TaxTMI 
TaxTMI 
2011 (4) TMI 1511
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....hereinafter referred to as "ASM") by fixing the upset price at Rs. 86.44 Crores. ASM's sister concern - New Horizon Sugar Mills Limited (hereinafter referred to as "NHSM") is the appellant in O.S.A.No.63 of 2011. The promoters/directors and their wives are the appellants in O.S.A.No.64 of 2011. Being aggrieved by the dismissal of the applications O.A.Nos.253 and 254 of 2005 filed under Section 9 of Arbitration and Conciliation Act and directing Bharat Heavy Electricals Limited (in short, "BHEL") to lodge its claim with the Official Liquidator, BHEL has preferred the appeals O.S.A.Nos.58 and 59 of 2011. O.S.A.No.81 of 2011 is filed by Walchandnagar Industries Limited, one of the unsecured creditor against the order dated 19.01.2011 made in C.A.No.2486 of 2006 in C.P.No.229 of 2004. 2. FACTUAL BACKGROUND OF THE MATTER:- Indian Renewable Energy Development Agency Limited (in short, "IREDA") granted financial assistance to the tune of Rs. 49,35,28,000/- to ASM under loan agreements dated 10.9.1998, 21.7.1999, 29.10.1999 and 3.12.1999; (i) for setting up a 14 MW Bagasse based Co-generation Captive Power Plant; (ii) for enhancing the capacity....
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....ties on or before 31.3.2006 and pay the amount due to Sundaram Finance Limited. It was also agreed that if IREDA was not able to sell the properties before 31.3.2006, Sundaram Finance Limited would be at liberty to approach the Court. BHEL, which supplied and commissioned (i) A 8400 KW Capacity Extraction cum Back Pressure Turbo generator and (ii) A 4280 KW Capacity Low Pressure Condensing Turbo generator with all its auxillaries in the factory of ASM and to whom also payment was defaulted, initiated proceedings by invoking arbitration clause contained in the agreement by filing applications O.A.Nos.253 and 254 of 2005 restraining ASM from selling, transferring or alienating its properties. On 19.3.2005, interim injunction was granted in both the applications. 6. Sale of assets of New Horizon Sugar Mills Limited by secured creditor Indian Bank:- NHSM at Pondicherry availed credit facilities from Indian Bank and Indian Bank initiated proceedings under SARFAESI Act, 2002 by issuing notice under Section 13(2) on 25.9.2004 demanding a sum of Rs. 27,19,15,465/-. In pursuance to the said notice, Indian Bank took possession of the assets of NHSM located at Ariyu....
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.... IREDA handed over possession of the assets of ASM to the Official Liquidator on 27.4.2006. 10. C.A.No.1038 of 2006:- After handing over possession, IREDA filed the application in C.A.No.1038 of 2006 seeking an order for fresh publication for the sale of assets of the company in liquidation (ASM) and also the machineries of NHSM by IREDA installed in ASM by joining (i) official liquidator; (ii) IREDA, and (iii) Sundaram Finance Limited. Along with C.A.No.1038 of 2006, IREDA also filed C.A.No.1039 of 2006 praying for confirmation of sale in favour of the highest bidder, who offered Rs. 135.50 Crores in the bid cum auction held on 20.2.2006. 11. C.A.No.1033 of 2006:- At the same time, the promoters/directors of the Company ASM and their respective wives (appellants in O.S.A.No.64 of 2011) took out an application in C.A.No.1033 of 2006 praying to transfer SARFAESI Appeal -S.A.No.3 of 2006 on the file of DRT-I, Chennai to the High Court to be heard along with C.P.No.229 of 2004. 12. All the three applications viz., C.A.Nos.1033, 1038 and 1039 of 2006 were taken up together for hearing and disposed of by the order dated 3.7.2006, wherein Chitra Venkataraman, J, (i) ....
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....ourt in C.A.No.1038 of 2006, V.Kannan, Chairman of ASM started sending letters to the creditors offering one time settlement. Simultaneously, V.Kannan and other directors and their wives have also filed counter affidavits to the application in C.A.No.1038 of 2006. V.Kannan also filed an affidavit of one M.R.Ramchender claiming to be the Chairman and Managing Director of a Company incorporated in Singapore offering USD 30 million equivalent to Rs. 120 Crores for the rehabilitation of ASM. In C.P.No.229 of 2004, V.Kannan has also filed an affidavit in March 2008 agreeing and confirming to make payment to the secured and unsecured creditors in the manner indicated in the affidavit. The promise to settle the dues borne out to be an empty promise and about two years was lost in this process from the date of order of the Division Bench remanding the application to the Company Court. Thereafter, by an order dated 2.9.2008, Chitra Venktataraman,J. directed the Official Liquidator to bring the properties for sale viz., land of an extent of 125 acres, building, plant and machinery and other movables. The learned Judge fixed the upset price of the land at Rs. 11.44 crores, the buildings at Rs....
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....nies Act, the provisional liquidator would have the same power as that of a liquidator to perform such duties as directed by the Court. Primarily the question would be whether the Court can order sale or not. The expression "Company which is being wound up" appearing in Rule 72 would indicate a stage even prior to the passing an order for winding up the company under section 443(1)(d) of the Companies Act. A secured creditor is entitled to stand outside the winding up proceedings and can proceed to realise the security without the leave of the winding up Court if by the time he initiated the action the Company had not been wound up. In the instant case, secured creditor IREDA has come up before the Company Court on account of decision of the Division Bench in Asset Reconstruction Company (I) Ltd. Vs. The Official Liquidator, High Court, Madras, (2006(3) CTC 529) and also in view of the order passed by the Court directing IREDA to surrender possession to the Official Liquidator. C.A.No.1038 of 2006 has been filed by IREDA not at the instance of Sundaram Finance Limited nor in pursuance of Memorandum of Understanding dated 27.9.2005. But C.A.No.1038 of 2....
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....judge that while appointing provisional liquidator the Court has not limited or restricted its powers is erroneous. (ii) The learned single judge failed to see that the process of winding up is passed under Section 453(1)(b) of the Act and mere pendency of a petition for winding up presented to the Company Court cannot be construed as a proceedings for winding up of the Company. The conclusion of the learned Judge that the expression "Company, which is being wound up", appearing in Rule 272 would indicate a stage even prior to the passing of an order for winding up of the Company under Section 443(1)(d) of the Act is erroneous. (iii) The entire functions of liquidating Company are to be performed only by the Official Liquidator and consequently the distinction sought to be made by the learned single Judge with regard to the power of the Court and the power of the liquidator is completely non-existent as far as the Companies Act is concerned. The finding of learned judge that there is no restriction or limitation on the power of the Court to order sale of the properties through Official Liquidtor even before the Company is wound up is contrary to law. (iv)....
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....Mr.T.K.Seshadri, learned Senior Counsel also placed reliance on the above decisions and interalia made the following submissions: (i) The ASM is yet to be wound up and in so far as NHSM has not filed any winding up petition. Even in respect of ASM, as an interim measure, sale cannot be ordered and if the property is sold nothing remains for winding up petition. In all the proceedings initiated by NHSM challenging the SARFAESI action initiated by the Indian Bank, NHSM has always pointed out that the entire balance amount realised by the Indian Bank after satisfying their dues should be paid to IREDA. (ii) The Indian Bank was arbitrarily disbursing the amounts to various unsecured creditors overlooking the claims of IREDA and inspite of several letters to IREDA pointing out the conduct of India Bank in depriving IREDA their rights to get the money, IREDA chosen to remain silent and avoided taking any steps to recover the balance amount lying with Indian Bank. (iii) IREDA having invoked the proceedings under Debt Recovery Act and SARFAESI Act as against NHSM cannot seek the assistance of the Company Court to sell the property of NHSM since no provisional liq....
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....ional liquidator since IREDA proceeded under SARFAESI Act and taken possession of the property, following the decision in Asset Reconstruction Company (I) Ltd. Vs. The Official Liquidator, High Court, Madras, (2006(3) CTC 529), the official liquidator has to necessarily file an application to take possession of the properties. 24. Drawing Court's attention to various proceedings, Mr.G.Masilamani, the learned Senior Counsel submitted that the borrowers are adopting dilatory tactics. Learned Senior Counsel would further submit that IREDA, being a secured creditor, has taken possession under SARFAESI Act and surrendered possession to the Official Liquidator only in pursuance of the order of the Court and nowhere has relinquished its rights as the secured creditor. The learned Senior Counsel inter alia made the following submissions:- (i) The powers of provisional liquidator would be restricted only if the Court imposes any restriction while appointing him. When the Order dated 22.7.2005 has not restricted the powers of the provisional liquidator, there can be no distinction between the power of official liquidator and provisional liquidator in respect of the sale of as....
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.... Sundaram Finance Limited placed reliance upon decisions of SRI CHAMUNDI THEATRE, MYSORE TALKIES LTD. VS. S.CHANDRASEKHARA RAO, (1974 (II) MLJ 155)(MADRAS); PANCHMAHALS STEEL LIMITED VS. UNIVERSAL STEEL TRADERS, (1976) 46 COMP.CASES 706; SUDARSAN CHITS (I) LTD. VS. G.SUKUMARAN PILLAI AND OTHERS, (AIR 1984 SC 1579); M.C.C.FINANCE LTD. VS. R.BI., (2004) 119 COMP. CASES 355; M/s.Bakemans Industries Pvt. Ltd. v. New Cawnpore Flour Mills (AIR 2008 SC 2699); RAJASTAN STATE FINANCIAL CORPN. VS. OFFICIAL LIQUIDATOR, ((2005) 8 SCC 190); ASSET RECONSTRUCTION CO.(INDIA) LTD. VS. THE OFFICIAL LIQUIDATOR, HIGH COURT, MADRAS, (2006(3) CTC 529); SMT.USHA R.SHETTY AND OTHERS VS. RADEESH SUBBER PVT.LTD., (1995) 84 COMP.CASES 602 (KARNATAKA); unreported judgment of punjab & haryana high court dated 15.12.2008 in co.appeal no.18 of 2003 (marigold leasing (india) ltd. vs. Shashi bhushan and others; ICICI BANK VS. SIDCO LEATHERS LIMITED, (AIR 2006 SC 2088); Transcore VS. Union of India, ((2008) 1 SCC 125) and indian bank vs. Chief judicial magistrate, pondicherry and others ((2007) 138 comp.cases 631 (madras)) 28. Onbehalf of Vijaya Bank, the learned counsel Mr.R.Umasuthan has submitted that Vijaya ....
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....o-generation plant, machineries on lease by Sundaram Finance Limited? 10.Whether the learned single Judge erred in drawing the conclusions based on the materials which came to his knowledge in other proceedings? 11.Whether the order of learned single Judge is vitiated on account of reference to the other facts and circumstances like conduct of the Directors, etc? 12.What is the relief to which Walchandnagar Industries Limited entitled towards the machineries sold by it to ASM? 13.What is the relief to be granted to BHEL which sold two turbo generators for the co-generation plant of ASM? 14.Whether the Order of sale of assets of ASM passed by single Judge is to be confirmed? If so, what is the value and how the sale has to be ordered? 15.Whether the valuation of the assets at Rs. 86.80 crores is an under valuation? 32. The entire immovable properties of ASM measuring 120 acres and 70 cents is situated in Malappambadi village, Tiruvannamalai District and land measuring 4.96 acres is situated in Annamalai Nagar Village and Post, Malappambadi and the movable assets of ASM and NHSM are sought to be sold. The machineries of ASM sou....
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....properties and effects of ASM. On 27.9.2005, IREDA entered into MOU with Sundaram Finance Limited to effectively sell their respective assets to get better price in the interest of all creditors. On 28.9.2005, the Official Liquidator has held meeting of the secured creditors. As per the minutes of the meeting, IREDA is the major secured creditor, who is having first charge over the entire assets of the Company and City Union Bank is having first charge on stocks (sugar) and also in the form of guarantor, has paid amount to IREDA on behalf of the Company. Vijaya Bank has also given loan on hypothecation of stocks/book debts. The secured creditors were impressed upon the importance of taking possession of the Company immediately and providing security to the factory premises. In the said meeting, IREDA stated that it could bear the entire security charges. 35. After issuing Section 13(2) and Section 13(4) notices, on 5.10.2005, IREDA has taken possession of the secured creditors under SARFAESI Act. The Official Liquidator has sent a notice dated 17.1.2006 to IREDA taking strong objection for taking of possession under SARFAESI Act. In the said notice, the Official Liquidator infor....
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....of Companies Act, powers of the Provisional Liquidator are the same as that of the Official Liquidator and powers of Provisional Liquidator would be restricted only if the Court imposes any restriction while appointing him. Further contention of IREDA is that in the order dated 22.07.2005, there is no restriction on the powers of the Provisional Liquidator and the Official Liquidator was entitled to exercise his powers including power to sell movable and immovable properties under Section 457(1)(c) of Companies Act. 38. Contention of Promotors/Directors of ASM is that in the order dated 22.07.2005, the powers of Provisional Liquidator is restricted only to take charge of the assets and while so, on the application by one of the secured creditor/IREDA, the learned single Judge erred in passing the order for sale of the movable and immovable properties. 39. Onbehalf of Appellant, Mr.G.Rajagopalan, learned Senior Counsel submitted that the Provisional Liquidator appointed under Section 450 of Companies Act will have the same powers as Liquidator only if the Court has not limited or restricted his powers by the order appointing him. The contention of the Appellant is that as per ....
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....by which he was appointed or by a subsequent order. Form 49 of the Companies (Court) Rules would show that the provisional liquidator was authorised to take charge of all the properties and effects of the Company. The Order dated 22.07.2005 is well in accordance with Form- 49. When the powers of the provisional liquidator were not restricted by the Court, the impugned order of the Company Court authorising the Official Liquidator to sell the property cannot be challenged as the same is with the specific authority and the sanction of the Court. 43. Section 456 envisages that when a winding up order has been made or where a provisional liquidator has been appointed in terms of clause (c) and (ca) of Section 457(1) of the Companies Act, the liquidator or the provisional liquidator, as the case may be, shall take into custody the control of the properties, assets of the company. In a winding up of the Company, the liquidator is entitled to sell the movable and immovable assets of the Company. In pursuance of the order of the Court dated 22.07.2005 the Official Liquidator, having taken over the assets of ASM, exercise of powers to sell under Section 457(1)(c) and (ca) and cannot be d....
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....estricts or limits the power of this Court to order the sale of the properties through the Official Liquidator and hence, the objection based upon the power of the Official Liquidator is of no relevance to the situation of hand. In the application on hand filed by one of the secured creditors, we are concerned only with the power of this Court and not the power of the Provisional Liquidator to order the sale. Under Section 451(1), the Liquidator is obliged to perform such duties as the Court may impose. Therefore, we are primarily concerned with the question whether the Court can order the sale or not." 47. Assailing the above findings, Mr.Ravi, learned counsel for ASM vehemently contended that the entire function of the liquidating company is performed only by the Official Liquidator and consequently, the distinction sought to be made by the learned single Judge with regard to the power of the Court and power of the Liquidator is completely non-existent as far as Companies Act is concerned. It was further submitted that when the exercise of powers by the Liquidator under Section 457 of Companies Act is only with the sanction of the Court, the observation of the learned single J....
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....three parties viz., Official Liquidator; IREDA and Sundaram Finance Limited by fixing the upset price at Rs. 135.50 crores or to confirm the sale infavour of the existing bidder for Rs. 135.50 crores in case no fresh bid is received. 51. The object of winding up of a Company by the Court is to facilitate the protection and realisation of its assets with a view to ensure an equitable distribution thereof among those entitled. The object of Section 446 is to see that the assets of the Company are brought under the control of the winding up of Court to avoid, wherever possible expensive litigation and to see that all the matters in dispute which are capable of being expeditiously disposed of by the winding up Court are taken up by that Court. Section 446 makes it a duty of the Court to entertain all mattes falling within the scope of sub-section (2). The historical evolution of Section 446 was traced by the Supreme Court in SUDARSAN CHITS (I) LTD. VS. G.SUKUMARAN PILLAI AND OTHERS, (AIR 1984 SC 1579). 52. Under Section 457(3) of the Companies Act, any creditor or contributories can apply to the Court with respect to the exercise or the proposed exercise of the powers of the Offi....
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....fore, liable to be set aside. On behalf of ASM, it was further contended that in exercise of its powers, the Court must work out the workmen's dues and debts due to the secured creditors before allowing the secured creditors/IREDA to sell the property in enforcement of their security and without making the order winding up, the Court cannot order sale of secured assets by IREDA. 56. As per Section 450(3) of Companies Act, the Provisional Liquidator has the same power as Liquidator unless limited or restricted by the order of the Court appointing him or by a subsequent order. Section 457 of Companies Act details the powers of the Official Liquidator. Therefore, powers of the Official Liquidator to sell the movable and immovable properties under Section 457(1)(c) of the Act will also be available to the Provisional Liquidator, which of course is with the sanction of the Court. Rule 107 of Companies (Court) Rules states that the rule relating to the Official Liquidators shall apply to the Provisional Liquidators so far as applicable subject to such directions as the Court may give in each case. Rule 272 of Companies (Court) Rules prescribes that unless the Court otherwise order....
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....59. Since in the order dated 22.07.2005 appointing the Provisional Liquidator, no limitation under Section 450(3) of Companies Act was imposed, the learned single Judge rightly held that Provisional Liquidator can exercise all the powers of Official Liquidator as stipulated in the Companies Act. Pointing out that the Provisional Liquidator has not come out with any application for sale of the properties, the learned single Judge was right in holding that in any event on the application filed by IREDA, the Court has got power to order sale of the properties of the company in liquidation. 60. Points No.4 to 6:- As pointed out earlier, since ASM and NHSM committed default in the payment of dues to IREDA, IREDA classified the accounts of ASM and NHSM as Non-Performing Assets and filed O.A.Nos.113 and 114 of 2004 before DRT-I, New Delhi for recovery of Rs. 62.83 Crores and Rs. 9.17 Crores respectively. IREDA also filed O.A.No.112 of 2004 against NHSM for recovery of Rs. 20.03 Crores. After obtaining necessary permission from DRT, IREDA proceeded under SARFAESI Act. On 27.9.2005, IREDA has entered into MOU with Sundaram Finance Limited to effectively sell the respective assets to get ....
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....cial Liquidator, whereas the Official Liquidator has also taken custody of the Company as early as 22.7.2005 and completely ignoring the above said facts, the learned single Judge has proceeded as if IREDA has surrendered possession to the Official Liquidator only for the purpose of associating the Official Liquidator in the process of sale under SARFAESI Act is clearly contrary to the material on record and is liable to be set aside. 63. The learned Senior Counsel Mr.G.Masilamani has submitted that IREDA has handed over possession of the property to the provisional liquidator only under threat of contempt proceedings and mere handing over of possession would not amount to relinquishment of IREDA's security. 64. As per Section 37 of SARFAESI Act, the provisions of the SARFAESI Act or Rules made thereunder are in addition to and not in derogation of the provisions of the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. 65. The obj....
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....d Panchanama pointing out that the minutes of meeting was signed without prejudice to IREDA's rights. In its reply to the Official Liquidator dated 6.1.2006, IREDA has replied hat it has no intention to defy the orders of the Court and that IREDA has undertaken to distribute the dues to the workers under Section 529-A of the Companies Act read with Section 13(9) of the SARFAESI Act. It is thus clear that possession was handed over to the Official Liquidator by the Order of the Court. It is explicit that there is no relinquishment of security and IREDA stands outside the winding up proceedings, however subject to Section 529-A(1)(b) read with proviso (c) appended to Section 529(1) and there is no surrender of its rights as a secured creditor. In fact, in its application C.A.No.1038 of 2006, IREDA has clearly stated that they continue to exercise their rights under the SARFAESI Act in respect of the assets of ASM and the machineries of NHSM installed/erected at the factory premises of ASM. There is no force in the contention of the appellants that IREDA's handing over of possession of the property amounted to voluntary surrender of security. 67. It is seen from....
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.... must be for the general benefit of the creditors. His action must lead to a conclusion that he, for one reason or the other, intended to stand in the queue for receiving money owed to him. It, however, does not stand obliterated only by the filing of an affidavit or proof of claim with the Official Liquidator. Such a claim had been filed pursuant to a notice issued by the Official Liquidator. If the creditor does not respond to the said notice, he would not be in a position to bring to the notice of the Official Liquidator, the existence of his right." 70. The ratio of the above decision makes it clear that the Companies Act cannot take away the rights of a mortgagee, which is created under the Transfer of Property Act. The Companies Act does not override the Transfer of Property Act. Any relinquishment of security or mortgage will have to be express and not implied. The Supreme Court in the said judgment approved the views of the Division Bench of Gujarat High Court that participation in sale proceedings will not amount to relinquishment at all, which reads under: "58. A Division Bench of the Gujarat High Court in Gujarat Steel Tube Employees Union v. O.L. of Gu....
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....ation under Section 446 of the Companies Act to initiate proceedings or continue the proceedings under the said enactment for realising their security and while granting the said permission, the Company Court is not exercising any powers under the SARFAESI Act, but only exercising its powers under the Companies Act in the light of Sections 529 and 529-A of the Companies Act. 72. Mr.Ravi, learned counsel for ASM contended that it would be appropriate for the ASM to exercise its right under SARFAESI Act to go before DRT after taking permission from the Company Court and by involving the Official Liquidator who has stepped into the shoes of the company. Contention of ASM is that having come before the Company Court, IREDA cannot say that it exercises its statutory power to cause sale of the assets of ASM through the agency of the Court/Company Court and at the same time would contend that it stands outside the winding up proceedings. Relying upon certain observations in Bakemans case, it was contended that in one hand, IREDA cannot urge that the Court sale be effected through Company Court and at the same time take a stand that it stands outside the jurisdiction of the Court and it....
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....tors in accordance with Section 529-A who stand outside the winding up proceedings. 26. It is not disputed that the applicant Official Liquidator is representing the company in the Debts Recovery Tribunal proceedings, hence the Official Liquidator can very well participate in the sale proceedings before the Debts Recovery Tribunal. However, it is made clear that when the property is in the custody of the Official Liquidator, leave of the Company Court having jurisdiction has to be obtained....." 75. Placing reliance upon the decision of the Supreme Court in M.K.RANGANATHAN VS. GOVT. OF MADRAS AND OTHERS, (AIR 1955 SC 604), Mr.Ravi, learned counsel for ASM contended that from the above decision it is clear that the terminology "standing outside the winding up proceedings" would mean that the secured creditor invokes the remedies available to him outside the purview of the Company Court and the secured creditor intending to stand outside the winding up proceedings has to invoke the remedies available to him for realisation of its security without coming before the Company Court or without intervention from the Company Court. 76. In sum and substance, the co....
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....ompanies Act, 1956. Obviously, therefore, Ranganathan (AIR 1955 SC 604) could not have considered the impact of these amendments on the provisions of Section 232 of the Companies Act, 1913 (corresponding to Section 537 of the Companies Act, 1956). 79. In terms of Section 529(1) and 529-A(1)(b), the secured creditors have two options (i) they may desire to go before the Company Judge; or (ii) they may stand outside the winding-up proceedings. The secured creditors of the second category, however, would come within the purview of Section 529-A(1)(b) read with proviso (c) appended to Section 529(1). The workmen s portion as contained in proviso (c) of sub-section (3) of Section 529 in relation to the security of any secured creditor means the amount which bears to the value of the security the same proportion as the amount of the workmen s dues bears to the aggregate of (a) workmen s due, and (b) the amount of the debts due to all the secured creditors. The Illustration appended to clause (c) of sub-section (3) of Section 529 is a clear pointer to the effect that the amount of debts due to the secured creditors should be taken into consideration for the purpose of ascer....
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....ction 529-A." Further, the Supreme Court held in Para No.71 as under: "71. But the point here is that the occasion for such a claim by a secured creditor (here Canara Bank) against realisations by other creditors (like Allahabad Bank) under Section 529-A read with proviso (c) to Section 529(1) can arise before the Tribunal only if Canara Bank has stood outside winding-up and realised amounts and if it shows that out of the amounts privately realised by it, some portion has been rateably taken away by the liquidator under clauses (a) and (b) of the proviso to Section 529(1). It is only then that it can claim that it is to be reimbursed at the same level as a secured creditor with priority over the realisations of other creditors lying in the Tribunal. None of these conditions is satisfied by Canara Bank. Thus, Canara Bank does not belong to the class of secured creditors covered by Section 529-A(1)(b)." 82. In Rajasthan State Financial Corporation Vs. Official Liquidator, (2005 (8) SCC 190), the question that fell for consideration before the Supreme Court was as to the right of State Financial Corporation under Section 29 of the State Financial Corporations Act, 1951....
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....nsistency between the decisions in Allahabad Bank Vs. Canara Bank, (2000) 4 SCC 406 and in International Coach Builders Ltd. Vs. Karnataka State Financial Corporation, (2003) 10 SCC 482 in respect of the applicability of Sections 529 and 529-A of the Companies Act in the matter of distribution among the creditors. The right to sell under the SFC Act or under the Recovery of Debts Act by a creditor coming within those Acts and standing outside the winding up, is different from the distribution of the proceeds of the sale of the security. The distribution in a case where the debtor is a company in the process of being wound up, can only be in terms of Section 529-A read with Section 529 of the Companies Act. After all, the Liquidator represents the entire body of creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in Section 530 of the Companies Act under the directions of the Company Court. In other words, the distribution of the sale proceeds under the direction of the Company Court is his responsibility. To ensure the pr....
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....s Act regarding distribution of the assets of the company in liquidation. 83. In Asset Reconstruction Company (I) Ltd. Vs. The Official Liquidator, High Court, Madras, (2006(3) CTC 529), In the above case, South India Viscose Limited was ordered to be wound up by the Company Court and the Official Liquidator was appointed as a liquidator and the Official Liquidator has taken possession of the assets and sold certain movables. The Official Liquidator has also got the valuation done of certain properties and application for sale has been filed for the sale of two residential flats belonging to the Company under liquidation. In the said decision, the First Bench of this Court considered the question whether the Asset Reconstruction Company incorporated under the SARFAESI Act is entitled to be associated in the process of sale of assets of the Company under liquidation along with the Official Liquidator. After extensive reference to Rajasthan State Financial Corporation case,(2005) 8 SCC 190, the First Bench of this Court has held that the power under SARFAESI Act could be exercised by the secured creditor only after obtaining appropriate permission from the Company Court and acting....
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....ion with the Official Liquidator and that the sale notice is to be issued by the Official Liquidator both on his behalf and on behalf of the applicant (IREDA) as well as Sundaram Finance Limited in respect of the assets of the Company in liquidation (ASM) as well as that of NHSM. The directions thus made by the learned single Judge are clearly consistent with the provisions of the relevant Acts and the views expressed by the Supreme Court in the decisions referred to supra. In this situation, we find no reason to interfere with the order of the learned single Judge. 86. Under Section 529(1) of the Companies Act, 1956, the Rules, which are in force under the Law of Insolvency with respect to the estates of persons adjudged insolvents shall apply even to the winding up of an insolvent company, in so far as 3 aspects are concerned viz., (i) debts provable; (ii) valuation of annuities and future and contingent liabilities; and (iii) the respective rights of secured and unsecured creditors. The Proviso to Section 529 makes it clear that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen'....
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....tes dated 28.9.2005, in its letter dated 6.1.2006, IREDA has clearly stated that "action has been taken by IREDA in the interest of all the lender Banks dated 5.10.2005 and that all the lender banks have agreed to the action taken by IREDA". In terms of Section 13(9), IREDA has acted in the interest of all the lender Banks, though it has later handed over the possession to the Official Liquidator in pursuance of the orders of the Court. 89. Where a Company is wound up, secured creditor has the right to file the application seeking to sell the assets. IREDA has rightly filed the petition to seek the leave of the Company Court to sell the assets through Official Liquidator and at the same time standing outside the winding up proceedings. 90. To sum up our conclusions, In pursuance to the orders of the Court, handing over possession of the assets by IREDA to the Official Liquidator would not amount to relinquishing of rights of secured creditor. By mere participation in the proceedings of Company Court and the winding up proceedings, right of secured creditor remains unaffected except to the extent of Section 529-A. IREDA seeking permission of the Court to sell the propert....
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....iled W.P.No.1897 of 2006, which was disposed of with a direction to NHSM to approach the Debts Recovery Tribunal for the reliefs. The Writ Appeal W.A.No.1142 of 2006 preferred by NHSM was also disposed of by the order dated 27.3.2007 with a direction to NHSM to approach the Debts Recovery Tribunal to adjudicate their grievance. It is stated that NHSM has moved DRT and DRT has now seized of the matter. 93. The Energy Efficiency Equipment financed by IREDA is installed in the juice extraction section of ASM, which is now sought to be brought for sale along with movable and immovable assets of ASM. Onbehalf of NHSM, learned Senior Counsel Mr.T.K.Seshadri submitted that NHSM is a public limited Company. Merely because the promoters held majority of the shares, NHSM as well as the ASM cannot be considered as one and the same as both companies are separate and distinct legal entities in the eye of law. The learned Senior Counsel would further contend that the amount due and payable by NHSM arose in respect of a loan agreement dated 29.10.1999 in terms of which NHSM purchased energy efficiency equipment and when the liabilities of the appellant were totally distinct and sep....
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....ut only it has to be sold as scrap. As pointed out earlier, IREDA is the first charge holder of the Energy Efficiency Equipment purchased by NHSM, but installed in ASM. The energy efficiency equipment is an integrated unit, which are sought to be exempted by NHSM are the integrated part of ASM and if the assets as claimed by NHSM are separated from the rest of the assets of ASM, it would be impossible to sell the unit (ASM). In view of the integrated and homogeneous nature of the sugar mills and co-generation power plant, IREDA applied for joining Official Liquidator and Sundaram Finance Limited in the sale. As discussed earlier, only by intervention of the Court, IREDA was compelled to hand over the properties of the secured asset/energy efficiency equipment of New Horizon Sugar Mills Limited, which are in the hands of IREDA. 97. If the assets as claimed by NHSM are segregated and separated from the machinery and assets of the Company in liquidation, the entire machinery would become a scrap. If the assets as claimed by NHSM are separated and detached from the entire set of machineries, the same would not only reduce the machinery into a junk, but would also reduce the sale con....
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....g not initiated any action against sale notice issued under SARFAESI Act, NHSM now cannot contend that by proceeding before Company Court, they are deprived of the right of appal. As rightly contended by the learned Senior Counsel Mr.G.Masilamani, the matter being heard before the High Court, gives NHSM a better opportunity to defend their case and enlarges the ambit of enquiry. Under SARFAESI Act, scope of appeal under Section 17 is limited viz., whether due procedure as laid down in the Act and Rules was followed by the secured creditors. Evidently, in these proceedings, NHSM has raised all the available points against taking over of possession and sale in the proceedings before the Company Court and in our opinion, no prejudice is caused to NHSM. No valid objection could be raised by NHSM for bringing the machineries to sale along with assets of ASM. 100. Whether the claim of IREDA on NHSM could have been settled out of the surplus funds available with the Indian Bank. In the counter affidavit filed by NHSM, it was averred that in O.A.No.112 of 2004, IREDA has sought for attachment of excess money realised by Indian Bank from the sale of secured creditors of NHSM and in such ....
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.... could not be registered in view of the attachment order passed by the competent authority under Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004. 102. Regarding the non-payment of amount to the depositors and also the claims of the workmen, Writ Petitions were filed in which an interim order was passed appointing a retired judge of the Court to pass the claim of the workmen and directing the Indian Bank to deposit Rs. 6 Crores in a no lien account for the said purpose and for eventual disbursement to workmen. The said order of the Division Bench was the subject matter of appeal before the Hon'ble Supreme Court in C.A.Nos.6381 and 6382 of 2009 and both the appeals were disposed of by the Apex Court by order dated 31.8.2009. In paragraph No.9 of its order, the Supreme Court directed the Indian Bank to transfer an amount of Rs. 6.00 Crores from out of the sale proceeds to a no lien account for the purpose of disbursement to the workers. In pursuance to the aforesaid orders, the process of computation of the claims of workmen have commenced by the Commissioner of Labour. When the workmen and the Commissioner of Labour took 31.10.2006 as a ....
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.... Finance Limited filed application A.No.4401 of 2004 under Section 9 of Arbitration and Conciliation Act for appointment of Advocate Commissioner to re-possess the machinery. By Order dated 19.3.2005, the High Court appointed the Advocate Commissioner to seize and sell the machinery of Sundaram Finance Limited available in ASM "as is where is" basis. IREDA has invoked SARFAESI Act over the entire sugar mill of ASM of which the machinery of Sundaram Finance Limited was also part and ownership of the premises. IREDA impleaded itself in the proceedings filed by Sundaram Finance Limited in A.Nos.4401 of 2004 and 1448 of 2005. On 27.9.2005, IREDA and Sundaram Finance Limited entered into Memorandum of understanding by which IREDA will sell the entire machinery along with Sundaram Finance Limited. The said Memorandum of Understanding was recorded in Application No.4401 of 2004. As per the said Memorandum of Understanding dated 27.9.2005, sale has to be completed before 31.3.2006. 106. In pursuance to the Order of the Court in Company Application No.1786 of 2005 (24.4.2006), IREDA handed over possession of the unit along with machineries including the machinery of Sundaram ....
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....o ASM. Being the owner of the plant and machineires, Sundaram Finance Limited has the right of re-possession. However, keeping in view the larger interest of the unit and that plant and machineries form integral part of ASM, Sundaram Finance Limited has consented for the sale of its plant and machineries in ASM. 109. Point No.11 Reference to the conduct of the directors Whether justifiable:- Promoters of ASM also promoted two non-banking finance Companies by names (i) Pondicherry Nidhi Limited and (ii) PNL Nidhi Limited. The promoters/appellants in O.S.A.No.64 of 2011 did not honour the financial commitments towards the depositors. The learned single Judge observed that the appellants in O.S.A.No.64 of 2011, who promoted Arunachalam Sugar Mills Ltd., and New Horizon Sugar Mills Ltd., and PNL Nidhi Ltd., are facing prosecution under the Pondicherry as well as Tamil Nadu Protection of Interest of Depositors Act, on the allegation that thousands of depositors have been cheated. They were arrested and detained in custody from 9.8.2005 to 10.12.2005. 110. The learned single Judge further observed that the news item published in The Hindu in its edi....
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....s from the best of legal brains that they could afford to engage, though in the process, the creditors and the depositors are left high and dry. Therefore, all the objections raised by the respondents 5 to 8 and 9, not only lack legal tenability, but also lack bona fides." 114. Taking strong exception to the above observation, the learned counsel for the appellants submitted that the learned single Judge was not justified in criticising the conduct of the promoters and taking note of the events, which are unconnected with the ASM. It was further submitted that the learned single judge appears to have been swayed by the other factors which are not relevant to the issue. 115. It is a matter of record that the promoters have not only promoted ASM and NHSM but also two non-banking finance companies and the promoters could not honour their financial commitments to the depositors. The prosecution and other litigations pertaining to the depositors is a matter of record and the judgments was also been reported in MANU/CL/0037/2008. The High Court is a Court of Record. It cannot be said that the learned single Judge has adopted erroneous approach in referring to the conduct of the pro....
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....1. 118. Clause 3.11 of General Conditions of Contract reads as under:- "The title and ownership in goods shall immediately on these being handed over to the transporter shall pass on to the PURCHASER and these will become remain the property of the PURCHASER, provided always that the SUPPLIER shall have a particular possessory lien on the goods to the extent of the value of the goods remaining to be realized from the PURCHASER." 119. Mr.Krishna Srinivas, learned counsel for Walchandnagar Industries Limited has submitted that Clause 3.11 of the General Conditions of Contract clearly states that Walchandnagar Industries Limited would retain the possessory lien on the property in respect of such amount as remained unpaid by the purchaser. It was further submitted that though Walchandnagar Industries Limited has parted with the possession of the Boiler by virtue of the conditions of the contract, it still retains its possessory lien on the Boiler. It was further submitted that in view of Section 49(2) of Sale of Goods Act, mere obtaining of money decree would not amount to waiver of the lien. 120. Lien pre-supposes seller's possession. Consequently, when seller....
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....nsecured creditor who holds the decree in its favour. As held by the learned single Judge, Walchandnagar Industries Limited can only stand in the long queue of the unsecured creditors behind all the secured creditors and workmen. We do not find any error warranting interference with the finding of the learned single Judge and the appeal [O.S.A.No.81 of 2011] preferred by Walchandnagar Industries Limited is liable to be dismissed. 125. Point No.13 O.S.A.Nos.58 and 59 of 2011 :- Bharat Heavy Electricals Limited [BHEL] had entered into agreement with ASM for supply and supervision of (i) A 8400 KW Capacity Extraction cum Back Pressure Turbo generator and (ii) A 4280 KW Capacity Low Pressure Condensing Turbo generator with all its auxillaries and executed the contract. The value of the total contract for a 8400 KW Capacity Extraction cum Back Pressure Turbogenerator is Rs. 507 lakhs, out of which, Rs. 72.96 lakhs has been due from ASM. Likewise, the value of the total contract for A 4280 KW Capacity Low Pressure Condensing Turbogenerator with all its auxillaries is Rs. 411 lakhs, out of which, ASM paid Rs. 54.5 lakhs and the outstanding amount of Rs. 411.251 is due. In O....
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.... the Contract, till the entire money is paid BHEL has possessory lien over the Turbo Generators and therefore, the machineries supplied by BHEL cannot be brought for sale and in view of the arbitration clause, Section 9 application filed by the BHEL is to be allowed. 127. In pursuance to the contract, BHEL has supplied (i) A 8400 KW Capacity Extraction cum Back Pressure Turbo generator and (ii) A 4280 KW Capacity Low Pressure Condensing Turbo generator with all its auxillaries. Clause 3.11.1 of General Conditions of Contract provides for possessory lien. Clause 3.11.1 reads as under:- "Clause 3.11.1 The Goods, shall immediately, in consideration of payment of the first installment of the Contract Price to the SUPPLIER by the PURCHASER, become and remain the property of the PURCHASER; provided always that the SUPPLIER shall have a particular possessory lien on the Goods to the extent the value thereof exceeds the total value of the installment payments made by the PURCHASER to the SUPPLIER. Transfer of title to goods shall be ex-works." 128. By careful reading of Clause 3.11.1 of General Conditions of Contract, it is seen that on payment of first instalmen....
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....SM. We only hope that the assets are sold for a better price. 131. Based on the valuation of ITCOT Consultancy Services Private Ltd, the learned single Judge fixed the upset price at Rs. 86.44 Crores as under: (1) Land (120.70 Acres) - Rs. 11.00 crores (2) Land (4.96 Acres) - Rs. 0.44 crores (3) Building - Rs. 9.00 crores (4) Plant and Machinery & other movable assets - Rs. 66.00 crores ---------------------- Rs. 86.44 crores ---------------------- Even in January, 2006, when IREDA has caused sale notice, the upset price was fixed at Rs. 96.80 Crores. After giving wide publicity in news papers, bid cum auction was held by IREDA on 20.2.2006. Even in February 2006, IREDA received bid from Ambika Sugars for Rs. 135.50 Crores, which did not fructify because of subsequent proceedings. In the Company Court, ASM has brought an offer from one Ramchander, who was ready to give a loan of around Rs. 120 Crores to rehabilitate the unit, which also subsequently did not fructify. In such facts and circumstances, we are of the view that fixing upset price of Rs. 86.44 Crores is very much on the lower side. 132. Based on the ....
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....blication in one edition of the English Daily "THE HINDU" in all the editions throughout India and one edition of the Tamil Daily "Daily Thanthi" throughout Tamilnadu inviting sealed tenders for the purchase of the assets, both movable and immovable belonging to the company in liquidation Arunachalam Sugar Mills and financed by the IREDA and Sundaram Finance Limited. The publication shall indicate that it is issued by the Official Liquidator both on his behalf and on behalf of IREDA and other secured creditors in respect of the assets of the company in liquidation as well as the machineries of New Horizon Sugar Mills Limited, now lying in the factory premises of the Arunachalam Sugar Mills. The paper publication shall be effected on or before 16.05.2011. The last date for receipt of tenders shall be indicated as 16.06.2011 and the date of auction shall be fixed as 23.06.2011. The cost of Tender Forms is fixed at Rs. 1,000/-. The publication shall indicate that the Tender Forms shall be accompanied by Demand Drafts/Pay Orders for an amount representing 5% of the bid amount towards Earnest Money Deposit. The publication shall indicate that the Tender Forms along with the ....