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ICICI Bank Ltd. Versus The Official Liquidator, Thane and The Court Receiver, High Court, Bombay

2017 (1) TMI 577 - BOMBAY HIGH COURT

Secured creditor entitlement to interest after the date of the winding up of the Company - whether Rules 154 and 179 of the Companies (Court) Rules, 1959 are applicable to debts due to a secured creditor by a Company in liquidation, which secured creditor stands outside the winding up and opts to realise his security for recovery of the decretal amounts? - Held that:- Admittedly the Court Receiver/Official Liquidator has an approximate amount of Rupees Thirty Eight Crores Thirty Six Lakhs as on .....

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djudication upheld by this Court and by the Appeal Court, the claimants have filed SLPs impugning the said orders. Though notice has been issued in the said SLPs by the Hon'ble Supreme Court, till date no ad-interim/interim order are passed in the said SLPs. - The entire balance surplus amount lying with the Court Receiver/Official Liquidator with the interest earned or accrued thereon, is ordered to be paid to ICICI Bank Ltd. and Metropolitan Infrahousing as prayed by them in their respecti .....

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. D'Vetre, Sr. Advocate with Mr. Durgaprasad Pujari, instructed by M/s. PDS Legal, For The Official Liquidator : Mr. J.P.Sen, Senior Advocate, Mr. M.S. Deshpande, Court Receiver, present, Ms. Yogini Chauhan, Dy. Official Liquidator present JUDGMENT : 1. By Notice of Motion No. 3710 of 2011, the Plaintiffs - ICICI Bank Ltd. ICICI Bank) being debenture trustees in respect of 15% non-convertible debentures issued by M/s. Pal Peugeot Ltd.. (PPL) and representing 4.31% of the debenture holders of .....

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86,43,604/- towards the Trustees remuneration and other consequential charges as per the decree dated 4th December 2006 till the date of the decree 2. By Notice of Motion No. 613 of 2014, the Applicant - Metropolitan Infra Housing Pvt. Ltd. (Metropolitan Housing) which holds the bulk of the debentures (95.69 per cent) in PPL has prayed for the following reliefs: (a) That the Applicant being the secured creditor be permitted to intervene in the matter of distribution of sale proceeds in the above .....

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CICI Bank] with a direction to the Plaintiff to distribute the balance sale proceeds to the debenture holders in pari passu." 3. Since both the Applications pray for similar reliefs and involve common facts and question of law, they are heard together and are disposed of by this common judgment. 4. Briefly set out are the facts relevant for deciding the issues raised in the above Notices of Motion. 4.1 ICICI Bank Ltd. (the Plaintiff in Suit No. 3636 of 1996 and the Applicant in Notice of Mo .....

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PL failed to make payments upon maturity of its non-convertible debentures. The above Suit being No. 3636 of 1999 was therefore filed by ICICI Bank, being the debenture trustees, to recover the unpaid principal and interest amounts under the said Trust Deed and to enforce the said mortgage and charge. By an order dated 30 June, 1999, the Court Receiver, High Court Bombay was appointed as receiver inter alia of the secured assets of PPL. By a subsequent order dated 8 February, 2002, the Court Rec .....

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ecured creditors. They applied for and obtained leave u/s 446 of the Companies Act 1956 from the Company Court to continue the said suit. The plaint was allowed to be amended and the Official Liquidator was joined as a Defendant in the said Suit No. 3636 of 1999. 4.6 The Official Liquidator filed an affidavit dated 1 December, 2006 giving his consent to the decree being passed in the said Suit against the Company in terms of the minutes of order. Para 4 of the said affidavit read as under: 4. Th .....

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2006, 12 December, 2006 and 13 January, 2011. In the circumstances, Metropolitan Infrahousing at present holds 95.69% of the debentures. 4.8 The said Suit was decreed in favour of ICICI Bank by a decree and Order dated 4th December, 2006, with the consent of the Official Liquidator duly recorded therein. Prayers (a) (i), (a) (ii), and (b) to (j) were granted, with the rate of interest being as per the Trust Deed dated 21st February, 1997. The period of redemption was fixed, and failing payment, .....

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ber, 2006) is ₹ 685,82,98,695/-. 4.10 By an order dated 7 September, 2007 Metropolitan Infrahousing was permitted to bid for the properties at the auction and was entitled to set off in case it was declared the successful bidder. 4.11 The sale was conducted by the Court Receiver. Metropolitan Infrahousing was the successful bidder for the immoveable properties (sold as Part A and B lands) for ₹ 601,00,00,000/- (Rupees Six Hundred and One crores only) and ₹ 125,01,00,000/- (Rupe .....

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f ₹ 547,28,34,538/- (Rupees Five Hundred and Forty seven Crores twenty eight lakhs thirty four thousand and five hundred thirty eight only), which amount included interest only upto 26 September, 2005 (the date of the winding up order). Metropolitan Infrahousing contested the computation of this amount of set-off and by an Order and Judgment dated 22nd September, 2011 of the Company Court (Dharmadhikari J.), the challenge of Metropolitan Infrahousing was negated and the amount of set off a .....

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04,40,951/- towards redemption of 95.69 per cent debentures, calculated as on the date of the decree i.e. 4th December, 2006. As stated hereinabove, pursuant to the orders of this Court, Metropolitan Infrahousing was granted a set off in the sum of ₹ 547,28,34,538/- . The balance amount payable as on the date of the decree is ₹ 113,94,39,157/-. The surplus amount lying with the Court Receiver is ₹ 37,67,27,072.06 as on 4th February, 2015. 4.14 ICICI Bank and Metropolitan Infrah .....

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balance amount due to the secured creditors under the decree of this Court in the suit. 5. The Learned Senior Advocate appearing for the Official Liquidator has opposed the reliefs sought in the above Notices of Motion. He has submitted as follows: 5.1 That the secured creditors are entitled to payment, in pari passu with workers, to such amount as is due to them on the date of the winding up of the Company or in the event of a Provisional Liquidator having been appointed, the date of provision .....

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debts due to secured creditors shall rank pari passu and be paid in priority to all other debts. The issue as to what would be the debt payable to all creditors including workers and secured creditors is explained in Rule 154 of the Companies (Court) Rules, 1959, to the effect that the debts payable to creditors would, as far as possible, be estimated as on the date of the winding up order. 5.4 That as per Rule 179 of the Companies Rules, only once the claim of all creditors including unsecured .....

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(ii) Kerala Financial Corporation vs. Official Liquidator, High Court of Kerala (1996) 87 Comp Cas 183 (Kerala); (iii) Decision of this Court in Asha Bhosale vs. Magna Sound India Ltd. (in Liquidation) Order dated 21st October, 2015 passed in OL Reort No. 188 of 2014 in Company Petition No. 719 of 2002. 5.7 That there is no ground available for this Court to depart from the consistent view taken by the various High Courts that the secured creditor would be entitled to interest after the date of .....

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ompany in liquidation the entire amount due to it on the date of the winding up order, namely a sum of ₹ 547,28,34,538 crores. As such, in the absence of all other claims (including claims of unsecured creditors) being met, no further interest beyond the date of the winding up order is liable to be paid to the secured creditors at present and the Company Applications are liable to be rejected. 6. The Learned Advocates appearing for the ICICI Bank and Metropolitan Infrahousing have submitte .....

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ity for recovery of decretal amount as in the present case. Similarly Rule 179 also does not apply to a secured creditor who has chosen to remain outside the winding up proceedings and has not submitted his claim for adjudication before the Official Liquidator. 6.2 That interpretation of the Official Liquidator if accepted by this Court to read Rule 179 of the Companies Rules to include payment to unsecured creditors prior to secured creditors would amount to a serious infirmity and is contrary .....

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which disentitles the secured creditor to recover its debts with interest beyond the date of winding up order. 6.4 That the Official Liquidator who consented to the decree being passed in favour of the secured creditors subject only to the workmen s pari passu entitlement being protected is bound by the decree. 6.5 That the decisions of the Hon ble Supreme Court of India in the case of Bank of Maharashtra vs. Pandurang Keshav Gorwarkar and others ( supra), Laxmi Fibres Ltd. vs. A.P. Industrial D .....

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lying with the Court Receiver with the interest earned and/or accrued thereon be directed by this Court to be paid to ICICI Bank and Metropolitan Infrahousing. 7. In rejoinder, the learned Senior Advocate appearing for the Official Liquidator has submitted that the submissions advanced on behalf of ICICI and Metropolitan Infrahousing are misconceived. It is submitted that the right of the secured creditor to stand outside winding up does not entitle them to disregard the principles of the Act an .....

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hallenge before the Company Court a mortgage decree to which he was a party. The Official Liquidator has made no such attempt in this case. It is submitted that the reliance on the judgment of the Hon ble Supreme Court in Laxmi Fibres (supra) is also misconceived. The judgment merely lays down the proposition that the secured creditor (in that case the A.P. Industrial Development Corporation Ltd. governed by the State Financial Corporations Act, 1955) cannot be compelled to prove its claim befor .....

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submissions advanced by the Learned Advocates appearing for the parties and have also considered the case law relied upon by them. In the backdrop of the facts as well as the rival contentions set out hereinabove, the main issue that falls for consideration of this Court is whether Rules 154 and 179 of the Companies (Court) Rules, 1959 are applicable to debts due to a secured creditor by a Company in liquidation, which secured creditor stands outside the winding up and opts to realise his securi .....

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e winding up of the Company unless and until all the claims against the Company including that of the unsecured creditors are satisfied. 9. Though the Official Liquidator has relied only upon Rules 154 and 179 of the Companies Rules, for a clear understanding, Rules 147 to 154 as well as Rule 179 are reproduced hereunder: " R. 147. Fixing a date for proving debts - Subject to the provisions of the Act, and in a winding-up by the Court, subject to the directions of the Court, the Official Li .....

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from objecting to such distribution. R. 148. Notice to creditors - (1) The liquidator shall give not less than 14 days' notice of the date so fixed by advertisement in one issue of a daily newspaper in the English language and one issue of a daily newspaper in the regional language circulating in the State or Union Territory concerned, as he shall consider suitable. Such advertisements shall be in Form No. 63. (2) The Liquidator shall also give not less than 14 days' notice of the date f .....

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aims to be a creditor or preferential creditor of the company and whose claim has not been admitted, to the last known address or place of abode of such person. Such notice shall be in Form No. 64 or 65 as the case may be, and shall be sent to each creditor by pre-paid letter post under certificate of posting. (3) All the rules hereinafter set out as to the admission or rejection of proofs shall apply with necessary variations to any claim to priority as a preferential creditor. R.149. Proof of .....

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A debt may be proved by delivering or sending by post to the Liquidator, an affidavit verifying the debt made by the creditor or by some person authorised by him. If the affidavit is made by a person authorised by the creditor, it shall state the authority and means of knowledge of the deponent. A creditor need not attend upon the investigation unless required to do so by the Liquidator. R.151. Contents of proof - An affidavit proving a debt shall contain or refer to a statement of account showi .....

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shall be sufficient if one proof in Form No. 67 for all such claims is made either by a foreman or some other person on behalf of all such creditors. Such proof shall have annexed thereto as forming part thereof, a schedule setting forth the names of the workmen and others and the amounts severally due to them. Any proof made in compliance with this Rule shall have the same effect as if separate proofs had been made by each of the said workmen and others. R.153. Production of bills of exchange .....

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te of the order of the winding up of the Company nor where before the presentation of the petition for winding up, a resolution has been passed by the Company for voluntary winding-up, at the date of the passing of such resolution." R. 179. Payment of subsequent interest - In the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted shall be paid interest from the date of the winding up order or of the resolution .....

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Liquidator, the subsequent procedure of proof and list of creditors to be filed in Court and failure to prove debt within time fixed. Each of the aforesaid Rules contemplate adjudication of claim of the creditor lodged with the Official Liquidator. Rule 154 therefore cannot be read in isolation and must be read in the entire scheme of the Rules in which it is incorporated. Rule 154 primarily applies only to those creditors who choose to remain within the winding up proceedings and file their cl .....

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reditor who has chosen to remain outside the winding up proceedings and has not lodged his claim with the Official Liquidator. The language of Rule 179 clearly read "…there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted to proof, shall be paid.... . The language of the Rule makes it abundantly clear that the Rule restricts payment of interest only to such parties whose claims have been admitted and adjudicated by t .....

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raph 2 of the said judgment of the Kerala High Court, the Court has said that it is made clear that in the said case the Applicant has preferred a claim before the Official Liquidator. Thus the judgment of Kerala High Court in fact assists the Plaintiff inasmuch as it suggest that a secured creditor standing outside the winding up stands on a different footing and Rule 179 would not be applicable to such a creditor. 12. However, the rights of a secured creditor who stands outside the winding up .....

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sub-section (1) of Section 529 pari passu with such dues shall be paid in priority to all other debts. Again, proviso to Section 529 (1) expressly contemplates that a secured creditor can stand outside winding up and realise its security. The relevant extract of proviso to Section 529 (1) is reproduced hereunder: [Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein, .....

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the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of Section 529A.]" Thus, a limited impediment is introduced with regard to the claim of a secured creditor under the winding up provisions of the Act with a view to protect the rights of the workmen to receive their wages on a pari passu basis. 13. It may be noted that under S. 445 (3) of the Companies Act, 1956, the workmen stand discharged from the .....

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hat the relevant date for arriving at the ratio at which the sale proceeds are to be distributed amongst workmen and secured creditors of the Company is the date of the winding up order and not the date of sale . (emphasis added). As set out in the said judgment, the cut off date, i.e. the date of the winding up order, is relevant only for arriving at the ratio at which the sale proceeds are to be distributed among workmen and secured creditors. In fact, in para 54 page 2051 of the said Judgment .....

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f the pari passu amounts does not affect the rights of the secured creditors to realize their security and receive their full dues, once the provisions of Section 529A have a full play. The control of the Company Judge and the Official Liquidator, under given circumstances, extends only to ensure that the aforesaid purpose of Section 529A is effectively achieved. 16. The Hon ble Apex Court in the matter of Laxmi Fibres Ltd. Vs. A.P. Industrial Dev. Corpn. Ltd. & Ors. (supra) noticed its prev .....

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SFCs urge that the view we are to take would obliterate the difference between a creditor opting to stay outside winding-up and one who opts to prove his debts in winding-up. We are unable to accept it. As a result of the amendments made by the Act of 1985 in the Companies Act, 1956, SFCs as secured creditors, must seek leave of the Company Court for the limited purpose of ensuring that the pari passu charge in favour of the workmen is safeguarded by imposition of suitable conditions under the .....

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th other unsecured creditors. Neither is the apprehension expressed justified, nor the contention sound. 8. It is clear from the aforesaid judgment that no doubt the changes brought about in the Companies Act through amendments of 1985 impede even the statutory powers available to a secured creditor like SFCs under Section 29 and the other relevant sections of the SFC Act but the impediment is indeed of a limited nature; its specific purpose being to protect the pari passu charge of the workmen .....

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he amendment of 1985 in the Companies Act, particularly the proviso added to Section 529(1) and Section 529A, only to a limited extent and for the limited purpose of securing the right of the workers for distribution of their wages as pari passu charge. But such limited impediment to their rights under the SFC Act will not alter the status of State financial corporations as secured creditors and they will not be required to prove their debt which they are entitled to realize under the provisions .....

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priate civil proceedings to challenge such claim or debt of a State financial corporation before an appropriate forum and not to assume jurisdiction to sit in adjudication and decide entitlement of the financial corporation when it has opted to stand outside the liquidation proceeding as a secured creditor. As noted earlier, the statutory powers of SFCs have suffered only a limited impediment only to serve the purpose of protecting workers' dues." (emphasis supplied) 17. Punjab and Hary .....

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(Court) Rules on which counsel for the official liquidator has put reliance is not applicable in respect of the secured creditors who stand outside the winding up. Since the secured creditors stand outside the winding up on the strength of their security, the consortium of banks are entitled to realise the interest in terms of the order passed by the court of competent jurisdiction. The date of winding up is relevant only for those creditors whose claim is required to be settled by the official .....

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as in the context of the offer made by the assignee to pay additional amounts to cover the dues of the workers (which dues had not been determined or adjudicated upon by the Official Liquidator at that time). Thus, it is clear that the observation is in the context of determining the amounts respectively due to the workmen and the subrogee pari-passu under Section 529A. 19. The Judgment dated 22 September, 2011 of Dharmadhikari, J. (relied upon by the Official Liquidator) in the present matter i .....

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pari passu with the secured creditor's claim. It is an admitted position in law, as I have noted above, that for working out this pari passu charge and determining the sharing ratio between them both the workmen's dues and the claim of the secured creditor must be rekoned as of the date of the winding up order. The Official Liquidator, accordingly, had to merely consider the claim of ICICI Bank Ltd. and Metropolitan Infrahousing upto the date of the winding up order and accordingly grant .....

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t have the effect of extinguishing or wiping out the balance amount of the debt due and owing to ICICI Bank Ltd. under the decree in the suit. In fact, at one place in his order the Learned Judge (Dharmadhikari, J.) has clearly noted that "Once the set off was permitted to be claimed that by itself does not mean that the computations and calculations of the said set off as made by the Metropolitan is final and conclusive." Once this set off is granted and the purchaser brings in the ba .....

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