As an illustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of financial intermediaries....' One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the asset without intervention of the Court and for reconstruction of the assets. It is thus to be seen that the question of non-recoverable or delayed recovery of debts advanced by the Banks or financial institutions has been attracting the attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amount of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the report of the Narasimham C....
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....ks and Financial Institutions Act, 1993 (51 of 1993). 35. The provisions of this Act to override other laws.-The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." The relevant provisions of Securitisation Act about rights of secured creditor in section 13 are as under :- "Enforcement of security interest.-(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or Tribunal, by such creditor in accordance with the provisions of this Act. (2) to (8)****** (9) In the case of financing of a financial assets by more than one secured creditors or joint financing of a financial assets by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of t....
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....g jurisdiction or a Competent Court, as the case may be for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in Clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act. (12) ****** (13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor." [Emphasis supplied] The provisions above, particularly the provisions of sub-section (9) (underlined portion) clearly reveal the intention of Legislature to permit such secured creditor to realise his security by remaining out of winding up proceedings subject to depositing workmen's dues and furnishing an undertaking about the payment of proportionate dues of workmen from the sum realized by such secured creditor. It is thus apparent that the se....
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....anding against financial assistance disbursed to the borrower of such secured creditors have taken any measures to recover their secured debt under the sub-section (4) of section 13 of that Act." [Emphasis supplied] Amendment on similar lines has been made to section 424A of Companies Act, 1956. Amended section is as under :- "424A. Reference to the Tribunal.-(1) Where an industrial company has become sick industrial company, the Board of Directors of such company shall make a reference to the Tribunal and prepare a scheme of its revival and rehabilitation and submit the same to the Tribunal along with an application containing such particulars as may be prescribed for determination of the measures which may be adopted with respect to such company : Provided that nothing contained in this sub-section shall apply to a Government Company : Provided further that a Government Company may with the prior approval of the Central Government or a State Government as the case may be, make a reference to the Tribunal in accordance with the provisions of this sub-section and thereafter all the provisions of this Act shall apply to such Government Company: Provided also that in case any re....
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....Rajasthan Financial Corporation v. Official Liquidator, Jaipur Spinning and Weaving Mills Ltd. [1997] 88 Comp. Cas. 192 (Raj.) relied upon by Advocate Deshpande it has been held that secured creditor is to be treated as ordinary creditor if his charge is not recorded with Registrar of Companies as contemplated by section 125 of Companies Act. Similar view is also taken by Division Bench of this Court in case Official Liquidators v. Suryakant Natitvarlal Surati [1986] 59 Comp. Cas. 147 .There the charge created by mortgage by deposit of title deed was not registered and this Court has held that as charge was not so registered, it was void against Liquidator upon the company being ordered to be wound up and no steps were required to be taken by Liquidator to make or have it declared void. In case between Maharashtra State Financial Corporation v. Official Liquidator [1988] 64 Comp. Cas. 641 (Bom.), learned Single Judge of this Court has held that though hypothecation was not registered as charge it is not void against M.S.F.C. which took the possession. It has been held that State Financial Corporation Act being special enactment, the effect of order passed under section 29 of that A....
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....e Registrar and proposed modification reveals extension of area to 18 acres 20 gunthas. Official Liquidator states that on account of certain procedural lacuna, Registrar of Companies did not take cognizance of said modification. Learned Counsel for Official Liquidator states that the document of intimation of charge i.e., Form No. 8 and Form No. 13 must be signed by the bank as also the company. The advocate for bank states that company itself had passed resolution on 8th June, 1991 before availing additional/enhanced facilities and extended scope of equitable mortgage to 18 acres 20 gunthas. He states that the same was communicated to the Registrar of companies and as such the responsibility of State Bank was over. Because of this and the discussion above particularly the view in Haryana Rubber Industries Ltd.'s case (supra) and of Kerala High Court in case between C.K. Siva Sankara's case (supra), I see no substance in the objection raised by the Official Liquidator. Moreover the Securitisation Act is the Special Act in this respect and it will override the provisions of section 125 of Companies Act to that extent. In any case such security is to be used by the secured creditor ....