TaxTMI 
TaxTMI 
2000 (4) TMI 843
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....ct. Applications for winding up the defendant company are pending in the Delhi High Court. As yet no winding up order has been passed nor a provisional liquidator appointed as contemplated by section 446(1). Point has been raised by the respondent - Canara Bank that the appellant Allahabad Bank is obliged to seek leave of the Company Court under the Companies Act, 1956 and the Company Court can stay these proceedings as aforesaid under Sections 442 and 537 for the ultimate purpose of deciding the priorities, in the event of a winding up order or other order appointing a provisional liquidator being passed under section 446(1) of the Companies Act, 1956. After the appellant obtained decree from the Debt Recovery Tribunal, some properties of the company have been sold by the Recovery Officer. Appellant contends that the Tribunal under the RDB Act can itself deal with the question of appropriation of sale proceeds in respect of sales of the company properties held at the instance of the appellant and the priorities and that the appellant alone is entitled to all the sums so realised. The matter was argued and judgment was reserved. Thereafter, our attention was invited by the learned ....
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....ed fresh auction and the appellant Bank filed W.P. under Articles 226, 227. Canara Bank then filed applications in the Debt Recovery Tribunal under section 22 of the RDB Act in January,1999 seeking stay of recovery proceedings in RC No.9/98. They were heard on 25.2.99, adjourned to 3.3.99 then to 5.3.99. On 5.3.99, the counsel for Canara Bank informed the Recovery Officer that it had filed Company application No.296 of 1999 in Company Petition No.141/95 (being a winding up petition filed by Ranbaxy Ltd. against M.S.Shoes Co.) under sections 442, 537 of the Companies Act for stay of the appellant's Recovery Case, RC No.9/98. The said CA 296/99 was filed by Canara Bank in CP 141/95 under section 442 and section 537 of the Companies Act seeking stay of RC 9/98 and for staying sales of assets of company by the appellant Bank. Later on Canara Bank filed CA 323/99 again under section 442 and section 537 for similar reliefs as in CA 296/99. On 9.3.99, the learned Company Judge passed the impugned order in CA 323/99 under section 442 read with section 537 of the Companies Act staying the further sale of assets of the Company in RC 9/98 in OA 109/95 and also restraining disbursement of ....
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.... expeditious adjudication and recovery of debts due to banks and financial institutions and it contains two crucial provisions. One of them is section 18 which ousts the jurisdiction of all Courts or other authorities (except the Supreme Court and the High Court exercising powers under Articles 226, 227) in relation to matters covered by section 17 and that section 17 covers the entire procedure from the filing of an application under section 19, to the `adjudication' and `recovery'. These matters are taken out from the purview of the Companies Act, including sections 442, 537 and section 446 of the said Act. The proceedings under the RDB Act cannot be stayed by the Company Court nor can they be transferred to the Company Court. No leave of the Company Court is necessary either for the filing of the OA for adjudication of the debt nor for executing the decree passed by the Tribunal. Section 34(1) gives overriding effect to the provisions of the Act save as provided in section 34(2). Section 34(2) as amended by Ordinance 1/2000 proceedings saves only six statutes from the purview of section 34(1). The Companies Act, 1956 is not one of them. Hence, the RDB Act, 1993 overrides....
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....is applicable only in respect of any monies realised by the Company Court and not by the Tribunal. The limited extent to which secured creditors can claim priority under the RDB Act is as limited by section 19(19) of the RDB Act and this is covered by section 529A alone read with sub-clause (c) to the proviso to section 529(1). The effect of these provisions is that if any monies are realised by Canara Bank by standing outside winding up and if any part of such realisations of the Canara Bank are taken away by the liquidator for payment to workmen, only to the extent of such "workmen's portion", can the Canara Bank have priority over other creditors. Otherwise, Canara Bank cannot invoke Section 529(1), (2) and that too before the Tribunal. On the other hand, learned counsel for the Canara Bank Sri Y.P.Narula has submitted that when a winding up petition is pending in the Company Court, it is necessary that the leave of the Company Court is obtained for obtaining a decree before the Tribunal or for execution before the Recovery Officer. Sections 442, 446, 537 applied even to proceedings under the RDB Act. Leave is necessary under section 537 even if no winding up order....
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....iquidator is appointed, whether the Company Court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution, and priority under section 446 (2) and (3) read with sections 529, 529A and 530 etc. of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal? (4) Whether, in case it is decided that the distribution of monies is to be done only by the Tribunal, the provisions of section 73 CPC and sub- clause (1) and (2) of section 529, section 530 of the Companies Court also apply - apart from section 529A - to the proceedings before the Tribunal under the RDB Act? (5) Whether in view of provisions in section 19(2) and 19(19) as introduced by Ordinance 1/2000, the Tribunal can permit the appellant Bank alone to appropriate the entire sale proceeds realised by the appellant except to the limited extent restricted by section 529A? Can the secured creditors like the Canara Bank claim under section 19(19) any part of the realisations made by the Recovery Officer and is there any difference between cases where the secured creditor opts to stand outside the winding up and where he goes before....
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.... institutions since notified are large in number. Section 2(g) as amended by Ordinance 1/2000 defines 'debt' as meaning any liability which is "claimed" as due from any person to a Bank or financial institutions. It includes the liability and interest in cash or otherwise, whether secured or unsecured or whether payable under a decree or order of any civil Court or otherwise and subsisting, and legally recoverable on, the date of the application filed to the Tribunal. Exclusive Jurisdiction of the Tribunal under Sections 17 18 and 25 of the RDB Act: (i) adjudication, (ii) execution The initial question is as to the jurisdiction of the Tribunal under Sections 17 and 18 of the RDB Act in the matter passing the order of adjudication and to what extent it is exclusive. The next question will be whether the jurisdiction of the Recovery Officer is also exclusive for purposes of execution of the adjudication order passed by the Tribunal. (i)adjudication by Tribunal: Does the Tribunal have exclusive jurisdiction? We shall refer to Sections 17 and 18 in Chapter III of the RDB Act which deal with adjudication of the debt. "Section 17: Jurisdiction, powers and authority....
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....ate under Section 19(22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act. We hold that the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of the defendant to the appellant Bank is concerned. (ii) execution of Certificate by Recovery Officer: Is his jurisdiction exclusive Even in regard to `execution', the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Act for recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by Sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the Banks/F....
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....rtificate are respectively within the 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. Points 2 and 3: Does the Act override the provisions of Sections 442 and 537 and Section 446 of the Company Act? These points deal with the question whether the Company Court can stay proceedings before the Tribunal or the Recovery Officer under section 442 and whether the said court can stall proceedings under section 537 unless leave is obtained. Question also arises in regard to `priorities' under section 446(2)(d), read with sections 529, 529A, 530 of the Companies Act and whether the Company Court alone can distribute and decide priorities among creditors or whether the Tribunal can do this in view of section 19(19) of the RDB Act, as introduced by Ordinance 1 of 2000. It is necessary first to refer to Sections 442, 537 and then to 446(1)(2) and 446(3). of the Companies Act. Sections 442 and 537 deal with situations before the passing of a winding up order. Und....
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....f section 446 is important. It states that any suit or proceeding by or against the Company which is pending in any Court other than that in which the winding up of the Company if proceeding, may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court. Question of leave and control by the Company Court: Learned Attorney General has, in this connection, relied upon Damji Valji Shah & Another vs. Life Insurance Corporation of India & Others [1965 (3) SCR 665 = AIR 1966 SC 135] to contend that for initiating and continuing proceedings under the RDB Act, no leave of the Company court is necessary under section 446. In that case, a Tribunal was constituted under the Life Insurance Corporation Act, 1956. Question was whether under section 446 of the Companies Act, 1956, the said proceedings could be stayed and later be transferred to the Company court and adjudicated in that Court. It was held that the said proceedings could not be transferred. Section 15 of the Life Insurance Corporation Act, 1956 - which we may say, roughly corresponds to section 17 of the RDB Act - enabled the Life Insurance Corporation of India....
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....ng overriding effect to the provisions of the LIC Act. Still this Court upheld the exclusive jurisdiction of the LIC Tribunal observing as follows: "the provisions of the special Act i.e. the LIC Act will override the provisions of the general Act, the Companies Act which is an Act relating to Companies in general." We are of the view that the appellant's case under the RDB Act - with an additional section like section 34 - is on a stronger footing for holding that leave of the Company Court is not necessary under section 537 or under section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the Company Court cannot also use its powers under section 442 against the Tribunal/Recovery Officer. Thus, sections 442, 446 and 537 cannot be applied against the Tribunal. Purposive interpretation adjudication, execution and working out priorities : As there is some difference between various High Courts as to the applicability of the principle of purposive interpretation to the RDB Act, we shall deal with the said question. It is true that it has been held in several judgments of this Court that there is a special purpose behind the provisions in secti....
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....e a speedy and summary remedy for recovery of thousands of crores which were due to the Banks and to financial institutions, so that the delays occurring in winding up proceedings could be avoided. Tiwari Committee Report: adjudication, execution & priorities: In the Tiwari Committee Report of 1981, it was stated in Chapter VIII, para 8.2 that in respect of suits by Banks and financial institutions there have been abnormal delays at the stage of trial as well as the stage of execution in various courts and hence it stated: "the principle that the State should have a special procedure to enforce its own demands should equally be extended to the recovery of dues of banks and financial institutions as well". In fact, it was recommended that a Tribunal under Articles 323A and 323B should be constituted. The Tribunal should not be bogged down by the Civil Procedure Code but should have a simple procedure guided only by principles of natural justice. It was stated by the tribunals: "should follow simple and summary procedure in accordance with the principles of natural justice". The Tiwari Committee also prepared a draft of the proposed legislation, in Annexure XI to ....
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....n in law where the same statute is treated as a special statute vis-a-vis one legislation and again as a general statute vis-a-vis yet another legislation. Such situations do arise as held in Life Insurance Corporation of India vs. D.J.Bahadur [AIR 1980 SC 2181]. It was there observed: "for certain cases, an Act may be general and for certain other purposes, it may be special and the Court cannot blur a distinction when dealing with finer points of law". For example, a Rent Control Act may be a special statute as compared to the Code of Civil Procedure. But vis-a-vis an Act permitting eviction from public premises or some special class of buildings, the Rent Control Act may be a general statute. In fact in Damji Valji Shah and Anr. Vs. Life Insurance Corporation of India and Ors. ( 1965(3) SCR 665=AIR 1965 SC 135 already referred to), this Court has observed that vis-a-vis the LIC Act, 1956, the Companies Act, 1956 can be treated as a general statute. This is clear from para 19 of that judgment. It was observed: "Further, the provisions of the Special Act, i.e. LIC Act, will override the provisions of the general Act, viz; the Companies Act which is an Act relating t....
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....nder Section 232(1)(a) ( corresponding to section 537 of the 1956 Act). It was held that the limited priority extended to Crown debts was not sufficient to enable the Income Tax Officer to avoid the provisions of the Companies Act and that the Crown was bound by the provisions of the Companies Act. The cases in Re Webb and Co. 1922(2) Ch.369 (A) and Food Controller Vs. Cork ( 1923 AC 647) were followed. It was also held that the proceedings taken by the Income Tax Officer though they were not akin to proceedings in a court, they were still 'legal proceedings' as they were initiated under a statute. In our opinion, this decision cannot help the respondents inasmuch as, as pointed out above, the jurisdiction of the Tribunal/Recovery Officer under the RDB Act is exclusive and Section 34 gives overriding effect to the provisions of the RDB Act. No provision similar to section 34 was available in the above case before the Federal Court. The decision of this Court in M.K. Ranganathan Vs. Govt. of Madras ( AIR 1955 SC 604) cannot also help the respondent. That was a case in which a secured creditor standing outside the winding up sold the property of the company, pending a winding....
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.... to prescribe a speedy procedure for the winding up of the Banking companies outside the provisions of the Companies Act, 1913. Section 45B conferred exclusive jurisdiction on the High Court (there the Punjab High Court) in this behalf. The more important distinguishing feature between that case and the present one is that section 2 of the Banking Companies Act, 1949 specifically provided that its provisions would be in addition to those in the Companies Act and it was held that sections 171 and 232 of the Companies Act, 1913 were available to the High Court as a winding up Court to stay the execution proceedings taken pursuant to the decree of the Tribunal under the 1951 Act and to transfer them to the High Court. But the position under the RDB Act is different. Sections 442, 446 and 537 are not saved by the RDB Act. Even section 34(2) of the RDB Act does not save the provisions of the Companies Act. Learned counsel for the respondent then relied upon certain observations in a recent case in Industrial Credit and Investment Corporation Vs. Srinivas Agencies ( 1996(4) SCC 165) made in relation to RDB Act, 1993 and to sections 529 and 529A of the Companies Act. That judgment related....
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....9 (1) or (2) and this is one other clear indication that the other provisions of the Companies Act are completely excluded. The decision of the Delhi High Court in M/s Major Syntex Ltd. Vs. Punjab and Sind Bank [(67)1977 Delhi Law Times 836] no doubt supports the contention of the respondents that the Company Court's jurisdiction prevails over that of the Tribunal/Recovery Officer under the RDB Act, 1993. The learned Company Judge in that case does, in fact, accept that a statute which is a general one vis-a-vis another statute can also be a special one, vis-a-vis yet another statute. But the Court, in our view, was not correct in its conclusion that, in this context, the Companies Act, 1956 was not a general statute. Further in the said judgment it was stated that the "non-obstante clause in section 34 of the RDB Act cannot apply because the Acts did not overlap". According to the High Court, there was no provision like Section 446 in the RDB Act laying down the procedure as to what should be done in case of the passing of a winding up order by the Company Court nor a provision for recovery of amounts due from a company against which a winding up petition was pending....
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....s followed. The decision of the Rajasthan High Court in Rajasthan Finance Corporation Vs. Official Liquidator (1963(2) Comp.LJ 309) relied upon for the respondent cannot be of any help. That was a case which concerned itself with the State Finance Corporation Act, 1951. Section 537 of the Companies Act was applied and it was held that the Companies Act did not yield to the provisions of the State Finance Corporation Act, 1951. There was no provision in the State Finance Corporation Act, 1951 like section 34 which gave overriding effect to its provisions. For the aforesaid reasons, we hold that at the stage of adjudication under section 17 and execution of the certificate under section 25 etc. the provisions of the RDB 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....
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....defendant company is a company against which no winding up order is passed, the Company, in our view, is like any other defendant and if in such a situation a question of priority arises before the Tribunal, in respect of any monies realised under the RDB Act, as between the Bank or financial institutions on the one hand and the other creditors on the other, it will, in our opinion, be necessary for the Tribunal to decide such questions of priority bearing in mind principles underlying section 73 of the Code of Civil Procedure. Section 22 of the RDB Act, in our view, gives sufficiently wide powers to the Tribunal and the Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. This Court has explained that the powers under section 22 are wider than those of Civil Courts and the only restriction on its powers is that principles of natural justice have to be followed. See Industrial Credit and Investment Corporation of India Ltd. vs. Grapco Industries Ltd. & Others [1999 (4) SCC 710] and Allahabad Bank, Calcutta vs. Radha Krishna Maity & Others [1999 (6) SCC 755]. But under section 73 CPC, sharing in the sale proceeds ( here, sale ....
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....ighest priority even as against other secured creditors. Any other secured creditor like the respondent Bank has only a limited claim of priority to the extent stated in section 529A and that too in case the said secured creditor has opted to stand outside the winding up proceedings and realised his dues on the security as per the terms of contract or by private sale as might have been permissible in law. It is argued that in that event, the secured creditor has only the benefit given by sub-clause (b) of section 529A(1), namely, to the extent permitted by clause (c) of the proviso to section 529(1). Reading the definition of 'workmen's portion' in section 529(3)(c) read with the illustration given in that clause, a secured creditor who stands outside the winding up, in case he loses any part of that security towards 'workmen's dues' at the instance of the liquidator under clause (a), (b) of the proviso to section 529(1), then to that extent only he has priority over all other creditors under section 529A(1)(b). His priority is confined again to amounts not realised by him or the 'workmens portion' above referred to, whichever is less. In reply to th....
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....assu with the workmen's dues for the purposes of section 529A. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section. (3)(a)................................... (b)...................................... (c) "workmen's portion", in relation to the security of any secured creditor of a company, 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- (i) the amount of workmen's dues; and (ii) the amounts of the debts due to the secured creditors. Illustration-- The value of the security of a secured creditor of a company is ₹ 1,00,000. The total amount of the workmen's dues is ₹ 1,00,000. The amount of the debts due from the company to its secured creditors is ₹ 3,00,000. The aggregate of the amount of workmen's dues and of the amounts of debts due to secured creditors is ₹ 4,00,000. the workmen's portion of the security is, there....
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....c) of the proviso to section 529(1), the priority of the secured creditor who stands outside the winding up is confined to the "workmen's portion" as defined in section 529(3)(c). 'Workmen's portion' means the amount which bears to the value of the security, the same proportion which the amount of the workmen's dues bears to the aggregate of (a) workmens dues and (b) the amounts of the debts due to all the creditors. This is explained in the illustration under the said provision. If the workmen's dues in all are (say) ₹ 1 lakh and the debt due to all secured creditors is ₹ 3 lakhs, the total amount due to all of them comes to ₹ 4 lakhs. Therefore, the workmen's share come to 25%(₹ 1 lakh out of ₹ 4 lakhs). Now if the value of the security of a secured creditor ( like Canara Bank) is ₹ 1 lakh, the 'workmen's portion' will be ₹ 25,000 which is the pro-rata amount to be shared by the said secured creditor. By virtue of section 529A(1)(b) his priority over all others out of other monies available in the Tribunal is restricted to ₹ 25,000 only. Reliance is placed by the learned counsel for ....
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....that the total amount due to a secured creditor is ₹ 90,000 and he has a security valued at ₹ 1 lakh. This security is sufficient to cover his entire dues. Let us assume that the total amount due to all secured creditors is ₹ 3 lakhs and workmen's dues are ₹ 1 lakh, as in the illustration given under section 529A(3). This creditor can be made to part pro- rata upto with ₹ 25,000 out of his security of one lakh towards the workmen's dues. This is the "workmen's portion". That still leaves with him ₹ 75,000 of his security but that is not sufficient to meet his total dues of ₹ 90,000. Still ₹ 15,000 of his dues have to be cleared. By virtue of section 529A (1)(b), he can claim this sum of ₹ 15000 from monies realised by other creditors in the Tribunal on the basis of section 529A (1)(b) claiming overriding priority as against all other creditors. This is because the above amount is less than the `workmen's dues of ₹ 25,000 taken away from the realisation out of his security, as prescribed in clause (c) of the proviso to section 529(1). That is what is meant by the words "whichever is less"....
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....hat the occasion for such a claim by a secured creditor ( here the Canara Bank ) against realisations by other creditors (like the Allahabad Bank) under section 529A read with proviso (c) to section 529(1) can arise before the Tribunal only if the 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 sub-clauses (a) and (b) of the proviso to section 529(1). It is only then that it can claim that it is to be re-imbursed 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 529A(1)(b). Therefore, the result is that the Canara Bank cannot rely on the words in section 19(19) vis, "to be distributed among its secured creditors" for claiming any amount lying in the Tribunal towards its security nor can it claim priority as against the Allahabad Bank. If none of the conditions required for applying section 19(19) and section 529A is, theref....