TMI Blog2006 (4) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... 005 (10) TMI 280 - SUPREME COURT] . The appellant through its counsel makes a statement that in view of the facts and circumstances of the case the appellant shall not claim any commission on the sale of the assets. The appeals are accordingly disposed of. No costs. Consequently, connected C.M.Ps. are closed. ORDER - A further bid was held in the Court. Mr. M. Palanisamy residing at Coimbatore, has bid for a sum of Rs. 27.50 crores for C-1, Viscose Towers, which is accepted. The successful bidder agrees to pay the balance amount within a period of three months from today, failing which the EMD will be forfeited. As regards the property located at C-2, Mettupalayam is concerned, one Mr. P. Shanmugam, residing at Sankari-632 301, has bid for a sum of Rs. 1.55 crores, which is accepted. The successful bidder agrees to pay the balance amount within a period of three months from today, failing which the EMD will be forfeited. The EMDs of unsuccessful bidders shall be returned to them by today itself. M/s. Asset Reconstruction Company (India) Limited and the Official Liquidator are directed to approach the learned Company Judge for further directions in the matter. - HON'BLE A.P. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empowered to take possession of the assets of the borrower including the right of transfer by way of lease, assignment, sale and realize the sale proceeds of the secured assets and to take over the management of the business of the borrower. The majority of the creditors have given consent for the appellant-company to formulate the modalities of the sale and also to appoint the appellant as Chairman of the Assets Sale Committee along with the Official Liquidator to dispose of the assets of the company-in-liquidation. The appellant has moved Company Application Nos.712 and 713 of 2005 before the Company Court seeking to appoint the appellant as agent of the Official Liquidator to complete the modalities of the sale along with the Official Liquidator. By the impugned order, both the applications were rejected by the Company Court holding that once the winding up of the company is ordered the assets and effects of the company shall be deemed to be in the custody of the High Court from the date of the order of winding up. The Official Liquidator on whom the assets rest could only act as per the directions of the Company Court and cannot act independently. In such event when the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is without prejudice to the provisions contained in any other law. In other words, such power does not override the provisions of the Companies Act. Section 37 of the Securitisation Act states that the provisions of the said Act are in addition to and not in derogation, inter alia, of the Companies Act. Therefore, according to Mr. Datar the power of the liquidator to take charge of the assets and sell the same is not in any way affected or diluted by the formation of an Assets Reconstruction Company. According to Mr. Datar once the company is wound up, all the assets are to be taken into custody of the Official Liquidator under section 456 of the Companies Act. Under section 457(1)( c ) of the Companies Act only Official Liquidator has the power to sell movable and immovable properties of the company. He submitted that under section 457(2)( v ) of the Companies Act Official Liquidator can appoint an agent to do any business which he is unable to do himself. Therefore, where the Official Liquidator is capable of completing a particular task, there is no question of appointing an agent. He further submitted that in the instant case the Official Liquidator has taken custody of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Related Matters it was opined that a proper system of income recognition and provisioning is fundamental to the preservation of the strength and stability of banking system. It was also observed that the assets are required to be classified, it also takes note of the fact that the Reserve Bank of India had classified the advances of a bank, one category of which was bad debts/doubtful debts. It then mentions that according to the international practice, an asset is treated as non-performing when the interest is overdue for at least two quarters. Income of interest is considered as such, only when it is received and not on the accrual basis. The Committee suggested that the same should be followed by the banks and financial institutions in India and an advance is to be shown as non-performing assets where the interest remains due for more than 180 days. It was further suggested that the Reserve Bank of India should prescribe clear and objective definitions in respect of advances which may have to be treated as doubtful, standard or substandard, depending upon different situations. Apart from recommending to set up of Special Tribunals to deal with the recovery of dues of the advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the Transfer of Property Act, which is critical to the work of financial intermediaries... . One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the asset without intervention of the Court and for reconstruction of the assets. It is thus to be seen that the question of non-recoverable or delayed recovery of debts advanced by the banks or financial institutions has been attracting the attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amount of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the report of the Narasimham Committee, yet another Committee was constituted headed by Mr. Andhyarujina for bringing about the needed steps without the legal framework. We are, therefore, unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial Institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower : Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A. (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with his rights and interests. (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. (9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company-in-liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorized in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor. 9. It may be mentioned here that after Securitisation Act, amendment has been made to section 15 of the SICA as under : Section 15: Reference to Board. (1) Where an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duty audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company: Provided that if the Board of Directors has sufficient reasons even before such finalisation to form the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, such a reference shall abate if the secured creditors representing three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub-section (4) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002): Provided also that no reference shall be made under this section if the secured creditors representing three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub-section (4) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002). 11. At this stage we may also refer to the judgment of the Supreme Court in Allahabad Bank v. Canara Bank [2000] 4 SCC 406. In that case, the question of jurisdiction of the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, vis- -vis the Company Court arose for decision. The Supreme Court held that even where a winding-up petition is pending, or a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orpn. s case ( supra ) the question that fell for consideration before the Supreme Court was as to the right of State Financial Corporation under section 29 of the State Financial Corporations Act, 1951 against debtor company to sell assets of company and realize security, when the company is under winding up. The Supreme Court held that in such a case the said power can be exercised by the State Financial Corporation only after obtaining appropriate permission from Company Court and acting in terms of directions issued by Company Court as regards conduct of the sale and distribution of proceeds thereof in terms of sections 529 and 529A of the Companies Act. Paragraphs 17 and 18 of the said decision are important for the purpose deciding the case of hand and read as follows : 17 Thus, on the authorities what emerges is that once a winding-up proceeding has commenced and the Liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preferences contained in section 530 of the Companies Act under the directions of the Company Court. In other words, the distribution of the sale proceeds under the direction of the Company Court is his responsibility. To ensure the proper working out of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the Company Court, that a proper price is fetched for the assets of the company-in-liquidation. It was in that context that the rights of the Official Liquidator were discussed in International Coach Builders Ltd. ( supra ). The Debts Recovery Tribunal and the District Court entertaining an application under section 31 of the SFC Act should issue notice to the Liquidator and hear him before ordering a sale, as the representative of the creditors in general. 18. In the light of the discussion as above, we think it proper to sum up the legal position thus: ( i ) A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company-in-liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r company-in-liquidation, said power could be exercised by it only after obtaining the appropriate permission from the Company Court and acting in terms of the directions issued by that Court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the sale, holding of the sale proceeds and distribution thereof among the creditors in terms of sections 529A and 529 of the Companies Act. 14. In the instant case, the Official Liquidator has taken possession of the assets and certain movables have already been sold. The Official Liquidator has also got valuation of some of the assets by ITCOT Consultancy Services, Chennai. A sum of Rs. 2 lakhs has been paid as valuation fee for valuation of the assets. In our opinion, the ends of justice would be served if the Official Liquidator is directed to associate the appellant-company in sale of the assets in terms of paragraph 18( iii ) of the Rajasthan State Financial Corpn. s case ( supra ). The appellant through its counsel makes a statement that in view of the facts and circumstances of the case the appellant shall not claim any commission on the sale of the assets. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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