TMI Blog2014 (12) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of securities and sell them, resulting in delayed recovery of loans. It was in that direction that the Central Government had constituted certain Committees to examine the reforms necessary in the banking sector and it is on the basis of reports of those Committees, inter alia, suggesting the legislation for Securitization and empowerment of banks and financial institutions to take possession of the securities and sell them without the intervention of the court, that the SARFAESI Act had come into being. Hence, any intervention by any court or authority in respect of proceedings under the said Act would defeat the object of that Act. Hence it is clear that this court would not have jurisdiction to interfere in the present circumstances of the case with the impugned action. The secured creditor who seeks to prove the whole of his debt in the course of the proceedings of winding up must before he can prove his debt relinquish his security for the benefit of the general body of the creditors. If he surrenders his security for the benefit of the general body of creditors, he may prove the whole of his debt. If the secured creditor has realized his security, he may prove for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted before the court today, though it ought to have been posted along with a batch of petitions, involving the respondent, which were on the board of the court. However, at the instance of counsel for both the parties, the same was directed to be placed before the Court and the matter was heard at length. 3. The learned Senior Advocate Shri K.G.Raghavan, appearing for the Counsel for the respondent - applicant, contends that by invoking the jurisdiction of this court, the petitioner - banks are deemed to have relinquished and surrendered all security interest held by the petitioner - banks over such assets of the respondent. Therefore, the petitioners seeking to invoke Section 14 of the SARFAESI Act, after filing the present petition, is wholly illegal and without jurisdiction. It is also pointed out that the said proceedings would jeopardize the interest of a large number of shareholders, other creditors and employees of the respondent, apart from the respondent company itself. It is pointed out that a large number of petitions seeking the winding-up of the respondent are pending before this court. The same are at the stage of Admission . The same are under contest by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore this court in its writ jurisdiction, on 29.8.2013, in WP 38870-/2013 and connected cases, seeking a direction to the Debts Recovery Tribunal (DRT) to consider certain pending applications. There was an order passed in the said writ proceedings restraining the respondent herein from alienating its assets. While reiterating the above sequence of events, the learned Senior Advocate Shri Raghavan, would contend that the petitioners being secured creditors, would have the option of enforcing their security, while choosing to stand outside the winding up proceedings, but if once the petitioners have invited themselves before this court and have sought the winding up of the respondent, the petitioners would be precluded from seeking to lay claim to properties of the respondent with reference to the proceedings under the SAFREASI Act, when the jurisdiction of this court would overlap and requires the protection of the assets of the respondent - company for a more beneficial winding up, in the interest of the several participants, should the eventuality arise. Reliance is placed on several authorities in support of the application. 4. On the other hand, the learned Senior Advoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is filed before the Court of the Chief Metropolitan Magistrate, Esplanade, Mumbai. It is hence contended that the petitioners have acted in accordance with law. It is also stated that the reference to the attachment by the Office of the Tax Recovery Officer (TDS) or the Assistant Commissioner of Service Tax in respect of the same property, are irrelevant to the present application. In any event, it is stated that the rights created in favour of the secured creditors over the secured asset in question, has a precedence over charges, if any, of the Taxation Authorities. Reliance is placed on several authorities to support the contentions of the Petitioners. 5. In the light of the rival contentions very forcefully presented by the learned Senior Counsel on either side, the points that would arise for consideration in this application are as follows:- a. Whether there is a bar of jurisdiction, in terms of Sections 34 and 35 of the SARFAESI Act, for this Court, as the Company Court, to grant the relief as prayed for. b. Whether the Petitioner - banks could choose to stand outside the winding up, in seeking to enforce their secured interests, and simultaneously prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for certain other purposes, it may be special and the Court cannot blur a distinction when dealing with the finer points of law . For example, a Rent Control Act may be a special statute as compared to the Code of Civil Procedure. But vis-a-vis an Act permitting eviction from public premises or some special class of buildings, the Rent Control Act may be a general statute. In fact in Damji Valji Shah Vs. Life Insurance Corporation of India, AIR 1966 SC 135, this Court has observed that vis-a-vis the LIC Act, 1956, the Companies Act, 1956 can be treated as a general statute. This is clear from para 19 of that judgment. It was observed: Further, the provisions of the Special Act, i.e. LIC Act, will override the provisions of the general Act, viz. the Companies Act which is an Act relating to companies in general .) Thus, some High Courts rightly treated the Companies Act as a general statute, and the RDB Act as a special statute overriding the general statute. Special law v. special law: 40. 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose proceedings. In so far as the points for consideration at (b) and (c) above, are concerned, the following authorities may usefully be referred to : The options open to a secured creditor has been considered by the Supreme Court in the case of M.K.Ranganathan v. Government of Madras, (1955) 2 SCR 374, under the Indian Companies Act, 1913, as amended by Act VII of 1936. The question involved was whether a sale effected by a respondent without leave of the winding up court was liable to be set aside on that count. The apex court has pronounced thus : The position of a secured creditor in the winding up of a company has been thus stated by Lord Wrenbury in Food Controller v. Cork: The phrase 'outside the winding up' is an intelligible phrase if used, as it often is with reference to a secured creditor, say a mortgagee. The mortgagee of a company in liquidation is in a position to say the mortgaged property is to the extent of the mortgage my property. It is immaterial to me whether my mortgage is in winding up or not. I remain outside the 'winding up' and shall enforce my rights as mortgagee . This is to be contrasted with the case in which suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. The following observation of the Apex court in Allahabad Bank v. Canara bank, (2000) 4 SCC 406, is relevant : 62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding-up. 63. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in Section 529. The insolvency rules are those contained in Sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended for by Sri Shetty. The words in winding-up of insolvent company in Section 529(1) of the 'Act' has obvious reference to a post winding-up stage. The point to note is that this rule of insolvency is attracted to winding-up in the matter of proof of debts. That is after the stage of the winding-up order. A secured creditor is, under Section 439(2) of the 'Act' as much a creditor entitled to present a winding up petition as any other. The law in regard to the right of a Secured Creditor to present a petition for adjudication under the Insolvency law is different from the right of a secured creditor to present a winding-up petition. For this conclusion there is support both on principle and authority. In Palmer's Company Law, Volume-I, Twenty-third Edition, the position of law is stated thus : A debenture holder to whom the company is indebted in a sum presently payable can demand payment, and, if default is made, can Petition for the winding up of the company............ The holder of a mortgage debenture who applies for winding-up order is not bound to give up his security . (See para 46.17) The Law is stated in Pennington's Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made it clear, therefore, that he seeks to enforce the security. When the stage for proving its of debt does arise, the petitioner would necessarily have to prove for the balance of the debt which is due and owing to it after the security in respect of which the petitioner is a secured creditor is realized. In coming to the above conclusion, the learned judge has followed three early judgments which 'express a consistent strand of thought which has been followed since' : In Ram Chand v. Bank of Upper India Ltd., Delhi. I.L.R 1922 Lah. 59, the position of the secured creditor was elucidated in the following words : As far as possible the Rules of bankruptcy are applicable to liquidation matters. When a company goes into liquidation, a secured creditor may realize his security and prove for any balance there may be outstanding. The remaining assets of the company would in that case only be liable for such principal and interest as was due on the date of the winding up order. A secured creditor in the case of a liquidation is on the same footing as in that of insolvency proceedings. The property hypothecated is thus liable for the whole claim, principal and interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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