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TMI Blog2012 (6) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... erest Act, 2002 (hereinafter referred to as the "SARFAESI" Act). In that context, the second respondent herein had objected to the passing of the winding up order. But, this Court on holding that the secured creditor's right to sell the secured asset is not affected, had rejected the objections and proceeded to pass the order of winding up. Subsequent thereto, the second respondent has taken steps for sale of the properties belonging to the Company-in-liquidation as provided under the Security Interest (Enforcement.) Rules, 2002 (hereinafter referred to as 'Enforcement Rules') and movable assets are already sold. In the said process, the second respondent is contemplating sale of the immovable property by private treaty. The applicant, apprehending that the said process would not fetch the true value, is before this Court in this application praying that the second respondent be restrained from selling the assets by private negotiation, instead to follow a transparent process. The concern of the applicant is that if the real value is realised, the other creditors also could be settled. 3. The second respondent apart from justifying the action with regard to the sale of plant and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding unsecured creditors are to be discharged, if sufficient funds are available. Therefore, even if a secured creditor exercises right under the SARFAES1 Act, the Official Liquidator should be involved in the process of selling the properties so as to monitor the process by which the maximum benefit to the Company-in-liquidation is derived. Even though Section 85 of the SARFAESI Act provides or overriding anything inconsistent contained in any other law, the Act vide Section 37 clarifies that what is provided under the SARFAESI Act is in addition to and not in derogation of the Companies Act. Hence, it is contended that when the amount realised is to be distributed on pari passu basis as contained in Section 529 and 529-A of the Companies Act, the Official Liquidator has a role to play and cannot be excluded by the secured creditor acting under the SARFAESI Act. 7. The gist of the contention on behalf of the second respondent is that the secured creditor has exercised its right under Section 13 of the SARFAESI Act and possession of the property was taken in 2008, much prior to the winding up order passed on 18.08.2010. Even while passing the winding up order, the Company Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition to the Companies Act and not in derogation of the same. The said section is the later section in the same enactment and should prevail over Section 35 and as such, the provisions of SARFAESI Act cannot override the provisions of the Companies Act. The learned senior counsel for the second respondent, on the other hand relied on the decision of the Division Bench of the High Court of Madras in the case of K. Chidambara Manickam v. Shakeena [2009] 152 Comp. Cases 196 to contend that it has been held therein that Section 35 has overriding effect. 10. A perusal of the above referred decision would indicate that the Division Bench was considering whether the right of redemption available before the execution of sale deed under the Transfer of Property Act could be taken away by the auction conducted as provided under SARFAESI Act. Having noticed the conflict with another law for the time being in force, the Division Bench was of the view that since Section 35 contains a non-obstante clause, it would provide overriding effect. In that facts, what is declared is that only when there is any conflict, the provisions of SARFAESI Act would prevail. Hence, in the instant case, the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act. 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with The liquidator in accordance with the provisions of section 529A of that Act: Provided also that liquidator referred to in the second proviso shall intimate the secured creditor the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimate dues with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of by secured creditor in accordance with Section 13 thereof. 116. The non-obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those acts only if there is anything inconsistent contained in any other Jaw or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or the Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38-C of the Bombay Act and Section 26-B of the Kerala Act also contain non-obstante clauses and give statutory recognition to the priority of the State's charge over other debts, which was recognised by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws." 14. In the backdrop of the above, in my opinion, insofar as application of the proceeds from the sale of the properties belonging to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons who would be entitled to the benefits of liquidation. 16. Having arrived at the above conclusion, the issue for consideration is; what is the extent to which the Official Liquidator entitled to participate in the process relating to sale of such property and the appropriation of the proceeds thereof ? The learned senior counsel for the secured creditor with reference to Andhra Bank's case (supra) would contend that the only right of the Official Liquidator is to ensure payment of workmen's dues on pari passu basis and nothing more. Further, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Rajasthan Financial Corpn. v. Official Liquidator [2005] 63 SCL 468 to contend that the Official Liquidator is entitled only for notice and bearing before the Debts Recovery Tribunal under the RDDB Act orders for sale and that does not imply right to participate in the process of sale itself in any other manner. According to the learned senior counsel, there is no provision in law to enable such participation of the Official Liquidator. By relying on the decisions of the Hon'ble Supreme Court, in the case of Council for Indian School Certificate Examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules 8 and 9 (immovable secured assets) of the Enforcement Rules. In such proceedings where the sale is conducted as per Rules, the Official Liquidator would be entitled to notice in similar terms as laid down by the Hon'ble Supreme Court in Rajasthan Financial Corporation's case (supra) while considering the provision of RDDB Act. 19. The learned counsel for the applicant has relied on the decision of the Division Bench of the Punjab and Haryana High Court, in the case of Dhir & Dhir Asset Reconstruction & Securitization Co. Ltd. v. Air Liquide North India (P.) Ltd [2009] 152 Comp Cas 604/93 SCL 207 (Punj. & Har.) wherein the condition imposed by the Company Court while permitting sale was upheld by the Division Bench. The decision of the Allahabad High Court in BPL Display Devices Ltd., In re [2009] 150 Comp Cas 280 (All.) wherein conditions were imposed on ARCIL is also relied upon. Further, the decision in the case of Haryana State Industrial & Infrastructure Development Corpn. v. Haryana Concast Ltd. [2010] 158 Comp Cas 168/98 SCL 293 (Punj. & Har.) (DB) is relied. The said decision is more exhaustive wherein the above cited two decisions are also referred. Hence, it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision in Rajasthan Financial Corporation's case (supra) and the other decisions on the subject has affirmed the aforementioned directions issued by the Company Court which in my opinion has to be accepted by me. The said directions being supervisory in character, without fetters, as held by the Division Bench are therefore held to be applicable to the sale of assets by the secured creditors/Assets Reconstruction company in cases where they choose to stand outside winding up proceedings and opt to sell the same in terms of Section 13(9) of the SARFAESI Act read with Rules 6 and 8 of the Enforcement Rules, 2002. 20. On considering the legal position stated above, it is necessary to turn to the facts arising in the case on hand to arrive at the conclusion as to whether the procedure stated above for compliance would be applicable in the instant case also since it is contended that the observations contained in the winding up order would act as res judicata. In that regard, the learned senior counsel for the secured creditor has relied on the order dated 18.08.2010 passed by the Company Court in Co.P.No. 185/2002 ordering the winding up of the Company-in-liquidation. In the wind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The right to sell the secured asset is not being reviewed or re-decided, rather it is being reaffirmed. But, in view of the winding up proceedings, the procedure to be adopted while exercising such right of sale due to the requirement of the provisos to Section 13(9) of the SARFAESI Act and Section 529-A of the Companies Act is in issue. Hence, the said decisions cited not being applicable to the present situation cannot detain this Court. 23. The secured creditor/second respondent herein shall therefore have the right to sell the secured assets in terms of Section 13 of the SARFAESI Act as per the procedure contemplated under Rules 8 and 9 of the Rules, 2002. Though sale by private treaty is also permissible under the said Rules, the same can be resorted to only in appropriate cases where a legal justification is made out to point out that the best price could have been secured by that process. In the instant case, at this stage, whether there is justification for sale by private treaty need not be gone into since the secured creditor/second respondent is not averse to selling it by public auction. The secured creditor/second respondent shall however adhere to the requirements ..... X X X X Extracts X X X X X X X X Extracts X X X X
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