TMI Blog2008 (2) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... Sarath for the Applicant. ORDER 1. This application is filed by the A.P. State Financial Corporation to permit them to appropriate Rs. 50 lakhs, deposited in Andhra Bank pursuant to the orders of this Court in C.A. No. 1680 of 2004, subject to enforcement of the dues of the workmen by the Official Liquidator. 2. C.A. No. 1680 of 2004 was filed by the Applicant-Corporation seeking confirmation of the sale of the land and buildings, mortgaged in favour of the Applicant- Corporation by the company in liquidation, for Rs. 50 lakhs. Both the Applicant and the A.P.I.D.C. held first charge over the properties of the company in liquidation. This Court, by order in C.A. No. 1680 of 2004, directed that the amounts, realized on the sale of the lands and buildings, be kept in interest bearing deposits and that distribution of the proceeds would be subject to further orders of Court. The applicant finalized the highest bidder, deposited the amount realized on the sale of lands and buildings of Rs. 50 lakhs with Andhra Bank, R.C. Puram Branch in interest bearing deposits. On the plea that they were not aware of the dues, if any, payable to its workmen by the company in liquidation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of the order of winding-up in terms of Rule 154 of the Companies (Court) Rules, 1959 as that would provide a uniform basis. He further states that the applicant-corporation is also required to submit itself and seek adjudication of its dues by the Company Court and that distribution of the profits, on the sale of assets of the company at the instance of the financial institutions coming under the Recovery of Debts Act or Finance Corporations coming under the State Finance Corporations Act, can only be made in terms of section 529A of the Companies Act under the supervision of the Company Court. He would rely on Rajasthan State Financial Corpn. v. Official Liquidator [2005] 8 SCC 190 1 (SC) in this regard. 5. Sri T. Sharath, learned Counsel for the Applicant-A.P. State Finance Corporation, would submit that under the agreement entered into by A.P.S.F.C. and A.P.I.D.C. with the company under liquidation, they were entitled to be paid interest on their outstanding dues at 16 per cent per annum and that the Applicant had computed the amounts due to it to include interest at 16 per cent per annum till the date of filing of the application in C.A. No. 33 of 2006 i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, satisfy its dues which includes not only the principal and interest at the contracted rate till the date of the order of winding-up but also interest at the contracted rate till the date of realization of their dues, and since Rule 156 of the Companies (Court) Rules, 1959 limits the interest payable after the date of the order of winding-up, the said rule is ultra vires the provisions of the Indian Contract. Order of winding-up : Its effect on repayment of the dues of the creditors of the company 8. As the validity of Rule 156 is put in issue, it is useful to extract the said rule and the related rules. Rules 154, 156 and 174 relate to the value of debts, interest and settlement of the list of creditors and read as under : " Rule 154 : Value of debts. - The value of all debts and claims against the company shall, as far as is possible, be estimated according to the value thereof at the date of the order of the winding-up of the company or where before the presentation of the petition for winding-up, a resolution has been passed by the company for voluntary winding-up, at the date of passing of such resolution. Rule 156 : Interest. - On any debt or certain sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing with the company s assets in accordance with the statutory scheme, collect the assets of the company and to apply them in discharge of its liabilities. If there remains any surplus he must distribute it among the members of the company in accordance with their respective rights under the Memorandum and Articles of Association. In performing these duties in a compulsory winding-up the liquidator acts as an officer of the Court. All powers, of dealing with the company s assets, are exercisable by the Liquidator only for the benefit of those persons who are entitled to share in the proceeds of realization of the assets under the statutory scheme. Ayerst (Inspector of Taxes) v. C K (Construction) Ltd. 1975 (2) All ER 537 (HL). 11. The effect of a winding-up order is that, except for certain preferential payments provided in the Companies Act, the property of the company is to be applied in satisfaction of its liabilities. Pari passu distribution is to be made in satisfaction of the liabilities as they exist at the commencement of the winding-up. Once a winding-up order is passed the undertaking and the assets of the company pass under the control of the Liquidator who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company are sold and the proceeds realised, the debts by way of workmen s dues, and that of the secured creditors, have to be paid in full if the assets are sufficient to meet them and, if they are not sufficient, in equal proportions. 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 the Official Liquidator and under the supervision of the Company Court. The right of a financial institution stands restricted by the requirement of the Official Liquidator being associated with it, giving the Company Court the right to ensure that the distribution of the assets in terms of section 529A of the Companies Act takes place. The right to sell under the SFC Act, or under the Recovery of Debts Act, by a creditor coming within those Acts, and standing outside the winding-up, is different from the distribution of the proceeds on the sale of the security. The distribution, in a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , can only be till the date of the order of winding up, and not thereafter. Accepting the submission of Sri T. Sharath, learned counsel for the applicant, would mean that the time taken by the Official Liquidator to realize the assets, and to discharge the liabilities, would enure to the benefit of the secured creditor and to the detriment of the workmen who, under section 529A of the Companies Act, are entitled for repayment of dues pari passu with the dues of the secured creditor. 18. This question can be examined from another angle also. The dues payable to the secured creditor inclusive of the contracted rate of interest has a bearing on the preferential payment to be made to a workman under section 529A of the Companies Act. More often than not, the amounts received by the Official Liquidator, on the sale of the assets of the company in liquidation, is insufficient to meet the entire dues of the secured creditors and the workmen, necessitating the amount available being paid to them pari passu. If the total dues payable to a secured creditor increases, then the proportionate amount available for repayment of the dues of the workmen decreases. Accepting the contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Procedure Code which are inconsistent therewith, will not apply. 21. In the absence of the provisions of the Code being made applicable in its entirety, it is not free from doubt whether the provisions of Order 27A C.P.C. would apply enabling a challenge to be made to the vires of a statutory rule made under the provisions of the Companies Act, that too by way of an application to the Court established under, and required to function in accordance with, the provisions of the Companies Act. The contention, however, is that in view of section 141 of the Civil Procedure Code, the procedure prescribed under the Code in regard to a suit shall be followed in all proceedings in any Court. 22. Section 2(11)( a ) of the Companies Act defines "Court" to mean, with respect to any matter relating to a company, (other than any offence against the Companies Act), the Court having jurisdiction under the Companies Act with respect to that matter relating to that Company, as provided under section 10. 23. Section 10, which relates to jurisdiction of Courts, reads thus : "10. Jurisdiction of Courts. (1) The Court having jurisdiction under this Act shall be ( a )the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997] 3 SCC 261; State (Union of India) v. Ram Saran AIR 2004 SC 481. It can only decide the dispute between parties in terms of the provisions of the Act. The question of ultra vires is foreign to the scope of its jurisdiction. K.S. Venkataraman Co. v. State of Madras AIR 1966 SC 1089. Similarly, regulations framed under the authority of subordinate legislation conferred under the Act become a part of the statute and the High Court, sitting as a Court under the Act, cannot go into the validity of the regulations. West Bengal Electricity Regulatory Commission v. C.E.S.C. Ltd. [2002] 8 SCC 715. Since the High Court, exercising jurisdiction under the Companies Act and the rules made thereunder, is a creature of the Companies Act it cannot examine the vires of any of the provisions of the said Act or of any of the rules made thereunder. 26. It is, however, not necessary to examine these questions any further as in the present application the applicant has, in fact, not even challenged the vires of Rule 156 of the Companies (Court) Rules, 1959. It is only on this Court pointing out that, under Rule 156, the applicant, despite being a secured creditor, was not entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
