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TMI Blog2011 (1) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... rned senior counsel appearing for the company in liquidation and its promoters-shareholders (respondents Nos. 5 to 8), Mr. T.K. Seshadri, learned senior counsel appearing for the ninth respondent (New Horizon Sugar Mills Ltd.), Mr. S. Vasudevan, learned counsel appearing for one of the secured creditors, Mr. Krishna Srinivas, learned counsel appearing for the applicant in C.A. No. 2486 of 2006, Dr. Anita Sumanth, learned counsel appearing for Bharat Heavy Electricals Ltd. (applicant in O.A. Nos. 253 and 254 of 2005) and Mr. Sundar Narayan, learned counsel appearing for the association of depositors of a Nidhi Company, promoted by the same persons who promoted the company in liquidation. 3. The applicant herein granted financial assistance to the total tune of Rs. 49,35,28,000 to the company in liquidation (Arunachalam Sugar Mills Ltd.), under the loan agreements dated September 10, 1998, October 29, 1999 and December 6, 1999, (i) for setting up a 14 MW Bagasse based Co-generation Captive Power Plant ; (ii) for the enhancement of its capacity to 19 MW ; and (iii) for the purchase of energy efficient equipment. The applicant also granted financial assistance to the ninth respondent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ize and deliver the machinery available in the premises of the company in liquidation. By an order dated December 8, 2004, a Commissioner was appointed. By a further order dated March 19, 2005, passed in the next application A. No. 1448 of 2005 taken out by Sundaram Finance Ltd., the Commissioner was directed to sell the machinery. Thereafter, the applicant herein and Sundaram Finance Ltd., entered into a memorandum of understanding dated September 27, 2005, in and by which it was agreed that the applicant would sell all the properties on or before March 31, 2006 and pay the amounts due to Sundaram Finance Ltd. It was also agreed that if the applicant was not able to sell the properties before March 31, 2006, Sundaram Finance would be at liberty to approach this court. 8. In the meantime, the Indian Bank, Pondicherry, from whom also the ninth respondent herein, viz. New Horizon Sugar Mills Ltd., had availed credit facilities, initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by issuing a notice under section 13(2) on September 25, 2004, demanding a sum of Rs. 27,19,15,465. In pursuance of the said n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, but permitted the applicant herein to receive the tenders and keep them in a sealed box. Thereafter, the applicant filed I.A. No. 31 of 2006 before the Tribunal for vacating the stay. By an order dated March 24, 2006, the Tribunal permitted the applicant to open the tenders and retain only the highest bid and return the earnest money deposit to the other bidders. 12. In the meantime, the official liquidator, who was appointed as the provisional liquidator by order dated July 22, 2005 passed in C.A. No. 1393 of 2004 in C.P. No. 229 of 2004, realised that the applicant had taken possession under the SARFAESI Act. Therefore, the official liquidator filed an application in C.A. No. 1786 of 2005 seeking various directions, including a direction to the applicant herein to hand over the possession of the properties. This claim was made by the official liquidator on the ground that the action of the applicant was in violation of sections 446 and 456 of the Companies Act, 1956 as well as sections 13(2) and 37 of the SARFAESI Act, 2002. 13. By an order dated April 24, 2006, the application C.A. No. 1786 of 2005 was allowed and the applicant herein was directed to hand over possession of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already directed to be handed over to the official liquidator and that therefore, nothing survived in the SARFAESI appeal, requiring the same to be transferred to this court. 18. The Respondents Nos. 5 to 8 herein (promoters-directors and their wives) did not challenge the orders passed in C.A. Nos. 1033 and 1039 of 2006, but filed an appeal in O.S.A. No. 226 of 2006, only as against the order passed in C.A. No. 1038 of 2006, directing fresh paper publication to be made for the sale of the properties. The said appeal was disposed of by a Division Bench, by order dated July 25, 2006. In view of the nature of the controversy now raised, it is necessary to extract the order of the Division Bench and hence, it is extracted as follows : "Having heard learned counsel for the parties, as well as the interveners, and with their consent, we remit the matter back to the company court for fresh consideration with the following directions :- (1) All the objections of the Appellants regarding the sale of the company's properties including maintainability of such application shall be considered by the company court. (2) The objections of the respondents regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1038 of 2006. Mr. V. Kannan, who is the fifth respondent herein and who is also the chairman of the company in liquidation, filed a separate application in C.A. No. 1472 of 2006 for impleading New Horizon Sugar Mills Ltd., as the ninth respondent to this application C.A. No. 1038 of 2006. Both these applications were allowed by order dated September 4, 2007, impleading the promoters-directors and their wives as respondents Nos. 5 to 8 herein and impleading New Horizon Sugar Mills Ltd., as the ninth respondent herein. Simultaneously, another application taken out by Bharat Heavy Electricals Limited (who had already obtained interim orders of injunction in O.A. Nos. 253 and 254 of 2005 under section 9 of the Arbitration and Conciliation Act, 1996) was also allowed and they were also impleaded as the tenth respondent. 20. In the meantime, a company by name Walchandnagar Industries Ltd., filed an application in C.A. No. 2486 of 2006, seeking to exclude a boiler sold and supplied to the company in liquidation, from the list of properties, whose sale was sought by the applicant in C.A. No. 1038 of 2006. The case of Walchandnagar Industries Ltd., the applicant in C.A. No. 2486 of 2006, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability as Rs. 158.92 crores. In paragraph 3 of the affidavit, the fifth respondent also made a commitment, which reads as follows : "I submit that the investor identified by the respondent has agreed to the increased investment required which is confirmed by the email which is annexed herewith. Based on the commitments made by the investor, we agree and confirm to make payment to the secured and unsecured creditors in the following manner :- (a) The payments due to the three petitioning creditors will be settled within a period of three to four weeks from today. (b) The entire dues payable to M/s. IREDA, Vijaya Bank, City Union Bank and Sundaram Finance Ltd. will be settled on or before 24/06/2008. (c) The principal claimed by M/s. BHEL will be deposited before this hon'ble court in the pending OA on or before 24/06/2008 with liberty to contest the arbitration initiated by BHEL. (d) The dues payable to cane growers and other unsecured creditors, if any, will also be paid before 24/06/2008." 24. But the above promise turned out to be an empty promise and a period of more than two years was lost in this process, from the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wives (respondents Nos. 5 to 8 herein) in O.S.A. No. 345 of 2008. 28. As against the order dated September 2, 2008 dismissing O.A. Nos. 253 and 254 of 2005 (applications under section 9 of the Arbitration and Conciliation Act), Bharat Heavy Electricals Ltd. filed two appeals in O.S.A. Nos. 341 and 342 of 2008. Therefore, all the four appeals, viz., O.S.A. Nos. 321, 341, 342 and 345 of 2008, two of which arose out of the direction for the sale of the properties issued in C.A. No. 1038 of 2006 and two arising out of the orders in O.A. Nos. 253 and 254 of 2005, were taken up together by the Division Bench. 29. Before the Division Bench, respondents Nos. 5 to 8 and the ninth respondent herein raised a preliminary objection to the effect that the order dated September 2, 2008 directing the sale of the properties was not in accordance with the directions issued by the Division Bench on July 25, 2006 in O.S.A. No. 226 of 2005. In the said order dated July 25, 2006, the Division Bench had directed the company court to consider all objections, including the objection relating to the maintainability of the present application. Therefore, it was contended before the Division Bench on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 254 of 2005, have come back to the company court for a fresh hearing, as it would normally happen in a game of snakes and ladders, putting all the secured and unsecured creditors back to square one and making the borrower to have the last laugh, due to the pitfalls in the system. 32. Therefore, in the light of the emphasis laid on the necessity to consider all the objections of all parties, including the objection relating to the maintainability of the application C.A. No. 1038 of 2006, let me now take up the objections one after another. 33. Mr. C. Harikrishnan, learned senior counsel appearing for respondents Nos. 5 to 8 raised the following objections to the prayer in C.A. No. 1038 of 2006 : (i) since only a provisional liquidator has been appointed to take charge of the affairs of the company in liquidation, the sale of the properties of the company cannot be ordered at this stage ; (ii) an application in Diary No. 6007 of 2006, filed by respondents Nos. 5 to 8, seeking to set aside the order appointing the provisional liquidator is still pending without even getting numbered and that therefore, further proceedings for sale cannot go on, till the dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at therefore, the application C.A. No. 1038 of 2006 should be dismissed. 35. Dr. Anita Sumanth, learned counsel appearing for the tenth respondent opposed the application on the ground that the sale of the properties including the turbo generator manufactured and installed by them, would jeopardise their claim before the Arbitral Tribunal. 36. Since all others support the present application for the sale of the properties and it is only respondents Nos. 5 to 8, the ninth respondent and the tenth respondent, who oppose the sale tooth and nail, I have extracted in detail, the objections raised by these respondents. Now I shall consider each one of them. Objections of respondents Nos. 5 to 8 : 37. As pointed out earlier, the first objection of learned senior counsel for respondents Nos. 5 to 8 is that this court has appointed only a provisional liquidator to take charge of the affairs of the company and that he is actually like a receiver on whom the property has not so far vested, so as to enable him to sell the properties. Relying upon the Division Bench judgment of this court in Sri Chamundi Theatre Mysore Talkies Ltd. v. S. Chandrasekara Rao [1975] 45 Comp. Cas. 60, it was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is not the provisional liquidator, but one of the secured creditors (the applicant herein) who has come up with the application for the issue of a fresh advertisement for sale of the properties of the company in liquidation. There is nothing in the Companies Act, 1956, which restricts or limits the power of this court to order sale of the properties through the official liquidator and hence, the objection based upon the power of the official liquidator is of no relevance to the situation on hand. In the application on hand filed by one of the secured creditors, we are concerned only with the power of this court and not the power of the provisional liquidator to order the sale. Under section 451(1), the liquidator is obliged to perform such duties as the court may impose. Therefore, we are primarily concerned with the question whether the court can order the sale or not. 40. The fact that the powers of the provisional liquidator are just the same as the powers of the liquidator, can be inferred even from the provisions of section 456, which enable the liquidator or the provisional liquidator to take into his custody and under his control, all the properties, effects and action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in Sri Chamundi Theatre was actually taken note of by the Supreme Court in Bakemans, in the very same paragraph 58 itself. 43. In Reinz Talbros Ltd. v. Kostub Investments Ltd. [2009] 96 SCL 108 (Delhi), the order passed by the company judge for an auction sale of the properties of the company involved in winding up proceedings came under challenge before a Division Bench of the Delhi High Court, on two grounds. The first ground related to the validity of the valuation report. The second ground of challenge was that the provisional liquidator had no authority to sell the property. But the said contention was rejected by the Division Bench on the basis of section 450(3) of the Companies Act, 1956. A similar view was expressed much earlier by a Division Bench of the High Court of Punjab and Haryana in Altos India Ltd. v. Bharti Telecom Ltd. [2001] 103 Comp. Cas. 6/30 SCL 347. 44. The second objection of respondents Nos. 5 to 8 is that an application to set aside the order appointing a provisional liquidator is pending in D. No. 6007 of 2006 and that therefore, till it is disposed of, the properties cannot be sold. This objection is to be stated only to be rejected. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for respondents Nos. 5 to 8, the applicant has actually become an unsecured creditor and hence, the properties cannot be sold at their instance. 47. The above objection stems out of a mix up, intentional or otherwise, as to what constitutes a secured asset, in terms of different enactments. Section 2(1)(zc) of the SARFAESI Act, 2002 defines a " secured asset" to mean the property on which security interest is created. Section 2(1)(zf) defines a " security interest" to mean the right, title or interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31. Section 2(1)(zd) defines a " secured creditor" to mean any bank or financial institution. The expression " financial institution" is defined under section 2(1)(m) to mean a public financial institution within the meaning of section 4A of the Companies Act, 1956. The applicant herein is a public financial institution within the meaning of section 4A of the Companies Act, 1956 and hence, it is a secured creditor within the meaning of section 2(1)(zd). Therefore, the right, title and interest created by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demption, since all these acts fall outside the scope of the SARFAESI Act. Therefore, the third objection that the security interest was given up, by the applicant surrendering possession to the official liquidator, is not well founded. 50. It is well settled that a secured creditor is entitled to stand outside the winding up proceedings and can proceed to realise his security without the leave of the winding up court, if by the time he initiated the action, the company had not been wound up. This position in law, settled in one of the earliest cases before the Supreme Court in M.K. Ranganathan v. Government of Madras AIR 1955 SC 604 was followed in Industrial Credit & Investment Corpn. of India Ltd. v. Srinivas Agencies [1996] 8 SCL 55 (SC) and even as late as in 2005 in Andhra Bank v. Official Liquidator [2005] 59 SCL 239 (SC). It was held in Andhra Bank, that the secured creditors have two options (i) they may desire to go before the company judge ; or (ii) they may stand outside the winding up proceedings. The secured creditors of the second category would come within the purview of section 529A(1)(b) read with proviso (c) appended to section 529(1). Therefore, the applicant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions correspond to rule 10 of the Second Schedule to the (English) Bankruptcy Act, 1883 (later rule 11 of the Second Schedule to Bankruptcy Act, 1914). The English Rule uses the expression " surrenders or gives up" . Therefore, rule 10 of the Second Schedule to the Presidency-towns Insolvency Act, 1909, also uses the very same expression " surrenders" , though section 47(2) of the 1920 enactment uses the expression "relinquishment" . But both are intended to convey the same meaning and hence let me now see how the courts have interpreted these expressions. 54. In Union Bank of Bijapur v. Bhimrao Shrinivas Rao AIR 1929 Bom. 258, the expression "relinquishment" was held sufficient to cover an abandonment by conduct. A secured creditor will not be deemed to have surrendered the security unless he has really elected to abandon it, that is omitted to value it deliberately and on purpose. Where the omission is accidental, the court should relieve the secured creditor on terms. (See Re Safety Explosives Ltd. 1904 (1) Ch. 226, Re King 1885 (2) Morr. 119, Re Henry Lister & Co. 1892 (2) Ch. 417. 55. In an unreported judgment of the Division Bench of the Gujarat High Court in Gujarat Stee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator sold the assets of the company and issued a notice in Form 63 under rule 148(1) of the Companies (Court) Rules, 1959. The ICICI bank lodged a claim with the official liquidator. All the first charge holders also filed an application before the company court, seeking payment on pro rata basis, to the exclusion of the claim of the Punjab National Bank. Though the claim for payment on pro rata basis was allowed by the company court, the prayer of the first charge holders to exclude the Punjab National Bank, was rejected by the company court, on the ground that since ICICI Bank, IFCI and IDBI had joined the winding up proceedings and submitted proof of their debts before the official liquidator, they should be taken to have given up their securities. In other words, the company court at Allahabad accepted a similar contention as is now raised by learned senior counsel for respondents Nos. 5 to 8 that the security was given up. An intra court appeal filed against the said order of the company court was also dismissed by the Division Bench, on the ground that since the ICICI bank did not opt to remain outside the liquidation proceedings, in terms of section 47 of the Provincial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen relinquishes the same. The same must be for the general benefit of the creditors. His action must lead to a conclusion that he, for one reason or the other, intended to stand in the queue for receiving money owed to him. It, however, does not stand obliterated only by the filing of an affidavit or proof of claim with the official liquidator. Such a claim had been filed pursuant to a notice issued by the official liquidator. If the creditor does not respond to the said notice, he would not be in a position to bring to the notice of the official liquidator, the existence of his right." Therefore, it is clear from the law laid down by the apex court in ICICI Bank, that a secured creditor cannot be very lightly held to have relinquished his security, unless there was a conscious act on his part. The mere act on the part of the applicant herein in handing over possession to the provisional liquidator in pursuance of an order of this court and in seeking the assistance of this court for the sale of the secured asset, would not tantamount to relinquishment of security. This is made clear even by paragraphs 26 to 28 of the decision in SIDCO Leathers Ltd. (supra). The Court pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the applicant had with the company in liquidation contained an arbitration clause. Therefore, the claim of the applicant cannot be defeated, on the basis of an arbitration clause contained in the agreements that the company had with other lenders. 62. The seventh objection of learned senior counsel for respondents Nos. 5 to 8 is that the claim of the applicant on the ninth respondent could have been satisfied out of the surplus funds available with the Indian Bank, which sold the properties held by them as security interest. 63. I do not know how this objection is raised by respondents Nos. 5 to 8. To show that they have no locus standi to raise this objection and that at any rate there are no bona fides on their part in raising this objection, a little background to what happened between Indian Bank and the ninth respondent is necessary. Therefore, at the cost of a little digression, I may now refer to the proceedings between the Indian Bank and the ninth respondent (New Horizon Sugar Mills Ltd.). 64. For the credit facilities availed by the ninth respondent, the Indian Bank issued a notice dated September 25, 2004 under section 13(2) of the SARFAESI Act. It was followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk. I do not know if the ninth respondent, who was represented by the fifth respondent herein, even brought to the notice of the apex court that in the light of the claims that the applicant and other secured creditors had, the ninth respondent was not entitled to take the balance amount. 67. In pursuance of the aforesaid orders, the process of computation of the claims of the workmen was commenced by the Commissioner of Labour. When the workmen and the Commissioner of Labour took the date October 31, 2006 as the date up to which the workmen will be deemed to have been in service, for the purpose of computation of the benefits under section 25FF of the Industrial Disputes Act, 1947, the ninth respondent protested, contending that the bank had taken possession on January 1, 2005 itself under section 13(5) of the SARFAESI Act. Thereafter, the ninth respondent also filed a writ petition in W. P. No. 11881 of 2010 on the file of this court. As destiny would have it, the said writ petition also came up before me and disposed of by me by order dated June 29, 2010. 68. What is relevant for our present discussion is the fact that in those proceedings, the ninth respondent never roped in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the workers of the ninth respondent as well as the association of depositors of two non-banking finance companies promoted by the very same respondents Nos. 5 to 8, to stall the sale by Indian Bank, failed. There were several litigations at several levels and all of them have now got reduced only to a small area of conflict, which relates to the distribution of the workmen's dues. I have given elsewhere in this judgment, a brief summary of those litigations. 72. It is also admitted by the ninth respondent in their counter affidavit that they obtained credit facilities from the applicant herein for the purchase of energy efficient sugar mill equipment and that those equipment were leased by the ninth respondent to the company in liquidation and also installed in their factory premises. It is further admitted in paragraph 7 of the counter affidavit of the ninth respondent that the applicant holds the first charge over these assets. Therefore, it is still open to the applicant to take possession and bring the energy efficient sugar mill equipment purchased by the ninth respondent and leased out to the company in liquidation to sale, in terms of the provisions of the SARFAESI Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the applications (A. Nos. 4401 of 2004 and 1448 of 2005) filed under section 9 of the Arbitration and Conciliation Act, 1996, for re-possession and sale. The application A. No. 4401 of 2004, was closed on December 7, 2005 after the applicant and Sundaram Finance Ltd., entered into a memorandum of understanding on September 27, 2005. Therefore, the sale of the third category of plant and machinery and equipment, leased out by Sundaram Finance Ltd., to the company in liquidation, cannot be objected to for two reasons, viz., (i) that Sundaram Finance Ltd., is the owner; and (ii) that there are already orders for re-possession and sale. 76. Now we are left only with the fourth category of plant and machinery and equipment. It is the energy efficient equipment, financed by the applicant to the ninth respondent, who in turn leased out the same to the company in liquidation. These equipment are admittedly installed in the factory premises of the company in liquidation. Therefore, the present objection could at best, be raised in respect of this fourth category of movable property. 77. But as pointed out earlier, the applicant had already initiated proceedings under the SARFAESI Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inth respondent is that the power of this court to order the sale of the properties of a company, which is sought to be wound up, can be traced only to section 443(1). Clauses (a) to (d) of sub-section (1) of section 443 empowers this court only to make any interim order that it thinks fit. Therefore, according to the ninth respondent, the sale of the properties of the company, during the pendency of a winding up petition, which would virtually be in the nature of a final order, ought not to be passed by this court. 79. It is the further contention of the ninth respondent that even the powers of the provisional liquidator are stipulated in sections 450 and 456(1). Neither section 450 nor section 456(1) empowers the provisional liquidator to sell the properties in the course of the proceedings for winding up. Therefore, it is their contention that the sale cannot be ordered. 80. But the above contention cannot be countenanced in view of the fact that one must read the provisions of sections 443, 446, 450, 456 and 457 conjointly to arrive at a meaningful interpretation of the powers of the provisional liquidator and the powers of this court. In Ramakrishna Industries (P.) Ltd. v. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies (Courts) Rules, 1959, enables this court to appoint a provisional liquidator, upon such terms as in the opinion of the court shall be just and necessary. Sub-rule (2) of Rule 106 stipulates that the order appointing the Provisional Liquidator shall set out the restrictions and limitations, if any, on his powers imposed by the court. The order of appointment is required to be in Form No. 49. The substantive portion of Form No. 49 reads as follows : "Order Appointing Provisional Liquidator Upon the application of . . . . . . . ., and upon hearing Shri . . . . . advocate for the applicant and Shri . . . . . . ., advocate for the company and upon reading the petition and affidavit filed the . . . . . . . . day of . . . . . 19 . . . . . . ., and the affidavit of the applicant herein filed the . . . . . . . day of . . . . . . . 19 . . . . . . . . This court doth appoint the official liquidator attached to this court to be provisional liquidator of the above named company; And the court doth hereby limit and restrict the powers of the said provisional liquidator to the following acts, that is to say : (Here describe the acts, which the provisional liquidator is author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Liquidator [2005] 63 SCL 468 SC/128 Comp Cas 387; [2005] 8 SCC 190. The question that arose for consideration in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 (SC) related to the jurisdiction of the Debts Recovery Tribunal under the RDDB Act, 1993 vis-a-vis the company court. The Supreme Court held therein that even where a winding up petition is pending, the adjudication of liability and execution of the certificate in respect of the debts due to banks and financial institutions, fell within the exclusive jurisdiction of the Debts Recovery Tribunal and that in such cases, the company court's jurisdiction under sections 442, 446 and 537 of the Companies Act stood ousted. Therefore, it was held therein that the leave of the company court was not necessary for initiating proceedings under the 1993 Act. But the decision in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 (SC) was explained in the next decision of the Supreme Court in Andhra Bank (supra). 88. In Rajasthan Financial Corporation v. Official Liquidator [2005] 128 Comp Cas 387, the question that arose for consideration was as to the right of the State Financial Corporation under Section 29 of the State Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company in liquidation." 89. Therefore, following the above ratio, the Division Bench held in Asset Reconstruction Company that when the securitisation company acting under section 13 of the SARFAESI Act seeks to sell or otherwise transfer the assets of a debtor company in liquidation, the said power is to be exercised only after obtaining appropriate permission from the company court and acting in terms of the directions issued by that court, as regards associating the official liquidator with the sale. Therefore, it is in pursuance of this decision that the applicant, who is undoubtedly a secured creditor, has come up with the above application and hence, no exception can be taken to the same. 90. Even in an unreported decision of P. Sathasivam J. (as he then was), in C A. Nos. 10 of 2002 batch in C. P. No. 39 of 1994, relied upon by learned senior counsel appearing for the ninth respondent, the learned judge made it clear in paragraph 26 that when the property is in the custody of the Official Liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e placed by learned senior counsel for the ninth respondent in the decision of a learned judge of the Bombay High Court in Divya Chemicals Ltd., In re [2005] 127 Comp Cas 853; [2005] 64 SCL 429, is of no assistance to the ninth respondent, in view of the fact that in the case before the Bombay High Court, the official liquidator sought permission of the company court to sell the properties and the same was opposed by the Banks and Financial Institutions on the ground that they had already obtained certificates of recovery from the Debts Recovery Tribunal and that they have opted to stand outside the winding up proceedings. 93. Ultimately, the Supreme Court pointed out (paragraph 63) in Bakemans Industries P. Ltd. v. New Cawnpore Flour Mills [2008] 144 Comp Cas 71 that the company court cannot ignore the role to be played by the official liquidator and that it is not necessary for the company court to wait till the company is wound up. The over all purport of the decision in Bakemans Industries P. Ltd. v. New Cawnpore Flour Mills [2008] 144 Comp Cas 71 is that the power of the court to order the sale of the assets of the company in liquidation, has to be exercised, by involving the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that they also have stakes in the matter. For instance, Vijaya Bank, which is the fourth respondent in this application did not enter into any memorandum of understanding with the applicant. Nevertheless, they have supported the application in the course of its hearing. It does not mean that after the commencement of the proceedings for winding up under section 441(2), they have reached an understanding outside the court unlawfully. 97. Moreover, the present application has been filed not at the instance of the second respondent nor in pursuance of the memorandum of understanding dated September 27, 2005. It was filed only as a result of the order passed by this court directing the applicant to surrender possession. In any event, the parameters for considering an application of this nature, are different and the memorandum of understanding dated September 27, 2005 is not one of the parameters. Therefore, the ninth respondent cannot make much ado about this memorandum of understanding. 98. Under section 529(1) of the Companies Act, 1956, the Rules which are in force under the law of insolvency, with respect to the estates of persons adjudged as insolvents, shall apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvent company, insofar as 3 aspects are concerned, viz., (i) debts provable; (ii) valuation of annuities and future and contingent liabilities; and (iii) the respective rights of secured and unsecured creditors, let us now take a look at the provisions of the Provincial Insolvency Act, 1920 and Presidency towns Insolvency Act, 1909. 103. While the Provincial Insolvency Act, 1920, consolidates and amends the law relating to insolvency as administered by courts having jurisdiction outside the Presidency Towns, the Presidency Towns Insolvency Act, 1909, amends the law relating to insolvency in Presidency Towns. Section 2(1)(e) of the 1920 Act, defines a "secured creditor" to mean "a person holding a mortgage, charge or lien on the property of the debtor or any part thereof, as a security for a debt due to him from the debtor". In contrast, section 2(g) of the 1909 Act, contains only an inclusive definition of the expression "secured creditor". It includes a landlord who has a charge on land for the rent of that land, under any enactment. 104. Section 47 of the 1920 Act, contemplates 3 situations viz., (i) where a secured creditor realises his security and still left with some m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the summoning of and the proceedings at a meeting of creditors. 109. Rules 11 and 13 of the First Schedule, deal with secured creditors. In essence, rules 11 and 13 are similar to sub-sections (1) to (4) of section 47 of the 1920 Act. Rule 11 of the First Schedule contains two limbs. The first limb requires the secured creditor, who has not surrendered his security, to file a proof containing the particulars of his security and the value at which he assesses the security. In such a case, he is entitled to vote only in respect of the balance due to him, after deducting the value of his security. The second limb of rule 11 contains a deeming fiction, by which a secured creditor will be deemed to have surrendered his security, if he votes in respect of the whole debt. Virtually rule 11 of the First Schedule to the 1909 Act, is akin to sub-sections (1) and (2) of section 47 of the 1920 Act. 110. Rule 13 of the First Schedule to the 1909 Act, empowers the official assignee to require the creditor to give up his security, for the benefit of the general body of creditors, upon payment of the value estimated. In other words, it is an act of redemption. Therefore, rule 13 is akin to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red creditor, he can require the property to be offered for sale on such terms and conditions as agreed between the creditor and the official assignee. If there was no agreement on the terms and conditions, the court itself may fix the terms and conditions. Rule 12(2) goes to the extent of enabling the creditor and the official assignee to bid and purchase the security, if it is sold in a public auction. The proviso to rule 12(2) also fixes a period of limitation for the official assignee to exercise the right to the equity of redemption. 115. Rule 18 of the Second Schedule to the 1909 Act, an equivalent of which is not found in the 1920 Act, deals with the power of the court to inquire into a claim of mortgage on the insolvent's real estate. Since it is of some significance for the discussion on hand, it is extracted as follows : "18. Inquiry into mortgage, etc.-Upon application by any person claiming to be a mortgagee of any part of the insolvent's real or leasehold estate and whether such mortgage is by deed or otherwise, and whether the same is of a legal or equitable nature, or upon application by the official assignee with the consent of such person claiming to be a mortgag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contentions raised on behalf of the company in liquidation as well as to the contentions raised on behalf of respondents Nos. 5 to 9. Speaking of the rights of the mortgagee, the Supreme Court held in paragraph 49 of its decision in SIDCO Leathers Ltd. case (supra) as follows : "While enacting a statute, Parliament cannot be presumed to have taken away a right in property. Right to property is a constitutional right. Right to recover the money lent by enforcing a mortgage would also be a right to enforce an interest in the property." Therefore, the right of the applicant as a secured creditor to recover the money lent to the company in liquidation, by enforcing the mortgage, cannot be very lightly obliterated. As a matter of fact, the Supreme Court in SIDCO Leathers Ltd. (supra). quoted with approval of the decision of the Karnataka High Court in State Bank of Mysore v. Official Liquidator [1985] 58 Comp. Cas. 609, wherein it was held that section 47 of the Provincial Insolvency Act, 1920 is intended for the benefit of the mortgagee and not to his detriment. In that decision, the Karnataka High Court held that section 47(3) does not come in the way of the official liquidator e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company failed to make payment, the bank took possession on January 1, 2005 and issued an auction sale notice. Apprehending that the sale of the properties of New Horizon Sugar Mills Ltd., would leave them high and dry, the association of depositors of the finance company, viz., PNL Depositors Welfare Association filed a writ petition challenging the auction sale. The workers of the Mill also filed a writ petition challenging the proposed auction sale. The writ petitions were disposed of on July 12, 2005, leaving it open to the depositors to work out their remedies under the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004. In the meantime, criminal complaints were also registered against respondents Nos. 5 and 6, at the instance of the depositors, on the allegation that they misappropriated more than Rs. 12.5 crores invested by the depositors. Respondents Nos. 5 and 6 and their other family members were arrested by the police in August 2005 and were in judicial custody till December 2005. In the meantime, the Chief Judicial Magistrate, Pondicherry, passed an order, attaching the properties standing in the names of respondents Nos. 5 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lam Sugar Mills Ltd., and as such they are persons interested in the management and affairs of the said companies and the financial establishment. Though these companies and the financial establishment are separate legal entities, as contended by learned counsel for the parties concerned, and, therefore, the properties standing in the names of the respective companies and the individuals are distinct and independent from each other, but the real beneficiaries behind the corporate mask are one and the same persons. It is also pleaded in the counter-affidavits filed by the Government of Pondicherry that M/s. V. Kannan and V. Bhaskaran, who are said to be the major shareholders and directors of Pondicherry Nidhi Ltd./PNL Nidhi Ltd., as well as directors of New Horizon Sugar Mills Ltd. and Arunachalam Sugar Mills Ltd., have misappropriated huge sums of money deposited by the general public in PNL Nidhi Ltd., and diverted the said amount to their own trade and business of the said sugar mill companies. In such circumstances, when the very object and purpose of Act 1 of 2005 is to protect the interests of the depositors of the financial establishment and particularly when section 4(2) em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale is only with a view to keep the secured creditors, unsecured creditors and the depositors as well as the long (if not mutilated) arm of the law at bay. As a matter of fact, a reasonably good offer appears to have been received from a leading sugar mill, for buying the properties in question. After it was stalled, the movable properties such as plant and machinery and co-generation and energy efficient equipment have only depleted in value. By raising all sorts of objections and fighting several litigations against every move initiated by the creditors and depositors, for over six years, respondents Nos. 5 to 8 have merely converted this court into a R&D (Legal) Wing of the company in liquidation, at the cost of innumerable creditors and poor depositors. The respondents Nos. 5 to 9 have fought SARFAESI proceedings from this court up to the Supreme Court. They have been fighting these liquidation proceedings before the company court and before the Division Bench, back and forth. They have fought the proceedings initiated under the Protection of Interest of Depositors Act, up to the Supreme Court. They have fought the question of payment of workmen's dues up to the Supreme Court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led a copy of the plaint filed by them in Civil Suit No. 19 of 2005 on the file of the court of the Civil Judge, Senior Division, Baramati, for recovery of a sum of Rs. 1,12,32,150, from the company in liquidation. But in the suit, the applicant did not seek to exercise or enforce their so-called lien on the boiler. A reading of the plaint would show that the applicant had conceded the passing on, of the title in the boiler to the company in liquidation. The suit claim was not made on the claim of unpaid vendor's lien. It was a simple suit for recovery of money, without anything more. Therefore, the decree was also just for payment of money and nothing more. Hence, the applicant cannot now seek the exclusion of the boiler, on the ground that they are unpaid vendors, who have a lien. 127. An "unpaid seller" is defined under section 45(1) of the Sale of Goods Act, 1930, to mean a seller of goods (i) if the whole of the price has not been paid or tendered to him; or (ii) if a bill of exchange or other negotiable instrument was received as conditional payment and the condition on which it was received had not been fulfilled by reason of dishonour of the instrument. An unpaid seller ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of injunction restraining the company in liquidation from alienating or encumbering or disposing of the land and building comprising of the factory of the company at Arunachalam Nagar, Malapampadi Village, Tiruvannamalai Taluk and the plant and machinery lying thereon. 133. It is contended by Dr. Anita Sumanth, learned counsel for the applicant Bharat Heavy Electricals Ltd., that the company in liquidation entered into two contracts with the applicant herein. By these contracts, the applicant agreed to supply a 8,400 KW capacity extraction-cum-back pressure turbo generator with its auxiliaries and a 4,280 KW capacity low pressure straight condensing turbo generator with all its accessories. While the value of the former contract was Rs. 3,00,00,000 together with USD 470,500, the value of the later contract was Rs. 4,85,75,000, together with USD 1,37,647. 134. In respect of the former contract, the entire equipment was supplied and commissioned on June 9, 2001. In respect of the later contract, the billing schedule was not approved and a despatch clearance was not made. However, in order to avoid the blame being shifted to them, the applicant despatched all the equipment exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein to the sale of the turbo generators supplied by them to the company in liquidation, cannot be sustained and their applications under section 9 deserve to be dismissed. Conclusion : 139. In the light of the above discussion- (i) C.A. No. 2486 of 2006 is dismissed with liberty to the applicant to lodge its claim with the official liquidator. No costs. (ii) O.A. Nos. 253 and 254 of 2005 are dismissed with liberty to the applicant to lodge its claim with the official liquidator. No costs. (iii) C.A. No. 1038 of 2006 is allowed. The official liquidator is directed to effect publication in one edition of the English Daily 'Indian Express' (All India edition) and one edition of the Tamil Daily 'Daily Thanthi' (All India edition), inviting sealed tenders for the purchase of the assets, both movable and immovable, belonging to the company in liquidation and financed by the applicant as well as the second respondent. The publication shall indicate that it is issued by the official liquidator both on his behalf and on behalf of the applicant (IREDA) as well as the second respondent (Sundaram Finance Ltd.), in respect of the assets of the company in liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll also send intimation of the proposed sale to some of the leading sugar mills in the country, including (i) the sugar mills which already evinced interest in buying these properties by tendering letters of offer; and (ii) the sugar mill which purchased the properties of the ninth respondent. 140. In order to avoid any confusion, it is made clear at the cost of repetition that the newspaper publications inviting tenders, should contain the following details : (i) The upset price of the land, building, plant and machinery and other movables, as detailed in the preceding paragraph. (ii) The cost of the tender forms, the last date for submission of tenders, the dates for inspection and the date of the auction. (iii) The fact that the tender forms should be accompanied by Demand Draft/Pay Order representing 5 per cent. of the bid amount quoted by the tenderer towards earnest money deposit. (iv) The fact that the sealed tenders are to be submitted along with the Pay Order/Demand Draft, addressed to the Registrar General of this court, on or before February 27, 2011. (v) The fact that it is issued by the official liquidator both on his behalf an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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