TMI Blog2005 (5) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... r two valuers were appointed and their report in relation to valuation of above properties is also received. On 17-10-2003 this Court directed its office to renew Fixed Deposit Receipt (FDR) which had matured for another period of 90 days and directed the matter to be listed after the courts reopened after the Diwali Vacation of 2003. On same day, State Bank of India, one of the secured creditors obtained orders permitting them to proceed against the company under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (Referred to as Securitisation Act hereafter). Grievance of Official Liquidator is that said orders have been obtained behind his back and thereafter said bank i.e., State Bank of India also published advertisements for sale of movable and immovable properties for recovery of its loan. Official Liquidator filed OLR No. 62 of 2003 for sale of properties as per valuation report. Winding up order in this case has been passed on 23-4-2004 and Provisional Liquidator was appointed as Official Liquidator. It appears that in the meanwhile bank was prosecuting its remedy against Akola Oil Mills before Debt Recovery Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged with bank. Learned Advocate argues that possession has been taken with the consent of bank and as such bank had no authority to issue the advertisements. He further states that when possession of property was with Liquidator, bank could not have taken it without the leave of the Court and bank could not have proceeded to sale that property. In support of his contention, he has placed reliance upon provisions of Companies Act and also decided cases. Reference to the same will be made at appropriate places in the body of the judgment. He further argues that Securitisation Act has come into force recently while the defaults committed by Akola Oil Mills are old and hence provisions of Securitisation Act cannot be made applicable retrospectively in case of such defaults. He has also contended that the bank is acting mala fide in the matter inasmuch as it has to charge over the entire area of land which it has put to auction and its charge as registered is only for 11 acres. He further states that the bank cannot proceed to auction movables by taking recourse to Securitisation Act. He states that the bank has tried to mislead this Court and the purchasers and therefore appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004 the bank issued notice under section 13(2) of Securitisation Act and on 8-4-2004 obtained the possession under section 13(4) thereof. He states that notice to this effect was published in newspapers on 22-4-2004 and the Akola Oil Mills was ordered to be wound up by this Court on 23-4-2004. He further states that though Official Liquidator, after appointment as a Provisional Liquidator took the possession, he handed over the possession to the bank as caretaker. He therefore contends that Official Liquidator was not in possession at all insofar as mortgaged property is concerned. The advertisements in dispute are published by State Bank in furtherance of notice under section 13(4) of Securitisation Act. 4. Two bidders at auction of bank have filed Company Application 94/2004, 2/05 and 13/05. They have participated in auction conducted by bank in pursuance of the advertisements mentioned above. However none of them remained present when the matter was taken up for hearing. 5. I have reproduced in brief above, the arguments of respective sides. It is apparent that the real issue is whether bank is required to take leave to enforce its security for recovery of its loan by rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recover property tax under section 129 of Bombay Village Panchayats Act (1958) shall not lie without consent of the Board for Industrial and Financial Reconstruction, in view of sub-section (1) of section 22 of the Act (1 of 1986). Section 22(1) provides that in case the enquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration by the Board or any appeal under section 22 is pending then certain proceedings against the sick industrial company are to be suspended or presumed to be suspended. The nature of proceedings which are automatically suspended are : (1) winding up of the industrial com- pany; (2) proceedings for the execution distress or the like against the properties of sick industrial company; and (3) proceedings for the appointment of Receiver. The proceedings in respect of these matters could, however, be continued against the sick industrial company with the consent or approval of the Board or of the Appellate Authority as the case may be. In the light of the steps taken by the Board under sections 16 and 17 of the Act no proceedings for execution distress or the like proceedings against any of the properties of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be ignored that the State Bank had already moved this Court in 2001 itself for remaining out of winding up proceedings vide Company Application 57/2001. It was appointed as operating agency by BIFR on 17th August, 2000, and it took possession from Messers Akola Oil Mills on 15th November, 2000. The inference which Official Liquidator wants to draw from his possession on 11-6-2003 is therefore unwarranted. The security and the right of State Bank in it is not destroyed by such possession. 9. Advocate Kumar, has relied upon Executive Engineer, Jai Nigam Central Stores v. Suresha Nanda Juyal AIR 1997 SC 2180, to contend that when symbolic possession is taken, the property vested in secured creditor. The reported case considers provisions of Land Acquisition Act and holds that land stood vests in the State free from all encumbrances from the date of symbolic possession. However, I do not find any provision in Securitisation Act which vested the property with secured creditor after he takes symbolic possession. On the contrary, aggrieved person has got remedy of filing appeal under section17 before DRT and as such, this case law has no application here. 10. This b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les v. Gujarat State Financial Corporation [1994] 81 Comp.Cas. 599. The learned Single Judge of this Court has held that by virtue of operation of provisions contained in section 456 of the Companies Act, the Official Liquidator is entitled to the custody and control of all the properties, effects and claims to which company under winding up is entitled. By virtue of the operation of section 456(2) of said Act, all the properties and effects of the company are deemed to be in the custody of the Company Court as from the date of the order for the winding up of the company. It has, therefore, held that section 29(1) of the State Financial Corporation Act, 1951 cannot be invoked by State Financial Corporation once the debtor company is directed to be wound up and the Company Court is deemed to be in custody of all assets of the company by virtue of the operation of section 456(2) of the Companies Act. Section 29(1) of the State Financial Corporation Act, 1951 can be invoked by State Financial Corporation in an appropriate case only before such an eventuality has taken place and not thereafter. This Court has held that such a course was not open without obtaining prior leave of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant to seek leave of Company Court to proceed with its claim before Debt Recovery Tribunal or in respect of the execution proceedings before the Recovery Officer. Nor can they be transferred to the Company Court." (p. 1547) [Emphasis supplied] In paragraph 31 of the Hon ble Apex Court observes "31. It may also be noticed that in the LIC Act of 1956, there was no provision like section 34 of the RDB Act giving 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 appellant s case under the RDB Act with additional section like section 34 is on a stronger footing for holding that leave of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Gujarat AIR 2004 SC 1576, the Hon ble Apex Court has held that provisions of Gujarat Co-operative Society s Act, particularly section 71 thereof provide restrictive mode of investment by co-operative banks and said provision is not to derogation but in addition to Banking Regulation Act. Gujarat Act is assumed to by President and there is no repugnancy or inconsistency between Gujarat Act and Banking Regulation Act. The Hon ble Apex Court therefore found that Co-operative Bank has to make investment according to norms in Gujarat Act and not in Banking Regulation Act. (G) In Maharashtra State Financial Corpn. v. Swift Industries 1992(3) Bom. C.R. 165 : 1992 Mh.L.J. 925, this Court has held that the appellant before it are not precluded from taking recourse to section 29 though there have already invoked section 31 of State Finance Corporation Act. However, in view of the judgment of Hon ble Apex Court in Canara Bank s case ( supra ), it is not necessary for this Court to consider this question in more details. (H) Advocate Kumar has also relied upon judgment of Hon ble Apex Court in M.K. Ranganathan v. Government of Madras AIR 1955 SC 604. However this rulin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There can be no doubt about the proposition that the object of petition for winding up is to realise the property of the company for distribution to all the creditors in accordance with the applicable rules. This has been laid down by Division Bench of this Court in Harinagar Sugar Mills v. M.W. Pradhan, 12, 67 Bombay Law Reports 294. A secured creditor who seeks to prove whole of his debt in the course of winding up proceedings is necessarily required to relinquish the security. That, however, cannot be construed to mean that when he files a petition for winding up, a secured creditor must relinquish his security. In the present case, the petitioner has filed a suit in this Court and made it clear, therefore that he seeks to enforce the security. When the stage for providing of debt will arise, the petitioner would necessarily have to prove for the balance of the debt which is due and owing to it alter the security in respect of which the petitioner is a secure creditor is realized." [Emphasis supplied] The learned Single Judge therefore admitted the winding up petition filed by petitioner. Here also by filing Company Application No. 57/2001 to remain out of winding up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in conjunction with the special rights given to the workmen, who as pari passu charge-holders are represented by Official Liquidator . The unhindered right hitherto available to the SFCs to realise their security, without recourse to the Court, no longer holds true as the right vested in the Official Liquidator is a statutory impediment to such exercise and has to be reckoned with. And since the Official Liquidator can do nothing without the leave or concurrence of the Court, all necessary applications must, therefore, come to the Company Court. However in both these rulings the provisions of law considered are not pari materia. The case International Coach Builders Ltd. ( supra ) considered in not that of a secured creditor and not in the light of provisions of RDB Act. In view of the verdict of Hon ble Apex Court in case between Canara Bank ( supra ), this ruling of Hon ble Apex Court has got no insofar as present controversy is concerned. (M) The Action of Parliament in enacting Securitisation Act, i.e., Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act (54 of 2002) has further improved the position in favour of secured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved. 35. As referred to above, the Narasimham Committee was constituted in 1991 relating to the Financial System prevailing in the Country. It considered wide ranging issues relevant to the economy, banking and Financing etc. Under Chapter V of the Report under the heading Capital Adequacy, Accounting Policies and other 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 quariers. Income of interest is considered as such only when it is received and not on the accrual basis. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislative framework and observed : " 8.1 A legal framework that clearly defines the rights and liabilities of parties to contracts and provides for speedy resolution of disputes is a sine qua non for efficient trade and commerce, especially for financial intermediation. In our system, the evolution of the legal framework has not kept pace with changing commercial practice and with the financial sector reforms. As a result, the economy has not been able to reap the full benefits of the reforms process. As an illustration, we could look at the scheme of mortgage 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 si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993). 35. The provisions of this Act to override other laws . The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." The relevant provisions of Securitisation Act about rights of secured creditor in section 13 are as under : " Enforcement of security interest. (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or Tribunal, by such creditor in accordance with the provisions of this Act. (2) to (8)****** (9) In the case of financing of a financial assets by more than one secured creditors or joint financing of a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor in respect of secured asset as per the books of account of the secured creditor. (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed in the Debts Recovery Tribunal having jurisdiction or a Competent Court, as the case may be for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in Clauses ( a ) to ( d ) of sub-section (4) in relation to the secured assets under this Act. (12) ****** (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." [Emphasis supplied] The provisions above, particularly the provisions of sub-section (9) (underlined portion) cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed also that on or after commencement of Securitisation and Reconstruction of Financial Assets and Enforcement of Security interest Act, 2002 where a reference is pending before the Board for Industrial and Financial Reconstruction such a reference shall abate if the secured creditors representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors have taken any measures to recover their secured debt under the sub-section (4) of section 13 of that Act." [Emphasis supplied] Amendment on similar lines has been made to section 424A of Companies Act, 1956. Amended section is as under : "424A. Reference to the Tribunal. (1) Where an industrial company has become sick industrial company, the Board of Directors of such company shall make a reference to the Tribunal and prepare a scheme of its revival and rehabilitation and submit the same to the Tribunal along with an application containing such particulars as may be prescribed for determination of the measures which may be adopted with respect to such company : Provided that nothing contained in this sub-section shall apply to a Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. The Official Liquidator is directed to communicate as per sections 529 and 529A of Companies Act, the amount of workmen s dues if already fixed or estimated amount thereof if yet not fixed to the secured creditor and the secured creditor shall deposit the same with Official Liquidator and shall also furnish necessary undertaking in this respect as per law. 11. In case of Rajasthan Financial Corporation v. Official Liquidator, Jaipur Spinning and Weaving Mills Ltd. [1997] 88 Comp. Cas. 192 (Raj.) relied upon by Advocate Deshpande it has been held that secured creditor is to be treated as ordinary creditor if his charge is not recorded with Registrar of Companies as contemplated by section 125 of Companies Act. Similar view is also taken by Division Bench of this Court in case Official Liquidators v. Suryakant Natitvarlal Surati [1986] 59 Comp. Cas. 147 .There the charge created by mortgage by deposit of title deed was not registered and this Court has held that as charge was not so registered, it was void against Liquidator upon the company being ordered to be wound up and no steps were required to be taken by Liquidator to make or have it declared void. In cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is additional affidavit dated 5th April, 2005 the Official Liquidator has produced certified copy of particulars of charge as recorded with Registrar of Companies and said document shows only 11 acres 11 gunthas on which the charges recorded. However, the Official Liquidator himself has produced on record the subsequent intimations in relation to modification of charge in Form Nos. 8 and 13 sent by company to the Registrar and proposed modification reveals extension of area to 18 acres 20 gunthas. Official Liquidator states that on account of certain procedural lacuna, Registrar of Companies did not take cognizance of said modification. Learned Counsel for Official Liquidator states that the document of intimation of charge i.e., Form No. 8 and Form No. 13 must be signed by the bank as also the company. The advocate for bank states that company itself had passed resolution on 8th June, 1991 before availing additional/enhanced facilities and extended scope of equitable mortgage to 18 acres 20 gunthas. He states that the same was communicated to the Registrar of companies and as such the responsibility of State Bank was over. Because of this and the discussion above particularly th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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