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TMI Blog2008 (9) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the said Act"), if it deems fit. The facts revealed from the case that three companies, viz., Ganapati Exports Ltd., Ganapati Combines Ltd., and Ganapati Commerce Ltd. (in liquidation) were wound up by virtue of an order passed by the hon'ble High Court. The only question arose in this matter is that the primacy of the said Act of 1993 over the company court's jurisdiction to interfere with an order passed by the recovery officer under the said Act. It is to be noted that the appeals have been filed by the secured creditor Bank of Rajasthan Ltd. (hereinafter referred to as "the bank") and at the instance of the said companies, they were directed to be wound up. It further appears that the bank is a secured creditor of the said three companies of Ganapati group (in liquidation) and at the behest of the bank, the said companies were wound up. The assets of the said three companies (in liquidation) were sold off by the official liquidator pursuant to the order so passed by the hon'ble court. The sale proceeds are in the hands of the official liquidator for the ascertainment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in support of this appeal submitted before us that the order so passed by the hon'ble first court is a nullity since the court has no jurisdiction to pass such an order. The attention of this court is also drawn to section 18 of the said Act of 1993 and it is submitted mat the official liquidator is not without remedy against the order so challenged in the present proceedings. It is also emphatically submitted that under the Act itself, the official liquidator has remedy to challenge the said order before the appropriate forum but certainly not before the company court. It is pointed out that the adjudication of liability and recovery of the amount by execution of the certificate are within the exclusive jurisdiction of the Tribunal and in fact, the recovery officer has expressed his views in the order dated September 24, 2003, where the recovery officer agreed with the official liquidator that the matter could not be dealt with by him without reference to the court presiding over the liquidation proceedings. The bank filed an appeal from the said order and the Presiding Officer on May 7, 2004, directed the recovery officer to proceed with the matter without requiring the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute. Therefore, he submitted that the order which has been passed by the hon'ble first court, should be set aside. On the contrary, the point submitted by Mr. Dhandhenia, learned advocate appearing in support of the official liquidator that the official liquidator shall act in the matter as an officer of this court since the official liquidator filed the said application before the hon'ble first court only to have an order from his Lordship to act in accordance with the order so to be passed by the court. We have heard the learned advocate for the parties. We have also perused the facts of this case and the point as urged in this matter by Mr. Sen that whether by virtue of provisions of 1993 Act, the learned Tribunal has the primacy over the amount which are held by the official liquidator and the official liquidator has the duty to assist the learned Tribunal in the matter of disbursement and like. Mr. Sen further submitted that there is a little role for the company court or for the official liquidator to bring the matter before the company court since the authority of the learned Tribunal and its officer under the 1993 Act has the wide amplitude as laid down by the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. When the Presiding Officer by an order dated May 7, 2004, directed the recovery officer to preside over with the matter without taking any leave from the company court, he presided over the liquidation proceedings. At that point of time, the question arose whether the said Act would prevail over the Companies Act and whether the authority of the learned Tribunal under the 1993 Act hold sway over the companies court jurisdiction regarding the certificate debtor companies which were in liquidation. In the decision in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 ; [2000] 4 SCC 406, the Supreme Court held that the appellant-bank obtained a simple money decree against the company from the Debts Recovery Tribunal on January 31, 1998, under section 19 of the said Act. A recovery proceeding was filed before the recovery officer and the Canara Bank also filed an application as a secured creditor before the same Tribunal for recovery of the debt from the same company and the respondents application remain undecided when the matter went up before the hon'ble Supreme Court. A third party had filed a winding up petition against the said debtor company. In that case, an order was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the realisations made by the Recovery Officer and is there any difference between cases where the secured creditor opts to stand outside the winding up and where he goes before the company court ? (6)What is the relief to be granted on the facts of the case since the Recovery Officer has now sold some properties of the company and the monies are lying partly in the Tribunal or partly in this court ?" The hon'ble Supreme Court further expressed the opinion that the jurisdiction of the learned Tribunal under the said Act in regard to the adjudication was exclusive as was the authority of the recovery officer in matters relating to execution of the certificate granted by the learned Tribunal. The Supreme Court also considered the effect of sections 442, 446 and 537 of the Companies Act in respect of the companies which were defendants or certain debtors in proceedings under the 1993 Act and accordingly held as follows (page 81 of 101 Comp Cas) : "34. While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour of jurisdiction and powers of the company court in Sudarsan Chits ( I) Ltd. v. G. Sukumaran Pillai [1984] 4 SCC 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that a view had rightly been taken by some High Courts and that the said Act was a special statute and as such the provision of the said special statute would prevail over the provision in the general statute, if there is a conflict between the provisions of the two enactments. The Supreme Court also held that there could be a situation in law where the same statute is treated as a special statute vis-a-vis one legislation and again as a general statute vis-a-vis yet another legislation. Alternatively, the Companies Act, 1956 and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, section 34. A similar situation arose in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803 ; [1993] 2 SCC 144, where there was inconsistency between two special laws, the State Financial Corporations Act, 1951 and the Sick Industrial Companies (Special Provisions) Act, 1985. The latt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to the other persons entitled thereto in accordance with the priorities in the law.' The above recommendations as to working out 'priorities' have now been brought into the Act with greater clarity under section 19(19) as substituted by Ordinance 1 of 2000, inter alia, whereof. Priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act. Section 19(19) of the RDB Act reads as follows : '19(19). Where a certificate of recovery is issued against a company registered under the Companies Act, 1956 (1 of 1956), the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors in accordance with the provisions of section 529A of the Companies Act, 1956 and to pay the surplus, if any, to the company.' Section 19(19) is clearly inconsistent with section 446 and other provisions of the Companies Act. Only section 529A is attracted to the proceedings before the Tribunal. Thus, on questions of adjudication, execution and working out priorities, the special provisions made in the RDB Act have to be applied." In that case, this court was not called upon to decide the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time to the introduction of section 529A of the Companies Act by Act 35 of 1985 and it had overriding effect. But it noticed that by virtue of section 19(19) of the Recovery of Debts Act, the priorities among various creditors had to be decided by the Recovery Tribunal only in terms of section 529A of the Companies Act and section 19(19) did not give priority to all secured creditors. Hence, it was necessary to identify the limited class of secured creditors who have priority over all others in accordance with section 529A of the Companies Act. The court also held that the occasion for a claim by a secured creditor against the realisation by other creditors of the debtor under section 529A read with proviso (c) to section 529(1) of the Companies Act could arise before the Debts Recovery Tribunal only if the creditor concerned had stood outside the winding up and realised amounts and if it is shown that out of the amounts privately realised by it, some portion had been rateably taken away by the liquidator under clauses (a) and (b ) of the proviso to section 529(1). The court has not held that section 529A of the Companies Act will have no application in a case where a proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Canara Bank [2000] 101 Comp Cas 64 ; [2000] 4 SCC 406, that need to be adhered to. Moreover, section 19(19) of the 1993 Act does not cover every situation where the principal defendant in bank claim is a company, though a plain reading of the sub-section would imply otherwise. The expression "company registered under the Companies Act, 1956" appearing in the sub-section has to be construed to imply "company in liquidation" or else the sub-section would carry no meaning. The proceeds from the sale of a secured asset of a company, other man a company in liquidation have to be made over to such company to the extent the same are in excess of the value of the certificate. In such a case there would be no question of distribution of the 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt laid down that (page 82) "priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act". At paragraph 51 of the report, the Supreme Court reiterated that (page 88) "the adjudication, execution and distribution of the sale proceeds and working out priorities ...-so far as the monies realised under the RDB Act are concerned-has to be done only by the Tribunal and not by the company court". At paragraph 55 of the report, the Supreme Court referred to the applicability of section 73 of the Code of Civil Procedure in the matter of (page 89) "sharing in the sale proceeds (here, sale proceeds realised under the RDB Act)". At paragraph 56, the position has been clarified in unequivocal terms as follows (page 90) : "56. The discussion here is confined to sharing the realisations made by the Recovery Officer under the RDB Act where winding up proceedings are pending in the company court against the defendant-company." The same thought is reflected in the opening sentences of paragraphs 58 and 76, respectively, of the report. In the decision in Rajasthan Financial Corporation v. Official Liquidator [2005] 128 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concurrence of the official liquidator and the official liquidator is required to take the permission of the court before giving such concurrence since he is an officer of the court and is required to act under the directions of the court while exercising his powers on behalf of the workers. The court held that there was no inconsistency between the SFC Act and section 529 read with section 529A of the Companies Act and hence section 46B of the SFC Act was not attracted. The court further held that in the case of conflict in power between the official liquidator appointed by the company court and the receiver appointed by the civil court in a suit filed by the secured creditor, the interest of the official liquidator should have precedence. The distribution of the assets could only be in terms of section 529A of the Act and by recognising the right of the official liquidator to calculate the workmen's dues and collect it for distribution among them pari passu with the secured creditors. The official liquidator representing a ranked secured creditor working under the control of the company court cannot, therefore, be kept out of the process. Hence, on the authorities what emerge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the distribution of the proceeds of the sale of the security. The distribution in a case where the debtor is a company in the process of being wound up, can only be in terms of section 529A read with section 529 of the Companies Act. After all, a liquidator represents the entire body of creditors and also holds a right an behalf of the workers to have a distribution pari passu with the secured creditors and the 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. Further, to ensure the proper working 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 the case of International Coach Builders Ltd. v. Karnataka State Financial Corporation [2003] 114 Comp Cas 614 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficial liquidator representing workmen for the "pari passu" charge in their favour under the proviso to section 529 of the Companies Act, 1956. If the official liquidator does not consent, SFCs have to move the company court for appropriate directions to the official liquidator who is the "pari passu" chargeholder on behalf of the workmen. In any event, the official liquidator cannot act without seeking directions from the company court and under its supervision. The unhindered right hitherto available to 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. After analysing these decisions and after perusing the materials on record placed before us and the judgment of the hon'ble first court, we are of the opinion that the hon'ble company judge after analysing all these decisions came to the conclusion that section 28(4) of the said Act of 1993 permits a recovery offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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