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2015 (12) TMI 1472

ilable to such creditor under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity ‘the SARFAESI Act’)? - Held that:- There is a discretion in the Company Court either to accept or reject the highest bid before an order of confirmation of sale is made. However, once the Company Court is satisfied that the price is adequate, the subsequent higher offer cannot be a ground for refusing confirmation. The price of immoveable property keeps on varying depending upon the market conditions and availability of a buyer. Such fluctuations may attract fresh higher offers but normally such offers cannot be made the basis for reopening the confirmed sale which was otherwise valid. In the present case, we are satisfied that the sale made in favour of M/s. Venus Realcon does not require any interference.

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. The money deposited in this case by the intervener M/s. Himalayan Infra Projects Pr .....

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for ₹ 32 crores in favour of M/s. Venus Realcon Pvt. Ltd. One Vinod Rajaliwala challenged the orders of the company judge confirming sale in favour of M/s. Venus Realcon Pvt. Ltd. by preferring a company appeal and also through a public interest litigation (a writ petition). Both were dismissed by the Division Bench. Those orders have been challenged by Mr. Vinod Rajaliwala through Special Leave Petition (C) Nos.117-118 of 2011. The three matters indicated above thus relate to secured assets of the same company under Liquidation, M/s. Haryana Concast Limited. 4. The fourth matter, C.A. No. 9293-94 of 2014 preferred by Megnostar Telecommunications Private Limited (for brevity, Megnostar ) arises out of a Division Bench Judgment of Delhi High Court dated 17.9.2012. By this order the Delhi High Court has differed with the views taken by the Punjab and Haryana High Court in the judgment assailed by Pegasus in Civil Appeal No.3646 of 2011. According to Delhi High Court, the company judge or the official liquidator cannot have any say in the sale of secured assets by the secured creditors under the SARFAESI Act. The Companies Act cannot be used to put any fetters on the sale by se .....

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r dated March 20, 2008 wherein it had directed the Official Liquidator to undertake a fresh sale of the assets of the company. In this petition dated 22.09.2008, Pegasus also sought directions to the Official Liquidator to hand over the secured assets of the company in its favour. The Company Judge allowed Pegasus to proceed under the SARFAESI Act for enforcing its security by an order passed on March 20, 2009 but in view of orders passed earlier in the winding up proceedings the Company Judge laid down certain terms and conditions for permitting Pegasus to stay outside the winding up proceedings and bring about sale of secured assets under Section 13 of the SARFAESI Act read with Rules 8 and 9 of Security Interest Enforcement Rules, 2002 (hereinafter referred to as the Rules ). These conditions forming part of paragraph 19 of the judgment of the learned Company Judge are extracted hereinbelow because these have been objected to by Pegasus as fetters which the Company Judge could not have obtained and therefore Pegasus preferred Company Appeal No.28 of 2009 which has been dismissed by the order under appeal dated 15.12.2009. Para 19 is as follows : 19. If any attempt to harmonize t .....

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appeal is being pursued for getting the legal issue settled as a precedent for future, otherwise as an assets reconstruction company the appellant shall be facing similar fetters in case the secured assets happen to be of a company under winding up. 8. Learned counsels representing the company respondent no.1 which is represented by the Official Liquidator and learned counsel for respondent no.2 HSIIDC have advanced submissions to the contrary. According to them a winding up proceeding has to be supervised by the Official Liquidator as per orders of the Company Judge and the provisions of the Companies Act. The counsel for the company, respondent no.1 asserted that once the assets have come into the hands of the Official Liquidator, these have to be protected and governed by provisions of the Companies Act which are meant not only to serve the interest of secured creditor like Pegasus but also to take care of interest of the workmen and by ascertaining their dues which have highest priority and require protection as per Section 529A of the Companies Act as well as interest of the unsecured creditors. The stand of respondent no.2 is that once the bank had opted to participate in th .....

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) Ltd. offered the highest bid of ₹ 80 lacs. As a successful auction purchaser, it was handed over the possession and title deed of the mortgaged property. On 28.08.2011 this property at Bahadurgarh was visited by 4-5 persons claiming to be from the office of the Official Liquidator. They had come to take possession of the property on the basis of an order dated 03.08.2011 in Company Petition No.359 of 2009 whereby the Company Judge had appointed the Official Liquidator as a provisional liquidator with direction to take charge of all assets of the company Megnostar. The personnel from the office of the Official Liquidator were apprised of developments and sale under the SARFAESI Act but with the aid of police personnel they took forcible possession of the mortgaged property on August 30, 2011. In September 2011 the bank filed C.A.No.1948 of 2011 in C.P. No.359 of 2009 for a direction upon the Official Liquidator to unseal the property and hand over its possession to M/s. Mohan Tractors. To similar effect was C.A.No.1947 of 2011 filed by M/s. Mohan Tractors. The Company Judge appointed a valuer who submitted a Valuation Report on 14.01.2012. As per the report the land was valu .....

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on 35 and 37 in support of a submission that the provisions are not only a complete code for enforcement of secured asset by a secured creditor but in case of conflict with any other statute, the provisions of the SARFAESI Act would prevail. Some other statutes enumerated in Section 37 can play a supplemental role along with any other law for the time being in force including the Companies Act but obviously only till they are consistent with provisions of the SARFAESI Act. The relevant case laws were also cited and considered. The rival contention and case laws were noted for framing the main question of law in the following words : - Whether the Company Court enjoys jurisdiction to issue supervisory direction to a securitization company/ secured creditor in connection with a company in liquidation or under winding up in the face of Section 13 of the SARFAESI Act or securitization company opting to stand outside the winding up is absolutely free to utilise the sale proceeds of assets of the company in liquidation? 11. The Division Bench of Punjab & Haryana High Court considered the case of Mardia Chemicals v. Union of India (2004) 4 SCC 311; Rajasthan State Financial Corporatio .....

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of special significance for better understanding of the issues. 15. All the aforesaid Acts are Central legislations enacted for specific purposes. The SFC Act enables the State Governments to establish a Financial Corporation for a State on the lines of Central Industrial Finance Corporation set up under Act XV of 1948 to provide medium and long term credit to industrial undertakings, somewhat outside the normal lending activities of Commercial Banks. This Act, inter-alia, vests special privileges in the State Financial Corporations in the matter of enforcement of its claims against borrowers, through sections such as 29, 30, 31 and 32. Coercive steps including sale of secured property is, vide Section 31 required to be taken by moving appropriate application before the concerned District Judge as per procedure prescribed under Section 32. Section 46B does bestow overriding status on this Act over the then existing law but not over the Companies Act of 1956 which is a later law. Hence, in several judgments it has rightly been held that if the defaulter is a company under winding up, a State Financial Corporation can at best be a secured creditor who may opt to remain out of winding .....

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se of apparent conflict, this Court through various judgments has upheld the proceedings under the RDB Act as it happens to be a later Act with overriding effect over other laws. The interest of the workmen in respect of dues payable to them as per Section 529 and 529A of the Companies Act has been protected by permitting, wherever necessary, association of the Official Liquidator with the proceedings before the Debts Recovery Tribunal under the RDB Act. In our considered judgment, the same view is required to be taken in context of SARFAESI Act also, for the additional reason that Section 13 requires notice to the borrower at various stages which in the case of a company under winding up being a borrower would mean requirement of notice to the Official Liquidator. The Security Interest (Enforcement) Rules, 2002 (for brevity, the Rules ) framed under the provisions of SARFAESI Act also require notice upon the borrower or his agent at different stages. For sale of immovable secured assets, as per Rule 8, the authorized officer can take possession by delivering a Possession Notice to the borrower and by affixing Possession Notice on the outer door or at some conspicuous place of the .....

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mpanies Act. After taking note of various earlier judgments of this Court in the case of Allahabad Bank v. Canara Bank (2000) 4 SCC 406; International Coach Builders Ltd. v. Karnataka State Financial Corporation (2003) 10 SCC 482; Industrial Credit and Investment Corporation of India Ltd. v. Srinivas Agencies (1996) 4 SCC 165; and A.P. State Financial Corporation v. Official Liquidator (2000) 7 SCC 291, it was held in para 16 that a financial corporation has the right to proceed under Section 29 of the SFC Act against a debtor, if it is a company, only so long as there is no order of winding up. When the debtor is a company in winding up, the provisions of Sections 529 and 529A of the Companies Act would affect the rights of financial corporations because of a pari passu charge in favour of the workmen. In respect of such dues of the workmen the Official Liquidator has to be accepted as their representative. 21. In the context of RDB Act, reliance was placed upon another judgment of this Court by three Judges in the case of Bank of Maharashtra v. Pandurang Keshav Gorwardkar (2013) 7 SCC 754 wherein this Court held that the Debts Recovery Tribunal is not empowered to adjudicate/ det .....

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cial Corporation was therefore unable to take any advantage of provisions under SFC Act. At the end of paragraph 2, this Court rightly held that a mere right to take advantage of any enactment without any act done towards availing of that right cannot be deemed a right accrued. 24. Since we have held earlier in favour of views of Delhi High Court, it is not necessary to burden this judgment with the case laws which support that view and have been noted by the High Court. We are in agreement with the submissions advanced on behalf of respondent Kotak Mahindra Bank as well as respondent No.2 that there is no lacuna or ambiguity in the SARFAESI Act to warrant reading something more into it. For the purpose it has been enacted, it is a complete code and the earlier judgments rendered in the context of SFC Act or RDB Act vis-à-vis the Companies Act, cannot be held applicable on all force to the SARFAESI Act. There is nothing lacking in the Act so as to borrow anything from the Companies Act till the stage the secured assets are sold by the secured creditors in accordance with the provisions in the SARFAESI Act and the Rules. At the post sale stage, the rights of the persons or pa .....

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ention of the Parliament expressed in Section 13 of the SARFAESI Act that a secured creditor has the right to enforce its security interest without the intervention of the court or tribunal. At the same time, this Act takes care that in case of grievance, the borrower, which in the case of a company under liquidation would mean the liquidator, will have the right of seeking redressal under Sections 17 and 18 of the SARFAESI Act. 26. On account of the above discussions, the Division Bench judgment of the Punjab and Haryana High Court under challenge by Pegasus fails to meet our approval and is therefore, set aside only for the purpose of clarifying the law. Since the sale already made has not been assailed by Pegasus, therefore that issue will abide by the views that we shall indicate hereinafter in respect of SLP(C) Nos. 117-118 of 2011 preferred by Mr. Vinod Rajaliwala. 27. We grant leave in SLP(C) No.7074 of 2010 preferred by HSIIDC but only to dismiss this case as we have found the grievance of Pegasus to be justified; it was entitled not only to stay outside the winding up proceeding in view of provisions of SARFAESI Act which is a special and later Act but was also entitled to .....

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of ₹ 33 crores but later withdrew the same. Thereafter, another buyer made an offer of ₹ 37 crores but tendered a meagre amount of ₹ 1 crore only before the Division Bench. On these facts the Division Bench dismissed company appeal on 23.9.2010. As a consequence, the PIL was also dismissed on the same date. In this Court, the petitioner claimed that the property was worth hundred of crores but ultimately petitioner persuaded another entity M/s. Himalayan Infra Projects Private Limited to offer a higher bid. This company was allowed to intervene and be impleaded, and it deposited 10 crores in January, 2011 and ₹ 40 crores in April, 2011. That money is lying in deposit in this Court. 31. The argument on behalf of Mr. Rajaliwala and the intervener Himalayan Infra Projects Private Limited is that this Court should take a practical view and allow the offer of ₹ 50 crores in comparison to ₹ 32 crores deposited by the auction purchaser. In reply, on behalf of Venus Realcon- respondent No. 3, it was pointed out that Mr. Rajaliwala is himself a property dealer and a PIL at his instance, in this matter, does not deserve any consideration for lack of good f .....

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) 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 the following words: If it is held that every confirmed sale can be set aside the result would be that no auction-sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount. It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction-sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction-sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they are themselves to be blamed if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price. Of course, the situation may be different if an auction-sale is finalized, say for ₹ 1 crore, and subsequently somebody turns up offering ₹ 10 crores. In this situation .....

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