2020 (5) TMI 247 - HC - Companies Law

Recovery Proceedings - Winding up petitions filed by a creditor during the time - HELD THAT - Based on such recovery certificate issued by the Debts Recovery Tribunal, the petitioner bank initiated the proceeding before the Recovery Officer. At this point, a creditor of respondent No.2 had filed a winding up petitions under the provisions of the Companies Act in Company Petition No.8/2010. The said proceeding has resulted in the Company Court passing the winding up order. It is in that light the official liquidator is put in charge of the assets and the affairs of the respondent No.2 Company. In order to protect the interest of the workmen and also the other creditors of the respondent No.2 Company, the Official Liquidator raised certain objections in the recovery proceedings in before the Recovery Officer. In the interregnum the petitioner company having invoked the provisions of SARFAESI Act had brought the secured assets which belonged to the respondent No.2 Company to sale by conducting an e-auction through the notice dated 15.12.2017. The fact that the respondent No.2 Company is in liquidation due to the order passed in the Company Petition No.8/2010 is not in dispute. If that be the position, the provision as contained in Section 529-A of the Companies Act would come into play and the distribution of the amount recovered in the liquidation proceedings will have to be made in the order of preference as provided under the said provision. If that be so, the dues to the workmen and the dues payable to any other secured creditors, if indicated in the records, will have to be taken note by the Company Court and an appropriate order is required to be passed. If that be the position, the entire amount which has been realized by the petitioner and has been appropriated to the loan account cannot be appropriated to the detriment of the other preferential creditors as indicated in Section 529-A of the Act - when the position of law on that aspect is clear and at this juncture since the petitioner has already appropriated the amount, the contention with regard to the petitioner having right to sell the property under the provision of the SARFAESI Act need not be adverted at this juncture. If these aspects are kept in view and if the interest of the preferential creditors of the Company in the liquidation proceedings is protected, the direction issued by the Recovery Officer would not be sustainable at this point - the order passed by the Recovery Officer is set aside - petition disposed off.

Summary

Issues:
1. Assailing the order of the Recovery Officer in OA 20/2011.
2. Official Liquidator's objections in the recovery proceedings.
3. Appropriation of sale proceeds by the petitioner bank.
4. Compliance with Section 529-A of the Companies Act.
5. Setting aside the Recovery Officer's order and depositing the amount with the Company Court.

Analysis:

1. The petitioner, a bank, challenged the Recovery Officer's order dated 12.03.2018 in OA 20/2011, which was initiated after the Debts Recovery Tribunal issued a recovery certificate for a substantial sum against respondent No.2. The Recovery Officer directed the bank to keep the sale proceeds in an interest-bearing FDR due to objections raised by the Official Liquidator in the context of the respondent No.2 Company's liquidation under the Companies Act.

2. The Official Liquidator raised objections to protect the interests of workmen and other creditors of the respondent No.2 Company during the recovery proceedings. The petitioner bank had conducted an e-auction of secured assets under the SARFAESI Act, realizing a specific amount, which led to the Recovery Officer's direction to hold the sale proceeds in a no-lien FDR until further orders to safeguard the interests of the creditors.

3. The judgment emphasized the importance of complying with Section 529-A of the Companies Act regarding the distribution of recovered amounts in liquidation proceedings, especially in prioritizing dues to workmen and secured creditors. The court noted that the petitioner's appropriation of the sale proceeds should not prejudice other preferential creditors as per the provisions of the Act.

4. It was clarified that even if the petitioner had the right to sell the property under the SARFAESI Act, the preferential rights under Section 529-A of the Companies Act take precedence. The court highlighted the petitioner's undertaking to pay workmen's dues out of the sale proceeds, indicating a willingness to comply with the legal requirements and protect the interests of preferential creditors.

5. Consequently, the court set aside the Recovery Officer's order dated 12.03.2018 in OA 20/2011, emphasizing the need to deposit the realized amount with the Company Court in the ongoing liquidation proceedings of respondent No.2 Company. The judgment directed the release of FDRs to the bank for further compliance with legal procedures and expenses incurred, ensuring the protection of preferential creditors' interests.