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Showing 361 to 380 of 535 Records
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2006 (5) TMI 206
Issues Involved:
1. Appointment and authority of the provisional liquidator.
2. Ownership and custody of imported goods detained by the Customs Department.
3. Applicability of the Customs Act vs. Companies Act.
4. Preferential payments and recovery of dues by the Customs Department and Central Warehousing Corporation (CWC).
5. Rights and obligations of the official liquidator.
Detailed Analysis:
1. Appointment and Authority of the Provisional Liquidator:
The court ordered the winding up of M/s. Punjab Wireless System Ltd., appointing the official liquidator attached to the court as the provisional liquidator. The liquidator was directed to take charge of the company's assets and affairs immediately. The liquidator's authority was challenged by the Customs Department and CWC, but the court upheld the liquidator's authority to manage and take possession of the company's assets.
2. Ownership and Custody of Imported Goods:
The company in liquidation had imported 10,564 pagers, which were detained by the customs authority due to non-payment of customs duty. The goods were stored with CWC since July 1998. The liquidator requested the release of these goods, asserting that the assets of the company, including the detained goods, vested in the winding-up court upon the winding-up order. The court agreed with the liquidator, directing the Customs Department and CWC to hand over the goods to the liquidator.
3. Applicability of the Customs Act vs. Companies Act:
The Customs Department argued that the Customs Act, being a subsequent special legislation, should prevail over the Companies Act. They contended that the detained goods could only be released upon payment of customs duty and warehouse charges. The court, however, held that the winding-up order vested the company's assets, including the detained goods, in the court. The Customs Department's powers under the Customs Act did not supersede the liquidator's authority under the Companies Act.
4. Preferential Payments and Recovery of Dues:
The Customs Department and CWC claimed priority over other creditors for the recovery of dues. The court clarified that under sections 529A and 530 of the Companies Act, workmen's dues and secured creditors have priority over other debts. Government dues, including customs duty, are to be treated as preferential payments but do not supersede the liquidator's authority to take custody of the company's assets. The court emphasized that the liquidator must settle all claims, including those of the Customs Department and CWC, in accordance with the Companies Act.
5. Rights and Obligations of the Official Liquidator:
The court reaffirmed that the liquidator holds the custody of the company's property on behalf of the winding-up court. The liquidator is responsible for protecting and managing the assets until the company is dissolved. The liquidator must deal with claims from creditors, including secured, preferential, and unsecured creditors, as per the Companies Act and the Companies (Court) Rules, 1959. The court found no merit in the appeals by the Customs Department and CWC, affirming the liquidator's right to take possession of the detained goods.
Conclusion:
The court upheld the hon'ble company judge's decision, affirming the liquidator's authority to take possession of the company's assets, including the detained goods. The Customs Department and CWC's appeals were dismissed, and the liquidator was directed to manage the assets in accordance with the Companies Act. The court emphasized the liquidator's duty to settle all claims, including those of the Customs Department and CWC, as per the statutory provisions.
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2006 (5) TMI 205
Issues: Challenge to Recovery Officer's order, Realization of securities outside winding up proceedings, Application of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) over Companies Act.
Analysis:
1. Challenge to Recovery Officer's order: The judgment concerns the challenge to the Recovery Officer's order dated 16-10-2001 by the Official Liquidator (OL) of a company that was directed to be wound up by the Court. The OL had realized certain amounts from the sale of assets and invested them in Fixed Deposit Receipts (FDRs) with the respondent-Bank, a secured creditor. The respondent-Bank filed a recovery application in the Debt Recovery Tribunal (DRT) for its dues, which was allowed, leading to a decree for a specific sum with interest.
2. Realization of securities outside winding up proceedings: The OL contended that realizing securities outside the winding up proceedings is against the law. Citing legal precedents such as Allahabad Bank v. Canara Bank and International Coach Builders Ltd. v. Karnataka State Finance Corporation, the OL argued that every creditor has a right to a share of sale proceeds. The issue of whether the DRT can direct the sale of assets of a company under winding up with the Official Liquidator appointed was highlighted, drawing parallels to a question framed by the Supreme Court in a previous case.
3. Application of RDB Act over Companies Act: On the other hand, the respondent-Bank argued that Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) overrides the Companies Act if there is any inconsistency between the two Acts. Citing the Allahabad Bank case, the respondent-Bank asserted its rights as a secured creditor under the RDB Act.
4. Judicial Direction: The judge, after considering the submissions, directed that the respondent-Bank should not utilize the amount of FDRs invested by the OL until further orders. This decision was influenced by the issue raised in a previous Supreme Court case, indicating a need to await the decision in that case before any modification to the current order can be sought. The application was disposed of, allowing parties to seek modifications post the decision in the relevant case.
By analyzing the legal arguments presented by both parties and considering the applicability of relevant legal provisions and precedents, the judgment provides clarity on the rights of secured creditors, the role of the Official Liquidator, and the interplay between the Companies Act and the RDB Act in cases involving winding up and recovery of debts.
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2006 (5) TMI 204
Issues Involved:
1. Jurisdiction and constitutionality of the Debts Recovery Tribunal (DRT) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. The legality of the Bank's actions under Section 13(4) of the Securitisation Act, 2002.
3. The interpretation of Section 14 of the Securitisation Act, 2002 concerning taking possession of secured assets.
4. The applicability of the judgment in Kalyani Sales Co. v. Union of India.
5. The petitioners' entitlement to interim relief and physical possession of the property.
Issue-wise Detailed Analysis:
1. Jurisdiction and Constitutionality of the DRT:
The petitioners challenged the jurisdiction and constitutionality of the Debts Recovery Tribunal (DRT) under the Securitisation Act, 2002. The High Court noted that the constitutionality of the provisions of the Act can be challenged by invoking the doctrine of sub silentio. The DRT has jurisdiction to entertain applications under Section 17 of the Act for debts less than Rs. 10 lakhs but more than Rs. 1 lakh.
2. Legality of the Bank's Actions under Section 13(4) of the Securitisation Act, 2002:
The petitioners contended that the Bank's action of taking physical possession of the property was illegal and done with mala fide intentions. The High Court observed that the physical possession of the property was taken by the Bank after following the due procedure under Section 14 of the Securitisation Act, 2002, which was in line with the judgment in Kalyani Sales Co. v. Union of India. However, the High Court also noted that the physical possession should not defeat the adjudication of objections by the DRT.
3. Interpretation of Section 14 of the Securitisation Act, 2002:
The petitioners argued that Section 14 authorizes the Bank to take possession only after the adjudication under Section 17 of the Act or when the property is to be delivered to the purchaser free from encumbrances. The High Court agreed with the petitioners, stating that Section 14 should be read with Sections 34 and 17 of the Act and cannot be interpreted to defeat the rights granted under Section 17. The Bank's action of taking physical possession was not in consonance with the provisions of the Securitisation Act, 2002.
4. Applicability of the Judgment in Kalyani Sales Co. v. Union of India:
The Debts Recovery Tribunal (DRT) had ordered the Bank to deliver back the possession of the property based on the judgment in Kalyani Sales Co. v. Union of India. The Debts Recovery Appellate Tribunal (DRAT) set aside this order, but the High Court found that the DRAT misread the judgment. The High Court emphasized that the secured creditor is entitled to take symbolic possession under Section 13(4) to ensure the application under Section 17 is not rendered meaningless. The physical possession should be taken only after the adjudication under Section 17 or when delivering the property to the purchaser.
5. Petitioners' Entitlement to Interim Relief and Physical Possession:
The petitioners sought interim relief to prevent the Bank from selling the property and to regain physical possession. The High Court agreed with the petitioners, stating that the DRT's order to deliver back possession was correct and in line with the law. The Bank's action of taking physical possession was premature and defeated the purpose of Section 17 adjudication. Therefore, the High Court directed the Bank to hand over the physical possession of the shop to the petitioners.
Conclusion:
The High Court allowed the writ petition, set aside the order of the Debts Recovery Appellate Tribunal, and restored the order of the Debts Recovery Tribunal, Chandigarh. The Bank was directed to hand over the physical possession of the shop to the petitioners forthwith, with no order as to costs.
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2006 (5) TMI 203
Issues:
1. Application for fixing the capitalised value of land belonging to a company in liquidation and transfer of reversionary rights.
2. Official Liquidator seeking permission to take possession of the land due to non-payment of rent by the applicant.
3. Dispute over the entitlement of the applicant to retain or transfer the land against the interests of creditors and contributories.
4. Applicant's offer to pay the determined value of the land to resolve the matter.
5. Decision on the preferential right of the lessee to purchase the property and direction for open auction proceedings.
Analysis:
1. The applicant, Podar Mills Limited, sought the Court's orders to fix the capitalised value of land leased from a company in liquidation and transfer reversionary rights. The Official Liquidator objected, stating that the transfer would go against the interests of creditors and contributories. The Court held that the property should be sold in an open auction, allowing the applicant to participate.
2. The Official Liquidator filed an application to take possession of the land due to non-payment of rent by the applicant. The State Bank of India, a secured creditor, intervened, citing a Court Receiver's appointment by the Bombay High Court. The Court allowed the Official Liquidator to involve the Court Receiver and directed a redetermination of the land's market value for auction proceedings.
3. The applicant offered to pay the determined value of the land to resolve the dispute, based on a valuation report. The Court considered this offer and directed the State Bank of India to reassess the market value before initiating auction proceedings, emphasizing the need for fairness in the sale process.
4. The Court emphasized that as a lessee, the applicant did not have a preferential right to purchase the property. Instead, the property should be sold through open auction, with the State Bank of India tasked with determining the market value and overseeing the auction process. This decision aimed to ensure transparency and fairness in the disposal of the land.
5. In conclusion, the Court disposed of the application by directing the Official Liquidator to proceed with auction proceedings after reassessing the market value of the land. The judgment highlighted the importance of conducting the sale through open auction to safeguard the interests of all parties involved.
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2006 (5) TMI 202
Issues:
1. Determination of the capitalised value of land belonging to a company in liquidation.
2. Dispute over possession and transfer of land between the applicant and the Official Liquidator.
3. Consideration of valuation reports and offers for the land.
Issue 1: Determination of Capitalised Value
The applicant sought court orders to fix the capitalised value of land leased from a company in liquidation. The land was initially leased for 99 years, with subsequent modifications. The Official Liquidator objected, emphasizing the need to recover money for creditors and contributories. The applicant proposed paying the estimated market value of the land to acquire it.
Issue 2: Dispute Over Possession and Transfer
The Official Liquidator filed an application to take possession of the land due to non-payment of rents by the applicant. A court receiver was appointed by the Bombay High Court over the properties, leading to a legal tussle. The court allowed the Official Liquidator to involve the court receiver in the proceedings. The Debts Recovery Tribunal later discharged the court receiver, prompting the applicant to seek transfer of the land in its favor.
Issue 3: Valuation Reports and Offers
Both the SBI and the Official Liquidator valued the land at around Rs. 4 crores. The applicant, to avoid prolonged litigation, offered to pay the estimated market value as per the valuation report by J.K. Murty & Co. The court directed the SBI to reassess the market value and proceed with auction proceedings, indicating that the property should be sold openly rather than directly to the applicant.
In conclusion, the court decided that the applicant, as a lessee, did not hold a preferential right to purchase the land. It ordered the property to be sold through an auction, allowing the applicant to participate. The application was disposed of with these directions, emphasizing the need for a fair and transparent process in dealing with the land in question.
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2006 (5) TMI 201
Issues:
Application under sections 391 and 394 of the Companies Act, 1956 for direction on convening meetings for scheme of arrangement approval.
Analysis:
The applicant, Gillette India Limited, sought direction under sections 391 and 394 of the Companies Act, 1956 regarding the method of convening, holding, and conducting meetings of shareholders and creditors to consider and approve a proposed scheme of arrangement between Gillette India Limited and its shareholders. The applicant company, incorporated under the Indian Companies Act, 1913, underwent a worldwide merger with Proctor and Gamble Company, USA, resulting in the need for restructuring to enhance operational efficiencies. The restructuring plan, approved by the Board of Directors, involved significant one-time costs to be written off against the amalgamation reserve, with expected benefits outweighing the costs. The scheme of arrangement proposed by the company aimed at providing transparency and shareholder involvement. The company had no secured creditors, and the proposed restructuring did not affect the creditors' rights or liabilities. The company had 15,295 shareholders, and the restructuring was deemed to be in the overall interest of the company.
The High Court, after hearing the applicant's counsel and examining the application, ordered the meetings of the shareholders to be convened on a specified date for considering and approving the scheme of arrangement. Detailed instructions were provided regarding the advertisement, notices, forms of proxy, and the conduct of the meetings. The Court appointed a Chairman for the meetings and specified the remuneration and expenses to be borne by the applicant company. Provisions for voting by proxy, determination of shareholder value, quorum requirements, and reporting of meeting results were outlined. The Chairman was directed to report the meeting outcomes to the Court within a specified timeframe. The Court disposed of the application with the aforementioned directions, ensuring a structured and transparent process for the scheme of arrangement approval.
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2006 (5) TMI 200
Issues Involved:
1. Winding-up of the company under Section 433(a), (b), (e), and (f) read with Section 439(a) of the Companies Act, 1956.
2. Dissolution of the company under Section 481 of the Companies Act, 1956.
3. Realisability of assets and liabilities of the company.
4. Compliance with procedural requirements for winding-up and dissolution.
Detailed Analysis:
1. Winding-up of the Company:
The company petition was filed for winding-up under Section 433(a), (b), (e), and (f) read with Section 439(a) of the Companies Act, 1956. The court passed an order on August 16, 1998, stating, "In view of the resolution passed by the company that it may be wound-up and since no objection has been filed to the winding-up of the company under section 433(a) of the Companies Act, the Company is ordered to be wound-up." The Official Liquidator (OL) was instructed to take charge of all the properties and effects of the company immediately and to serve a sealed copy of the order on the company. Notices of the winding-up were published in the Extraordinary Gazette and in newspapers as required.
2. Dissolution of the Company:
The OL proposed the dissolution of the company and submitted a detailed report under Section 481 of the Companies Act, 1956, read with Rule 281 of the Company (Court) Rules, 1959. The OL's report highlighted that there were no realizable assets or secured creditors as of the winding-up date. The report also mentioned that the unsecured loan payable to the Rajasthan Financial Corporation had become time-barred under the Limitation Act. The OL did not seek any power under Section 457 of the Companies Act, 1956, due to the non-realisable assets of the company.
3. Realisability of Assets and Liabilities:
The Ex-Directors filed a statement of affairs under Section 454 of the Companies Act, 1956, showing no realizable assets and significant accumulated losses. The unaudited balance sheet as of the winding-up date indicated an accumulated loss of Rs. 50,82,253 against a paid-up capital of Rs. 19,00,070, showing complete erosion of the company's net worth. The OL's inspection revealed that the last audited balance sheet was as of March 31, 1997, with no trading or manufacturing activity during the years 1996-97 and 1995-96. The statement of affairs disclosed current assets such as bank balance, cash in hand, trade debtors, loans and advances, and stock in trade, all of which were deemed non-realisable by the Ex-Directors.
4. Compliance with Procedural Requirements:
The OL complied with procedural requirements by serving notices and publishing the winding-up order. The OL also informed the Comptroller and Auditor General of India about the non-availability of account books and records from the Ex-Directors. The statement of affairs revealed no secured creditors and listed the amounts payable to preferential and unsecured creditors. The Ex-Directors provided information about pending court cases and confirmed the absence of realizable assets or alive liabilities.
Conclusion:
The court, after carefully examining the OL's report and considering the lack of opposition from the parties, concluded that the OL could not proceed with the winding-up due to the absence of funds and assets. The court ordered the dissolution of the petitioner-company, stating, "It is just and reasonable in the facts and circumstances of the case that an order of dissolution of petitioner-company should be made." The balance in the hands of the OL was directed to be deposited in the Public Account of the Reserve Bank of India. A copy of the dissolution order was to be forwarded to the Registrar within 30 days for making a minute of the dissolution in the Registrar's books.
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2006 (5) TMI 199
Issues:
Winding up petition under sections 433(e) and (f) read with section 439(a) of the Companies Act, 1956.
Analysis:
1. Background of the Petitioner Company:
The petitioner company, Shri Sidh Plantation & Farms Ltd., was incorporated as a Public Company in 1994 with specific objects related to agriculture, horticulture, and other related activities. However, the company faced financial losses due to mismanagement, leading to insolvency. Attempts to repay depositors failed, forcing the company to cease operations.
2. Allegations and Financial Situation:
The petition alleged that the company's main objective had failed, making it impossible to operate profitably. The company's liabilities exceeded assets, and it could not file returns. Depositors demanded payments, causing further financial strain. Attempts to sell land to repay depositors were made, but the company remained unable to pay debts.
3. Legal Proceedings and Objections:
The Court directed the petitioner to publish notices, and the Official Liquidator raised objections to the winding-up petition. The Official Liquidator argued that voluntary winding-up procedures were not followed, and the company failed to provide necessary financial statements and details of depositors.
4. Court's Decision and Order:
The Court applied the provisions of sections 433 and 434 of the Companies Act, determining that the company was unable to pay its debts. With no objections to winding up filed, the Court deemed it just and equitable to wind up the company. The Official Liquidator was directed to take charge of the company's assets, and the petitioner was instructed to advertise the winding-up order and notify the Registrar of Companies accordingly.
This detailed analysis covers the background, financial situation, legal proceedings, and the final decision of the Court regarding the winding-up petition under the relevant sections of the Companies Act, 1956.
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2006 (5) TMI 198
Issues:
Approval of scheme of arrangement under sections 391(2) and 394 of the Companies Act; Objections raised by the Regional Director regarding the scheme's conformity with the Companies Act and accounting principles; Shareholder approval and meeting dispensation; Contention over the treatment of capital reserve arising from the scheme.
Analysis:
The petitioners, two companies, sought approval of a scheme of arrangement under sections 391(2) and 394 of the Companies Act to bind all shareholders and creditors. The Regional Director raised objections regarding the scheme's conformity with the Companies Act and accounting principles, specifically concerning the treatment of surplus arising from the scheme. The Regional Director contended that the surplus, termed 'arrangement/amalgamation reserve,' is of capital nature and cannot be considered a general reserve for distribution to shareholders. However, despite the objection, the shareholders unanimously approved the scheme, leading the court to find the scheme fair, reasonable, lawful, and in the shareholders' interest.
The court directed the convening of separate meetings for preference shareholders and secured creditors, dispensing with the need for meetings of equity shareholders and unsecured creditors due to their written consent to the scheme. The preference shareholders and secured creditors unanimously approved the scheme in their respective meetings. The Official Liquidator submitted an affidavit supporting the scheme, highlighting the provisions related to the transfer of employees and the treatment of capital reserves. The court, after considering the submissions and finding no valid reason to exclude a specific provision objected by the Regional Director, allowed the petition and sanctioned the scheme. The court ordered the petitioner company to pay costs to the Official Liquidator and file a certified copy of the order with the Registrar of Companies within a specified timeframe.
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2006 (5) TMI 197
Issues:
Consideration of an unsecured creditor's locus standi to oppose the sanctioning of a scheme of arrangement under sections 391(2) and 394 of the Companies Act.
Detailed Analysis:
The judgment addresses the issue of whether an unsecured creditor, whose dues have been disputed, has the standing to oppose the approval of a scheme of arrangement under sections 391(2) and 394 of the Companies Act. The objector company, an unsecured creditor of one of the petitioner companies, had filed a winding-up petition against the company. However, the court dismissed the petition, acknowledging the bona fide dispute raised by the respondent company regarding the claim. The objector company then appealed this decision, and the matter was pending for final hearing. Additionally, the objector company initiated arbitration proceedings related to the alleged dues.
The petition involved four petitioner companies seeking approval for a scheme of arrangement. The first part of the scheme focused on the amalgamation of two petitioner companies, while the second part involved transferring liabilities and investments among the companies. The petitioners provided various grounds for seeking approval, including enhanced operational focus, optimal resource utilization, and improved asset base. The scheme aimed to benefit shareholders by creating independent entities with focused growth strategies.
The court directed meetings of shareholders and creditors to approve the scheme. The meetings were convened, and the scheme received unanimous approval. However, the objector company raised objections, citing outstanding dues and lack of notice for creditors' meetings. The official liquidator's report concluded that the scheme would benefit all shareholders and that the transferor company's affairs were not prejudicial to its members or creditors.
The court considered the objecting creditor's submissions and relevant legal precedents. It highlighted that objecting creditors must demonstrate that the scheme adversely affects them and is unjust or unfair. The court referenced previous judgments emphasizing that schemes under the Companies Act are not tools for debt recovery when the debt is disputed. In this case, since the alleged dues were genuinely disputed, and arbitration proceedings were initiated, the objector company lacked standing to oppose the scheme's approval.
Ultimately, the court found the scheme fair, reasonable, and in the interest of shareholders. It sanctioned the scheme, deferred the annual general meeting, and ordered costs to be paid to the official liquidator. The judgment underscored that judicial intervention in such matters is warranted only if the scheme is unfair, unreasonable, or contrary to law and public policy, which was not the case here.
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2006 (5) TMI 196
Issues:
Seeking direction to hand over agricultural land and payment of damages in Company Petition No. 4/95.
Analysis:
The applicant, appointed as Provisional Liquidator, requested the respondent to hand over the balance agricultural land and make payment of damages. The Official Liquidator claimed that the unit of the company was possessed by the Rajasthan Financial Corporation for dues recovery, subsequently sold to the respondent. The company had two types of land, of which 20,000 Sq. Yards were converted for industrial use, and the remaining agricultural land was towards the north of the unit. The respondent contended that the land, other than the 20,000 Sq. Yards, belonged to different individuals initially and later came into their possession and cultivation. The respondent claimed ownership supported by rent receipts, stating that the auctioned land was the only property of the unit.
Upon hearing the arguments and reviewing the evidence, the Court noted that the disputed factual questions fell outside its jurisdiction under section 456 of the Companies Act. It was suggested that in such cases, the applicant should approach the District Magistrate, Sikar, under sub-section (1A) of section 456 of the Companies Act for resolution. Consequently, the application was dismissed with the aforementioned observations.
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2006 (5) TMI 195
Issues Involved:
1. Legality of the Bank's action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
2. Requirement for the Bank to withdraw proceedings before the Debt Recovery Tribunal (DRT) before invoking SARFAESI Act.
3. Impact of pending settlement offers on proceedings under the SARFAESI Act.
4. Validity of the District Magistrate's order under Section 14 of the SARFAESI Act.
5. Requirement for the Bank to consider objections under Section 13(3A) of the SARFAESI Act.
Detailed Analysis:
1. Legality of the Bank's Action under the SARFAESI Act:
The petitioners, a company and another borrower, challenged the Bank's action under the SARFAESI Act, arguing that their account had not been declared a non-performing asset (NPA), thus the Bank had no authority to invoke the Act. They contended that the Bank, having already initiated recovery proceedings before the DRT under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act), was debarred from taking measures under the SARFAESI Act due to the doctrine of election of remedy. The petitioners also highlighted that their objections to the notice under Section 13(2) of the SARFAESI Act had not been considered by the Bank, making the subsequent actions under Section 13(4) unauthorized.
2. Requirement for the Bank to Withdraw Proceedings before the DRT:
The court examined whether the Bank was obliged to withdraw the proceedings pending before the DRT before invoking the SARFAESI Act. It referred to Section 19 of the RDB Act, which allows a bank to withdraw its application with the Tribunal's permission to take action under the SARFAESI Act. The court noted differing views from various High Courts on whether this provision was mandatory or directory. The Bombay and Kerala High Courts opined that it was not mandatory, while the Punjab and Haryana High Court held it to be mandatory. The court agreed with the Bombay High Court's view, concluding that the proviso to Section 19 of the RDB Act is directory, allowing banks to proceed under the SARFAESI Act without first withdrawing the application pending before the Tribunal.
3. Impact of Pending Settlement Offers:
The petitioners argued that the Bank could not initiate proceedings under the SARFAESI Act while their application for settlement under the 'One Time Settlement' scheme was pending. The court rejected this contention, noting that the settlement offer was made in 2001, and the petitioners failed to honor their commitment to pay the agreed amount. Consequently, the Bank was justified in recovering its dues in full.
4. Validity of the District Magistrate's Order:
The petitioners claimed that the District Magistrate's order under Section 14 of the SARFAESI Act was void as they were not given notice or an opportunity to be heard. The court dismissed this argument, stating that Section 14 is in the nature of executing the order and does not require notice or hearing for the borrower/guarantor.
5. Requirement for the Bank to Consider Objections:
The court upheld the petitioners' contention that the Bank failed to consider their objections to the notice under Section 13(2) of the SARFAESI Act, as mandated by Section 13(3A). The Bank proceeded to take measures under Section 13(4) without addressing these objections, rendering its actions contrary to statutory requirements. Consequently, the court quashed the Bank's action of taking possession of the secured assets and directed the Bank to restore possession to the petitioners, maintaining the status quo until the Bank complies with Section 13(3A).
Conclusion:
The petition succeeded on the ground that the Bank failed to consider and decide the objections under Section 13(3A) of the SARFAESI Act before proceeding under Section 13(4). The Bank was directed to restore possession of the secured assets to the petitioners and was allowed to proceed under the SARFAESI Act only after complying with the statutory requirements. The rule was made absolute, with each party bearing its own costs.
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2006 (5) TMI 194
Issues Involved:
1. Legality of the bank's recovery action under the Act of 2002 during BIFR proceedings.
2. Bank's obligation to consider objections under section 13(3A) of the Act of 2002.
3. Whether the bank can proceed under both the Act of 1993 and the Act of 2002 simultaneously.
Detailed Analysis:
1. Legality of the Bank's Recovery Action under the Act of 2002 During BIFR Proceedings:
The petitioners argued that the bank's action was barred by law due to ongoing proceedings before the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 ('the Act of 1985'). They relied on section 22 of the Act of 1985, which suspends recovery proceedings against the company during BIFR inquiry. However, the court noted that the protection under section 22 is confined to the properties of the sick industrial company and does not extend to guarantors or their collateral securities. This view aligns with the Supreme Court's decision in Kailash Nath Agarwal v. Pradeshiya Industrial and Investment Corporation of U.P. Furthermore, section 41 of the Act of 2002 amends section 15 of the Act of 1985, stating that BIFR proceedings abate if secured creditors initiate recovery under the Act of 2002. Thus, the petitioners' claim for protection under section 22 was not maintainable.
2. Bank's Obligation to Consider Objections under Section 13(3A) of the Act of 2002:
The petitioners contended that the bank must consider and decide on their objections lodged against the notice under section 13(2) before proceeding with recovery under section 13(4) of the Act of 2002. The court agreed that section 13(3A) mandates the bank to consider, decide, and communicate its decision on objections before proceeding further. The bank's representative assured the court that the bank would not proceed further without complying with this statutory obligation. The court found the petitioners' challenge premature since the bank had not yet considered the objections due to the pending petitions.
3. Whether the Bank Can Proceed under Both the Act of 1993 and the Act of 2002 Simultaneously:
The petitioners argued that the bank, having initiated proceedings under the Act of 1993, could not simultaneously proceed under the Act of 2002. They cited the Punjab and Haryana High Court's judgment in Kalyani Sales Co. v. Union of India, which held that banks must elect one remedy and cannot pursue both simultaneously. However, the court noted divergent views from other High Courts. The Bombay and Kerala High Courts held that it is not mandatory for banks to withdraw proceedings under the Act of 1993 before invoking the Act of 2002. The court agreed with the Bombay High Court's interpretation that the proviso to section 19(1) of the Act of 1993, which allows withdrawal of applications with Tribunal permission, is directory and not mandatory. This interpretation avoids multiplicity of proceedings and aligns with the legislative intent. Therefore, the court held that banks could proceed under the Act of 2002 without first withdrawing applications pending before the Tribunal.
Conclusion:
The court dismissed the petitions in limine, concluding that the bank's actions were lawful under the Act of 2002 despite ongoing BIFR proceedings, the bank must consider objections under section 13(3A) before proceeding further, and banks are not required to withdraw proceedings under the Act of 1993 before invoking the Act of 2002. The notices issued were discharged, and ad interim orders were vacated.
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2006 (5) TMI 193
Issues Involved:
1. Validity of the deletion of Articles 8 and 9 of the Articles of Association of the Company.
2. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
3. Delay and laches in filing the Company Petition.
4. Validity of the consent given by certain members for filing the Company Petition.
Detailed Analysis:
1. Validity of the Deletion of Articles 8 and 9:
The appellants challenged the deletion of Articles 8 and 9, which allowed for the admission of Patron Members upon payment of Rs. 25,000, arguing that it was against the interest of the Company. The respondent Company countered that the deletion was necessary to prevent the induction of members based solely on donations, which could lead to the Board being packed with relatives and supporters of existing members. The deletion was upheld by the Sub-Court, Madurai, and the CLB found no reason to interfere with this decision. The deletion was seen as a measure to ensure that membership admissions were controlled by the General Body, thereby maintaining a democratic process.
2. Allegations of Oppression and Mismanagement:
The appellants argued that the deletion of Articles 8 and 9 was oppressive and prejudicial to the interest of the Company. They contended that the provision for Patron Members facilitated the introduction of individuals of calibre and substance, which was beneficial for the Company. The respondent Company, however, maintained that the deletion was in the best interest of the Company, as it prevented the arbitrary induction of members by the Executive Committee. The CLB concluded that the deletion did not amount to oppression or mismanagement as defined under Sections 397 and 398 of the Companies Act, 1956, and that the affairs of the Company were not being conducted in a manner prejudicial to public interest or the interests of the Company.
3. Delay and Laches in Filing the Company Petition:
The appellants filed the Company Petition in June 1997, five years after the resolution to delete Articles 8 and 9 was passed in March 1992. The respondent Company argued that the petition was barred by delay and laches. The CLB agreed, noting that the appellants had not provided any explanation for the delay. The delay was seen as considerable and unexplained, and the CLB dismissed the petition on this ground as well.
4. Validity of the Consent Given by Certain Members:
The respondent Company challenged the maintainability of the petition on the grounds that three of the nine members who consented to the filing of the Company Petition had participated in and voted for the resolution to delete Articles 8 and 9. The CLB found that the consent given by these members could not be considered valid, as they had initially supported the resolution. Without their consent, the appellants did not meet the requisite shareholding requirement under Section 399 of the Companies Act, 1956, for maintaining the petition. The CLB thus dismissed the petition on this ground as well.
Conclusion:
The High Court upheld the decision of the CLB, finding no merit in the appeal. The deletion of Articles 8 and 9 was deemed justifiable and not prejudicial to the interests of the Company. The petition was dismissed on grounds of delay, laches, and invalid consent, and no case of oppression or mismanagement was made out under Sections 397 and 398 of the Companies Act, 1956. The appeal was dismissed without any order as to costs.
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2006 (5) TMI 192
Whether the Division Bench of the High Court was entitled to allow the appeal without first deciding the maintainability of the appeals as directed in terms of the order dated 29-3-2001?
Whether the Division Bench of the High Court was entitled to withhold the payment of the pre-scheme unsecured creditors in view of the specific direction given by this Court on 31-3-1994?
Whether the Division Bench was entitled to direct re-adjudication of the claims, which were already adjudicated contrary to the order passed by the Division Bench of the High Court on 30-11-1998 and 1-12-1998?
Whether the workers can have any stake and have right to receive any payment from the fund lying with the Registrar, original side of the High Court of Calcutta which was specially earmarked for the pre-scheme unsecured creditors as defined in the Scheme?
Whether the finding and decision of the learned Company Judge can be ignored and/or overlooked on the ground that no enquiry was held by the Registrar?
Held that:- Appeal allowed. It is crystal clear that finding of the Division Bench of the High Court, that the claim of the appellants have not been duly adjudicated is erroneous as claim of the appellants have duly been adjudicated by the Registrar, High Court, Original Side, with the help of the Chartered Accountant as would be evident from Certificate dated 15-3-2004 issued by the Registrar. Thus, the said order dated 3-3-2004 passed by the Division Bench as against these appellants is liable to be set aside. Thus the appellants are entitled for payment as pre-scheme unsecured creditors in view of the specific directions given by this Court on 31-3-1994.
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2006 (5) TMI 191
Whether once it is conclusively established that the Mutual Fund has violated the terms of the Certificate of Registration and the Statutory Regulations, i.e. SEBI (Mutual Funds) Regulations, 1996 (‘the Regulations’) the imposition of penalty becomes a sine qua non of the violation?
Held that:- Appeal allowed. On a careful perusal of section 15(D)( b ) and section 15E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow. Thus the impugned judgment of the Securities Appellate Tribunal has set a serious wrong precedent and the powers of the SEBI to impose penalty under Chapter VI-A are severely curtailed against the plain language of the statute which mandatorily imposes penalties on the contravention of the Act/Regulations without any requirement of the contravention having been deliberated or contumacious. The imputing mens rea into the provisions of Chapter VI-A is against the plain language of the statute and frustrates entire purpose and object of introducing Chapter VIA to give teeth to the SEBI to secure strict compliance of the Act and the regulations.
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2006 (5) TMI 190
Issues Involved:
1. Refund of seized amount and penalty.
2. Entitlement to interest on the refund.
3. Jurisdiction of the High Court under Article 226 of the Constitution to award interest in the absence of statutory provision.
4. Laches and delay in filing the writ petition.
Issue-wise Detailed Analysis:
1. Refund of Seized Amount and Penalty:
The petitioner, a practicing Chartered Accountant and Director in a private company, had Rs. 99,800 seized during a search on 13-8-1984 for alleged violations of section 9(1)(b) of FERA, 1973. An order on 23-6-1986 confiscated the amount and levied a penalty of Rs. 10,000. The petitioner's appeal was dismissed, but subsequent appeals in C.M.A. Nos. 1210 and 1211 of 1993 were allowed by a Division Bench on 11-4-1997, absolving the petitioner of all allegations. Despite several representations, the refund was not processed until a writ petition resulted in an order on 11-3-2002 directing the second respondent to consider the refund. The second respondent offered Rs. 1,09,800 without interest, which the petitioner contested.
2. Entitlement to Interest on the Refund:
The petitioner argued for interest on the refund amount, citing precedents where courts awarded interest in the absence of statutory provisions. The petitioner referenced cases such as Union of India v. Coromandel Prodorite Ltd. and CCE v. Thermo Electric Madras Mfg., where interest was awarded based on equity. The Supreme Court in Sandvik Asia Ltd. v. CIT also awarded interest on interest under the Income-tax Act without a specific provision. The petitioner highlighted that the seized amount was earning interest in a bank, benefiting the respondents.
3. Jurisdiction of the High Court under Article 226:
The petitioner asserted that the High Court, under Article 226, could direct payment of interest to secure justice, even without a statutory provision in FERA, 1973. The respondents countered that FERA, being a self-contained code, lacked provisions for interest on refunds, and thus the court should not award it. However, the court noted that equitable principles could be applied to award interest for wrongful withholding of money, as established in Coromandel Prodorite Ltd. and Thermo Electric Madras Mfg. cases.
4. Laches and Delay in Filing the Writ Petition:
The respondents raised the issue of laches, suggesting the petitioner delayed filing the writ petition. However, the court found that the petitioner had been actively pursuing the matter through multiple representations and an earlier writ petition. The court referenced Supreme Court judgments stating that delay should not bar relief if no third-party rights were affected and the delay was not due to negligence.
Judgment:
The court concluded that the petitioner was entitled to interest from 11-4-1997 (the date of the Division Bench order) to 27-4-2002 (the date the refund was offered without interest), at a rate of 9% per annum. The court directed the second respondent to refund Rs. 1,09,800 with the calculated interest within four weeks, emphasizing that the High Court's equitable jurisdiction under Article 226 allowed it to award interest for wrongful withholding of funds. The writ petition was ordered accordingly, with no costs.
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2006 (5) TMI 189
Whether a suit for specific performance of contract will be barred by limitation or not? - Held that:- Appeal dismissed. Execution of the agreement was not denied by us, even in the absence of resolution the contract could not have been to be invalid or illegal.
So far as the question of putting up of the seal of the company is concerned, it is a relic of the days when mediaeval barons, who could not read or write, used their rings to make a characteristic impress. Even in absence of a seal, the company may still be held to be liable having regard to the nature of transaction and the authority of those who had executed it. If the act of the directors is not ultra vires or no public policy is involved, the parties acting thereupon cannot be left at large.
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2006 (5) TMI 188
Whether the proposal of the Respondent No. 6 Development Credit Bank Ltd. for writing off of debts, amounting to ₹ 120 crores, of the Bank by RBI without following the proper procedures prescribed under the provisions of sections 13 and 14 of the Securitisation Act, 2002 and sections 19 and 31A of the Recovery of Debts Due to Banks Act, 1993 was illegal?
Held that:- Appeal dismissed. Though some of the debts have to be written off with little chance of substantial recovery, we cannot lose sight of the fact that the Bank has generated considerable operating profits and has built up a substantial general reserve over the years, against which the debts written off have been adjusted.
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2006 (5) TMI 187
Issues Involved:
1. Assailment of the Company Law Board (CLB) order dated 5-8-2005.
2. Non-inclusion of IDBI in the proceedings under sections 397 and 398 of the Companies Act.
3. Legal propriety and jurisdiction of the CLB's order.
4. Maintainability of the writ petition under Article 226 of the Constitution of India.
5. Availability of alternative remedy under section 10F of the Companies Act.
Detailed Analysis:
1. Assailment of the Company Law Board (CLB) order dated 5-8-2005:
The writ petition challenges the CLB's order dated 5-8-2005, which observed that Indian Oil Corporation (IOC) is a bona fide allottee of impugned shares for valuable consideration and directed Haldia Petrochemicals Ltd. (Haldia) to defer allotment of further shares, including shares valued at Rs. 134 crores to the Industrial Development Bank of India (IDBI). The CLB also directed the maintenance of the status quo of shareholding as of that date.
2. Non-inclusion of IDBI in the proceedings under sections 397 and 398 of the Companies Act:
IDBI was not a party to the proceedings under sections 397 and 398 of the Companies Act (CP No. 58/2005) and was not afforded an opportunity to be heard. Consequently, IDBI filed CA No. 236/2005 seeking permission to intervene in CP No. 58/2005 and to vary/modify the orders dated 5-8-2005.
3. Legal propriety and jurisdiction of the CLB's order:
The petitioner argued that the CLB lacked jurisdiction to pass orders injuncting the transfer of equity to IDBI in its absence and without any prayer in this regard. It was contended that the restraint orders adversely affected the contractual rights of IDBI and other consortium lenders. The petitioner asserted that the CLB should not have passed the impugned order dated 5-8-2005 without hearing IDBI.
4. Maintainability of the writ petition under Article 226 of the Constitution of India:
The maintainability of the writ petition was challenged on the grounds that an effective alternative remedy was available under section 10F of the Companies Act. The court noted that if an order is passed without jurisdiction, the extraordinary relief under Article 226 can be invoked. However, the court decided not to exercise its extraordinary powers under Article 226, as it would not be expedient or proper in the present case.
5. Availability of alternative remedy under section 10F of the Companies Act:
Section 10F of the Companies Act provides for an appeal to the High Court within sixty days by any person aggrieved by any decision or order of the CLB. The court noted that Haldia, being a party to the proceedings before the CLB, could have filed an appeal within the prescribed period. The court observed that IDBI, as a 'person aggrieved,' could have filed an appeal under section 10F but failed to do so. The court emphasized that the availability of an effective remedy by statute should be preferred over invoking writ jurisdiction.
Conclusion:
The court concluded that it would be inappropriate to exercise the extraordinary powers under Article 226 of the Constitution of India. The CLB had already held detailed hearings on the dispute, and the court expected the CLB to pass final orders by July 2006. Consequently, the writ petition was rejected with no order as to costs.
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