TMI Blog2007 (9) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... ty that cannot be abdicated by the whims of such judicial authority. The failure by a judicial authority to exercise jurisdiction vested in it by law is as illegal and as inexcusable as the usurpation of jurisdiction beyond its bounds of authority. The Official Liquidator need not transmit the sale proceeds held by him to the recovery officer of the DRT-II, Delhi. It will be open to such recovery officer to apply under section 28(4) of the 1993 Act, if he deems it fit. - CA NOS. 101 TO 103 OF 2006 AND CP NOS. 90 TO 92 OF 1998 - - - Dated:- 18-9-2007 - SANJIB BANERJEE, J. A.K. Dhandhaniya, M.C. Ghosh and Biswapati Das for the Official Liquidator. P.C. Sen, Ranjan Bachawat, Rudraman Bhattacharjee, Rajdeep Chowdhury and Samin Ahmed for the Respondent. JUDGMENT 1. A question of some significance as to the authority, and obligation, of the company court arises in these matters. The Official Liquidator as custodian of the assets of the three companies in liquidation has applied for a common order passed by the Recovery Officer, Debts Recovery Tribunal-II, Delhi, to be set aside. The only contesting respondent in the three applications, a secured creditor at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendants in proceedings before the Debts Recovery Tribunal, now vests in the Tribunal and such matters should no longer detain the Company Judge presiding over the liquidation of the concerned company. It is urged that since the company court no longer retains authority over such matters, there is no "obligatory jurisdiction" to ensure that things do not go amiss before the Tribunal. 5. The bank insists that the prayers made by the Official Liquidator cannot be taken up at all. The principal purpose of these applications, according to the bank, is to annul an order passed by an officer empowered to do so under the 1993 Act. The company court, it is emphasised, does not exercise superintending or supervisory jurisdiction over the Tribunal or any officer under the 1993 Act and, in view of the clear provision under section 18 of the 1993 Act, the court should refrain from going into the question urged by the Official Liquidator as on the strength of section 18 and the appeal provisions in the 1993 Act, the Official Liquidator would not be altogether without any remedy against the orders challenged the present proceedings. The bank argues that such challenge cannot be made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding distribution of the proceeds of such assets, it may not be desirable to proceed further with the assets of the three companies where winding up proceedings are on before the hon ble High Court. Therefore, the CH bank is directed to immediately move proper application before the Hon ble High Court and file a report before the next date of hearing." 7. The bank was aggrieved by the view taken by the recovery officer and approached the presiding officer of the Tribunal in appeal. The presiding officer made an order on 7-5-2004, requiring the recovery officer to proceed with the matter without requiring the bank to take leave of the company court presiding over the liquidation proceedings. The matter thereafter was, regrettably, reduced to the question as to whether the 1993 Act would prevail over the Companies Act and, consequently, whether the authority of the Tribunal under the 1993 Act would hold sway over the company court s jurisdiction regarding certificate debtor companies which were in liquidation. Counsel for the bank cautions that the matter should not be viewed by the company court from the perspective of an apparently inferior forum denuding the company court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial statute intended for expeditious adjudication and recovery of debts due to banks and financial institutions by which the jurisdiction of all courts and other authorities, except the Supreme Court and the High Courts exercising powers under articles 226 and 227, stood ousted by virtue of section 18 thereof. The overriding effect of section 34(1) of the 1993 Act was stressed on in support of the contention that the operation of the Companies Act in matters covered by section 19, thus, stood completely ousted. The Supreme Court framed six questions that fell for consideration : "From the aforesaid contentions, the following points arise for considera-tion: (1) Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the recovery officers are conferred exclusive jurisdiction in their respective spheres? (2) Whether for initiation of various proceedings by the banks and financial institutions under the RDB Act, leave of the company court is necessary under section 537 before a winding up order is passed aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company court in Sudarsan Chits (I) Ltd. v. G. Sukumaran Pillai [1985] 57 Comp. Cas. 85 (Ker.) and other cases the said principle, in our view, cannot be invoked in the present case against the Debts Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion, the very same principle mentioned above equally applies to the Tribunal/Recovery Officer under the RDB Act, 1993, because the purpose of the said Act is something more important than the purpose of sections 442, 446 and 537 of the Companies Act. It was intended that there should be a speedy and summary remedy for recovery of thousands of crores which were due to the banks and to financial institutions, so that the delays occurring in winding up proceedings could be avoided." (p. 81) 11. The Supreme Court proceeded to take into account the Tiwari Committee Report of 1981 in assessing how priorities among creditors of a company that is a defendant in proceedings under the 1993 Act need to be assessed : "Even in regard to priorities among creditors, the said Committee stated in Annexure I as follows : The Adjudication Officer will have su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were special statutes, the non obstante clause in the later statute would obliterate the conflicting provisions in the earlier statute or even the non obstante clause in the earlier enactment. It was on such reasoning that the Supreme Court found, as a proposition of law, that in view of section 34 of the 1993 Act, the 1993 Act would have overriding effect over the Companies Act. 13. Since it is apposite in the context, in another judgment cited by the parties reported at ICICI Bank Ltd. v. SIDCO Leathers Ltd. [2006] 131 Comp. Cas. 451 1 (SC) a further approach to interpret statutes has been recognised upon construction of the maxim generalia specialibus non derogant. In such case, the special statute that is the Companies Act, was pitted against the general statute that is the Transfer of Property Act, 1882. What fell for consideration in that case was the inter se rights of secured creditors and it was held that the rights of the secured creditors do not get blurred by reason of section 529(1)( c ) of the Companies Act and what such provision recognises is the rights of the secured creditors en masse vis-a-vis rights of unsecured creditors. In ICICI Bank Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assets among secured creditors or of priorities being decided in terms of section 529A of the Companies Act. It is only when the certificate is against a company in liquidation that the certificate holder has to await the assessment of priorities to receive its share in accordance with the provisions of section 529A of the Companies Act. If the certificate debtor company is not in liquidation, the certificate holder bank need not be detained upon the security being sold and its certificate would be discharged from the sale proceeds, if it is enough to meet the amount covered by the certificate. 16. To start with, the recovery officer under the 1993 Act exercises much the same authority as a court executing a decree. If the certificate holder is a secured creditor of the certificate debtor, it is such security which has first to be sold to ascertain whether the proceeds therefrom are enough to meet the quantum covered by the certificate. If the secured asset does not meet the value of the certificate, the recovery officer as any other court executing a money decree, would have the power to sell the other assets of the certificate debtor for the certificate claim to be satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery officer under the RDB Act where winding up proceedings are pending in the company court against the defendant company." (p. 90) 18. The same thought is reflected in the opening sentences of paragraphs 58 and 76 of the report. 19. In the three matters, there are secured creditors of the companies in liquidation other than the Bank of Rajasthan Ltd. The Official Liquidator has served notice on the other secured creditors of the three companies in liquidation but such other secured creditors of Ganapati Commerce Ltd. (in liquidation) and Ganapati Combines Ltd. (in liquidation) chose not to appear at all and it may be presumed that they do not object to what the Official Liquidator seeks in these proceedings. Of the twelve secured creditors of Ganapati Exports Ltd. (in liquidation) other than the Bank of Rajasthan Ltd. only one appeared following the Official Liquidator s notice. State Bank of Bikaner and Jaipur has supported the Official Liquidator s stand and seeks settlement of claims of the creditors and disbursements by the Official Liquidator and not by the recovery officer of DRT-II, Delhi. 20. In Allahabad Bank s case ( supra ), the varying positions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed and thereupon the discretion that has to be exercised by the court under section 446(1) of the Companies Act was discussed by taking into account the 1993 Act. The law as recognised by the Supreme Court was summarised: "We are, therefore, of the view that the approach to be adopted in this regard by the company court does not deserve to be put in a strait-jacket formula. The discretion to be exercised in this regard has to depend on the facts and circumstances of each case. While exercising this power we have no doubt that the company court would also bear in mind the rationale behind the enactment of Recovery of Debts Due to Banks and Financial Institutions Act, 1993, to which reference has been made above. We make the same observation regarding the terms which a company court should like to impose while granting leave. It need not be stated that the terms to be imposed have to be reasonable, which would, of course, vary from case to case. According to us, such an approach, would maintain the integrity of that secured creditor who had approached the civil court or desires to go so, and would take care of the interest of other secured creditors as well which the company c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidation, the court could grant leave imposing reasonable conditions even against secured creditors so that genuine claims of other secured creditors were not affected. As appears from paragraph 10 of the judgment, learned counsel appearing for one of the parties in that case, appears to have incidentally referred to the provisions of the RDB Act, 1993, which had by then come to be enacted, for contending that while staying suits, the company court could impose reasonable conditions, keeping the rationale of the provisions of the RDB Act in mind. In paragraph 12, this court accepted the submission of counsel and in paragraph 13, it was observed that while granting leave to such secured creditors, i.e., in suits, the company court would also bear in mind the rationale behind the RDB Act . In that connection sections 529 and 529A were also referred to. The said observations do not, in our opinion, have any bearing on the questions before us relating to the exclusive jurisdiction of the Tribunal/Recovery Officer under the RDB Act. Further, as we shall explain under points 4 and 5, section 19(19) of the Ordinance 1 of 2000, refers only to section 529A and not to section 529(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Property Act, thus : Section 100. Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. . . . ** ** ** We cannot be unmindful of the fact that every creditor is interested in realising the security only for his benefit and to the extent necessary for recovery of his outstandings. Prior to 1985 it might have been possible for a secured creditor under section 529 of the Companies Act, 1956, or its predecessor, section 232 of the Companies Act, 1913, as interpreted by this court in M. K. Ranganathan v. Government of Madras [1955] 25 Comp. Cas. 344 (SC) to opt to stand outside the winding up and realise the security by bringing it to sale. This was possible because the secured creditor had unrestricted right of standing outside the winding up and proceeding against the property mortgaged to him. Or, to put it in the words Lord Wre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 128 Comp. Cas. 387 2 (SC). In Andhra Bank s case ( supra ), the law as laid down in Allahabad Bank s case ( supra ), was reconsidered by a three-member Bench and it was noticed that the observation in Allahabad Bank s case ( supra ), that workmen s dues have priority over all other creditors, was not the correct position in law. 26. In the Rajasthan Financial Corpn. s case ( supra ), the cases referred to herein were all noticed in the context of the provisions of the SFC Act. After considering the earlier Supreme Court pronouncements, it was found that distribution of sale proceeds of assets whether under the 1993 Act or under the SFC Act could only be with the association of the Official Liquidator and under the supervision of the company court. The position was summarised : "19. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty for further distribution of the proceeds on the basis of the 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 or 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. [2003] 114 Comp. Cas. 614 (SC). 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. 20. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modes of recovery specified in section 25, recover the amount of debt by any one or more of the modes provided under this section. (2) If any amount is due from any person to the defendant, the Recovery Officer may require such person to deduct from the said amount, the amount of debt due from the defendant under this Act and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the Recovery Officer : Provided that nothing in this sub-section shall apply to any part of the amount exempt from attachment in execution of a decree of a civil court under section 60 of the Code of Civil Procedure, 1908 (5 of 1908). (3)( i ) The Recovery Officer may, at any time or from time to time, by notice in writing, require any person from whom money is due or may become due to the defendant or to any person who holds or may subsequently hold money for or on account of the defendant, to pay to the Recovery Officer either forthwith upon the money becoming due or being held or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount of debt due from the defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this sub-section, and the person so paying shall be fully discharged from his liability to the defendant to the extent of the amount so paid. ( ix ) Any person discharging any liability to the defendant after the receipt of a notice under this sub-section shall be personally liable to the Recovery Officer to the extent of his own liability to the defendant so discharged or to the extent of the defendant s liability for any debt due under this Act, whichever is less. ( x ) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Recovery Officer, he shall be deemed to be a defendant in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were a debt due from him, in the manner provided in sections 25, 26 and 27 and the notice shall have the same effect as an attachment of a debt by the Recovery Officer in exercise of his powers under section 25. (4) The Recovery Officer may apply to the Court in whose custody there is money belonging to the defendant for payment to him of the entire amount of such money, or if it is more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any particular matter arising in the winding up. Section 460(6) allows any person aggrieved by any act or decision of the liquidator to apply to the company court and for the company court to confirm, reverse or modify the act or the decision complained of, and make such further order as it thinks just in the circumstances. 30. The rules framed under the Companies Act by the Supreme Court in exercise of powers under section 643 of the Companies Act, detail the procedure to be adopted by the Official Liquidator at every stage leading up to the ultimate dissolution of the company in liquidation. Such rules provide expressly that the Official Liquidator s functions, acts and decisions are subject to the direction of the company court presiding over the liquidation of the concerned company. The rules in the section of the rules appearing under the heading "Debts and claims against company" provide for, inter alia, notices being issued by the Official Liquidator to the creditors of the company in liquidation, of such creditors being required to prove their debts and of the Official Liquidator s acceptance or rejection of proof upon such investigation as he may think necessary. Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to all creditors of the concerned company in liquidation, it is a time-tested practice that has not caused much inconvenience to the creditors of companies in liquidation over the many years. The concerned Tribunal under the 1993 Act could, however, be at a far away place that, despite the technological improvements in communication, may make it effectively inaccessible to all the creditors. These are some of the matters that could be of concern to the company court once a recovery officer applies under section 28(4) of the 1993 Act for receiving the entire amount of sale proceeds held by an Official Liquidator under the supervision of the company court. But it is first an application under section 28(4) of the 1993 Act that has to be made before such matter as to convenience and other relevant facts are taken into consideration. Again, under section 28(4) of the 1993 Act, the recovery officer can seek such amount as would be sufficient to discharge the certificate under execution and not the entirety of the sale proceeds unless the undischarged value of the certificate exceeds the amount covered by the sale proceeds. 32. The Official Liquidator has authority, inter alia, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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