TaxTMI 
TaxTMI 
2014 (2) TMI 1354
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.... the company. The company's office cum factory, which is subject matter of the present application, is said to be located at, IDA Gazulamandyam, Renigunta, Chittoor District hereinafter referred to as 'asset'. It is stated that SBI is one of the secured creditors of the company in liquidation and that SBI along with other secured creditors exercised their rights under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) and took physical possession of the entire asset of the company in liquidation and deployed their security to protect it. Thereafter, the secured creditor had auctioned the property on 13.10.2012 under the SARFAESI Act and the highest bid of the third respondent was accepted. 3. In the meantime, the Official Liquidator made spot inspection of the asset comprising of an extent of Ac.27.63 cents with plant, machinery and building and took photographs and affixed a copy of the winding up order on the aid factory premises but he could not take physical possession. The second unit of the company is situated at B-29, SIPCOT Industrial Complex, Gumidipoondi, Tiruvalluru District, Tamil Nadu. On 29.01.2013,....
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....d with the sale, however, confirmation thereof was stayed subject to the applicant depositing five installments of Rs. 10 crores each, as per the schedule fixed therein. The order also made it clear that in case of default, the bank shall be free to confirm the sale. It is stated that without complying with the said order, the applicant therein filed WP. No. 21374 of 2012, which was dismissed by this Court on 13.07.2012 7. The bank, further, states that that it had conducted sale on 13.10.2012 and the highest bid offered viz. third respondent's offer was accepted and the possession of the unit was delivered to the said auction purchaser on 28.03.2012 in the presence of the Tahsildar, Renigunta and that the auction purchaser had already paid the entire amount. The counter affidavit by the bank places strong reliance upon Section 35 of the SARFAESI Act, which gives an overriding effect to the SARFAESI Act and based on the decision of Supreme Court in PRAVIN GADA v. CENTRAL BANK OF INDIA 2013 2 SCC 101, it is contended that the sale is valid and consequently, this application filed by the Official Liquidator be dismissed. COMPA. No. 597 of 2013 in COMPA. No. 525 of 2013: ....
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....Indian Overseas Bank, Chennai. The applicant states that when the unit of the company in liquidation was sold by SBI under the SARFAESI Act, the property of the applicant was also sold treating it as an immovable property of the company in liquidation. The applicant, therefore, states that his properties could not have been sold in the said auction and on account of substantial injury and hardship to his rights, the applicant seeks delivery of the property given by him to the company in liquidation. In the lease documents annexed therewith, is an annexure to the memorandum of understanding dated 27.07.2009 showing lease of 23 machines, equipments and infrastructure. The said annexure is signed by the Director of company in liquidation as well as the Chief Executive Officer of the applicant. 14. The Official Liquidator has filed a report on the said application in which the alleged irregularities in holding and conducting of sale by SBI under the SARFAESI Act is highlighted. However, nothing is stated about the third party applicant's claim. 15. SBI, however, filed a counter to the said application of the third party stating that the claim of the applicant to the said mach....
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.... been held under the SARFAESI Act, the Official Liquidator cannot approach and seek intervention of this Court for setting aside the sale and that he must approach only the DRT under Section 17 of the SARFAESI Act. 19. The issue so raised by the learned senior counsel is sought to be supported by the decision of the Supreme Court in ALLAHABAD BANK's case (2 supra) and also supported by a Division Bench decision of the Delhi High Court in KOTAK MAHINDRA BANK LTD. v. MEGNOSTAR TELECOMMUNICATIONS PVT. LTD. 2013 176 CompCas 246 Delhi 20. On the rival contentions aforesaid, the following points emerge for consideration: 1. Whether application COMPA. No. 525 of 2013 is maintainable? 2. If maintainable, whether the sale is vitiated? MAINTAINABILITY: 21. Since the legal issue aforesaid on maintainability of the aforesaid application arises, I shall first deal with the objection raised by the learned senior counsel with regard to the maintainability of the application filed by the Official Liquidator. 22. The facts, in this case, which are, briefly, mentioned above, show that the company petition for winding up was presented to this Court on 07.07.2011 a....
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....of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or rise 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. Section 537 (Prior to its substitution by the Companies (Second Amendment) Act, 2002 - 537 - Avoidance of certain attachments, executions, etc., in winding up by or subject to supervision of the Court - (1) Where any company is being wound up by or subject to the supervision of the Court - (a) any attachment, distress or execution put in force, without leave of the Court, against the estate or effects of the company, after the commencement of the winding up; or (b) any sale held, without leave of the C....
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....nstruction. SARFAESI ACT - 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." 23. In the above factual background, the contention as to maintainability raised by the learned senior counsel is required to be appreciated. 24. The decision of the Supreme Court in ALLAHABAD BANK's case (2 supra) is slightly distinguishable inasmuch as in the said decision, the creditor had sought and obtained leave of the company Court to realize the security through the Recovery of Debts Due to Banks and Financial Institutions Act (RDB Act). The present case, therefore, relates to sale under the SARFAESI Act. 25. The Supreme Court has, however, considered the issue of jurisdiction of the company Court vis-a-vis the sale and recovery made under the RDB Act and specifically considered and answered the question holding that appropriate forum for the Official Liquidator to agitate his grievance is before the DRT. The Supreme Court has noticed Section 34 of the RDB Act, wh....
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....ions, but at the time of auction and sale, it is required to associate the Official Liquidator. The said principle has also been reiterated in Pravin Gada v. Central Bank of India(2013) 2 SCC 101. 35. It has been submitted by Mr. Banerji, learned senior counsel, that if the Company Court as well as the DRT can exercise jurisdiction in respect of the same auction or sale after adjudication by the DRT, there would be duality of exercise of jurisdiction which the RDB Act does not envisage. By way of an example, the learned senior counsel has submitted that there are some categories of persons who can go before the DRT challenging the sale and if the Official Liquidator approaches the Company Court, then such a situation would only bring anarchy in the realm of adjudication. The aforesaid submission of the learned senior counsel commends acceptance as the intendment of the legislature is that the dues of the banks and financial institutions are realized in promptitude. It is to be noted that when there is inflation in the economy, the value of the mortgaged property/assets depreciates with the efflux of time. If more time is consumed, it would be really difficult on the part o....
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....s not open to the Recovery Officer to confirm the sale and, therefore, the sale was set aside by the Company Court, being in violation of the order. Thus, we find that the facts in the said case were absolutely different and further this Court did not deal with the jurisdiction of the Company Court vis-a-vis DRT as the said issue really did not arise. Hence, it is not an authority for the proposition that the Official Liquidator can approach the Company Court to set aside the auction or sale conducted by the Recovery Officer of the DRT." It is noteworthy that the decision in M.V JANARDHAN REDDY v. VIJAYA BANK [(2008) 7 SCC 738] referred to by the Supreme Court in the above paragraph was relied upon, in the present case, by the Official Liquidator. As noticed in the above paragraphs, the said decision is distinguished. 26. In the present case, we are concerned with same question but so far as the Companies Act and the SARFAESI Act are concerned. The difference between the RDB Act and the SARFAESI Act may be immediately noticed inasmuch under the SARFAESI Act, the security is realized by the secured creditor without intervention of the Court whereas under the RDB Act, a recover....
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....dy under Section 17 is not confined to the stage contemplated under Section 13(4) but is available qua action taken by the secured creditor after the stage contemplated under Section 13(4) also. The scrutiny by the DRT under Section 17 is thus not confined only to whether the measures under Section 13(4) are in accordance with the SARFAESI Act and the Rules framed thereunder but also extends to the actions of the secured creditor under Sections 13(5) to (13). It is thus not as if the debtor/borrower/mortgagor or for that matter, in the case of such a debtor/borrower/mortgagor being in liquidation, the liquidator is without any remedy or that the sale is merely at the whim and fancy of the secured creditor and his Authorized Officer. Not only are the modalities of sale prescribed but a forum for redressal of grievances with respect thereto is also provided in the form of DRT. The Official Liquidator, thus if of the view that appropriate price is not being or has not been fetched or relating to issues of distribution, has the remedy before the DRT. 25. If it were to be held that the Official Liquidator (who acts under the dictates of the Company Court) is to be also associat....