TaxTMI 
TaxTMI 
2023 (2) TMI 188
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....void and illegal. 2) In Interim Application (L) No.8062 of 2022, the applicant seeks a direction to the Official Liquidator-respondent No. 2 to take physical possession of the assets of the company (in liquidation), including Plant and Machinery situated at Plot No. A-96, MIDC, Paithan, District - Aurangabad, from Union Bank of India - respondent No-3. 3) Background facts necessary for the determination of these applications can be stated as under:- (a) Praj Industries Ltd., respondent No. 1, preferred Company Petition No. 322 of 2015, seeking winding up of the company (in liquidation). By an order dated 22nd February, 2018, this Court allowed the Company Petition and directed that the company (in liquidation) be wound up. The Official Liquidator, High Court, Bombay, came to be appointed as Liquidator of the company (in liquidation) with usual powers. The Official Liquidator addressed a letter dated 13th March, 2018 to the stakeholders of the company (in liquidation) including Union Bank of India, respondent No.-3, the secured creditor of the company (in liquidation) to decide the course of action for taking over the possession of all the immovable properties of the company (in....
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....heard Mr. Vaghela, the learned Counsel for the applicant, Mr. Shanay Shah, the learned Counsel for the Official Liquidator and Ms. Sawant, the learned Counsel for the Union Bank of India - respondent No. 3, at some length. With the assistance of the learned Counsel for the parties, I have perused the pleadings and the material on record. 7) Mr. Vaghela, the learned Counsel for the applicant, strenuously submitted that post winding up order dated 22nd February, 2018, the Official Liquidator was statutorily enjoined to forthwith take physical possession of all the subject assets. In the case at hand, singular dereliction duty by the Official Liquidator has caused irretrievable injustice to all the stakeholders of the company (in liquidation) including the applicant. The conduct of respondent No. 3 - Bank in taking over the possession of the subject assets by resorting to mala fide proceedings before the District Magistrate under The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 ("the SARFAESI Act"), even after filing an Affidavit in Proof of Debts and subjecting its claim to the liquidation, is equally blameworthy. 8) Mr. Vaghe....
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....th, it may be apposite to extract the relevant provisions contained in Sections 529 and 529 A of the Companies Act, 1956. They read as under:- "529. Application of insolvency rules in winding up of insolvent companies. (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to- (a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent: 1[Provided 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' s portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,- (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen' s dues; and (c) so much of the debt....
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.... preferential payment. Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force in the winding up of a company- (a) workmen' s dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub- section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of subsection (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 12) A conjoint reading of the provisions contained in Sections 529 and 529A, would indicate that the secured creditor has an option to realise or relinquish his security. If the secured creditor exercises the option to realise his security, he is entitled to do so in a proceeding other than the winding up proceeding. But he has to pay to the liquidator the costs of preservation of the security till he realises the security. The workmen of the company in winding up also acquire the status of secured creditor. Where a company is in liquidation, a statutory charge is created in favour....
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....ns relating to the liability and the recovery, except as provided in the 1993 Act." 15) The second and third questions were answered by the Supreme Court in paragraph 50 as under. "50 For the aforesaid reasons, we hold that at the stage of adjudication under Section 17 and execution of the certificate under Section 25 , the provisions of 1993 Act confer exclusive jurisdiction on the DRT 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. In respect of the moneys realized under the 1993 Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by DRT and in accordance with Section 19(19 ) read with Section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the former. This position holds good during the pendency of the winding-up petition against the debtor Company and also after a winding-up order is passed. No leave of the Company Court is necessary for ini....
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....iquidator. These twin circumstances, according to Mr. Vaghela, unmistakably indicate that the respondent No. 3 had exercised the option to relinquish the security and claim under liquidation. 19) I am afraid to accede to this submission. None of the aforesaid circumstances would justify an inference that the respondent No. 3 had relinquished the security. 20) The minutes of the meeting (page No. 214 of the Interim Application (L) No. 8062 of 2022) deserve to be extracted to appreciate the stand of respondent No. 3.- "Today's meeting has been convened to decide modalities of taking possession of the properties of the Company (In Liqn.). The ex-director(s) of the Company (In Liqn.) did not attend the meeting. Shri. S.S. Mishra, Chief Manager from Union Bank of India has informed that the bank has taken the symbolic possession of the Registered office and Factory premises of the Company (In Liqn.) under SARFAESI Act on 05/03/2016. The Bank has also filed DRT proceedings against the Company (In Liqn.) The bank has been asked to submit the relevant documents in this regards and to implead the Official Liquidator in the DRT proceedings." 21) Three facts emerge. First, the Bank info....
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.... the Official Liquidator subject to control of the Company Court and such amounts are utilized for discharging the debts of the secured creditor as well as statutory charge of the workmen created under Sections 529 and 529A , then, in effect, the secured creditor would be deemed to have participated in the winding up proceedings and not stood outside the same. It is for the reason that a secured creditor has to take steps by filing petition before any other forum just to protect his legal right and to prevent the claim from getting barred by time. On the contrary, if he realizes his security within the four corners of the company law, i.e., before the Official Liquidator and the Company Court, in that event it would not be possible to hold that such secured creditor has given up his option to participate in the winding up proceedings. However, the matter would be quite different where the secured creditor elects not only to institute a petition before the specialized forum but also takes effective steps to realize his security and pursues the proceedings effectively, in which event, the conclusion has to be that such secured creditor has stood 'outside the winding up' proceeding....
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....ct, 1993 and the previous pronouncements, the Supreme Court enunciated the position in law as under- "23 A reading of Sections 9 and 13 of the SARFAESI Act leaves no manner of doubt that for enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower company is under liquidation for which proviso to sub-section (9) of Section 13 contains clear mandate keeping in view the provisions of Section 529 and 529A of the Companies Act, 1956. Since significant amendments were introduced in Section 529 while inserting Section 529A through Amendment Act 35 of 1985, effective from 24.5.1985 and with the aid of a non obstante clause in sub-section (1) of Section 529A workmen's dues were given preference over other dues and made to stand pari passu with dues of the secured creditors, in case of apparent conflict, this Court through various judgments has upheld the proceedings under the RDB Act as it happens to be a later Act with overriding effect over other laws. The interest of the workmen i....
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.... had taken place in the liquidation proceeding. Rajasthan State Financial Corporation was therefore unable to take any advantage of provisions under SFC Act. At the end of paragraph 2, this Court rightly held that "a mere right to take advantage of any enactment without any act done towards availing of that right cannot be deemed a right accrued. 30. Since we have held earlier in favour of views of Delhi High Court, it is not necessary to burden this judgment with the case laws which support that view and have been noted by the High Court. We are in agreement with the submissions advanced on behalf of respondent Kotak Mahindra Bank as well as respondent No.2 that there is no lacuna or ambiguity in the SARFAESI Act to warrant reading something more into it. For the purpose it has been enacted, it is a complete code and the earlier judgments rendered in the context of SFC Act or RDB Act vis-à-vis the Companies Act, cannot be held applicable on all force to the SARFAESI Act. There is nothing lacking in the Act so as to borrow anything from the Companies Act till the stage the secured assets are sold by the secured creditors in accordance with the provisions in the SARFAESI A....
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..... 31. The aforesaid view commends itself to us also because of clear intention of the Parliament expressed in Section 13 of the SARFAESI Act that a secured creditor has the right to enforce its security interest without the intervention of the court or tribunal. At the same time, this Act takes care that in case of grievance, the borrower, which in the case of a company under liquidation would mean the liquidator, will have the right of seeking redressal under Sections 17 and 18 of the SARFAESI Act." ...... (emphasis supplied) 26) In light of the aforesaid legal position, a detail reference to the Judgments of the Gujarat High Court in Company Application No. 77 of 2014 and connected applications in the matter of Authorised Officer and Assistant General Manager Vs. Official Liquidator of Apoorva Laminates Private Ltd., and Star Chemicals (Bombay) Ltd Vs. Vitta Mazda Ltd. And Another (2008) 145 Comp Cas 455 (Guj), the judgments of Madras High Court in V.G.P. Finances Limited Vs. Neptune Inflatables Limited 2013 SCC Online Mad 2914, and Panjab and Haryana High Court in the case of Chetan K. Singh Vs. City Bank N.A. and Others (2009) 150 Comp Cas 409 (P & H), sought to be re....