TaxTMI 
TaxTMI 
2012 (9) TMI 1092
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....r dated 29.05.2012 which continues to be in force, the operation of the impugned order stayed. Subsequently, notice was issued in Company Appeal No. 62/2012 also. The counsel for the appellants in the two appeals and the counsels for the official liquidator have been heard. 2 . The company in liquidation was the owner of Plot No. 1297, admeasuring 502.33 sq. yards situated at Sector MIE, Bahadurgah, Haryana together with the super structure thereon; the same was mortgaged in the year 2006 to the appellant M/s Kotak Mahindra Bank Ltd (hereinafter called the bank) to secure the financial assistance granted by the bank to the company in liquidation. 3. The bank, on 18.12.2008 issued notice under Section 13 (2) of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to the company in liquidation. Upon the company in liquidation failing to comply therewith, the bank on 16.06.2010 took over possession of the mortgaged property. Thereafter, the bank on 23.07. 2011 published notices in the newspapers for auction and sale of the mortgaged property on 24.08.2011. 4. However, before the auction could be held, the Company Ju....
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....the pendency of the company petition or about the appointment of the Provisional Liquidator; that SARFAESI Act is a special Act containing complete mechanism for recovery of bank dues through enforcement of security interest; that the auction was done in a fair and transparent manner at the office of the bank at New Delhi; that the bank had obtained valuation of the property in question prior to auction and according to which valuation the property was valued at Rs. 1,02,00,000/- and having distress value of Rs. 75,00,000/-; that the entire sale consideration of Rs. 80,00,000/- was received from the auction purchaser on 24.08.2011 itself and sale confirmation letter issued to the auction purchaser on the same day; it was thus denied that the Company in Liquidation remained the owner of the property; that the bank was not required to await adjudication of its claims before enforcing its security interest; that the sale in favour of the auction purchaser was complete; it was clarified that the mortgage was equitable, by way of deposit of title deeds. 8. The learned Company Judge vide order dated 12.12.2011, without prejudice to the rights and contentions of the parties appointed a v....
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....dator in the sale by the secured creditor under Section 13 of the Act and the only requirement is to pay the workmen's dues to the Official Liquidator; vii) the last proviso to Section 13(9) also provides only for an undertaking from the secured creditor to the Official Liquidator to pay the balance of the workmen's dues; viii) it is thus argued that the Legislature, wherever desired to protect the interests of the workmen of the company in liquidation, has provided so and having expressly omitted to provide for the association of the Official Liquidator in the sale, this court by its judgment ought not to do so. Reference is also made to Rules 4, 6 & 8 of the Security Interest (Enforcement) Rules, 2002 (SIE Rules) to demonstrate that no provision is made therein also for involvement/association of the Official Liquidator. Attention is next invited to Sections 35 and 37 of the SARFAESI Act to contend that the provisions thereof have an over riding effect. It is contended that if the literal interpretation of a Statute is clear, the occasion for applying the rule of purposive interpretation does not arise. Attention is next invited to the Statement of Objects and Reasons of the ....
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.... in addition to the Companies Act and there is no inconsistency between the two. 13. The counsel for the auction purchaser in rejoinder has argued that there is not much difference between the two valuations and for this reason alone, the learned Company Judge ought not to have directed fresh sale of the property. 14. We will start with Allahabad Bank (supra). The question therein for consideration was of jurisdiction of Debt Recovery Tribunal (DRT) constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act) vis-à-vis the Company Court. The Supreme Court in this judgment held that even where a winding up petition is pending or a winding up order has been passed against the debtor company, the adjudication of liability and execution of the certificate in respect of debts payable to banks and financial institutions are within exclusive jurisdiction of the DRT and the Recovery Officer under the DRT Act and in such a case the Company Court‟s Jurisdiction under Section 442, 446 and 537 of the Companies Act stood ousted and hence no leave of the Company Court is necessary for initiating proceedings under the DRT Act. It was further h....
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....ch. The Three Judges Bench however, in their judgment (Supra):- (i) noticed that in the facts of that case, the Rajasthan Financial Corporation, though could have, had not invoked Section 29 or Section 31 of the SFC Act till the order of winding up and appointment of Official Liquidator - that in this situation Section 32(10) of the SFC Act (anti any preference to the Financial Corporation over other creditors) would apply. The principle a mere right to take advantage of an enactment without any act done towards availing of that right cannot be deemed a right accrued‟ was held to apply. (ii) found that the Rajasthan Financial Corporation, standing outside the winding up, was claiming rights under the SFC Act, by approaching the Company Court. (iii) held that rights so claimed have to be considered in the light of Section 529A read with Section 529 of the Companies Act providing for preferential payment of workmen‟s dues and debts due to secured creditors in equal proportion. (iv) noticed the judgments of the various High Courts holding that a) rights under Section 29 of the SFC Act are available to the SFC only when the debtor company is in charge and control of it....
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....er price is fetched for the assets of the company in liquidation. xii) held that the DRT and the District Court entertaining an application under Section 31 of the SFC Act should issue notice to the liquidator and hear him, as a representative of the creditors in general, before ordering a sale. 18. Though we have already dissected as aforesaid the dicta in Rajasthan Financial Corporation but we still feel the need to cull out the ratio thereof as understood by us, as under:- A. The right of a secured creditor under the DRT Act or the SFC Act to sell is distinct from distribution of sale proceeds of such sale. B. The provisions of Section 529A of the Companies Act do not apply to a sale under the DRT Act owing to the DRT Act being a subsequent legislation. However, the same are made applicable to a sale under the DRT Act also by virtue of Section 19(19) of the DRT Act itself. C. That since the proceeds of sale under the DRT Act also are to be distributed in accordance with the provisions of Section 529A of the Companies Act, the Official Liquidator should be associated with the sale itself to ensure that a proper price is fetched. 19. When we apply the aforesaid ratio to the SA....
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....or the District Judge, the sale under the SARFAESI Act is to be by the secured creditor i.e. the Bank/Financial Institution itself, without the intervention of the Court. We also find express pointers in the SARFAESI Act against associating the Official Liquidator in such sale. The second proviso to Section 13(9) permits a secured creditor, who opts to realize his security interest instead of relinquishing his security and proving his debt under proviso to sub-section (1) of Section 529 of the Companies Act, to retain the sale proceeds after depositing the workmen's dues with the Official Liquidator in accordance with the provisions of Section 529A. The third proviso to Section 13(9) requires the Official Liquidator to intimate to the secured creditor the workmen's dues or an estimate thereof in accordance with Section 529A of the Companies Act. The fourth proviso to Section 13(9) makes the secured creditor liable to pay the balance if any of the workmen's dues if the deposit earlier with Official Liquidator is on an estimate. The sixth proviso to Section 13(9) also requires the secured creditor to furnish an undertaking to the liquidator to pay the balance of the workmen's dues if....
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....e rights of the debtor/borrower/mortgagor or for that matter any other person (see United Bank of India v. Satyawati Tondon (2010) 8 SCC 110) aggrieved from the measures taken by the Bank/Financial Institution under Section 13(4) of the Act is provided in Section 17 of the Act. The legislature in making the sale under the SARFAESI Act without the intervention of the Court, constituted DRT only as the forum for redressal of grievances. We are of the view that if the debtor/borrower/mortgagor himself/herself/itself has not been given any right of participation in the sale except in the manner provided in Section 17 of the Act, the question of our interpreting the provisions in a manner vesting such right in the Official Liquidator who is but a successor-in-interest of the debtor/borrower/ mortgagor and also representing the interest of the workmen and other creditors of such debtor/borrower/mortgagor, does not arise. Significantly, the legislature in enumerating in Section 31 the cases/situations in which the provisions of the SARFAESI Act are not to apply, did not choose to list the case/situation where the debtor/borrower/mortgagor is a company in liquidation. 25. Though the langu....
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....sions of the Companies Act, the Companies Act has to yield to the provisions of the DRT and this position holds good during the pendency of the winding up petition against the debtor company and also after a winding up order is passed. We are of the view that what has been held in the said judgment qua the DRT Act applies with equal, if not more, force to the SARFAESI Act. 28. We may notice that the Division Bench of the High Court of Madras also in Asset Reconstruction Company (India) Ltd. supra, following Rajasthan Financial Corporation held that a securitization company if seeks to sell the assets of a debtor company in liquidation, in exercise of powers under Section 13 of the SARFAESI Act, the said power could be exercised only after obtaining 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 the reserve price, confirmation of the sale, holding of the sale proceeds and distribution thereof among the creditors in terms of Section 529-A and 529 of the Companies Act. We are however, for the reasons stated above unable to agree with....