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Sri. Sharath Rukmangada S/O Late Sri NB Rukmangada Versus Cauvery Papers Ltd. (In Liqn)

2016 (5) TMI 909 - KARNATAKA HIGH COURT

Recovery of Debts Due - provision for the recovery of debts - sale of property - Held that:- The present application are not at all the workmen of the company-in-liquidation. They are the legal representatives of one Sri N.B. Rukmangada, who was the director of the company-in-liquidation, who furnished guarantee to the financial institution when the company borrowed the loan from the said financial institution. After the demise of the said Sri N.B. Rukmangada, the guarantor, the present applican .....

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. N.B. Rukmangada have no concern with the company in liquidation. So this goes to show that notice has been already given by the DRT to the official liquidator and he has been heard in the matter. Even according to the decision relied upon by the learned counsel for the applicants the relevant paragraphs are referred above. There is no bar for the DRT to proceed with the sale of the property. But before conducting such sale of the property, the official liquidator has to be heard in the matter. .....

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about the proceedings he appeared in the matter before the DRT and the applications herein are also not from the Workmen/Employees of the Company in Liquidation and there is no allegation from the Official Liquidator that the recovery officer is conducting the sale of the property without his consultation and without hearing him.

Therefore, looking to the facts and circumstances of the case on hand, and the facts and circumstances in the reported decisions relied upon by the learned .....

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Respondent: Sri K.S. Mahadevan and V.J. Achalananda, Advs. COMMON ORDER 1. These applications are filed by the applicants under Rule 6 read with Rule 9 of the Company (Court) Rules, 1959. 2. C.A.No.54/2016 is filed by the applicants praying the Court to set-aside the judgment dated 22.12.2003 passed by the Debts Recovery Tribunal in O.A.872/1999, which is produced at Annexure-C, and also to set-aside the orders dated 27.05.2015 and 24.06.2015 passed by respondent No.2 in DCP No.3096 of O.A.No.87 .....

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ers Limited (In Liqn.,) i.e., respondent No.1 herein had borrowed a term loan of ₹ 305 Lakhs from IDBI, IFCI and ICICI on 8.09.1982 and further loans of ₹ 28.80 Lakhs and ₹ 34 Lakhs on 27.03.1985 and 09.11.1987 respectively, for its project at Satyagala Village, Mysore District, for manufacture of M.G.Kraft and colored poster papers. The respondent-company (In Liqn.,) was declared as a Sick Industrial Company within the meaning of the Sick Industrial Companies (Special Provisio .....

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despite a rehabilitation scheme sanctioned by BIFR during August 1990, failed to revive the respondent-company (In Liqn.,). It appears that the ICICI Bank and respondent No.4 Bank (IFCI) i.e., the operating agency banks declined to implement the scheme of rehabilitation. Respondent-company (In Liqn.,) preferred an appeal before the Appellate Authority for Industrial and Financial Reconstruction (hereinafter referred to as 'AAIFR' for short) against the aforesaid order passed by the ' .....

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.2000 and directed the Official Liquidator to take control of the assets and liabilities of the respondent- company (In Liqn.,). The respondent-company was declared sick on 26.10.1988 by the BIFR and that, Section 22 of SICA operates immediately upon such declaration and was in force upto the presentation of the instant petition on 13.05.1997 and hence all the other legal proceedings are liable to be suspended. Section 22 of the SICA, Act, 1985, provides for suspension of legal proceedings, cont .....

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o adhere to Section 441 (2) of the Companies Act, 1956. It is well settled law that once the order for winding-up of the Company is made, the said order relates back to the date of presentation of the winding-up petition. Section 441 of the Companies Act, 1956, provides for Commencement of winding up by Tribunal. Respondent No.2-the DRT, respondent No.3 and respondent No.4 Banks, failed to obtain the express leave of this Court to continue with the proceedings before the DRT and respondent No.2- .....

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espondent-company (In Liqn.,) and it is manifestly clear that the sale is made after winding-up of the respondent-company (In Liqn.,). There is no basis and justification by respondent No.2 at Annexure-F order sheet in D.C.P.No.3096 as to re- commencement/continuance of recover proceedings on 24.02.2014 after having kept the same in abeyance from 10.12.2007. Section 537 of the Companies Act 1956, provides for the avoidances of certain attachments, executions, etc., in winding-up by Tribunal. In .....

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Banks before the DRT, as the date of presentation of this petition is much prior to the initiation of the DRT proceedings. This certificate holder banks namely IDBI, IFCI and ICICI, had approached the DRT Bangalore on 5.7.1999 seeking to recover its dues from the respondent- company (In Liqn.,) in O.A.872/1999. In the pleadings in O.A.No.872/1999 before the DRT, the aforementioned banks have specifically pleaded as regards the pendency of liquidation proceedings before this Court, but no leave o .....

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of the respondent-company (In Liqn.,) on 20.04.2000 and all the property, etc., of the respondent-company (In Liqn.,) hence, vested with this Court under Section 456 of Companies Act, 1956, that the Official Liquidator is taking steps for the sale of respondent-company (In Liqn.,) properties. The Official Liquidator also informed the DRT that under the provisions of Section 446(1) of the Companies Act, 1956, when a winding-up order was passed the leave of this Court was absolutely necessary and .....

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0. The written statement filed by the Official Liquidator before the DRT is annexure-B. The DRT instead of suspending the proceedings as contemplated under Sections 22 of SICA and Sections 441, 446, 537 of Companies Act 1956, in O.A.NO.872/1999, continued with the judicial proceedings and passed a judgment dated 22.12.2003 thereby allowing the claims of the claimant banks viz., IDBI, IFCI, ICICI. The claims of the respective banks was decreed as per the recovery certificate wherein the claim of .....

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f the respondent-company (In Liqn.,). arrived at an amicable one time settlement with regard to the decreetal amount of Bank No.1 i.e., IDBI and by way of a compromise memo dated 3.4.2006 settled the dues of IDBI in full and final settlement. In lieu of the aforesaid compromise memo dated 3.4.2006, the IDBI bank acknowledged receipt of an amount of ₹ 5.00 Lakhs towards discharge of certificate amount due to it as full and final settlement. It was consented by the IDBI Bank that no amount s .....

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right to recover the decreetal amount under the amended recovery certificate from the respondent-company (In Liqn.,) to Standard Chartered Bank Ltd. during 2006 and thereafter the said Bank has in-turn assigned its right to recover the decreetal amount to International Assets Reconstruction Company Private Limited i.e., respondent No.3 herein during 2013. The amended recovery certificate is sent to the recovery officer of the DRT for recovery proceedings (execution of judgment and decree of DRT .....

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xure-F, an order is made by respondent No.2 on 10.12.2007 keeping in abeyance the recover proceedings till the bank reports the completion of liquidation proceedings. However, upon perusal of the said order sheet it is understood that the next order is dated 24.02.2014, wherein the respondent No.2 has ordered for issuance of demand notice. The defendant No.2 in O.A.No.872/1999 i.e., Sri N.B. Rukmangada (Director of respondent-company (In Liqn.,) and judgment debtor No.2 in DCP No.3096) expired o .....

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as contemplated under Rule 60 of the Income Tax (Certificate Proceedings) Rules, 1962, which requires issuance of notice in Form ITCP-29 to the legal representatives. The copy of the said application to bring the legal representatives is produced at Annexure-G. Respondent No.3-IARC filed an application seeking to furnish security to the extent of the amount recoverable and failing which to attach 3,61,251 number equity shares of ₹ 10/- each in Cauvery Hydro Energy Limited, which are in the .....

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da or from Cauvery Hydro Energy Ltd., does not arise at all. Respondent No.3 filed a memo dated 29.10.2015 before respondent No.2 that respondent No.3 has received an amount in sum of ₹ 54,53,736/- from the Official Liquidator representing the respondent company (In Liqn.,) and the said amount may be deducted from the certificate amount. Therefore, the question of recovering the remaining certificate amount from the applicants does not arise at all. Respondent No.3-IARC has on 29.12.2015 f .....

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aid applicants herein are attempting to alienating the property in the schedule therein. The applicants herein have filed objections to the aforesaid application of Respondent No.3 and the matter is now set-down for hearing on the said application, a copy of the application is produced at Annexure-J and copy of the sale deed is annexed at Annexure-K. It is further pleaded that upon a perusal of the copy of the sale deed annexed along with the said application at Annexure-K indicates that the sai .....

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eedings before the DRT in OA.872/1999 and hence, the question of said property now being sought for attachment or being proceeded against is bad in law and an abuse of process of law. Hence, the question of respondent No.2 proceeding for granting injunction as sought for in the interlocutory application filed by the respondent No.3 Bank is ultra vires of the judgment and decree passed by DRT in O.A.872/1999. The joint deed of guarantee dated 9.11.1987 executed by Sri N.B. Rukmangada and Sri K.S. .....

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t contracted for their benefit or for the benefit of the family. The personal guarantee of Sri N.B. Rukmangada was a limited liability with regard to respondent No.3 and respondent No.4. The judgment and decree passed by the DRT Bengaluru in O.A.872/1999 is violative of Sections 438 and 441(2) and 446 and 537 of the Companies Act, 1956. The judgment and decree passed by the DRT, Bengaluru in O.A.No.872/1999 is non-est in the eye of law and is liable to be set-aside/struck down in lieu of liquida .....

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e above applications, when the Court asked the learned counsel for respondent No.3 that whether he wanted to file objections to the said applications, learned counsel has submitted that whatever the arguments he will submit that itself may be considered as his oral objections to the said applications and also further submitted that it is a pure question of law to be considered by this Court. 10. Heard the arguments of the learned counsel appearing for the applicants in respect of both the applic .....

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relied upon the following decisions. i. Industrial Credit & Investment Corpn. of India Ltd. v. Srinivas Agencies [1996] 8 SCL 55 (SC). ii. Industrial Credit & Investment Corpn. of India Ltd. v. Vanjinad Leathers Ltd. AIR 1997 Ker 273. iii. Rajasthan Financial Corpn. v. Official Liquidator [2005] 63 SCL 468 (SC) iv. Official Liquidator of Kritika Rubber Industries (P.) Ltd. (In Liquidation) v. Canara Bank [2013] 35 taxamnn.com 618 (Kar.). v. KSL & Industries Ltd. v. Arihant Threads L .....

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e of the material facts with the date of events, which are not in dispute according to both the sides are as under:- (1) On 8.09.1982 money of ₹ 304 Lakhs borrowed by Respondent-company from 3 banks i.e., IFCI IDBI and ICICI, (assigned to IARC respondent No.4). (2) 27.03.1985 respondent-company takes further loan of ₹ 28.8 lakhs. (3) 8.11.1987 N.B. Rukmangada, gave a guarantee to the extent to of ₹ 7.5 Lakhs to respondent No.3 (4) 9.11.1987 respondent-company takes further loan .....

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ourt and BIFR, by recovery banks IDBI IFCI and ICICI. 13. It is also the contention of the applicants that in the objection statement of the Official Liquidator produced at Annexure-B, the Debts Recovery Tribunal is notified about the pendency of winding up proceedings before this Court. So these factual aspects with the relevant dates are not in dispute even according to respondent No.3. Therefore, the question is whether the judgment and decree passed by the DRT in O.A.872/1999 is liable to be .....

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ation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the p .....

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rder.- (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Tribunal and subject to such terms as the Tribunal may impose. (2) The Tribunal shall, not withstanding anything contained in any other law for the time being, in force, have jurisdiction to entertain, or .....

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question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after commencement of the Companies (Amendment) Act, 1960] (65 of 1960) (3) ***Omitted by the Companies (Second Amendment Act) Act, 2002 (4) Nothing in sub-section (1) or sub- section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.] Section 529A of the Act, 1956 reads as under:- "Section 529A: Overr .....

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full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions." 15. In the decision in Rajasthan Financial Corpn's case (supra) Their Lordships of the Hon'ble Supreme Court have laid down the proposition at para No.18 of the said judgment as under:- "18. In the light of the discussion as above, we think it proper to sum up the legal position thus: (i) A Debts Recovery Tribunal acting under the recovery of Debts Due To Banks and Finan .....

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uidator or the Liquidator appointed by the Company Court and after hearing him. (iii) If a financial corporation acting under Section 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the company Court and acting in terms of the directions issued by that court as regards associating the Official Liquidator with the sale, the fixing of the upset price or .....

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the Companies Act regarding distribution of the assets of the company-in-liquidation." 16. In another decision relied upon by learned counsel for applicants in the case of Pandurang Keshav Gorwardkar (supra), the Hon'ble Apex Court at para No.55 and sub para 18 so also para No.56 has observed as under:- "18. In the light of the discussion as above, we think it proper to sum up the legal position thus: (i) A Debts Recovery Tribunal acting under the recovery of Debts Due To Banks an .....

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ial Liquidator or the Liquidator appointed by the Company Court and after hearing him. (iii) If a financial corporation acting under Section 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the company Court and acting in terms of the directions issued by that court as regards associating the Official Liquidator with the sale, the fixing of the upset pr .....

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rovisions of the Companies Act regarding distribution of the assets of the company-in-liquidation. 56. What is important to be noticed is that in Rajasthan State Financial Corporation (AIR 2006 SC 2012) the three-Judge Bench stated in no unambiguous terms that once a winding up proceeding has commenced and the Liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the banks or financial instituti .....

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s dues and collected for distribution among them pari passu with the secured creditors. By noticing that there is no conflict on the question of applicability of Section 529 A read with Section 529 of the Companies Act to cases where the debtor is a company and is in liquidation, it was observed that the conflict, if any, is in the view that DRT could sell the properties of the Company in terms of the 1993 Act and to that extent, the 1993 Act shall prevail over the Companies Act being the genera .....

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rt, the judgment and order dated 23.02.2006 of the High Court of Delhi is set-aside. But in the case on hand, the applicants who have filed the present application are not at all the workmen of the company-in-liquidation. They are the legal representatives of one Sri N.B. Rukmangada, who was the director of the company-in-liquidation, who furnished guarantee to the financial institution when the company borrowed the loan from the said financial institution. After the demise of the said Sri N.B. .....

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to be the legal representatives of the said Sri. N.B. Rukmangada have no concern with the company in liquidation. So this goes to show that notice has been already given by the DRT to the official liquidator and he has been heard in the matter. Even according to the decision relied upon by the learned counsel for the applicants the relevant paragraphs are referred above. There is no bar for the DRT to proceed with the sale of the property. But before conducting such sale of the property, the off .....

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, Section 17 of Recovery of Debts Due to Banks and Financial Institution Act, 1993 so also Section 20 of the said Act reads as under:- "17. Jurisdiction, powers and authority of tribunals - (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. (2) An appellate tribunal shall exercise, on and from the .....

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ith the consent of the parties. (3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made, or deemed to have been made, by the Tribunal is received by him and it shall be in such form and be accompanied by such fee as may be prescribed: Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it .....

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with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal." 19. So when such statutory remedy was available to the applicants, they could have challenged the judgment and decree passed by the DRT and they could have canvassed all the points which they have urged before this Court in the company applications. In this connection, I have also perused the decision of the Hon'ble Supreme .....

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gative writs for the enforcement of any of the rights conferred by Part-III or for any other purpose are very wide and there is no express limitation on exercise of that power, but at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compul .....

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taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases, relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which ultimately prove detrimental to the economy of the nation. Therefore, the High Court should .....

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gments, then the High Court may, after considering all the relevant parameters and public interest, pass appropriate interim order. 22. In Punjab National Bank v. O.C. Krishnan MANU/SC/0452/2001: (2001) 6 SCC 569 this Court considered the question whether a petition under Article 227 of the Constitution was maintainable against an order passed by the Tribunal under Section 19 of the DRT Act and observed: 5. In our opinion, the order which was passed by the Tribunal directing sale of mortgaged pr .....

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ter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection. .....

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