TMI Blog2009 (3) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... (HSIIDC) on the ground that the property was more valuable and that a fresh valuation should be undertaken. There had been a dispute with reference to the extent of the property itself and if a proper reckoning was to be undertaken and fresh advertisements were made for any increase in the area that could be found according to HSIIDC, there could be higher offers which would be beneficial to all. 2. Apart from this application seeking for revaluation. Pegasus Asset Reconstruction P. Ltd., has moved Company Application No. 705 of 2008 in C.P. No. 133 of 2003 and 198 of 1999 seeking for direction for recalling of the order made already on March 20, 2008, directing sale of the property and for further direction to the official liquidator to hand over possession of the properties to the applicant in his capacity as an assignee of the debt of the secured creditor, namely, the Bank of India. The applicant-company had itself been substituted by order of this Court on December 5, 2008. The basis of the prayer for the reconstruction company was that by virtue of the assignment agreement dated August 27, 2008, with the Bank of India, the applicant had purchased all the rights, title and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... official liquidator has not filed any objection to the notice. The applicant would contend that the only liability that it would undertake if it reserved to sell as provided under the SARFAESI Act was of the claims of the workmen under Section 529A of the Companies Act, which the applicant-company considered to hold pari passu entitlement for distribution of the proceeds. (IV) Objections for pursuing remedy under SARFAESI Act: 5. The parties filed the respective objections and the broad outlines of the objections are set out through the official liquidator and HSIIDC. 6. In the reply filed by the HSIIDC it is contended that during all the previous occasions when the official liquidator and the Corporation had been taking necessary steps to sell the assets of the company, the Bank of India did not raise any objection to the sale either initially when the order was passed on May 28, 2004 or on March 20, 2008, when the sale made by the official liquidator was ordered to be set aside and when a fresh order was passed by the court directing re-sale. The applicant who had stepped into the shoes of the Bank of India could have no better rights than its assignor the Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d how the rights of several creditors including the workmen have to be addressed. The further point is whether the company court will completely lose its jurisdiction on an occasion when a secured creditor stakes the claim to the assets secured to it even after the official liquidator attached to the court is taking steps under the provisions of the Companies Act in the course of winding up and when the secured creditor had also participated for finalizing the sale and for conducting the sale. (VI) Relevant provisions of SARFAESI Act analogous provisions of other enactments containing non obstante clauses: 8. The arguments on behalf of the reconstruction company through learned senior counsel Mr. M.L. Sarin have been with reference to the analogous provisions contained under the State Financial Corporations Act (SFC Act) and RDB Act which allow for sale of property under the relevant enactments even to the exclusion of the provisions of the Companies Act except in so far as they provide for treatment of the respective enactments as complementary to the provisions of the Companies Act for satisfaction of the claims of workmen. He also pointed to the effect of non obstante cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under that section to the secured creditors, and in such case, the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. 10. Section 35 of the SARFAESI Act reads as follows: 35. The provisions of this Act to override other laws.--The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 11. Section 37 of the Act reads as follows: 37. Application of other laws not barred.--The provisions of this Act or the Rules made thereunder shall be in addition to, and not in derogation of the Companies Act, 1956 (1 of 1956), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the pledge of a railway receipt with the bank the bank will be in the possession of the goods till the repayment of the advance made by it is complete. (vii) A surety is entitled to all the goods hypothecated or pledged to the bank once the borrower has paid all the moneys advanced to it. (viii) If the security is lost by the bank the surety will be discharged to the extent of the loss. (ix) The bank is acting as a bailee of the goods and is supposed to take care of the goods as any prudent man will do in such cases. In case of any damage to the property in goods the bank will be liable to the loss due to the negligence of the bank. 14. There have been several decisions of the Supreme Court on the inter play of several enactments empowering the financial institutions to take actions for recovery of money through mechanisms other than through courts by reference to the non obstante clauses. While adverting to the effect of the non obstante clauses, the courts have always held that of the special enactments providing for specific procedure, the Act which is later in point of time alone will prevail over the general enactment. The special enactment such as the RD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in Greater Bombay Co-operative Bank Ltd. v. United Yarn Tex. P. Ltd. reported in AIR 2007 SCW 2325, Transcore v. Union of India [2007] 135 Comp Cas 1 (SC) : [2007] 2 Scale 585 and Irene Isabella v. State Bank of India decided by the Madras High Court in W.P. No. 37480 of 2007 dated July 14, 2008, that the bank which held a charge of the security and selling the property under Section 13(4) under the relevant Rules could not be thwarted except by resort to Section 17 which provided for an appeal to any person who is aggrieved by the action of the financial institutions. 16. It is contended by learned senior counsel for the reconstruction company that the action initiated under Section 13(2) could be objected to only by Section 17 by the HSIIDC or the official liquidator and they have no right to object in the manner now sought to be done. These decisions also do not answer the specific question posed before us because the resort to Section 13(2) or (4) is not opposed either by the HSIIDC or the official liquidator. On the other hand, it is the reconstruction company which is before the court seeking for relief that it shall be permitted to stand outside the windin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany court therefore must allow the provisions of SARFAESI Act to be put into motion even if the proceedings of the winding up have been recommended or are pending or that company is under liquidation. The statutory duties of the company court for protecting the workmen's dues, and interest of the other stakeholder including the public interest will however, oblige the court to be informed with the process of sale. 18. Learned senior counsel refers to the above observation and states that the official liquidator shall not be justified in pursuing action under the Companies Act when the reconstruction company has initiated proceedings under Section 13 and the relevant Rules under the SARFAESI Act. It must be remembered that the decision had been rendered in a circumstances where its specific finding was that the secured creditor had not relinquished its security and in respect of case where no more than winding up had been ordered on the recommendation of the BIFR. All the secured creditors had agreed in principle to take action under the SARFAESI Act notwithstanding the order for winding up and the reconstruction company had moved the court to inform, the High Court after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries P. Ltd. v. New Cawnpore Flour Mills reported in [2008] 144 Comp Cas 71 (SC), that dealt with situation where the company court had ordered the sale of the company's property in auction under the provisions of Section 29 of the State Financial Corporations Act. The Supreme Court held that the company court would refer only to the terms of the Companies Act for exercise of its powers and shall do no act in terms of Section 29 of the State Financial Corporations Act. In that case, the Supreme Court detailed the procedure to be adopted and did not rule out the jurisdiction of the company court for action for sale. In Rajasthan Financial Corporation v. Official Liquidator [2005] 128 Comp Cas 387 (SC) : AIR 2006 SC 755 of the decisions of the Supreme Court including Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2000] 4 SCC 406 and A.P. State Financial Corporation v. Official Liquidator [2000] 102 Comp Cas 1 and summarsised the legal position thus: (i) A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institution Act, 1993, would be entitled to order the sale and to sell the properties of the debtor, even if a company-in-liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceed against its security and was placing itself in a queue for disbursement along with other classes of creditors. If lesson could be taken from this case for the benefit of HSIIDC, it is only that portion of the judgment where it directs that HFC must take consent of the official liquidator, who as a representative of the workmen's prior charge under the proviso to Section 529 of the Companies Act would be in the position of a mortgagee. In case of refusal of consent by the official liquidator, the HFC must move the company court for appropriate directions. In this case, it has been argued that the reconstruction company must move only the company court for distribution of the proceeds of the assets in the manner provided under the Companies Act. 23. Learned Counsel appearing for the respondents and for the official liquidator placed reliance on Bank of India v. Ketan Parekh [2008] 143 Comp Cas 711 (SC), while adverting to the conflict between the provisions of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 as amended in 1994 and the RDB Act of 1993 the court held that when both the enactments had non obstante clauses, then in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld give a serious disadvantage of the secured creditors who already have over a period of several years exercised the time and expense for bringing the properties to sale. 25. If any attempt to harmonize the provisions of the SARFAESI Act and the Companies Act could be made, in the context of orders for sale having already been made by the company court and the participation of the assignor of the applicant at several step for the conduct of sale through the company court, it will be inexpedient to unyoke the proceeding that were put throughly the official liquidator. While upholding the claim that the procedure laid down under the SARFAESI Act would enable the provisions of the Security Interest Enforcement Rules to be applied for the conduct and confirmation of the sale, the dispensation in this case would be: (a) to permit the applicant to stay outside the winding up proceedings and take action to bring to sale the secured assets under Section 13 of the SARFAESI Act read with rules 8 and 9 of the Security Interest Enforcement Rules, 2002. (b) The applicant-reconstruction company shall keep all the steps taken under the SARFAESI Act and the relevant Rules transparent a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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