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TMI Blog2015 (12) TMI 1472X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2011 preferred by Pegasus Assets Reconstruction Private Limited (for brevity, 'Pegasus'), which has been heard as the lead matter, arises out of a Division Bench judgment of Punjab and Haryana High Court dated 15.12.2009 whereby the Division Bench upheld the judgment of Company Court and approved of certain fetters placed upon M/s. Pegasus Assets Reconstruction Pvt. Ltd., while allowing it to exercise its powers as a secured creditor under the SARFAESI Act and proceed with the sale of the secured assets. Since the judgment of Division Bench disallowed the appeal of Haryana State Infrastructure and Industrial Development Corporation (for brevity 'HSIIDC') against the order of Company Judge allowing Pegasus to stay outside the winding up proceeding of the respondent Haryana Concast Limited, HSIIDC is also before this Court through SLP (C) No. 7074 of 2010. 3. The secured asset in the form of approximately 36 acres of land of Haryana Concast Ltd. was subjected to auction by Pegasus in association and collaboration with the Official Liquidator as per order of the company judge and was ultimately sold for Rs. 32 crores in favour of M/s. Venus Realcon Pvt. Ltd. One Vinod Rajaliwala c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court allowed the Official Liquidator to sell the assets of the company in May 2004 and the bank also submitted its claim before the Official Liquidator in July 2004 for Rs. 10.58 crores approx. as dues upto 30th June 2004, the sale could not be effected for one reason or the other. Being a guarantor, the HSIIDC settled the liabilities of three banks by paying Rs. 10.39 crores approx. and as a result acquired a charge only over the moveable assets, that is, raw materials of the company. Accordingly it was substituted/ subrogated in place of the three banks. As a registered securitization company, Pegasus entered into an assignment agreement with the sole secured creditor, Bank of India on 27.8.2008 and soon informed the Official Liquidator that it intends to remain outside the winding up process, to enforce its security as per the provisions of SARFAESI Act, subject to the rights of the erstwhile workmen of the company, respondent no.1 as per Section 529A of the Companies Act. Pegasus pursued its aforesaid stand by filing an application before the Company Judge for recalling an order dated March 20, 2008 wherein it had directed the Official Liquidator to undertake a fresh sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. (d) The expenses already incurred for the conduct of the sale by O.L. shall be deducted from out of the sale proceeds before any appropriation or disbursement and deposited with O.L. (e) The Reconstruction Company shall place before the Company Court the details of its claim and all expenses incurred before the Company Court before making any appropriation to himself and disbursed. (f) The surplus proceeds over what is lawfully due to it shall be deposited to the credit of the Company (in liquidation) before the O.L." 7. The stand of the appellant, Pegasus is that the Division Bench erred in law in not appreciating that rights and liabilities of the appellant as an asset reconstruction company had to be governed by and within the four corners of the SARFAESI Act and not by or under the Companies Act. On a pointed query that it had accepted the order including the terms and conditions and finalized the sale of the secured asset in collaboration with the Official Liquidator, learned counsel for Pegasus fairly accepted that Pegasus was not against the sale of secured asset already concluded but the appeal is being pursued for getting the legal issue settled as a prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to sell the same for making part payment of dues of the bank. A Company Petition No.359 of 2009 was filed by an unsecured creditor M/s. Magicon Impex Pvt. Ltd. for winding up of Megnostar but the bank was not made aware of this proceeding till visit of some officials from the office of the Official Liquidator on 28.08.2011. The bank obtained directions from the District Magistrate concerned under Section 14(1) of the SARFAESI Act, took over possession of the secured asset on 16.06.2010 and a notice to that effect was published in various newspapers on 18.06.2010. O.A. No.38 of 2009 filed by the bank against Megnostar was allowed by DRT-II, Delhi on 13.07.2010 holding the company liable to pay to the bank Rs. 12.95 crores approx. with pendente lite and future interest @ 15.5.% p.a. with quarterly interests from date of filing of O.A. till date of realization. To realize its dues, the respondent-bank published auction-cum-sale notice of the secured assets on 23.07.2011 in exercise of its rights under Section 13(4) of the SARFAESI Act. In the public auction held on 24.08.2011 respondent, M/s. Mohan Tractors (P) Ltd. offered the highest bid of Rs. 80 lacs. As a successful auction p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights or interest in financial assets of any bank or financial institution by any securitization company or reconstruction company, inter alia, by entering into an agreement and this Section begins with a non obstante clause. Section 9 enumerates various measures which can be adopted by a securitization company or reconstruction company, including the sale or lease of a part or whole of the business of the borrower and this Section also begins with a non obstante clause. Chapter III consists of 7 sections providing for enforcement of security interest created in favour of any secured creditor. Section 13, which also begins with a non obstante clause of a limited nature for overcoming the hurdles of Section 69 or Section 69A of the Transfer of Property Act, 1882, creates a right in the secured creditor to enforce any security interest in its favour without the intervention of a court or tribunal, in accordance with the provisions of this Act. The detailed scheme for enforcement of the secured assets under various sub-sections and provisos in Section 13 were pointed out along with Section 35 and 37 in support of a submission that the provisions are not only a complete code for enforc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by Delhi High Court in the case of Megnostar. Those reasons commend themselves to us also. We are particularly in agreement with the view in paragraph 26 of the judgment which is as follows : "26. If it were to be held that the Official Liquidator (who acts under the dictates of the Company Court) is to be also associated with the sale, it will naturally open up the fora of the Company Court also for entertaining matters relating to such sale and which as aforesaid is not only likely to lead to conflicts but is also contrary to the spirit of the SARFAESI Act of sale being without the intervention of the Court." 14. However, there are certain areas covered by the Delhi High Court which need further elucidation and clarification. For that it will be relevant and necessary to first go through the ambit, scope and peculiarities of Statutes like the State Financial Corporations Act, 1951 (for brevity the 'SFC Act') and The Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for brevity the 'RDB Act') in contrast with the SARFAESI Act and some case laws which, in our view, are of special significance for better understanding of the issues. 15. All the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks and financial institutions in India with power to take possession of securities and sell them. All its significant provisions have been noted in detail in Mardia Chemicals in which vires of this Act was examined and upheld. A reading of Sections 9 and 13 of the SARFAESI Act leaves no manner of doubt that for enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower company is under liquidation for which proviso to sub-section (9) of Section 13 contains clear mandate keeping in view the provisions of Section 529 and 529A of the Companies Act, 1956. Since significant amendments were introduced in Section 529 while inserting Section 529A through Amendment Act 35 of 1985, effective from 24.5.1985 and with the aid of a non obstante clause in sub-section (1) of Section 529A workmen's dues were given preference over other dues and made to stand pari passu with dues of the secured creditors, in case of apparent conflict, this Court through various judgments has upheld the proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debts Recovery Tribunal. There is a right of further appeal under Section 18 before the Appellate Tribunal. On the other hand, if the view taken by Punjab & Haryana High Court in Pegasus is accepted, there shall be a conflict of rights and interest of the secured creditor who have the right and liberty to realize their secured interest in accordance with the provisions of the SARFAESI Act on one hand, and the statutory rights and liability of the Official Liquidator acting under the orders of the Company Judge as per provisions of the Companies Act, on the other. The appellate fora shall also differ, leading to a situation of uncertainty and conflict between the two Acts. In such a scenario, we respectfully agree with the Delhi view and disapprove that of the Punjab & Haryana High Court. 20. Coming to the case laws, on behalf of Megnostar, Delhi view was assailed by placing reliance upon Rajasthan State Financial Corporation. In this case decided by three Judges, this Court examined the grievance of Rajasthan State Financial Corporation in the context of conflict between the SFC Act and the Companies Act. After taking note of various earlier judgments of this Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Provident Fund and Miscellaneous Provisions Act, 1952 and the question was whether in granting priority, such dues would be subject to Section 529A of the Companies Act. The answer was in the affirmative, i.e., the Companies Act would, in this matter hold its field as there is no situation of conflict. 23. On behalf of respondent Bank, Kotak Mahindra as well as Respondent No. 2, auction purchaser, the judgment in the case of Rajasthan State Financial Corporation (supra) was distinguished by placing reliance upon factual and legal situation prevailing in that case as noted in Paragraph 2 of the judgment. It was pointed out that Section 32 (10) of the SFC Act contains ample clarification that if liquidation proceedings have commenced in respect of the borrower before an application is made under sub-section (1) of Section 31, the financial corporation will not get any preference over the other creditors unless it is conferred on it by any other law. In that case no proceeding had been initiated under the SFC Act and all developments had taken place in the liquidation proceeding. Rajasthan State Financial Corporation was therefore unable to take any advantage of provisions under SF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liquidator to discharge his duties and obligations arising under Section 529A of the Companies Act. Thus, it is evident that the required provisions of the Companies Act have been incorporated in the SARFAESI Act for harmonizing this Act with the Companies Act in respect of dues of workmen and their protection under Section 529A of the Companies Act. In view of such exercise already done by the legislature, there is no plausible reason as to take recourse to any provisions of the Companies Act and permit interference in the proceedings under the SARFAESI Act either by the Company Judge or the liquidator. As noted earlier, the Official Liquidator as a representative of the borrower company under winding up has to be associated, not for supplying any omission in the SARFAESI Act but because of express provisions therein as well as in the Rules. Hence the exercise of harmonizing that this Court had to undertake in the context of SFC Act or the RDB Act is no longer warranted in respect of SARFAESI Act vis-à-vis the Companies Act. 25. The aforesaid view commends itself to us also because of clear intention of the Parliament expressed in Section 13 of the SARFAESI Act that a se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under challenge at the instance of Mr. Rajaliwala through special leave petition (C) Nos. 117-118 of 2011. 30. Since the larger issue arising out of the conflicting judgments of Punjab and Haryana High Court and Delhi High Court has already been addressed by us, the case of Mr. Rajaliwala requires adjudication, mostly on facts as to whether the sale confirmed by the Company Judge and approved by the Division Bench in favour of M/s. Venus Realcon requires any interference. It is not at all necessary to go into the facts which preceded the sale in favour of M/s Venus Realcon for Rs. 32 crores which till date stands confirmed. It is against confirmation of sale that Mr. Rajaliwala has preferred appeal as well as a PIL on the ground that the consideration money does not reflect the correct value of the secured assets, i.e., the land sold to M/s. Venus Realcon. In order to substantiate this claim, Mr. Rajaliwala was granted an opportunity by the Division Bench to find out a higher bid. One M/s. ACHASTES Promoters Private Limited through an application in Company Appeal No. 10/2010 claimed to offer a bid of Rs. 33 crores but later withdrew the same. Thereafter, another buyer made an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Realcon for Rs. 32 crores but it was made subject to Special Leave Petitions filed by Pegasus and HSIIDC. 32. On considering the submissions of parties, we find that the sale confirmed in favour of M/s. Venus Realcon for Rs. 32 crores does not require any interference particularly at the instance of Petitioner-Vinod Rajaliwala. There was no illegality or irregularity established against the conduct of auction and once it is found that the offer of Rs. 32 crores was a fair offer in a competitive bid conducted fairly and the offer has been accepted and the sale confirmed, it would not be proper for this court to undermine the value of such auction sale conducted not only by the secured creditor but also by the Official Liquidator who was permitted to be associated with the whole process of finding out of valuation as well as the conduct of sale. M/s. Venus Realcon has rightly placed reliance upon the judgments of this court in the case of Valji Khimji & Co. vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. 2008(9) SCC 299 and Vedica Procon Private Limited vs. Balleshwar Greens P. Ltd., 2015(8) SCALE 713. In Valji Khimji, the law was enunciated in Paragraph 28 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. There is no good reason why the full price paid by Venus Realcon should be ordered to be refunded with interest etc. and possession which was delivered to Venus Realcon at the time of sale should be disturbed after passage of so much time. In such circumstances, while granting leave in SLP(C) Nos.117-118, the consequent Civil Appeals are hereby dismissed but without any order as to costs. The money deposited in this case by the intervener M/s. Himalayan Infra Projects Private Limited should be refunded to it forthwith along with interest accrued thereupon. 34. The views expressed and the orders passed hereinabove may once again be recapitulated as follows :- (1) Civil Appeal No. 3646 of 2011 is allowed only for declaration of law without interfering with the sale of the secured assets which has not been challenged by Pegasus. (2) Civil Appeal No.---------/2015 (Arising out of SLP(C) No. 7074 of 2010) is dismissed. (3) Civil Appeal Nos. ------------/2015 (Arising out of SLP(C) Nos. 117-118 of 2011) are dismissed. The amount of Rs. 50 crores deposited by the intervener M/s. Himalayan Infra Projects Private Limited shall be refunded to it forthwith alongwith interest accrued there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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