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TMI Blog2006 (6) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... as void, and consequentially direct the APIDC to forthwith deliver the vacant possession of the company's properties to the Official Liquidator. The second company application CA No. 521 of 2003, is filed by the employees union of the company under liquidation, viz., Vaishu Engineering Industries Ltd., under section 529A of the Act read with rule 9 of the Rules, seeking a direction to respondent Nos. 2 to 4, who were the secured creditors, to deposit the amount received by them, before the Official Liquidator to enable him to disburse the same to the creditors, including the workmen. 2. Since both these applications are filed with reference to the same company, under identical circumstances, they were heard and disposed of by this common order. 3. According to the Official Liquidator, by order dated 22-7-1999, made in RCC No. 14 of 1998, the company, viz., M/s. Vaishu Engineering Industries Ltd., was ordered to be wound up and the Official Liquidator, attached to this court was appointed as a liquidator of the said company, to take over the assets of the said company. It is stated that originally the company had approached the Board for Industrial and Financial Reconstruction (f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the mandatory provisions of the Act. The first respondent, being party to the said proceedings, is bound by the orders. Further, it is stated that the workmen of the company under liquidation and the creditors in whose favour, in fact, even the Industrial Tribunal passed awards, even quantifying the liability of the company in their favour and in terms of sections 529 and 529A of the Act, they are co-mortgagees along with other unsecured creditors, therefore, the first respondent cannot effect the sale of the assets, without their consent or making them as parties to the sale proceedings, therefore, sought for set aside the same. 5. To the same effect are the pleadings in CA No. 521 of 2003, where the workers union is the applicant, where they have even stated that the sale was effected by the first respondent in collusion with the purchaser. It was also stated that they have even filed EP No. 3 of 1998, in ID No. 91 of 1996, for realisation of the awarded amount of Rs. 77,83,623. It was also stated that subsequently as per the orders of this court, the Official Liquidator invited claims of the workmen and the Official Liquidator determined the claims of the workmen by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections from this respondent. This respondent ought to have permitted to file objections to the claims made by the employees' union and the adjudication was made without following the due process of law, therefore, the same is void ab initio. 7. Coming to the application filed by the Official Liquidator, seeking to set aside the sale, it is stated that the applicant failed to disclose as to how the provisions referred to in the application are applicable for declaring the sale as void. It was also stated that except sections 529 and 529A, no other provisions of the Act will have any effect upon the action taken by the respondents, in view of the provisions of section 46B of the SFC Act. It is stated that since seizure and sale was effected after the order of the BIFR before the winding up orders passed by this court and appointment of the liquidator, the sale is not effected by any of the provisions of the orders. It is also stated that after the BIFR proceedings and prior to the winding up order, no leave is required as contemplated under section 537(2) of the Act, therefore, the sale is not effected and the same is also not violative of any provisions of the Act. The counter is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after 7 years, even though the Official Liquidator was aware of the sale as early as in the year 1999. It is further stated that the applicant was a party in WP No. 7462 of 1999, filed by the first respondent, praying for the lifting of the attachment dated 18-1-1999, and the said writ petition was dismissed. It is stated that since this respondent has purchased the property bona fide and invested further amounts, it would be inequitable to disturb the sale in his favour at this stage. 10. The learned official liquidator, in support of his application contended that as the sale effected by the first respondent-APIDC is not only contrary to the expressed order passed by the BIFR, but also in violation of the mandatory provisions of the Act, the same is liable to be set aside. The official liquidator also relied upon apart from various decisions cited at the time of hearing, a decision of this court in WA No. 126 of 1999 and CA No. 53 of 1999, where sale, effected by the APIDC under identical circumstances without the leave of this court, was set aside. The learned official liquidator also referred to the provisions of sections 537, 441 and contended that in view of the said express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the commencement of the winding up proceedings could be only when a winding up order is passed by this court. Learned counsel also contended that section 446 has no application since the said provision would come into operation only when a winding up order has been made or the official liquidator is appointed as a provisional liquidator. Since the sale was effected before a winding up order and no provisional liquidator was appointed in the present case, therefore the said provision has no application, therefore, sought to dismiss the application. 13. Learned counsel for the second respondent-APSFC, while supporting the arguments for counsel for the first respondent, referred to and relied upon the decision of the Supreme Court in International Coach Builders Ltd.'s case (supra). According to learned counsel, the requirement for seeking permission of the court arises only when a winding up order is passed. As long as there is no winding up order, the right conferred under section 29 of the SFC Act can be unilaterally exercisable against the debtor. Therefore, there is no obligation on the part of the first respondent-Corporation to seek permission of the company court. Learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries Ltd., is not likely to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and hence it should be wound up under section 20(1) of the Act. This opinion may be forwarded to the concerned High Court for necessary action according to law." 17. The said opinion was communicated by the registry of the BIFR to the registry of this court by a letter dated 5-2-1997. The said matter was taken on record on 12-2-1997, and registered as RCC No. 14 of 1998, and finally winding up order was passed on 22-7-1999. 18. When the matter was pending before the BIFR, the first respondent-APIDC sought permission of the BIFR to seize the assets of the company. The said request of the APIDC was rejected by the BIFR. The relevant portion of the order of the BIFR reads as under : "The Bench clarified that at a stage when the winding up of the company is being considered, the Corporation cannot be granted permission for taking action under section 29 of the SFC's Act and they should approach the concerned High Court in case it is decided to confirm the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other party intends to get attached any execution or any proceedings or to effect the sale, leave of the court is mandatory, once winding up proceedings are commenced. 22. Then with reference to the meaning of the expression "commencement of the winding up" is defined in section 441(2) of the Act, which reads as under : "In any other case the winding up of a company by the Court shall be deemed to commence at the time of presentation of the petition for the winding up." 23. So, the presentation of the petition would amount to commencement of winding up. In the present case, an argument was advanced that since no company petition is presented, therefore, the said provision may not be applicable. The said contention is clearly devoid of merit. Since a petition for winding up is registered on receipt of the proceedings from the BIFR, therefore, when once proceeding is received by the registry and the same is taken on file, the same has to be construed as presentation of a petition for winding up. If so construed, once proceeding of the BIFR is received, the proceeding for winding up is deemed to have commenced and pending before this court. 24. Apart from that, an appeal was file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured creditor by staying outside the liquidation proceedings. The Official Liquidator contended that since the winding up order has been passed, the properties of the company in liquidation vested in the court and the Official Liquidator would be incharge on behalf of the court as custodian of the property on behalf of the court, hence sought for taking possession of the properties. This was contested by the finance corporation, stating that section 29 of the SFC Act empowered the Corporation to take charge of all the assets of the company, mortgaged to it, whether movable or immovable, and thereafter bring them to sale and realise its security. In exercising of that power, the Corporation took over the assets of the company in liquidation, therefore, the liquidator cannot possibly have any objection for permitting the Corporation to sell the properties. Though the Corporation relied upon the decision of the Apex Court in M.K. Ranganathan v. Government of Madras [1955] 25 Comp. Cas. 344 ; the learned Judge distinguished the said judgment since the facts in that case are totally different and negatived the claim of the financial corporation to have the right to proceed against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Official Liquidator. In that case, the company petition was filed, seeking winding up of the company on 21-3-1996, which was registered as CP No. 22 of 1996, winding up order was passed on 23-7-1998. The sale was effected by the Corporation, exercising its powers conferred under section 29 of the SFC Act on 30-4-1997, and sale agreement was executed on the same day and possession was delivered on 5-5-1997. Since the sale was effected after the company petition was presented, the same is void in terms of section 537 of the Act. 31. The learned Company Judge, after hearing elaborately, passed orders setting aside the sale made in favour of the third party. In that case there was a specific declaration made by way of a direction not only to the State Financial Corporation, but also any other institutions that are exercising the powers under section 29 of the SFC Act, not to bring the sale of the assets of any debtor industrial concern without the leave of the court. The relevant portion of the order reads as under : "Having regard to the general importance of the issue as such matters are likely to come up frequently, more particularly, in view of the law declared by the Division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of winding up" in section 537(1)(a ) of the Companies Act, 1956, must be read as meaning after the presentation of the petition for winding up of the company and not after the winding up order. Section 537 read with section 441(2) of the Act fixes the date of the commencement of the winding up as the date of the presentation of the petition for winding up and not the winding up order. The object of section 537 is to preserve the assets of a company for fair and equitable distribution to all the creditors and to generally negative all possibilities of a preference between creditors inter se from the date of commencement of the winding up proceedings. The words "is being wound up" in section 537(1) may be suggestive of a process, but the starting point of that process has been clearly laid down by section 441 of the Companies Act, and the language of section 537 has to be understood by reference to section 441. The doctrine of "relating back" has been imported and the date of commencement of winding up has been given a fixed meaning. 35. Hence the sale by auction of the properties or assets of the company, held after the presentation of a petition for winding up, without leave of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the time of settling the terms of advertisement and in negotiating to secure the higher price and subject to the condition that the sale has to be confirmed by the court and the sale proceeds are to be deposited in the court. The sale already effected in favour of the seventh respondent was not approved. 38. Aggrieved by that, the appeal was filed by the appellant-Corporation, claiming that the State Financial Corporations Act had overriding effect in terms of section 46B of the SFC Act, and therefore the order passed by the company court was sought to be set aside. 39. The Division Bench upheld the order of the Company Judge, having noticed that there is no conflict between the provisions of the State Financial Corporations Act and the Companies Act and further in view of the provisions of sections 529 and 529A of the Act, the official liquidator, representing the workmen, will have a pari passu charge over the assets of the company and the Corporation cannot dispose of the assets without permission of the court, where the winding up proceedings have already commenced and without association of the official liquidator, who represents the pari passu charge holder; the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial Corporation to effect the sale in consultation with the official liquidator. It was also directed that the reserve price would be fixed by the company court on the report of the official liquidator and the sale proceeds were to be retained by the official liquidator until further orders. 42. Aggrieved by that, the appellant-Corporation filed appeal before the Division Bench unsuccessfully, hence the appeal before the Apex Court. It was observed that the rights claimed by the State Financial Corporation under the SFC Act have to be considered in the light of section 529A read with section 529 of the Companies Act. The court held as under : "When the debtor is a company in winding up, the rights of financial corporations are affected by the provisions in sections 529 and 529A of the Companies Act . . . As far as we can see, there is no conflict on the question of the applicability of section 529A read with section 529 of the Companies Act to cases where the debtor is a company and is in liquidation. The conflict, if any, is in the view that the Debts Recovery Tribunal could sell the properties of the company in terms of the Recovery of Debts Act. This view was taken in Alla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the APSFC relied upon a decision of the Apex Court in International Coach Builders Ltd.'s case (supra). In that case, the Apex Court noticed the conflicting views that have been taken by different High Courts with reference to the rights of the Corporation under the provisions of the State Financial Corporations Act vis-a-vis the provisions of the Companies Act. The court also considered the contention on behalf of the Corporation that the provisions of the State Financial Corporations Act prevails over the provisions of the Companies Act, being a special Act. But the said contention was rejected holding that though the State Financial Corporations Act is a special Act and the Companies Act is a general Act, but in view of the amendments made in sections 529 and 529A of the Act override and control the rights under section 29 of the SFC Act. The said view was expressed by the Apex Court in A. P. State Financial Corpn. v. Official Liquidator [2000] 102 Comp. Cas. 11, was affirmed and further held that there was no conflict between the provisions of the State Financial Corporations Act and the Companies Act. It was also observed that the Legislature has amended the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the sale on the ground that the sale was effected without obtaining permission from the court. The court held that the provisions of section 446 of the Act is applicable either when a winding up order is passed by the court or where the official liquidator is appointed as a provisional liquidator of the company, which is sought to be wound up. In the present case either of the things had happened by the date of sale, therefore, negatived the contention of the applicant. Therefore, it is contended by learned counsel that the facts in the present case are identical to that of the above case, therefore, the application filed by the official liquidator is liable to be dismissed. 47. Learned counsel appearing for the auction purchaser (fourth respondent) relied upon the following decisions : 48. In Rm. Nl. Ramaswami Chettiar v. Official Receiver AIR 1960 SC 70 which is a case, dealing in Provincial Insolvency Act, wherein the Apex Court held that a transfer effected by the insolvent after the presentation of the insolvency petition, would be valid until the said transferee stands annulled by an express order of the court and the transaction would become invalid only from the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption of the winding up proceedings before the company court. Further, though it was contended for the APSFC and APIDC that by virtue of section 46B of the SFC Act, the provisions of section 29 of the SFC Act has got an overriding effect over the provisions of any other Act, but the said contention is without any merit in view of the decision of the Apex Court, wherein it was held that the powers conferred under section 29 of the SFC Act are restricted by virtue of the provisions of section 529 read with section 529A of the Companies Act, which provisions were amended by the Amendment Act, 1985, in order to protect the interests of the workmen of the company under liquidation. In fact, even the Apex Court had gone to the extent of holding that even with reference to the proceedings under the Recovery of Debts Act, for recovery of debts due to the financial institutions, are also bound by the provisions of section 529A of the Act and the official liquidator is required to be associated with the sale as well as to the distribution of the sale proceeds among the secured creditors, as the official liquidator was representing the workmen who were having a pari passu charge over the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the conclusion to pass an order, referring the matter to the High Court for being wound up. At that stage, the APIDC requested for an order to seize the assets of the company for realisation of its debt due. A specific order was passed by the BIFR, as already referred to, negativing the request and further the APIDC was directed to approach this court for seeking permission. The APIDC, without seeking permission of either the appellate authority or this court, seized the assets of the company deliberately, violating the express order of the BIFR, as well as the provisions of the SICA and the Act. The act of APIDC can be considered only as an attempt to overreach the specific order of the BIFR as well as the provisions of both the Acts where there was a specific prohibition against the creditors to proceed against the assets of the company. At this stage it would be appropriate to refer to the relevant declaration made by this court in Sporolac Laboratories (P.) Ltd.'s case (supra) prohibiting the sale during the pendency of the winding up proceedings : ". . . .it is declared that the State Financial Corporation or any other body which has a right similar to the right conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising further loans, not only on the buildings but also on the plant and machinery, therefore, it was claimed that the sale effected in its favour may not be interfered with at this stage, i.e., nearly after 8 years of the sale. 59. This was opposed by counsel for the workers union, contending that a notice was served on the auction purchaser as to the pendency of the proceedings, but no material is brought on record, showing that any notice was served on the auction purchaser at the time of auction, bringing to its notice about the pendency of the winding up proceedings or even the pendency of the appeal before the AAIFR. In the absence of any such notice, there is no other evidence to infer that the auction purchaser had the notice of the pendency of the winding up proceedings before this court. Had the official liquidator approached this court immediately after the sale, even though the auction purchaser had no notice of the pendency of the proceedings, the sale ought to have set aside, in view of the declaration that the said sale is void. But now at this length of time, further in view of the claim made by the auction purchaser that it had made huge investments by raising l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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