TMI Blog2008 (10) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... The ARCIL is registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short SARFAESI Act) as a securitisation and construction company. It has acquired part of debts of ICICI Bank as well as debts of IFCI Ltd. and has stepped into shoes of the secured creditors of M/s BPL Display Devices Ltd. (the company. By a Deed of Assignment dated 30th June, 2007 and 12th September, 2008 executed by the secured creditors, ICICI Bank Ltd. and IFCI Ltd. have absolutely assigned and transferred its rights in the loan facilities with all underline security interest of the company to the secured creditors. M/s Uptron Colour Picture Tube Ltd. (UCPTL) was declared as sick industrial company by the Board of Industrial and Finance Reconstruction (BIFR) in the year 1993. A Draft Rehabilitation Scheme was prepared for its revival. In appeal the Appellate Authority Industrial Finance and Reconstruction (AAIFR) stayed the proceedings. However later the Supreme Court passed an order authorizing BIFR to continue the proceedings but not to pass final orders. The Supreme Court, thereafter, vacated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted the Board will explore alternative measures for company's revival. The Board, thereafter, gave several extensions and opportunities to the company. In the review hearing on 31.7.2006 a draft modified rehabilitation scheme was presented by the company. The BIFR, however, noted that in view of the inability of the company to settle/pay the dues of the workers, ex-employees, who were seriously concerned with the delay in payment of their outstanding dues, it was not possible to revive the company. 6. The BIFR issued directions on 31.7 2006 permitting the secured creditors to take legal action for recovery of their dues but that decree passed was to be executed only with prior permission of the Board. An opportunity was again given to the company to submit a modified revival scheme through OA with means of finance fully tied up within three months taken care of the outstanding dues of UPECL. The aggrieved employees were permitted to proceed with legal actions. The company preferred an Appeal No. 235 of 2006 before AAIFR against the order. The hearing in appeal was adjourned from time to time along with connected appeal No. 305 of 2007 and Misc. Application No. 464 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. After considering all those, who were concerned and were present the BIFR reiterated its earlier conclusion and found that there was no other option but to confirm its prima facie opinion to wind up the company. The BIFR decided to forward the opinion to the concerned High Court and since the company exposed its inability to take care of the assets of the company, the BIFR appointed State Bank of India (SBI), a secured creditor of the company as receiver to take possession of the assets of the company and to safeguard it until the Court appoints Official Liquidator. The expenses of security and insurance and other items were permitted to be recovered from the company and its assets, the UPECL or any one else having complaint against the company were permitted to take it up with the appropriate legal forum. The order dated 7.4.2008 was communicated to the High Court by letter dated 10.4.2008 and was received in the registry of the Court on 28.4.2008. 12. The SBI by its letter written to the Board found some difficulties in taking possession of the company's assets and requested that the District Magistrate, Ghaziabad be issued orders under Section 29 of the Act to tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther appeal has been filed or is pending by any party to the proceedings. 15. Shri Navin Sinha states that ARCIL representing the secured creditors, with assignment of their dues, issued a notice under Section 13(2) of the SARFAESI Act for payment of the outstanding amount giving 60 days' time to the company from the receipt of the notice. Various oilier secured creditors constituting about 90% of the secured debt of the petitioner company have given consent under Section 13(9) of the SARFAESI Act, to exercise powers for realization of the dues from the securities. The ARCIL has acquired 18.63% of the total secured debts of the company from ICICI Bank and IFCI Ltd. and has further received consent letters in respect of 4.93% from ICICI Bank dated July 9th, 2008; 12.30% from Stressed Assets Stabilisation Fund vide consent letter dated July 8th, 2008; 6.49% of the State Bank of India; 5.67% of the State Bank of Patiala vide consent letter dated 27.3.2008; 1.77% of Union Bank of India vide consent letter dated 20.3.2008; 16.25% of the Canara Bank vide consent letter dated 11.7.2008; 11.08% of the Allahabad Bank vide consent letter dated 18.3.2008 and 16.66% of the Axis Bank v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act is expected to act with reasonable despatch, and to ensure rehabilitation under a time bound programme. In this case it has taken almost 14 years to explore the possibility and to conclude that the scheme formulated in 1996 has failed. All the efforts made by the Board by firstly appointing ICICI as Monitoring Agency of the scheme prepared in 1996 and thereafter appointing ICICI as operating agency on 12.3.2004 after the scheme of 19% failed, have not resulted into any concrete proposals for revival. The company, secured creditors and the workmen have tailed to provide any acceptable rehabilitation scheme, which could have enabled the company to mm its net worth positive. 22. The Court also allowed that opportunity to the stake holders to submit any revival scheme after the reference was received from BIFR on 28th April, 2008. The company, secured creditors, workmen of any other person, have neither responded nor provided any revival plan. Shri F.K. Sinha appearing for BPL Display Devices Limited Workers Union made a faint suggestion to adjourn the hearing to enable the union to consider and prepare revival plan. He, however, fairly conceded that no such revival plan coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the secured creditors without intervention of Court or Tribunal. A complete code for realisation of the debts and sale of assets including a case where the company is in liquidation is provided under Section 13 of the Act. 26. The detailed procedure of sale of movable and immovable assets is provided in Rules 6 to 11 of the Security Interest (Enforcement) Rules, 2002. He submits that the validity of the SARFAESI Act has been upheld by the Supreme Court in Mardia Chemicals Ltd. v. Union of India AIR2004SC2371 and that the Court may instead of winding up the company, which may cause some complications in realising the security interest, appoint the Official Liquidator as provisional liquidator and allow ARCIL to recover its debts without the intervention of the Official Liquidator. He submits that secured creditors option to remain outside winding up be accepted and that the ARCIL be permitted to sell the charged assets and to realise its dues in accordance with the provisions of the SARFAESI Act. The Official Liquidator in the meantime be allowed under second and third proviso to Sub-section (1) of Section 13, to invite the claims form the workmen and intimate the secured cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nism by which banks and financial institutions can securitise the charged assets. The SARFAESI Act was enacted after submissions of the reports by Narsimham Committee and thereafter a Committee headed by Mr. Andhyarujina to bring the necessary steps within the legal framework. The financial climate world over require a policy for speedier legal method for recovery of dues. 29. The Supreme Court found that the Act provides sufficient guidelines for objections to be raised by the borrower. The borrower must be informed with the reasons of rejection and have right to approach the Debts Recovery Tribunal in appeal after recovery measures are taken. He can also approach the Civil Court in case of fraud and absurdity. The precondition of depositing 75% of the amount under Sub-section (2) of Section 17 of the Act was held to be unreasonable and arbitrary and was consequently declared ultra vires. 30. The question of any possible conflict between the provisions of the SARFAESI Act and the Companies Act was neither argued nor considered in Mardia Chemicals case. 31. In Rajasthan State Financial Corporation and Anr. v. Official Liquidator and Ors . the Supreme Court held that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the distribution thereof aiming the creditors in terms of Section 529A and Section 529 of the Companies Act. (iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the Company Court for appropriate directions n warding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation. 32. In State Bank of Patiala v. North Land Sugar Complex and Ors. 2004 (121) Com 847 Cas 847 the Punjab High Court held that dues of the workmen in case of winding up of the company under Section 529A of the Companies Act have a pari pasu charge with the security o the secured creditors. Even if the secured creditors stands outside the winding up, the property is required to be apportioned with the permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f secured creditors by sale of the charged assets under Section 13 of the SARFAESI Act. The position of secured creditors standing outside the winding up was discussed in Allahabad Bank v. Canara Bank [2000]2SCR1102 . It was submitted by the Attorney General in the case that the effect of Section 19(19) of RDB Act is that only Section 529A of the Companies Act is attracted lot limited purpose, if the question of workmen's portion is involved. In the company court any secured creditor, who has not stood out of winding up, but wants to come before the company court has to give up his security and prove his debt before the liquidator to seek distance as per the insolvency rules mentioned in Section 529(1) read with Section 45 - 50 of the Provisional Insolvency Act and land in the queue along with all unsecured creditors under Section 529(2). Even that procedure is applicable only in respect of any money realised by the company court and not by the Tribunal. If any money is realised by the bank by standing outside winding up and if any part of such realisation of Canara Bank are taken away by the liquidator for payment to workmen, only to the extent of such workmen's portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining appropriate permission from the company court and acting in terms o the directions issued by that Court as regards associating the Official Liquidator with the sale, fixing of the upset rise or the reserved price, confirmation of sale, holding of the sale proceeds and the distribution thereof among creditors in terms of Section 529A and 529 of the Companies Act. 37. In Andhra Bank v. Official Liquidator and Anr . AIR2005SC1814 the Supreme Court did not agree with the ratio of the judgment in Allahabad Bank v. Canara Bank in so far as the workmen's dues are concerned. In para 22 and 23 the Supreme Court held: 22. In terms of the aforementioned provisions, the secured creditors have two options (i) they may desire to go before the Company Judge; or (ii) they may stand outside the winding up proceedings, The secured creditors of the second category, however, would come within the purview of Section 529-A(1)(b) read with proviso (c) appended to Section 529(1). The 'workmen's portion' as contained in proviso (c) of Sub-section (3) of Section 529 in relation to the security of any secured creditor means the amount which bears to the value of the securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors. His action must lead to a conclusion that he, for one reason or the other, intended to stand in the queue for receiving money owed to him. It, however, does not stand obliterated only by the filing of an affidavit or proof of claim with the official liquidator. Such a claim had been filed pursuant to a notice issued by the official liquidator. If the creditor does not respond to the said notice, he would not be in a position to bring to the notice of the official liquidator, the existence of his right. 56. Sub-section (3) of Section 47 clearly envisages the position where he does not either realise or relinquish his security. He, in such a situation, may state in his Affidavit of Proof, the particulars of the security and value at which he assesses the same. The consequences therefore would ensue. If the Official Receiver proceeds to sell the security, the Court first has to pay the amount at which the security was valued to the secured creditor out of the sale proceeds. 39. The SARFAESI Act, 2002 was enacted to provide for regulating securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curity interest under the SARFAESI Act does not come in conflict with the scheme of winding up and liquidation of the company. The SARFAESI Act gives the secured creditors special rights to enforce to securitise their dues or to enforce their securities without intervention of the Court. The object of speedier recovery of loans from non-performing assets would be defeated, if the Official Liquidator would intervene to enforce the provisions of the Companies Act and to monitor each step of the, securitisation and enforcement of security interest. The company court, therefore, must allow the provisions of SARFAESI Act to be put into motion even if the proceedings of 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 the interest of other stake holders including the public interest will, however, oblige the Court to be informed with the process of sale. 42. The company court is under statutory duty under the scheme of the winding up and dissolution of the companies in Part VII of the Companies Act to watch the interest of workmen and the other stake holders. The ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvite these claims by advertisement in daily newspapers 'Indian Express', 'Economic Times' published from Delhi and 'Amar Ujala' published from Delhi and Ghaziabad. All the expenditure incurred by him will be charged from the amount realised from the sale of assets. The Official Liquidator will take the assistance of the Liquidation Claims Committee constituted by the Court and prepare a report for declaring interim dividend in accordance with the provisions of the Companies Act, 1956. 45. Shri Shyam Narain, Shri P.K. Sinha and Shri Sudhanshu Narain appearing for workmen as well as Shri Shahid Masood appearing for the workmen of erstwhile Uptron Colour Picture Tube Ltd. shall be at liberty to submit claims of the workmen's dues represented by them on the affidavit of proof and the form 66 and other supporting documents in accordance with Companies (Court) Rules, 1959. 46. The ARCIL shall file the details of the charges of the secured creditors, represented by it over the movable and immovable assets of the company within three weeks. They will also file affidavit along with report of the valuation valuing the property for the purposes of sale withi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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