TaxTMI 
TaxTMI 
2014 (1) TMI 1809
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1959 seeking direction to the respondents-banks and/or the SBICAP Trustee Company Limited (for short "SBICAP-Trustee") not to prosecute Miscellaneous Application No.342 of 2013 further, filed by them under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (for short "SARFAESI Act"), pending before the Chief Metropolitan Magistrate, Esplanade at Mumbai (for short "CMM"). Further, the appellant also sought direction to the respondents not to take physical possession of the building known as Kingfisher House, situate at Andheri, Mumbai (for short "Kingfisher House"). 3. The appellant is a company incorporated under the provisions of the Act and is a constituent of UB Group of Companies. Respondent Nos.1 to 15 are the banks which have formed a consortium and made available various credit facilities from time to time to the appellant-company. The respondents are secured creditors holding a significant majority of the available assets belonging to the appellant-company as security towards the loans advanced including Kingfisher House. 4. SBICAP-Trustee, obviously on behalf of the respondent-Banks, filed Miscellaneou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....banks being secured creditors, after having filed company petition for winding up, could not have filed application under Section 14 of the SARFAESI Act without leave of the Company Court. He submitted that the leave of the Company Court, in the facts of the present case, would be necessary also in view of the provisions contained in Section 529-A of the Companies Act. He submitted, in any case, the respondent-banks cannot be permitted to "blow hot- blow cold" or "approbate and reprobate". In short, it was submitted that after having filed a petition for winding up the SBICAP-Trustee could not have filed the application under Section 14 of the SARFAESI Act before the CMM, Mumbai. It was submitted that the respondent-banks being secured creditors, either themselves or through the SBICAP-Trustee, are estopped from realizing the secured assets or security interest independent of Company Court in the light of the provisions of Section 446(2), 441(2) and 529(A) of the Companies Act. Lastly, he submitted the SARFAESI Act does not confer independent right on the secured creditor but it only creates additional remedy and once having exhausted the remedy of winding up of a company, the resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e balance of the debt not covered by such security. c. Whether this court, as the Company Court, could exercise jurisdiction over the property, whether before or after a winding up order is passed, in the circumstance that a petitioner before this court is seeking to take possession of the property of the respondent by recourse to the SARFAESI Act in the capacity of a secured creditor." 11. All the three questions formulated by the learned Judge were answered against the appellant-company and in favour of the respondents-banks. Though the company application was dismissed vide order dated 11th December 2013, the learned Judge by a separate order dated 11-12-2013 directed the respondents-banks not to eject the appellant- company summarily without affording a reasonable opportunity to withdraw from the property. While issuing such direction, he rejected the oral application seeking stay of the order to enable the appellant-company to prefer an appeal against the order dated 11th December 2013. 12. At the outset, we would like to consider the questions, as raised by Mr.Raghavan, learned Senior Counsel for the appellant that where a secured creditor such as the respondents-ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nciple clear in Allahabad Bank holding that latter legislation, in particular, the relevant provisions giving over- riding effect shall prevail over the former. Applying this principle, and considering the statement of object and reasons of the SARFAESI Act the learned Judge, in our opinion, has rightly held that the provisions contained in the SARFAESI Act shall over-ride the provisions contained in the Act. The statement of object and reasons to the SARFAESI Act make the intention of the legislature clear as has been rightly noticed by the learned single Judge. 15.1. In International Coach Builders Limited (supra), the Supreme Court while dealing with special provisions contained in Sections 29, 30, 31 and 32 of the State Financial Corporation Act (for short "SFC Act") and the amendments made in Section 529 and 529A of the Act, having considered the fact that though the SFC Act was enacted in 1951, the provisions contained in Section 529 and 529A were introduced in 1985 and therefore, placing reliance on its judgment in A.P State Financial Corporation Vs. Official Liquidator, (2000) 7 SCC 291, held that the amendments made in Section 529 and 529A would override and control all t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; and shall enforce my rights as mortgagee". This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor. He may say, 'I will prove in respect of my debt'. If so, he comes into the winding up". Then, the Supreme court proceeded to observe as follows: "The secured creditor is thus outside the winding up and can realise his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 231 (corresponding with Section 171 of the Indian Companies Act) to obtain the leave of the winding up Court before he can do so although such leave would almost automatically be granted." 17. In International Coach Builders Ltd. (supra), the Supreme Court considered the question whether the right of the Financial Corporation under Section 29 of the State Finance Corporation Act to sell and realize the security could be exercised without reference to the Company Court without a winding up order is made against the company. 18. From bare perusal of the questions that fell f....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., learned Senior Counsel irrespective of the findings of learned judge on the first question i.e. a bar of jurisdiction with reference to Sections 34 and 35 of the SARFAESI Act pressed the "doctrine of election" into service. He submitted that once having filed company petition for winding up it is not open to the secured creditor, such as the respondents-banks, to file an application under Section 14 of the SARFAESI Act. In other words, he submitted that the respondent-banks are estopped from filing an application under Section 14 of the SARFAESI Act having been elected a remedy of winding up of the Company. In support of his contention, he placed reliance upon the judgment of the Supreme Court in Rajasthan State Industrial Development and Investment Corporation (supra). In this case, the Supreme court observed that a party cannot be permitted to "blow hot - blow cold", "fast and loose" and "approbate and reprobate". The Supreme Court further observed that the doctrine of election is based on the rule of estoppel-the principle that one cannot approbate and reprobate is inherited in it. The doctrine of estoppel by election is one among the species of estoppel in pais (or equivalent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntitled to all sums so realized. Admittedly no petition was filed by Allahabad Bank for winding up of the Company and it chose to stand outside winding up. The dispute was also between two Banks over the same security, which has obtained orders from the Debt Recovery Bank. It is against this backdrop, the Supreme Court in paragraphs 62 and 63 observed thus : "62. 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. 63. 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 592(2). Till ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act has obvious reference to a post winding-up stage. This Court then proceeded to allow in regard to secured creditor to present petition for adjudication under the insolvency law is different from the right of a secured creditor to present a winding up petition. 22. 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. Thus, the secured creditor, who seeks to prove whole of his debt in the course of the proceedings of winding up must before he can prove his debt relinquish his security for the benefit of the general body of creditors. If he surrenders his security for the benefit of the general body of creditors, he may prove whole of his debt. But, if the secured creditor realises his security, he may prove for the balance due after deducting the net amount that has been realized. The stage for relinquishing security arise when secured creditor seeks to prove the whole of his debt in the course of winding up. If, he elects to prove in the course of w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that they are "standing outside winding up" insofar as their secured interest, including Kingfisher House and the same is being filed without relinquishing their rights and interest as secured creditors. They also made it clear in the petition that they were pursuing other remedies available to them for realization of securities created in their favour without seeking assistance of this Court for sale/realization of secured assets. In the petition, they have also made a categoric statement that even if all secured assets are sold and their value realized, they would still not realize substantial/large portion of the outstanding dues. Learned counsel for the parties are ad idem that the worth of Kingfisher House in any case may not be more than Rs. 300 Crores as against total outstanding of Rs. 6200 Crores. The proceedings under the Act are not recovery proceedings and need to be filed for winding up of the company which is unable to pay its debts. The proceedings initiated by the respondent-banks under SARFAESI are not alternate to the winding up petition. 25. It is thus clear that when the company petition was filed, the respondents-banks did not relinquish the security namely, K....