TaxTMI 
TaxTMI 
2011 (6) TMI 672
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Official Liquidator was permitted by this Court to sell the assets and properties of the said Company situated at Kelzar, District Wardha, and Singroli (M.P.). The Official Liquidator realized a sum of Rs. 40 crores by sale of the assets and properties of the said Company. The sale was confirmed by this Court on 3-10-2007 in favour of the highest bidder, namely M/s. Cozy Properties Pvt. Ltd., and the purchaser had deposited the entire amount with the Official Liquidator. However, the proceedings are pending before the Apex Court in SLP involving the question of setting aside the sale, payment of costs and expenses. One more appeal filed by the Collector, Wardha, against the order passed by this Court on the question of unearned income from the sale of the Government properties is pending before the Division Bench of this Court. 2. The ICICI Bank Limited, Industrial Development Bank of India (IDBI) and IFCI Limited claiming themselves to be the secured creditors of the Company-in-liquidation with first charge on the assets and properties, had filed the Original Application No. 14 of 2003 on 18-11-2002, invoking the jurisdiction of the Debts Recovery Tribunal under section 19 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....01. The details of the claim were as under: 1 Outstanding as on 1-10-1999 Rs. 2,14,45,381.86 2 Interest charged up to 15-2-2001 Rs. 57,77,262.15 3 Notice Charges Rs. 2,000.00 Total Rs. 2,72,24,644.00 The Bank of Maharashtra, which was also held to be the second charge holder, also filed an affidavit of proof of debt on 4-8-2005. It claimed an amount of Rs.1,98,39,779.58 towards principal and Rs. 94,74,176 towards interest from 1-1-1999 to 31-8-2001, on the basis of the order of the Debts Recovery Tribunal passed on 31-8-2005. It also laid other claims. 5. The first charge holder-IFCI Limited filed its affidavit of proof of debt dated 20-9-2007, in which it claimed a total amount of Rs. 3,22,26,201 as on 18-11-2002 and the amount of interest, at the rate of 9 per cent per annum from 18-11-2002 till its realization, as per the judgment and order dated 31-8-2005 passed by the Debts Recovery Tribunal. The another first charge holder IDBI, laid its claim on 9-8-2005 and additional claim on 11-8-2005 by filing an affidavit of proof of debt. In terms of the judgment and order passed by the Debts Recovery Tribunal on 31-8-2005, the claim of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from the sale of assets of the company in liquidation, after reimbursement of expenses incurred by other secured creditors, if any, together with the interest earned on the sale proceeds, be distributed to the Applicant on a pari pasu basis with other secured creditors having a 1st charge on the assets of the company in liquidation, in satisfaction of the Recovery Certificate issued by the Debts Recovery Tribunal. (c)Pending the hearing and final disposal of this Company Application this Hon'ble Court be pleased to order and direct the Official Liquidator to release such ad hoc amount as this Court deems fit and proper towards the adjudicated claim of the Applicant; and (d)For ad-interim reliefs in terms of prayer (a) and ( c) hereto. (e)For costs of the Application." By an order dated 11-7-2008 passed by this Court in Company Application No. 84 of 2008, the Official Liquidator was directed to pay an amount of Rs. 67,27,862 towards reimbursement of expenses incurred for the protection and sale of secured assets of the company under liquidation. So far as the claim in terms of prayer clause (b) above, for balance amount of Rs. 10,65,31,476 in terms of the judgment and o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ever, the official liquidator is permitted to declare the dividend as per prayer clause (a) with notice of its actual disbursement after appropriate orders by the Hon'ble Supreme Court in pending matters. In view of this, O.L.R. is disposed of." 9. The Official Liquidator thereafter conducted the meetings on 14-10-2008 and 12-2-2009. In the meeting dated 12-2-2009, the Official Liquidator determined the claims as on the date of the liquidation, i.e., 2-8-2001, and the relevant portion of the same is reproduced below : Secured Creditors Principal Interest Total (1) Kotak Mahindra 1,20,28,560 4,67,12,273 5,87,40,833 (2) I.D.B.I. 1,81,25,000 4,62,82,440 6,44,07,440 (3) I.F.C.I. 83,14,828 1,95,48,951 2,78,63,779 (4) Bank of Maharashtra 1,97,66,602 1,19,39,779 3,17,06,381 (5) Bank of India 2,14,45,381 79,24,858 2,93,70,239 Gross Total : 21,20,88,672 The Official Liquidator has determined the claims as above, in exercise of his power conferred by rule 163 of the said Rules, in accordance with sections 529 and 529A of the said Act and rules 154, 156 and 179 of the said Rules. It has be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t by the Debts Recovery Tribunal on 31-8-2005 is binding upon them, as they have not challenged it before the Appellate Tribunal under the RDB Act. According to them, the Official Liquidator had no option but to honour the certificate as it is without any modification or alteration. They further submit that the first charge holders remained outside the liquidation proceedings and hence the Official Liquidator had no competency to adjudicate upon their claims on the basis of the provisions of rules 156 and 179 of the said Rules to restrict the payment of interest to 4 per cent per annum. According to them, the provisions of rules 156 and 179 of the said Rules were not applicable to those secured creditors, who remained out side the liquidation proceedings. 12. It is the further submission of Shri Jaiswal and Shri Sohoni, the learned counsels, that the Official Liquidator has, in his communication dated 20-2-2009 impugned in these appeals, informed the secured creditors to approach the Company Court for their balance amount of claim. Hence, it is their alternate submission that if the Liquidator cannot grant the claims of the secured creditors in terms of the certificate issued un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of rules 154, 156 and 179 of the said Rules while accepting or rejecting the claims of the secured creditors. According to him, rule 154 of the said Rules does not permit the Official Liquidator to accept the claims of the secured creditors after the date of the order of winding-up was passed on 2-8-2001 and, therefore, the Official Liquidator has restricted the claims to the date of the order of winding-up of the Company. He further submits that rules 156 and 179 of the said Rules do not permit the Official Liquidator to grant interest exceeding 4 per cent per annum and hence the Official Liquidator was right in restricting the claim of interest to 4 per cent per annum. In view of this, it is the submission of Dr. Anjan De that the Official Liquidator has asked the secured creditors to get their claims for the balance amount from the Company Court. According to him, no fault can be found with the action of the Official Liquidator impugned in these appeals. 15. In respect of the claims of the secured creditors for grant of the amount in terms of the certificate issued by the Debts Recovery Tribunal, as made in Company Application No. 84 of 2008, and the objections raised by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... said Rules. They have not adopted any procedure for execution of the certificate, as contemplated by sections 25, 28 and 29 of the RDB Act. Thus, the entire conduct of the first charge holders amounts to relinquishment of their securities in terms of the proviso to section 529(1) of the said Act and hence the waiver and estoppel operate against them to ask for payment of their dues in terms of the certificate. 17. From the rival submissions made by the parties, the following questions fall for consideration of this Court in all these appeals : (1)Whether the secured creditors, having obtained a certificate under section 19(22) of the RDB Act for recovery of their dues as the first charge holders from the Company under liquidation, are entitled to enforce their full claim under the certificate, in the proceedings lodged under rule 163 of the said Rules before the Official Liquidator ? (2)Whether the official Liquidator, in exercise of his powers under Rule 163 of the said Rules, is competent to restrict the claims of the secured creditors holding a certificate of recovery under section 19(22) of the RDB Act for recovery of the dues up to the date of winding-up order, as co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of 9 per cent per annum from the date of filing of the OA, i.e., 18-11-2002, till the realization of the debts. The judgment and order dated 31-8-2005 passed by the Debts Recovery Tribunal has become final and binding upon the Official Liquidator and the Company under liquidation. The Official Liquidator has determined the liabilities of the Company under liquidation on 12-2-2009, in accordance with the provisions of sections 529 and 529A of the said Act and rules 154, 156 and 159 of the said Rules. In this factual background, the controversy needs to be considered. As regards Question No. (1) : 19. The first charge holders have lodged their claims on the basis of the certificate under section 19(22) of the RDB Act, in the proceedings under rule 163 of the said Rules before the Official Liquidator. The Official Liquidator has partially accepted the claims of all such secured creditors as under: S. No. Name of Secured Creditor Total claim under certificate Claim accepted under rule 163 of the Company (Court) Rules, 1959 by the Official Liquidator  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecovery Tribunal and the certificate under section 19(22) of the RDB Act, he would be answerable in respect of it, in the proceedings for execution of such certificate, if initiated by the secured creditors under the provisions of the RDB Act. But when it comes to the acceptance or rejection of the proof of debts under rule 163 of the said Rules, the Official Liquidator will have to act strictly in accordance with the provisions of the said Act and the Rules and he can neither act in deviation of it, nor can grant the claims, which are not permissible under the said Rules. The first charge holders/secured creditors are, therefore, not entitled to enforce their full claim under the certificate, in the proceedings lodged under rule 163 of the said Rules before the Official Liquidator. The question No. 1 is answered accordingly. Hence, no fault can be found with the action of the Official Liquidator, which is impugned in the appeals. As regards Question No. (2) : 21. The question is whether the Official Liquidator, acting under rule 163 of the said Rules in winding-up proceedings, is competent to restrict the claims of the secured creditors for recovery of debts, to the date of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....interest from the date of the winding-up order or of the resolution as the case may be, up to the date of the declaration of the final dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount of the claim, after adjusting against the said amount the dividends declared as on the date of the declaration of each dividend." Rule 163 of the said Rules deals with the acceptance or rejection of the proof by the Liquidator either wholly or in part, which is to be communicated to the creditor concerned. The Official Liquidator is, therefore, competent to accept the claim in part also and hence it cannot be said that he has acted without jurisdiction in rejecting part of the claim. The said Rule is placed in the chapter of winding-up proceedings by the Court. The Official Liquidator is, therefore, bound by the provisions under the chapter of winding-up in the said Rules. Rule 154 in the said chapter deals with the value of debts, which the Official Liquidator has to estimate at the date of the order of winding-up of the Company, which is 2-8-2001 in this case. Rules 156 and 179 in the said chapter deal with the payment of interest, which cannot exceed 4 per cent per ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this, there is no question of any adjudication by the Official Liquidator when he restricts the claims of the secured creditors in conformity with the provisions of the said Rules. What is the most important aspect of it, is that the acceptance of the claim of the secured creditor by the Official Liquidator under rule 163 of the said Rules, is not binding upon the secured creditor and it is open for him either to accept it or refuse to accept it. Even if he accepts it or refused to accept it, his right to get the certificate under section 19(22) of the RDB Act executed under sections 25 to 30 of the RDB Act is in no manner taken away, altered or modified for recovery of the full amount of such certificate. In view of this, there is no question of any inconsistency, as contemplated by section 34 of the RDB Act, and hence the said provision does not come into operation in this situation. 24. Shri Jaiswal, the learned counsel, has relied upon the judgment of Punjab and Haryana High Court in State Bank of Patiala v. Northland Sugar Complex Ltd. [2004] 55 SCL 92 , wherein it has been held that rule 154 of the Company (Court) Rules is not applicable in respect of the secured creditor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 course of the winding up of the company; 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 (65 of 1960). (3)** ** ** (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court." Sub-section (1) of section 446 of the said Act creates a bar for institution of suit or other legal proceedings after passing of the order of winding-up of the Company, except by leave of the Company Court and subject to such terms as the Company Court may impose. If any suit or other legal proceedings are pending against the Company under liquidation on the date of the winding-up order, then this provision also creates a bar to proceed with it against the Company under liquidation, except by leave of the Comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act." Section 19(19) and section 19(22) of the RDB Act confer powers upon the Debts Recovery Tribunal to issue the certificate of recovery and the same being relevant, are reproduced below : "19. Application to the Tribunal.-... (19) 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 (1 of 1956) and to pay the surplus, if any, to the company. (22) The Presiding Officer shall issue a certificate under his signature on the basis of the order of the Tribunal to the Recovery Officer for recovery of the amount of debt specified in the certificate." Section 18 of the RDB Act deals with the bar of jurisdiction and it runs as under: "18. Bar of jurisdiction.-On an from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The first question, which arose in the decision of the Apex Court, cited (supra), was : whether the Debts Recovery Tribunal has exclusive jurisdiction under section 17 of the RDB Act in the matter of passing the order of adjudication. The second question was whether for initiation of various proceedings under the RDB Act, leave of the Company Court was necessary under section 537 of the said Act before a winding-up order is passed against the Company. The third question was whether the Company Court can pass an order of stay of the proceedings before the Debts Recovery Tribunal in exercise of its powers under section 442 of the said Act. The fourth question involved was whether the provisions of the RDB Act shall override the provisions of the said Act. Lastly, a distinction was made between the cases where the secured creditor opts to stand outside the winding-up proceedings and where he goes before the Company Court. 29. The question whether the Debts Recovery Tribunal has exclusive jurisdiction under section 17 of the RDB Act in respect of adjudication and execution has been dealt with in paras 21, 22, 23, 24 and 25 of the judgment of the Apex Court, cited (supra), and the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decided accordingly'. ..." Thus, it has been held in clear terms that the jurisdiction of the Debts Recovery Tribunal under sections 17 and 18 of the RDB Act is exclusive so far as the question of adjudication of liability and execution of the certificate by the Recovery Officer is concerned. It has further been held that no other Court or authority much less the Civil Court or the Company Court can go into the said question relating to the liability and recovery, except as provided in the Act. 30. The next question regarding leave of the Court, as contemplated by sections 446 and 537 of the said Act, is concerned, it has been dealt with in paras 29 and 31 of the judgment of the Apex Court, cited (supra), and the relevant portion is contained in para 31, which is reproduced below : "31. ...We are of the view that the appellant's case under the RDB Act - with an additional section like section 34 - is on a stronger foo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act, 1993 confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to Banks and financial institutions and there can be no interference by the Company Court under section 442 read with section 537 or under section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the Banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with section 19(19) read with section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the Companies Act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition 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 proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against the respondents." Thus, it has been clearly held that the provisions of the RDB Act sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ision." "67. 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 provisions of the proviso' obviously mean the amount taken away from the private realisation of the secured creditor by the liquidator by way of enforcing the charge for workmen's due under clause (c) of the proviso to section 529(1) 'ratebly' against each secured creditor. To that extent, the secured creditor - who has stood outside the winding up and who has lost a part of the monies otherwise covered by security - can come before the Tribunal to reimburse himself from out of other monies available in the Tribunal, claiming priority over all creditors, by virtue of section 529A(1)(b)." It is thus apparent that even the secured creditors, who have opted to stand outside the winding up proceedings, can in certain circumstances come before the Company Court and claim priority over all other creditors for release of the amounts out of other monies lying in the Company Court. However, this limited priority is restricted only to the extent specified in clause (b) of section 529A(1) of the said Act. It has further been held that the se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Debts Recovery Tribunal under the RDB Act. However, that would not alter the position in respect of the applicability of the aforesaid ratio of the judgment of the Apex Court, for the reason that when the secured creditors stay outside the winding-up proceedings but approach the Company Court, they stand only in the shoes of the secured creditors entitled to enforce their securities consistent with the relevant provisions of the said Act regarding distribution of the assets of the Company under liquidation. 34. The third judgment of the Apex Court, relevant in the present case, in ICICI Bank Ltd. v. SIDCO Leather Ltd. [2006] 67 SCL 383 (SC). After referring to its earlier judgment in Allahabad Bank's case (supra), referred to above, the Apex Court has, in this judgment, dealt with the questions of adjudication, execution and working out priorities, which is dealt with in para 31 reproduced below : "31. The above recommendations as to working out "priorities" have not been brought into the Act with greater clarity under section 19(19) as substituted by Ordinance 1 of 2000, inter alia, whereof Priorities, so far as the amounts realized under the RDB Act are concerned, are to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evail. This position holds good during the pendency of the winding-up petition against the debtor-Company and also after the order of winding-up is passed. 36. Keeping in view the law, as aforesaid, laid down by the Apex Court, it has to be held that the Company Court, in exercise of its jurisdiction under sub-section (2) of section 446 of the said Act, can entertain and decide the claims of the secured creditors, who have obtained the certificate of recovery under section 19(22) of the RDB Act only to the extent they are consistent with the provisions of section 529A and 529(1)(c) of the said Act and rules 154, 156 and 179 of the said Rules. The reason is that such creditors stand in the shoes of the secured creditors entitled to enforce their securities consistent with the provisions of the said Act regarding distribution of the assets of the Company under liquidation. This is how the secured creditors were before the official Liquidator under rule 163 of the said Rules. The Official Liquidator was, therefore, right and reasonable in accepting the claim consistent with the provisions of the said Act and the said Rules. Simply because such certificate is binding upon the Compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....only in the execution proceedings by the Recovery Officer under the RDB Act and it is not proper for this Court to express any opinion on that question, so as to prejudice the contentions of either of the parties. Not only that, but the Recovery Officer has power under sub-section (2) of section 28 of the RDB Act to require any person from whom an amount is due to the defendant in recovery certificate to deduct such amount and credit it to the account of the Recovery Officer. If the Recovery Officer, after dealing with all such relevant aspects, approaches this Court, as required by sub-section (4) of section 28 of the RDB Act, then only this Court can exercise jurisdiction. In other words, the exercise of jurisdiction by the Company Court under section 446(2) can only be at the instance of the Recovery Officer acting under section 28(4) of the RDB Act. In view of this, any decision by the Company Court on the application of a secured creditor under section 446 of the said Act, to disburse amount to the secured creditors as per the certificate under section 19(22) of the RDB Act, would be without jurisdiction. Hence, question No. (3) is answered accordingly. As regards Question ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stration of charge and priority of claims is the exclusive jurisdiction of the Debts Recovery Tribunal under section 17 of the RDB Act and its decision having become final, the same cannot be reopened in these proceedings. He further submits that in fact acting on the basis of these certificates, the Official Liquidator has determined the amount payable to the secured creditors. According to him, though such determination is disputed by the secured creditors, it is not open for the Official Liquidator to re-open such determination with a view to reduce the claims of the secured creditors. He has relied upon the judgment of the Apex Court in Indian Bank v. Official Liquidator, Chemmeens Exports (P.) Ltd. [1998] 16 SCL 524 (SC)/[1998] 5 SCC 401. 43. In order to consider the question, sections 125(1) and 132 of the said Act will have to be considered. Hence, the said provisions are reproduced below : "125. Certain charges to be void against liquidator or creditors unless registered.-(1) Subject to the provisions of this part, every charge created on or after the 1st day of April, 1914, by a company and being a charge to which this section applies shall, so far as any security on....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appeals, is on the basis that the charge is registered. The Official Liquidator himself has produced the copies of the certificates of registration of the charges on record. Hence, the registration of charges by the Registrar of Companies is not disputed. 45. What has to be seen is the non-compliance of sub-section (1) of section 125 of the said Act. The Debts Recovery Tribunal, in exercise of its jurisdiction under section 17 of the RDB Act, has delivered its judgment and order on 31-8-1995 recording the finding that the charges of outstandings have been secured by the deeds of hypothecation and the mortgage of the property. It has also decided the question as to what extent the secured creditors are entitled to recover the outstandings. It has been held that the Official Liquidator's liability shall be restricted to the extent of available estate, workmen's dues and claims of other secured creditors. The ICICI Bank Ltd. (Kotak Mahindra Bank Ltd.), IDBI and IFCI Ltd. are held to be the first charge holders, whereas the Bank of Maharashtra and the Bank of India have been held to be the second charge holders. 46. In the judgment of the Apex Court in Allahabad Bank's case,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....charge, however in the present case, the property is mortgaged, the charge is also registered, and a certificate under section 19(22) of the RDB Act has been issued. Hence, the aforesaid judgment applies with greater force. In view of the aforesaid law laid down by the Apex Court, it is apparent that the judgment and order passed by the Debts Recovery Tribunal is binding upon the Official Liquidator and no plea inconsistent with such judgment and order can be raised by the Official Liquidator while deciding the question of priorities under clause (d) of sub-section (2) of section 446 of the said Act. It has been held that under section 446, no power is conferred upon the Company Court to declare a decree of the competent Court to be void and the application of the Official Liquidator for that purpose was held to be not maintainable. In view of this, it has to be held that the Company Court has no jurisdiction under section 446 of the said Act to go into the question as to whether the charges of the secured creditors are registered or not, and whether the debts of the secured creditors should be treated as secured only to the extent of the amounts specified in the certificate. Quest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngly. 50. The Official Liquidator has declared the dividend as per the provision of sub-section (2) of section 529A of the said Act by accepting the claims of the secured creditors to the extent they are consistent with the provisions of the said Act and the said Rules. However, in view of the fact that the matter is already pending before the Apex Court, it would not be proper at this stage to permit actual disbursement of dividend, though this Court by an order dated 6-3-2009 has permitted the Official Liquidator to declare such dividend. In fact, in the order dated 6-3-2009, reproduced earlier, this Court has made it clear that the actual disbursement shall be after the appropriate orders passed by the Hon'ble Supreme Court in pending matters. The question of disbursal of dividend declared pursuant to the order passed by this Court on 6-3-2009, shall be considered as and when the Apex Court decides the matter. The parties are at liberty to move appropriate applications before this Court at any subsequent stage for disbursal of dividend on the basis of any subsequent events or on the basis of the orders passed by the Apex Court. 51. On 16-12-2010, this Court had passed a co....