Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

In Re : M/s. Magnasound India Ltd., Asha Bhosale

2015 (11) TMI 194 - BOMBAY HIGH COURT

Sale after winding up - Deed of Assignment executed by exdirector - rights of secured creditor - whether Shashi Gopal, in his capacity as a subrogee, was entitled to sell any of the hypothecated securities without the leave of the Company Court? - whether the sale is liable to be set aside under Section 536(2) or 537(1)(b) of the Companies Act? - Held that:- After the introduction of Section 529-A which gave workers a pari passu charge along with secured creditors in mortgaged or hypothecated se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. The mere fact that the Official Liquidator has not yet adjudicated the claims of workmen would not disentitle them to a pari passu charge or leave a secured creditor free to deal with a security as he chooses.

The circumstances of the present case leave little doubt that the sale itself, without the leave of the court and given the manner in which it was effected, was unlawful. Thus following Order would meet the ends of justice:

a) The Deed of Assignment dated 14.03.201 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

any in Liquidation within a period of sixteen weeks from today. In doing so, the Official Liquidator shall also consider whether the claims are in fact by persons who are entitled to priority as workmen under Section 529-A of the Companies Act. He shall also verify the amounts paid by Shashi Gopal to UBI to which he is entitled to credit as a subrogee.

d) On such adjudication and verification, the Official Liquidator shall place a report before this Court for a distribution pari passu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s in its favour. Any overflow which was payable to MMPL under the terms of the said Agreements shall be distributed pari passu among Shashi Gopal as a subrogee and the workmen of the Company in liquidation.

f) On expiry of the tenure of the Agreements in favour of Sony Music; MMPL, Shashi Gopal and Sony Music shall hand over forthwith to the Official Liquidator all material and documents in respect of the repertoire which constitutes the hypothecated securities including but not limit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

DATOR'S REPORT NO. 188 OF 2014, OFFICIAL LIQUIDATOR'S REPORT NO. 254 OF 2015, COMPANY PETITION NO. 719 OF 2002 - Dated:- 21-10-2015 - S.J. KATHAWALLA, J. For The Petitioner : Dr. Virendra V. Tulzapurkar, Senior Advocate a/w Mr. Hiren Kamod and Mr. Nikhil Sharma i/b W.S. Kane & Co., Mr. Chetan Kapadia, i/b Mr. Rahul Kadam for Mr. Shashi Gopal. Mr. Amit Jamsandekar a/w Mr. Dhiraj Mhetre i/b Desai & Diwanji for Sony Music Entertainment India. For The Liquidator : Mr. J.P. Sen, Senior Advoca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rtainment Pvt. Ltd. (hereinafter Sony Music ) to hand over the documents and assets which were the subject matter of the purported Deed of Assignment and also for directions to restrain MMPL and Sony Music from dealing with these assets. 2. It is the Official Liquidator s case that Shashi Gopal, in purported exercise of his rights as a Subrogee, has after the winding up order sold assets belonging to the Company (In Liqn.) without the leave of this Court, without valuation and without inviting p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in favour of UBI in respect of the copyright in recordings containing the original music compositions rendered by various artistes and which were owned by the Company. Each of the Deeds of Hypothecation contained a clause which permitted the Lender, in the event of the borrower committing default, to sell all or any part of the hypothecated sound recording copyrights in such manner as the bank shall think fit, but by giving 15 days notice to the borrower and either by public auction, private Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ery of their dues and enforcement of their securities including under the aforementioned deeds of Hypothecation. 5. On 23.4.2007, an order was passed by the DRT in terms of a compromise Memo filed by UBI and the guarantors of the Company in Liquidation. The compromise memo provided that the guarantors would submit to a decree on admission in a sum of ₹ 8,56,33,265/- in favour of UBI. The said memo also recorded an OTS offer that had been accepted by the Bank for payment of a sum of ₹ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d, inter alia, by the sale of the Masters belonging to the Company in Liquidation after taking possession from the Official Liquidator and obtaining permission from the DRT . The Masters were to be brought to sale through DRT, with the Guarantors to arrange for buyers at a minimum price of ₹ 150 lakhs. In the event of there being a surplus over and above ₹ 150 Lakhs, the surplus was to go to the bank, while any shortfall was to be made good by the Guarantors. 6. The Compromise Decree .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in Liquidation. The OL filed a reply dated 27.5.2008 in this Misc. Application where he noted that the assets may be sold by public auction only in one lot after publication of necessary sale notice and not by way of private treaty at any cost. On 20.6.2008, the said Shashi Gopal filed an application for withdrawal of his Misc. Application. The Misc. Application was thereafter disposed of as withdrawn. 8. Meanwhile, on 24.3.2009, the DRT issued a Warrant of Attachment in respect of the hypotheca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ree dated 23.4.2007 including enforcement and realization of mortgaged and hypothecated properties . The Deed of Subrogation also recorded, as it happens inaccurately, that there appears to be no workers claims lodged before the Official Liquidator and hence there is no pari passu charge in respect of the assets of the MSIL mentioned in the consent terms . 9. On the same day, UBI served upon the OL an application for leave to withdraw the recovery proceedings pending before the DRT. By his repor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ank did not have any other claim with respect to the assets of the Company in Liquidation. In July 2009, Shashi Gopal filed a Misc. Application no.632 of 2009 before the DRT seeking a direction to the OL to hand over the Masters/Artists Agreements/Stocks and other assets of the Defendant No.1 Company (now in Prov. Liqn) lying in various branches and which are hypothecated to the Applicant Bank. By his written submissions dated 4.8.2009, the OL recorded that he had no objection if the properties .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

imed that all royalties if any payable by music societies, Phonographic performance Ltd (PPL) and Indian Performing Rights Society LTD (IPRS) are payable to me from 1996 onwards in respect of the use of Masters of Magnasound India Ltd if they have not already been paid. By this letter, Mr. Shashi Gopal sought a no objection letter from the OL in this regard. By his reply dated 21.1.2010, the OL fixed a meeting on 25.1.2010 to discuss Mr. Shashi Gopal s role as a Subrogee and the issue regarding .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in this regard. On 9.7.2010, a winding up order was passed in respect of the Company in Liquidation. It is the case of Mr. Shashi Gopal that a letter dated 9.5.2011 was addressed by him to the OL in which he informed the OL that he would sell/assign all the copyrights in the sound recordings in the music/literary works and master and all the rights in audio, video and cinematograph films owned by the Company to recover the monies paid by me to the UBI on account of the Company together with inte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ces that no reply was sent to the said letter. 13. On 21.5.2011, a public notice was issued by one MMPL Pvt Ltd in the Free Press Journal and Navshakti in respect of its intention to acquire the entire copyright in the repertoire of the Company in Liquidation. The said notice did not come to the attention of the OL. Thereafter, a Deed of Assignment dated 14.3.2012 appears to have been entered into by the said Mr. Shashi Gopal and MMPL, a related party, transferring the entire repertoire of the C .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

20.4.2012 addressed to Sony Music recorded that the assets of the Company in Liquidation vested in him and that any rights in its repertoire could not be transferred or assigned without the permission of this Court. The OL also sought a copy of the documents on the basis of which the public notice had been issued. A meeting was thereafter held on 24.4.2012 in the office of the Deputy OL at which the representatives of Sony Music also remained present. At this meeting, these representatives under .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ny in Liquidation was not the owner of the said repertoire and that the undertaking given by the representatives of Sony Music at the meeting held on 24.4.2012 was wrongly taken and therefore stood withdrawn . By his reply dated 14.5.2012, the OL recorded that the attempt being made by Sony Music to withdraw their undertaking was ill conceived and called upon them to maintain status quo until the rights, if any, of MMPL in the catalogue/repertoire of the Company in Liquidation was ascertained. 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dertaking was invalid and bad in law. The letter also recorded that Sony Music had already entered into an agreement with MMPL under which Sony Music had been granted an exclusive license for the said Repertoire. By this letter however, Sony Music did not furnish to the OL copies of the agreements executed by them. 17. It is only in the course of the hearing of the above report that Sony Music furnished to the OL four agreements, being an exclusive license agreement dated 7.5.2012, an exclusive .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d Agreements. It is significant, however that Sony Music entered into the said Agreements with full notice of the OL s claim. 18. On 18.7.2012, the Petitioner in the above company Petition filed Company Application No, 498 of 2012, inter alia, impugning the purported transfer by Shashi Gopal of the hypothecated assets in favour of MMPL. Subsequently, however, the Petitioner having reached a settlement with Shashi Gopal sought leave to withdraw the Company Application. This leave was granted by a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

efore the DRT, he cannot as a matter of law be so entitled. Any reference in the Deed of Subrogation to his being so entitled is clearly of no legal effect. This is on account of the fact that a Bank cannot assign its debt to a non banking entity nor can it assign a recovery certificate or the benefit of a consent decree to such an entity. In this behalf, he relied on the Judgment of the Hon ble Supreme Court in ICICI Bank Ltd. v. Official Liquidator for APS Star Industries Ltd. (2010) 10 SCC 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a guarantor of amounts due from the principal debtor to the secured creditor; c) That Shashi Gopal is thus merely a Subrogee in respect of the amounts paid by him to UBI. He is in that capacity entitled to the benefit of any security that the bank held for recovery of the money paid by him. The principal debtor being a Company in liquidation, Mr Shashi Gopal is entitled as a subrogee only to the sum actually paid by him and not to any interest on the said amount unless there is an overflow afte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ara 64);. d) That the Deeds of Hypothecation in the present case contain a power of sale. However, the Company being in liquidation, the power of sale is qualified by the pari passu charge of the workmen under Section 529-A. The Subrogee can therefore sell only in association with the OL. The earlier law that a secured creditor would be free to deal with his security without reference to the Official Liquidator is no longer good law. He relied in this behalf on the Judgments of this Court and of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the secured creditor cannot arrogate to himself the power to decide whether there are any workers claims. If workers claims have not yet been adjudicated, he must apply to the company court seeking directions for sale; f ) That the fact that the OL has not objected to the subrogation in favour of Shashi Gopal does not constitute an admission of everything in the Deed of Subrogation particularly an incorrect recital that no workers claims have been received. The OL has no obligation to object to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Judgments of the Hon ble Apex Court in Lallan Prasad v. Rahmat Ali & Anr. AIR 1967 SC 1322 (para 29); Jaya Singh Dnyanu Mhoprekar & Anr. v. Krishna Babaji Patil & Anr. AIR 1985 SC 1646 (para 9); h) That the law requires him to adopt every precaution in this respect including obtaining a valuation and selling the property by public notice. In this connection, he placed reliance on the Judgments of the Hon ble Apex Court in Gajraj Jain v. State of Bihar & Ors. (2004) 7 SCC 151 (par .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s of a company in liquidation after the commencement of liquidation is void under Sections 536(2) and 537(1)(b) of the Companies Act, whether by the company itself or a third party. None of the Judgments cited by the subrogee raise the issue as to whether a sale by a third party would fall within the ambit of these sections. The plain language of the section would indicate that they would. That is certainly within the mischief sought to be remedied by the Sections; k) That the sale in the presen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted 5.9.2012 in OL Report No. 145 of 2011; Sunita Vasudeo Warke v. Official Liquidator 2013 (2) Mh.L.J. 777 (para 17). In the present case, that burden has not been discharged. 20. Dr. Tulzapurkar, Learned Senior Advocate for MMPL, submitted in reply: a) That Section 536(2) of the Companies Act has no application to the sale by a third party of the assets of the company in liquidation and applies only to a sale by the company itself. He relied in this behalf on the Judgments in Pankaj Mehra v. S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the Company and that any disposition of the Company s assets was not within the mischief intended to be remedied by the Section. On the Mischief Rule of Interpretation and the meaning that ought to be attributed to the word disposition , he relied on the Judgments of the Hon ble Supreme Court in The Commissioner of Gift Tax, Madras v. N. S. Getty Chettiar 1971(2) SCC 741, 746 (para 18); Empress Mills, Nagpur v. Municipal Committee, Wardha AIR 1958 SC 341, 348; Union of India v. Sankalchand Hi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng up and to enforce his security without the leave of the Company court. He relied in this behalf on the Judgments in M.K. Ranganathan & Anr. v. Government of Madras & Ors. [1955] SCR 374, 383-87, 390-91; MSFC v. Official Liquidator, Bombay AIR 1993 Bom 392, paras 6-22; Iftex Oil & Chemicals Pvt. Ltd. v. Official Liquidator of M/s. Dhake Dyes & Chemicals Pvt. Ltd. [1999] 101(2) Bom. L.R. 32, and SICOM v. MSFC (1988) 64 Com. Cas. 102 (Bom). Such a sale would not fall foul of Sect .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

de the winding up and to sell the hypothecated securities. He also contended that some of the persons who had filed claims before the Official Liquidator performed managerial or administrative functions and their dues which are yet to be adjudicated are not entitled to priority or to a pari passu charge under Section 529-A of the Companies Act; e) That in any event, Sections 536(2) and 537(1)(b) are not an absolute bar to a sale and protect any sale in the interest of the company. He relied on t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to the Official Liquidator prior to the sale of the hypothecated securities even by private treaty without issuing a public notice; g) That in any event, the Official Liquidator had alleged neither fraud nor an undervaluation in the Reports filed by him and that in the absence of either, the sale could not be held to be improper; h) That his client was in any event willing to deposit a sum of ₹ 30,00,000/- to secure the pari passu share of the workmen (which is alleged to be ₹ 25,77 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sions, that the condition of the master tapes and the cassette/CD photo covers which were originally handed over to the Official Liquidator in good condition, were received by the subrogee in a poor condition. He further contended that the subrogee was therefore obliged to spend considerable time and money to restore the master tapes and photo cards to render them usable. He further contended that in any event, even if the hypothecated securities were capable of fetching more than ₹ 1.5 cr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

would be inequitable to set aside the Agreements executed by MMPL in their favour. 23. Arguments in the above matter were concluded on 30th April, 2015. Thereafter Advocates for the parties except Sony Music Entertainment India filed their written submissions on 13th May, 2015 i.e. during court vacations. Sony Music Entertainment India filed its written submissions on 11th June, 2015. I have considered the oral as well as written submissions made/filed by the parties and the Judgments relied up .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot entitled under the provisions of the Recovery of Debts Act to file an Original Application in the Debt Recovery Tribunal for recovery of any amounts due to it. It follows that it would not be entitled to seek enforcement of a Recovery Certificate issued by the Debt Recovery Tribunal in favour of a bank or financial institution on the purported basis that the same has been assigned to it. Such an assignment appears to be legally impermissible. 24. In any event, in the present case, on a fair r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Shashi Gopal can rely if at all only on the terms of the Deeds of Hypothecation that had been executed by the Company in Liquidation in favour of UBI. The Deeds of Hypothecation in the present case do contain a power of sale. However, the Company being in Liqn, the power of sale is qualified by the pari passu charge of the Workmen under Section 529-A of the Companies Act, 1956. The principle laid down by the Hon ble Supreme Court in MK Ranganathan v. Govt. of Madras (supra) that a secured credi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

International Coach Builders (supra) has in no uncertain terms recognized that after introduction of Section 529A, a secured creditor would be entitled to enforce its security by sale only with the consent of the OL and under the directions of the Company Court: 14. It is contended on behalf of the SFCs that they are secured creditors and as such entitled to exercise their rights under the mortgage as also the statutory rights conferred on them by Section 29 of SFC Act without interference of c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Section 232(1) of the Companies Act, 1913 which rendered such sales void. It was held that these words refer only to sales held through the intervention of the court and not to sales effected by the secured creditor outside the winding up without intervention of the Court. This Court pointed out that the law in England, and the provisions of the Companies Act in India, was the name, namely, that the secured creditor had the right of realizing his security by standing outside the winding up, in w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nies Act, 1913 which did not have any provision corresponding to the proviso to Section 529 or Section 529A of the Companies Act, 1956. Obviously, therefore, Ranganathan could not have considered the impact of these amendments on the provisions of Section 232 of the Companies Act, 1913 (corresponding to Section 537 of the Companies Act, 1956) was enacted. These developments, in our view, brought about a qualitative change in the legal situation. It is important to notice that M.K. Ranganathan (s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

provisions in Maharashtra State Financial Corporation v. Ballarpur Industries Limited MANU/MH/0061/1993 : AIR1993Bom392. 17. As a result of the proviso added in Section 529, the security of every secured creditor is deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen s dues (called workmen s portion, as defined in Sub-section (3)© therein. It is further provided that, where the secured creditor, instead of relinquishing its mortgage and proving .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. Nonetheless, it creates a pari passu charge in favour of the workmen to the extent of their dues and makes the Liquidator the representative of the workmen to enforce such a charge. By reason of Clause © of the newly added proviso, so much of the debt due to the secured creditor opting to realise security as could not be realized because of the special created rights in favour of the workmen, or the amount of the workmen s portion in the security, whichever is less, shall rank pari passu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the Company Court. We have already noticed that as a result of the amendment to Section 529 a pari passu charge to the extent of the workmen s portion is created on the security of every secured creditor when he opts to realize a security by standing outside winding up. Pari Passu means with equal steps, equally, without preference (Jowitt s Dictionary, Vol.II, 1959 Edition 1294). Black s Law Dictionary, 6th Edition, 115 defines it as By an equal progress... Used especially of creditors who, i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pendently or by ignoring him for enforcing the security. It is established law that in case of co-mortgages, all of them should join in the suit for enforcing the security, but if some of them refuse to join, they have to be included as defendants, not merely as performa parties, but as necessary parties inasmuch as the mortgage right vests in them along with the plaintiffs-mortgagees. (See in this connection the judgment of the Privy Council in Sunitibala Debi v.Dharae Sundari Debi AIR 1919 PC .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

their dues. 23. In support of their respective contentions, parties have referred to and relied upon judgments of different High Courts. The view taken by the commends itself to us. The Division Bench of the said High Court pointed out that, like a secured creditor, the official liquidator as a pari passu charge holder cannot independently bring the security to sale ignoring the secured creditor. He must, therefore, either obtain concurrence of the secured creditor for sale and take the Court s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of his outstanding. Prior to 1985 it might have been possible for a secured creditor under Section 529 of the Companies Act, 1956, or its predecessor, Section 232 of the Companies Act, 1913 as interpreted by this Court in M.K. Ranganathan case (supra), to opt to stand outside the winding up and realise the security by bringing it to sale. This was possible because the secured creditor had unrestricted right of standing outside the winding up and proceeding against the property mortgaged to him. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oment a winding up order is made in respect of a debtor company, the provisions of Section 529 and 529a come into play and whatever superior rights had been ensured to SFCs under the provision of the SFC Act are now subjected to and operate only in conjunction with the special rights given to the workmen, who as pari passu charge-holders are represented by the official liquidator. We are, therefore, of the view that the unhindered right hitherto available to the SFCs to realise their security, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s there is no order of winding up; 2. The SFCs cannot unilaterally act to realise the mortgaged properties without the consent of the official liquidator representing workmen for the pari passu charge in their favour under the proviso to Section 529 of the Companies Act, 1956. 3. If the official liquidator does not consent, the SFCs have to move the Company court for appropriate directions to the official liquidator who is the pari passu charge holder on behalf of the workmen. In any event, the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l Liquidator having failed to adjudicate the claims of the workmen, no pari passu charge in their favour could be said to exist which would limit the right of the subrogee to deal with the hypothecated securities. This argument is clearly misconceived. The mere fact that the Official Liquidator has not yet adjudicated the claims of workmen would not disentitle them to a pari passu charge or leave a secured creditor free to deal with a security as he chooses. 27. In the present case, there is som .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to priority under Section 529-A. They have also contended that almost 20% of the claims are unsupported by any documentary evidence. These are issues to be determined by the Official Liquidator in the course of adjudication of the claims. However, there does not appear to be the slightest doubt that atleast some of the claims made before the Official Liquidator are by workmen of the Company in Liquidation and that these claims are outstanding. That being so, the ratio of the Judgment in Interna .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to decide whether there are any workers claims. If workers claims have been received and have not been adjudicated, he must perforce apply to the Company Court seeking directions for sale. The fact that the OL has not objected to the subrogation in favour of Shashi Gopal does not constitute an admission of everything in the Deed of Subrogation particularly an incorrect recital that no workers claims have been received. The OL has no obligation to object to such a recital and the absence of such .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ficial Liquidator has adverted to the circumstances in which his Office failed to reply to the said letter. Even otherwise, a secured creditor is not entitled to rely on the silence of the Official Liquidator to exercise a unilateral right of sale without reference to the Company Court. The Official Liquidator is merely an officer of the Court and acts under its directions. If the letter dated 9.5.2011 had come to his notice at the time of its receipt, he would have had little choice but to plac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

He certainly was not entitled to assume that he was free to deal with the securities in any manner that he pleased. 30. The argument urged on behalf of MMPL that Shashi Gopal as a subrogee was merely required to issue notice under Section 176 of the Contract Act to the Official Liquidator, prior to a sale in any manner of his choosing, is entirely devoid of merit. At the very outset, it is doubtful whether Section 176 of the Contract Act which governs the rights of a pledgee would have any appli .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed to exercise a unilateral right of sale without reference to the Company Court by merely issuing a notice of such proposed action to the OL. 31. Even otherwise, the manner in which the hypothecated assets were sold by Mr. Shashi Gopal leaves much to be desired. It was argued by Shashi Gopal and MMPL that a subrogee does not stand in a fiduciary position towards the principal debtor. This proposition is over broad. It appears to me clear from the Judgments of the Hon ble Apex Court in Lallan Pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

et proposed to be sold and inviting offers by public notice. Further, any sale by a secured creditor would be open to scrutiny to determine whether the transaction is at arms length or with a related party. In a transaction of this nature, every suspicion of a secret profit must be dispelled. In the present case, it is an admitted position that there has been no valuation prior to sale nor were offers invited from the public. The sale was effected, without the leave of the Company Court, by priv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he present case was infirm and open to challenge by the OL. 32. The question then arises as to whether the sale is liable to be set aside under Section 536(2) or 537(1)(b) of the Companies Act. It has been contended on behalf of Mr. Shashi Gopal and MMPL that any sale of the assets of a Company in Liquidation by a third party would not fall within the ambit of Section 536(2) and that the section would apply only to cases of sale of its assets by the company itself after the commencement of windi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f that section. A sale by a third party would certainly be within the mischief sought to be remedied by the Section, namely, the prevention of any interference with the assets of a company in liquidation, their sale in a manner to ensure the best possible price and the orderly distribution of the sale proceeds. The Judgments cited on behalf of the subrogee in respect of what is commonly referred to as the mischief rule in the interpretation of statutes would appear to support the construction of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

then it would necessarily follow that a sale effected without leave would be void under Sections 536(2) and/or 537(1) (b). In the present case, the Subrogee has made no application seeking the leave of this Court, even ex post facto, for the sale of the said asset. The sale would therefore be liable to be set aside. 34. In any event, the burden clearly lies on the person seeking to maintain a sale (which is not in the ordinary course of business) under Sections 536(2) and 537 (1) (b) to prove t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on in the sale is entirely misconceived. The burden does not lie upon the OL to do so. In any event, it is self evident that the assets have been undervalued. The agreements between MMPL and Sony Music belatedly disclosed in the course of the hearing would themselves show that the assets were undervalued. While the sale by Shashi Gopal in favour of MMPL of the entire repertoire was for a sum of ₹ 1.5 crores, the agreements executed by MMPL in favour of Sony Music for part of the repertoire .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

claims that he was constrained to devote considerable time and money to repairing/reconstructing the Master tapes. Similarly, Sony Media has claimed to have expended considerable resources on rendering the Master tapes usable. Apart from the fact that the claims made by the two parties are somewhat at odds, no material or particulars in support of these allegations including the amounts alleged to have been expended have been furnished by either party. 36. Shashi Gopal has also contended, in su .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the hearing, an offer was made by MMPL to secure an amount of ₹ 30,00,000/- by way of workers claims pending adjudication thereof by the Official Liquidator. This was on the basis that the total of the workmens claims was ₹ 1,09,86,378.95/-. If the claim were to be allowed in its entirety (which MMPL contends for various reasons is unlikely) it is claimed that the pari passu charge of the workmen would be to the extent of ₹ 25,77,000/- insofar as the total dues of Shashi Gopal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

esent case, there is some controversy as to the amount that Shashi Gopal would be entitled to recover from the Company in liquidation in his capacity as a subrogee. He would no doubt be entitled to recover such amounts as he has himself paid to UBI. These will require verification by the OL. These amounts having been paid after the commencement of winding up, he would not be entitled to any interest thereon unless there were a surplus after all creditors of the company were paid off. Apart from .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Further, the Deed of Subrogation would appear to indicate that apart from the hypothecated securities, there are other securities as well including a bungalow at Lonavala which have been handed over to Shashi Gopal in his capacity as a subrogee. It is entirely conceivable that the amount to which the subrogee is entitled would not exceed the value of all of these securities. It is therefore imperative that each security fetch the best possible price. The manner in which the repertoire of the co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the repertoire which constitutes the hypothecated security, a valuation exercise to determine what ought to have been the fair value of the hypothecated security at the time of its sale by Shashi Gopal appears impracticable. However, MMPL ought not to be permitted to profit from a sale that is clearly void. To the extent that the transaction between MMPL and Sony Music is at arms length, the two being unrelated, the consideration fixed in the Agreements between MMPL and Sony Music can be tak .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pothecated securities is set aside as illegal and void. b) MMPL shall on or before 2nd December,2015, deposit a sum of ₹ 25 lakhs with the Official Liquidator, being the difference between the amount already received by MMPL from Sony Music (Rs. 1.75 crores) and the amount paid by MMPL to Shashi Gopal (Rs. 1.5 crores). c) The Official Liquidator shall complete the adjudication of the claims of the workmen of the Company in Liquidation within a period of sixteen weeks from today. In doing s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version