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TMI Blog2011 (4) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... by fixing the upset price at ₹ 86.44 Crores. ASM's sister concern - New Horizon Sugar Mills Limited (hereinafter referred to as "NHSM") is the appellant in O.S.A.No.63 of 2011. The promoters/directors and their wives are the appellants in O.S.A.No.64 of 2011. Being aggrieved by the dismissal of the applications O.A.Nos.253 and 254 of 2005 filed under Section 9 of Arbitration and Conciliation Act and directing Bharat Heavy Electricals Limited (in short, "BHEL") to lodge its claim with the Official Liquidator, BHEL has preferred the appeals O.S.A.Nos.58 and 59 of 2011. O.S.A.No.81 of 2011 is filed by Walchandnagar Industries Limited, one of the unsecured creditor against the order dated 19.01.2011 made in C.A.No.2486 of 2006 in C.P.No.229 of 2004. 2. FACTUAL BACKGROUND OF THE MATTER:- Indian Renewable Energy Development Agency Limited (in short, "IREDA") granted financial assistance to the tune of ₹ 49,35,28,000/- to ASM under loan agreements dated 10.9.1998, 21.7.1999, 29.10.1999 and 3.12.1999; (i) for setting up a 14 MW Bagasse based Co-generation Captive Power Plant; (ii) for enhancing the capacity of Co-generation Captive Power Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Sundaram Finance Limited. It was also agreed that if IREDA was not able to sell the properties before 31.3.2006, Sundaram Finance Limited would be at liberty to approach the Court. BHEL, which supplied and commissioned (i) A 8400 KW Capacity Extraction cum Back Pressure Turbo generator and (ii) A 4280 KW Capacity Low Pressure Condensing Turbo generator with all its auxillaries in the factory of ASM and to whom also payment was defaulted, initiated proceedings by invoking arbitration clause contained in the agreement by filing applications O.A.Nos.253 and 254 of 2005 restraining ASM from selling, transferring or alienating its properties. On 19.3.2005, interim injunction was granted in both the applications. 6. Sale of assets of New Horizon Sugar Mills Limited by secured creditor Indian Bank:- NHSM at Pondicherry availed credit facilities from Indian Bank and Indian Bank initiated proceedings under SARFAESI Act, 2002 by issuing notice under Section 13(2) on 25.9.2004 demanding a sum of ₹ 27,19,15,465/-. In pursuance to the said notice, Indian Bank took possession of the assets of NHSM located at Ariyur, Pondicherry on 1.1.2005 under Section 13(4) of the Act. The assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 10. C.A.No.1038 of 2006:- After handing over possession, IREDA filed the application in C.A.No.1038 of 2006 seeking an order for fresh publication for the sale of assets of the company in liquidation (ASM) and also the machineries of NHSM by IREDA installed in ASM by joining (i) official liquidator; (ii) IREDA, and (iii) Sundaram Finance Limited. Along with C.A.No.1038 of 2006, IREDA also filed C.A.No.1039 of 2006 praying for confirmation of sale in favour of the highest bidder, who offered ₹ 135.50 Crores in the bid cum auction held on 20.2.2006. 11. C.A.No.1033 of 2006:- At the same time, the promoters/directors of the Company ASM and their respective wives (appellants in O.S.A.No.64 of 2011) took out an application in C.A.No.1033 of 2006 praying to transfer SARFAESI Appeal -S.A.No.3 of 2006 on the file of DRT-I, Chennai to the High Court to be heard along with C.P.No.229 of 2004. 12. All the three applications viz., C.A.Nos.1033, 1038 and 1039 of 2006 were taken up together for hearing and disposed of by the order dated 3.7.2006, wherein Chitra Venkataraman, J, (i) directed fresh publication for sale in C.A.No.1038 of 2006; (ii) dismissed C.A.No.1039 of 2006, as a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. Simultaneously, V.Kannan and other directors and their wives have also filed counter affidavits to the application in C.A.No.1038 of 2006. V.Kannan also filed an affidavit of one M.R.Ramchender claiming to be the Chairman and Managing Director of a Company incorporated in Singapore offering USD 30 million equivalent to ₹ 120 Crores for the rehabilitation of ASM. In C.P.No.229 of 2004, V.Kannan has also filed an affidavit in March 2008 agreeing and confirming to make payment to the secured and unsecured creditors in the manner indicated in the affidavit. The promise to settle the dues borne out to be an empty promise and about two years was lost in this process from the date of order of the Division Bench remanding the application to the Company Court. Thereafter, by an order dated 2.9.2008, Chitra Venktataraman,J. directed the Official Liquidator to bring the properties for sale viz., land of an extent of 125 acres, building, plant and machinery and other movables. The learned Judge fixed the upset price of the land at ₹ 11.44 crores, the buildings at ₹ 9.00 crores and the plant and machinery and other movable assets at ₹ 66.00 crores (totalling to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be whether the Court can order sale or not. The expression "Company which is being wound up" appearing in Rule 72 would indicate a stage even prior to the passing an order for winding up the company under section 443(1)(d) of the Companies Act. A secured creditor is entitled to stand outside the winding up proceedings and can proceed to realise the security without the leave of the winding up Court if by the time he initiated the action the Company had not been wound up. In the instant case, secured creditor IREDA has come up before the Company Court on account of decision of the Division Bench in Asset Reconstruction Company (I) Ltd. Vs. The Official Liquidator, High Court, Madras, (2006(3) CTC 529) and also in view of the order passed by the Court directing IREDA to surrender possession to the Official Liquidator. C.A.No.1038 of 2006 has been filed by IREDA not at the instance of Sundaram Finance Limited nor in pursuance of Memorandum of Understanding dated 27.9.2005. But C.A.No.1038 of 2006 was filed only as a result of the order passed by this Court directing IREDA to hand over possession to the Official liquidator. NHSM cannot raise serious objection about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed under Section 453(1)(b) of the Act and mere pendency of a petition for winding up presented to the Company Court cannot be construed as a proceedings for winding up of the Company. The conclusion of the learned Judge that the expression "Company, which is being wound up", appearing in Rule 272 would indicate a stage even prior to the passing of an order for winding up of the Company under Section 443(1)(d) of the Act is erroneous. (iii) The entire functions of liquidating Company are to be performed only by the Official Liquidator and consequently the distinction sought to be made by the learned single Judge with regard to the power of the Court and the power of the liquidator is completely non-existent as far as the Companies Act is concerned. The finding of learned judge that there is no restriction or limitation on the power of the Court to order sale of the properties through Official Liquidtor even before the Company is wound up is contrary to law. (iv) An institution seeking to invoke the powers under the SARFAESI Act and intending to stand outside the winding up proceedings will have to file an application under Section 446 of the Companies Act to obtain ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in respect of ASM, as an interim measure, sale cannot be ordered and if the property is sold nothing remains for winding up petition. In all the proceedings initiated by NHSM challenging the SARFAESI action initiated by the Indian Bank, NHSM has always pointed out that the entire balance amount realised by the Indian Bank after satisfying their dues should be paid to IREDA. (ii) The Indian Bank was arbitrarily disbursing the amounts to various unsecured creditors overlooking the claims of IREDA and inspite of several letters to IREDA pointing out the conduct of India Bank in depriving IREDA their rights to get the money, IREDA chosen to remain silent and avoided taking any steps to recover the balance amount lying with Indian Bank. (iii) IREDA having invoked the proceedings under Debt Recovery Act and SARFAESI Act as against NHSM cannot seek the assistance of the Company Court to sell the property of NHSM since no provisional liquidator has been appointed as far as NHSM is concerned. The Company Court will have no jurisdiction to exercise the powers of an authorised officer under SARFAESI Act when the affairs of the said Company (NHSM) are not pending before the Court. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile an application to take possession of the properties. 24. Drawing Court's attention to various proceedings, Mr.G.Masilamani, the learned Senior Counsel submitted that the borrowers are adopting dilatory tactics. Learned Senior Counsel would further submit that IREDA, being a secured creditor, has taken possession under SARFAESI Act and surrendered possession to the Official Liquidator only in pursuance of the order of the Court and nowhere has relinquished its rights as the secured creditor. The learned Senior Counsel inter alia made the following submissions:- (i) The powers of provisional liquidator would be restricted only if the Court imposes any restriction while appointing him. When the Order dated 22.7.2005 has not restricted the powers of the provisional liquidator, there can be no distinction between the power of official liquidator and provisional liquidator in respect of the sale of assets of the Company. (ii) The handing over of possession by IREDA by the Order of the Court shall not prejudice IREDA's rights as the secured creditor. Handing over possession on the orders of the Company Court does not result in relinquishment of security for the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1984 SC 1579); M.C.C.FINANCE LTD. VS. R.BI., (2004) 119 COMP. CASES 355; M/s.Bakemans Industries Pvt. Ltd. v. New Cawnpore Flour Mills (AIR 2008 SC 2699); RAJASTAN STATE FINANCIAL CORPN. VS. OFFICIAL LIQUIDATOR, ((2005) 8 SCC 190); ASSET RECONSTRUCTION CO.(INDIA) LTD. VS. THE OFFICIAL LIQUIDATOR, HIGH COURT, MADRAS, (2006(3) CTC 529); SMT.USHA R.SHETTY AND OTHERS VS. RADEESH SUBBER PVT.LTD., (1995) 84 COMP.CASES 602 (KARNATAKA); unreported judgment of punjab & haryana high court dated 15.12.2008 in co.appeal no.18 of 2003 (marigold leasing (india) ltd. vs. Shashi bhushan and others; ICICI BANK VS. SIDCO LEATHERS LIMITED, (AIR 2006 SC 2088); Transcore VS. Union of India, ((2008) 1 SCC 125) and indian bank vs. Chief judicial magistrate, pondicherry and others ((2007) 138 comp.cases 631 (madras)) 28. Onbehalf of Vijaya Bank, the learned counsel Mr.R.Umasuthan has submitted that Vijaya Bank is the second charge holder and in the event of attempting to sell the machinery separately the same will fetch only lesser value. According to Vijaya Bank, NHSM has given a corporate guarantee for the discharge of the liability by the Company in liquidation to Vijaya Bank. 29. The Mr.R.S.Varadar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.What is the relief to which Walchandnagar Industries Limited entitled towards the machineries sold by it to ASM? 13.What is the relief to be granted to BHEL which sold two turbo generators for the co-generation plant of ASM? 14.Whether the Order of sale of assets of ASM passed by single Judge is to be confirmed? If so, what is the value and how the sale has to be ordered? 15.Whether the valuation of the assets at ₹ 86.80 crores is an under valuation? 32. The entire immovable properties of ASM measuring 120 acres and 70 cents is situated in Malappambadi village, Tiruvannamalai District and land measuring 4.96 acres is situated in Annamalai Nagar Village and Post, Malappambadi and the movable assets of ASM and NHSM are sought to be sold. The machineries of ASM sought to be sold could be classified into four categories:- Co-generation plant of ASM for which IREDA financed and IREDA holds first charge. Energy Efficiency Conservation Equipment of NHSM and installed in ASM in juice extraction and juice concentration Section for which IREDA holds first charge. Co-generation plant and machineries given on lease to ASM by Sundaram Finance Limited. 8400 KW Capacity Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cks (sugar) and also in the form of guarantor, has paid amount to IREDA on behalf of the Company. Vijaya Bank has also given loan on hypothecation of stocks/book debts. The secured creditors were impressed upon the importance of taking possession of the Company immediately and providing security to the factory premises. In the said meeting, IREDA stated that it could bear the entire security charges. 35. After issuing Section 13(2) and Section 13(4) notices, on 5.10.2005, IREDA has taken possession of the secured creditors under SARFAESI Act. The Official Liquidator has sent a notice dated 17.1.2006 to IREDA taking strong objection for taking of possession under SARFAESI Act. In the said notice, the Official Liquidator informed IREDA that "invoking the provisions of Section 13(4) of SARFAESI Act, 2002 and Rules framed thereunder is violative of the provisions of Sections 446, 456 and 537 of the Companies Act". It was reiterated that Section 37 of the SARFAESI Act, 2002 is in addition to and not in derogation of the Companies Act, 1956 and other Acts for the time being in force. On 20.1.2006, IREDA issued public notice for sale of movable assets and immovable properties o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties under Section 457(1)(c) of Companies Act. 38. Contention of Promotors/Directors of ASM is that in the order dated 22.07.2005, the powers of Provisional Liquidator is restricted only to take charge of the assets and while so, on the application by one of the secured creditor/IREDA, the learned single Judge erred in passing the order for sale of the movable and immovable properties. 39. Onbehalf of Appellant, Mr.G.Rajagopalan, learned Senior Counsel submitted that the Provisional Liquidator appointed under Section 450 of Companies Act will have the same powers as Liquidator only if the Court has not limited or restricted his powers by the order appointing him. The contention of the Appellant is that as per the order of the Court, Provisional Liquidator is only to take charge of all the properties and effects of ASM and the Official Liquidator has no power for effecting sale of movable and immovable properties. But the order dated 22.07.2005 appointing the Provisional Liquidator clearly shows that he was only empowered to take charge of the assets of the company and consequently, the finding of the learned single Judge that while appointing the Provisional Liquidator, Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specific authority and the sanction of the Court. 43. Section 456 envisages that when a winding up order has been made or where a provisional liquidator has been appointed in terms of clause (c) and (ca) of Section 457(1) of the Companies Act, the liquidator or the provisional liquidator, as the case may be, shall take into custody the control of the properties, assets of the company. In a winding up of the Company, the liquidator is entitled to sell the movable and immovable assets of the Company. In pursuance of the order of the Court dated 22.07.2005 the Official Liquidator, having taken over the assets of ASM, exercise of powers to sell under Section 457(1)(c) and (ca) and cannot be denied. As held by the Supreme Court in M/s.Bakemans Industries Pvt.Ltd. Vs. New Cawnpore Flour Mills (AIR 2008 SC 2699), in a situation of this nature, the role of the official liquidator assumes great importance. 44. In M/s.Bakemans Industries Pvt. Ltd. v. New Cawnpore Flour Mills [AIR 2008 SC 2699], the Supreme Court held that "powers and functions of the Provisional Liquidator is subject to the limitation imposed by the Court or the same as that of the Official Liquidator". In Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we are primarily concerned with the question whether the Court can order the sale or not." 47. Assailing the above findings, Mr.Ravi, learned counsel for ASM vehemently contended that the entire function of the liquidating company is performed only by the Official Liquidator and consequently, the distinction sought to be made by the learned single Judge with regard to the power of the Court and power of the Liquidator is completely non-existent as far as Companies Act is concerned. It was further submitted that when the exercise of powers by the Liquidator under Section 457 of Companies Act is only with the sanction of the Court, the observation of the learned single Judge to draw the distinction between power of the Liquidator and the power of the Court is non-existent and consequently, the entire conclusion of the learned single Judge is erroneous and liable to be set aside. 48. Learned Senior Counsel Mr.T.K.Seshadri appearing for NHSM contended that under Section 433, jurisdiction of the Company Court extends only to those matters which are specified in the Act and there is no separate power of the Court to order sale and while so, the learned single Judge err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any are brought under the control of the winding up of Court to avoid, wherever possible expensive litigation and to see that all the matters in dispute which are capable of being expeditiously disposed of by the winding up Court are taken up by that Court. Section 446 makes it a duty of the Court to entertain all mattes falling within the scope of sub-section (2). The historical evolution of Section 446 was traced by the Supreme Court in SUDARSAN CHITS (I) LTD. VS. G.SUKUMARAN PILLAI AND OTHERS, (AIR 1984 SC 1579). 52. Under Section 457(3) of the Companies Act, any creditor or contributories can apply to the Court with respect to the exercise or the proposed exercise of the powers of the Official Liquidator. In the liquidation proceedings, IREDA, the secured creditor who has taken possession of the secured assets has handed over the possession to the provisional/official liquidator under orders of the Court. IREDA being unable to effect sale on its own under SARFAESI Act has has filed the application to pass an order to effect sale of the property for IREDA and by joining the Provisional Liquidator and Sundaram Finance Limited. Taking note of the fact that the Official Liquidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricted by the order of the Court appointing him or by a subsequent order. Section 457 of Companies Act details the powers of the Official Liquidator. Therefore, powers of the Official Liquidator to sell the movable and immovable properties under Section 457(1)(c) of the Act will also be available to the Provisional Liquidator, which of course is with the sanction of the Court. Rule 107 of Companies (Court) Rules states that the rule relating to the Official Liquidators shall apply to the Provisional Liquidators so far as applicable subject to such directions as the Court may give in each case. Rule 272 of Companies (Court) Rules prescribes that unless the Court otherwise orders, no property belonging to a "company which is being wound up by the court" shall be sold by the Official Liquidator without previous sanction of the Court and every sale shall be subject to the confirmation of the Court. The expression "company which is being wound up by the court" appearing in Rule 272 clearly empowers the Court to order sale of the properties during the course of hearing of the Petition for winding up. As rightly contended by the learned Senior Counsel Mr.Masilamani ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IREDA, the Court has got power to order sale of the properties of the company in liquidation. 60. Points No.4 to 6:- As pointed out earlier, since ASM and NHSM committed default in the payment of dues to IREDA, IREDA classified the accounts of ASM and NHSM as Non-Performing Assets and filed O.A.Nos.113 and 114 of 2004 before DRT-I, New Delhi for recovery of ₹ 62.83 Crores and ₹ 9.17 Crores respectively. IREDA also filed O.A.No.112 of 2004 against NHSM for recovery of ₹ 20.03 Crores. After obtaining necessary permission from DRT, IREDA proceeded under SARFAESI Act. On 27.9.2005, IREDA has entered into MOU with Sundaram Finance Limited to effectively sell the respective assets to get better price in the interest of all creditors. On 28.9.2005, the Official Liquidator has held meeting of all secured creditors. After issuing notices under Section 13(2) and 13(4) of SARFAESI Act, IREDA has taken possession of the assets of ASM along with the machineries of NHSM on 5.10.2005. In pursuance of the direction of the Court in C.A.No.1786 of 2005, IREDA handed over possession of assets to the Official Liquidator on 27.4.2006. The Order in C.A.No.1786 of 2005 directing IREDA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that IREDA has handed over possession of the property to the provisional liquidator only under threat of contempt proceedings and mere handing over of possession would not amount to relinquishment of IREDA's security. 64. As per Section 37 of SARFAESI Act, the provisions of the SARFAESI Act or Rules made thereunder are in addition to and not in derogation of the provisions of the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. 65. The objection that there cannot be parallel proceedings when the applications in O.A.Nos.113 and 114 of 2004 filed by IREDA under Section 19 of RDBI Act are still pending cannot be countenanced. In Transcore VS. Union of India, ((2008) 1 SCC 125), the Supreme Court held that the SARFAESI Act was inspired by the provisions of Sections 29 and 31 of State Financial Corporations Act and that the secured creditors are provided cumulative remedies with an option to choose one or more. As held by the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. It is explicit that there is no relinquishment of security and IREDA stands outside the winding up proceedings, however subject to Section 529-A(1)(b) read with proviso (c) appended to Section 529(1) and there is no surrender of its rights as a secured creditor. In fact, in its application C.A.No.1038 of 2006, IREDA has clearly stated that they continue to exercise their rights under the SARFAESI Act in respect of the assets of ASM and the machineries of NHSM installed/erected at the factory premises of ASM. There is no force in the contention of the appellants that IREDA's handing over of possession of the property amounted to voluntary surrender of security. 67. It is seen from the preamble of the SARFAESI Act that it has been enacted with a view to regulate the securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected there to. The Act enables the banks and financial institutions to realize long term assets, manage problems of liquidity to the assets liability, and to improve recovery by exercising powers to take possession of security, sell them and reduce non-performing assets by adopting measures for recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence of his right." 70. The ratio of the above decision makes it clear that the Companies Act cannot take away the rights of a mortgagee, which is created under the Transfer of Property Act. The Companies Act does not override the Transfer of Property Act. Any relinquishment of security or mortgage will have to be express and not implied. The Supreme Court in the said judgment approved the views of the Division Bench of Gujarat High Court that participation in sale proceedings will not amount to relinquishment at all, which reads under: "58. A Division Bench of the Gujarat High Court in Gujarat Steel Tube Employees Union v. O.L. of Gujarat Steel Tubes Ltd.9 (disposed of on 9-1-2006) held: The Court is also of the view that simply because the secured creditors participate in the sale proceedings undertaken by the Court and they also became the members of the Sale Committee constituted pursuant to the directions issued by the Court does not mean that they have exercised their option of remaining outside the winding up and they have relinquished their security. As a matter of fact, relinquishment of security by the secured creditors require a positive action on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolving the Official Liquidator who has stepped into the shoes of the company. Contention of ASM is that having come before the Company Court, IREDA cannot say that it exercises its statutory power to cause sale of the assets of ASM through the agency of the Court/Company Court and at the same time would contend that it stands outside the winding up proceedings. Relying upon certain observations in Bakemans case, it was contended that in one hand, IREDA cannot urge that the Court sale be effected through Company Court and at the same time take a stand that it stands outside the jurisdiction of the Court and it is impermissible for IREDA to take such a contradictory stand. 73. In support of his contention, learned counsel placed reliance upon a decision of DIVYA CHEMICALS LTD., IN RE. (2005) 64 SCL 429 (Bom) wherein the Bombay High Court held as under:- " .... In so far as the assets which are held by the official liquidator are concerned during the pendency of the proceedings before the DRT, the official liquidator shall hold the said assets till appropriate directions are given by the DRT and in an event if the DRT directs the assets to be handed over to the private recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OTHERS, (AIR 1955 SC 604), Mr.Ravi, learned counsel for ASM contended that from the above decision it is clear that the terminology "standing outside the winding up proceedings" would mean that the secured creditor invokes the remedies available to him outside the purview of the Company Court and the secured creditor intending to stand outside the winding up proceedings has to invoke the remedies available to him for realisation of its security without coming before the Company Court or without intervention from the Company Court. 76. In sum and substance, the contention of ASM are as under: After handing of possession to the Official Liquidator pursuant to the order of the Company Court dated 27.4.2006, IREDA did not file any application under Section 446 of the Companies Act to continue to exercise its rights under the Securitisation Act. IREDA has not chosen to come before the Company Court seeking leave of the Court to stand outside the winding up proceedings and continue the proceedings under SARFAESI Act. On the contrary, IREDA surrendered its possession of secured assets to the Official Liquidator and filed C.A.No.1038 of 2006 for directions to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 security the same proportion as the amount of the workmen s dues bears to the aggregate of (a) workmen s due, and (b) the amount of the debts due to all the secured creditors. The Illustration appended to clause (c) of sub-section (3) of Section 529 is a clear pointer to the effect that the amount of debts due to the secured creditors should be taken into consideration for the purpose of ascertaining the workmen s portion of security. Vide Andhra Bank v. Official Liquidator,(2005) 5 SCC 75. 80. At this stage we may also refer to the judgment of the Supreme Court in Allahabad Bank Vs. Canara Bank, (2000) 4 SCC 406. In that case, the question of jurisdiction of the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, vis-a-vis the Company Court arose for decision. The Supreme Court 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 pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a secured creditor with priority over the realisations of other creditors lying in the Tribunal. None of these conditions is satisfied by Canara Bank. Thus, Canara Bank does not belong to the class of secured creditors covered by Section 529-A(1)(b)." 82. In Rajasthan State Financial Corporation Vs. Official Liquidator, (2005 (8) SCC 190), the question that fell for consideration before the Supreme Court was as to the right of State Financial Corporation under Section 29 of the State Financial Corporations Act, 1951 against debtor company to sell assets of company and realize security, when the company is under winding up. The Supreme Court held that in such a case the said power can be exercised by the State Financial Corporation only after obtaining appropriate permission from Company Court and acting in terms of directions issued by Company Court as regards conduct of the sale and distribution of proceeds thereof in terms of Sections 529 and 529-A of the Companies Act. In Paragraphs 17 and 18, the Supreme Court held as follows: "17. Thus, on the authorities what emerges is that once a winding-up proceeding has commenced and the Liquidator is put in charge of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with Section 529 of the Companies Act. After all, the Liquidator represents the entire body of creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in Section 530 of the Companies Act under the directions of the Company Court. In other words, the distribution of the sale proceeds under the direction of the Company Court is his responsibility. To ensure the proper working out of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the Company Court, that a proper price is fetched for the assets of the company in liquidation. It was in that context that the rights of the Official Liquidator were discussed in International Coach Builders Ltd. (2003(10) SCC 482) The Debts Recovery Tribunal and the District Court entertaining an application under Section 31 of the SFC Act should issue notice to the Liquidator and hear him before ordering a sale, as the representative of the creditors in general. 18. In the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the Asset Reconstruction Company incorporated under the SARFAESI Act is entitled to be associated in the process of sale of assets of the Company under liquidation along with the Official Liquidator. After extensive reference to Rajasthan State Financial Corporation case,(2005) 8 SCC 190, the First Bench of this Court has held that the power under SARFAESI Act could be exercised by the secured creditor only after obtaining appropriate permission from the Company Court and acting in terms of the directions issued by that Company Court. 84. As regards associating the Official Liquidator with the sale, the Court has held as under: "13. In the light of the law laid down by the Rajasthan State Financial Corporation Case (supra) (2005) 8 SCC 190) it is clear that where the bank or the financial institution has initiated proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Debts Recovery Tribunal would be entitled to order sale even if a company is under liquidation through its Recovery Officer, but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him. Where, however, no p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of persons adjudged insolvents shall apply even to the winding up of an insolvent company, in so far as 3 aspects are concerned viz., (i) debts provable; (ii) valuation of annuities and future and contingent liabilities; and (iii) the respective rights of secured and unsecured creditors. The Proviso to Section 529 makes it clear 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. It is further stipulated by the Proviso that if the secured creditor opts to realise his security, instead of relinquishing his security and proving his debt, there must be rateable distribution and that the Liquidator would be entitled to represent the workmen. After making a comparison of the provisions of the Companies Act with the provisions of the Provincial Insolvency Act, 1920, in paragraphs 102 to 117, the learned single Judge held that the right of the applicant/IREDA as secured creditor cannot be lightly obliterated. We fully concur with the views of the learned single judge. 87. At this juncture, we may also refer to Section 13(9) of the SARFAESI Act. Section 13(9) provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e winding up proceedings. 90. To sum up our conclusions, In pursuance to the orders of the Court, handing over possession of the assets by IREDA to the Official Liquidator would not amount to relinquishing of rights of secured creditor. By mere participation in the proceedings of Company Court and the winding up proceedings, right of secured creditor remains unaffected except to the extent of Section 529-A. IREDA seeking permission of the Court to sell the properties of the Company in liquidation is inconsistent with and the directions of the learned single Judge are clearly consistent with the provisions of the relevant Acts and the views expressed by the Supreme Court. IREDA is well within its right approaching the Company Court to sell the properties of the Company in liquidation and also for permission to stand outside the winding up. 91. Points No.7, 8 and 10:- During 1998-99, IREDA advanced a total sum of ₹ 15,54,10,000/- to NHSM for purchase of energy efficient conservation equipment for being installed in juice extraction and juice concentration Section of ASM. IREDA has a first charge over energy efficient equipment financed to NHSM and second charge over all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the promoters held majority of the shares, NHSM as well as the ASM cannot be considered as one and the same as both companies are separate and distinct legal entities in the eye of law. The learned Senior Counsel would further contend that the amount due and payable by NHSM arose in respect of a loan agreement dated 29.10.1999 in terms of which NHSM purchased energy efficiency equipment and when the liabilities of the appellant were totally distinct and separate, there was no justification for the learned single Judge to brush aside the objections of NHSM on the ground that it does not appeal to the conscience of the Court. 94. The learned single Judge held that if the equipment of NHSM would get segregated it would result in damage and reduction in value of both and there is no legal impediment for a secured creditor, who has initiated proceedings under SARFAESI Act to sell the properties, which are the subject matter of SARFAESI proceedings and at the same time, seek the sale of the properties of the Company, which is in liquidation (ASM) through the Company Court. The learned single Judge observed that "except the sadistic pleasure of having deprived the creditors of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured asset/energy efficiency equipment of New Horizon Sugar Mills Limited, which are in the hands of IREDA. 97. If the assets as claimed by NHSM are segregated and separated from the machinery and assets of the Company in liquidation, the entire machinery would become a scrap. If the assets as claimed by NHSM are separated and detached from the entire set of machineries, the same would not only reduce the machinery into a junk, but would also reduce the sale consideration of the unit to be realised. Keeping in view the larger interest and also the interest of the creditors, the learned single Judge rightly ordered sale of all the properties exercising inherent powers vested with him under Rule 9 of the Companies (Court) Rules. Separation of the various machinery in the integrated system and selling them individually will dwindle the value. The learned single Judge held that to issue separate advertisement for the power energy efficiency equipment of NHSM would involve unnecessary expenditure which should be avoided. 98. It is pertinent to note that the Directors/promoters of NHSM and ASM are one and the same and are aware of the fact that IREDA has brought sale of leased assets o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caused to NHSM. No valid objection could be raised by NHSM for bringing the machineries to sale along with assets of ASM. 100. Whether the claim of IREDA on NHSM could have been settled out of the surplus funds available with the Indian Bank. In the counter affidavit filed by NHSM, it was averred that in O.A.No.112 of 2004, IREDA has sought for attachment of excess money realised by Indian Bank from the sale of secured creditors of NHSM and in such circumstances it is not open to NHSM to seek parallel remedies at various forums for the same relief. On behalf of NHSM, the learned Senior Counsel Mr.T.K.Seshadri has submitted that NHSM has always pointed out that the entire balance amount realised from Indian Bank after satisfying their dues should be paid to IREDA the second charge holder and instead of doing so, Indian Bank proceeded to arbitrarily disburse amounts to various unsecured creditors overlooking the claims of IREDA. It was further submitted that NHSM has sent several letters to IREDA pointing out the conduct of Indian Bank in depriving IREDA their rights and inspite of the said communications; but IREDA has chosen to remain silent and avoided taking any steps to recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by order dated 31.8.2009. In paragraph No.9 of its order, the Supreme Court directed the Indian Bank to transfer an amount of ₹ 6.00 Crores from out of the sale proceeds to a no lien account for the purpose of disbursement to the workers. In pursuance to the aforesaid orders, the process of computation of the claims of workmen have commenced by the Commissioner of Labour. When the workmen and the Commissioner of Labour took 31.10.2006 as a date upto which the workmen will be deemed to have been in service for the purpose of computation of benefits under Section 25FF of the Industrial Disputes Act, 1947. NHSM protested the same contending that the Bank had taken possession even on 1.1.2005 itself under Section 13(5) of the SARFAESI Act. It was in that context, the NHSM has filed W.P.No.11881 of 2010 which came up before the single Judge (Justice V.Ramasubramanian). Referring to the said proceedings, the learned single Judge rejected the contention of NHSM that IREDA could have sought for payment from out of the surplus funds available with the Indian Bank. 103. Of course, the said Writ Petition- W.P.No.11881 of 2010 came to the notice of the learned single Judge after the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... REDA will sell the entire machinery along with Sundaram Finance Limited. The said Memorandum of Understanding was recorded in Application No.4401 of 2004. As per the said Memorandum of Understanding dated 27.9.2005, sale has to be completed before 31.3.2006. 106. In pursuance to the Order of the Court in Company Application No.1786 of 2005 (24.4.2006), IREDA handed over possession of the unit along with machineries including the machinery of Sundaram Finance Limited to the Official Liquidator. IREDA filed Company Application No.1038 of 2006 seeking sale of the movable and immovable assets of ASM including the plant and machinery of Sundaram Finance Limited and other machineries in the premises. 107. Sundaram Finance Limited is the owner of the plant and machinery and it has leased out the same to ASM. The stand of Sundaram Finance Limited is that it had given its consent to sell the machinery of which it is the owner without relinquishing its ownership in order to obtain good rate for the entire plant and machinery of ASM. Reiterating the submissions of IREDA, the learned counsel Mr.S.Vasudevan would submit that the entire ASM is one composite unit and if the machinery of Sundara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sugar Mills Ltd., and New Horizon Sugar Mills Ltd., and PNL Nidhi Ltd., are facing prosecution under the Pondicherry as well as Tamil Nadu Protection of Interest of Depositors Act, on the allegation that thousands of depositors have been cheated. They were arrested and detained in custody from 9.8.2005 to 10.12.2005. 110. The learned single Judge further observed that the news item published in The Hindu in its edition dated 10.8.2005, reported that the total number of depositors of the Nidhi were 13,295 and that it was a scam of the magnitude of ₹ 68.50 crores. As per the news item published in The Hindu, dated 21.7.2009, several senior citizens who were retired officials, had invested their retirement benefits in the Nidhi and the number of depositors from Pondicherry alone were 6,000, whose deposits totalled to ₹ 57 crores. The Express newspaper also carried the sad tales of thousands of depositors. 111. The Government of Pondicherry issued notification in G.O.Ms.No.12 dated 18.2.2006 attaching the properties in terms of the provisions of Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004. The validity of the said G.O. came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo non-banking finance companies and the promoters could not honour their financial commitments to the depositors. The prosecution and other litigations pertaining to the depositors is a matter of record and the judgments was also been reported in MANU/CL/0037/2008. The High Court is a Court of Record. It cannot be said that the learned single Judge has adopted erroneous approach in referring to the conduct of the promoters. To our mind, the conduct of the promoters cannot be said to be insignificant. Though the learned single Judge stretched the discussion a little far, we are unable to countenance the submission that the learned single Judge erred in referring to the criminal proceedings, claims of depositors and the conduct of the promoters of ASM. 116. Point No.12 O.S.A.No.81 of 2011:- Walchandnagar Industries Limited is engaged in the business of manufacturing and supplying Boilers and Auxiliaries. In pursuance to the contract, Walchandnagar Industries Limited supplied Boiler and the contract was priced at ₹ 7,31,50,000/- payable in accordance with Clause 3.13 of the General Conditions of the Contract. Walchandnagar Industries Limited received payment of ₹ 6,26,70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that though Walchandnagar Industries Limited has parted with the possession of the Boiler by virtue of the conditions of the contract, it still retains its possessory lien on the Boiler. It was further submitted that in view of Section 49(2) of Sale of Goods Act, mere obtaining of money decree would not amount to waiver of the lien. 120. Lien pre-supposes seller's possession. Consequently, when seller's possession ceases and buyer gets lawful possession, the right of lien comes to an end. Thus lien of unpaid seller terminates when buyer or his agent lawfully obtains possession of the goods. 121. Under Section 49(1) of Sale of Goods Act, 1930, an unpaid seller loses his lien, under three circumstances viz., (i) when he delivers the goods to a carrier or other bailee for transmission to the buyer, without reserving the right of disposal; (ii) when the buyer of his agent lawfully obtains possession of the goods; and (iii) by waiver. As pointed out by the learned single Judge, the ownership of boiler has already passed to the company in liquidation and since the seller already parted with possession of the boiler, the lien of Walchandnagar Industries Limited is terminated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total contract for a 8400 KW Capacity Extraction cum Back Pressure Turbogenerator is ₹ 507 lakhs, out of which, ₹ 72.96 lakhs has been due from ASM. Likewise, the value of the total contract for A 4280 KW Capacity Low Pressure Condensing Turbogenerator with all its auxillaries is ₹ 411 lakhs, out of which, ASM paid ₹ 54.5 lakhs and the outstanding amount of ₹ 411.251 is due. In O.A.No.253 of 2005, the amount involved is ₹ 72.92 lakhs and the amount involved in O.A.No.254 of 2005 is ₹ 411.251 lakhs. For recovery of the said outstanding amount, BHEL has filed O.A.Nos.253 and 254 of 2005 under Section 9 of Arbitration and Conciliation Act praying for (i) interim injunction restraining ASM, its officers, directors or agents from selling, transferring or otherwise alienating or disposing in any manner the land and building comprising of factory situate at Arunachalam Nagar, Malapampadi, Tiruvannamalai Taluk and the plant and equipments installed therein and or lying in or available at the said premises including the equipments being A-8400 KW Extraction-cum-back Pressure Turbo Generator and 1 x 4 MW STG Low Pressure condensing Turbo Generator (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the PURCHASER; provided always that the SUPPLIER shall have a particular possessory lien on the Goods to the extent the value thereof exceeds the total value of the installment payments made by the PURCHASER to the SUPPLIER. Transfer of title to goods shall be ex-works." 128. By careful reading of Clause 3.11.1 of General Conditions of Contract, it is seen that on payment of first instalment at the contract price, the ownership of the goods shall immediately be passed to the purchaser and remain the property of the purchaser. Even though, Clause 3.11.1 stipulates that the supplier shall have possessory lien on the goods, as per Section 49 of Sale of Goods Act, the seller loses its lien under three circumstances viz., (i) when he delivers the goods to a carrier or other bailee for transmission to the buyer, without reserving the right of disposal; (ii) when the buyer of his agent lawfully obtains possession of the goods; and (iii) by waiver. ASM has already taken delivery of A 8400 KW Capacity Extraction cum Back Pressure Turbo generator and A 4280 KW Capacity Low Pressure Condensing Turbo generator with all its auxillaries and title has already passed to the buyer/ASM. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy because of subsequent proceedings. In the Company Court, ASM has brought an offer from one Ramchander, who was ready to give a loan of around ₹ 120 Crores to rehabilitate the unit, which also subsequently did not fructify. In such facts and circumstances, we are of the view that fixing upset price of ₹ 86.44 Crores is very much on the lower side. 132. Based on the ITCOT valuation, the learned single Judge has fixed the upset price at ₹ 86.44 Crores as stated above. Considering the above valuation, we find that value of the land appears to have been taken around ₹ 90,000/- per acre. Even though land is situated at Mallappambadi, as the land is being used for industrial purpose where sugar mill has been running in a 125.66 acres in one lot, in our view, the value of ₹ 90,000/- per acre is very less. Having regard to the escalation of land prices and other factors, we deem it appropriate to take the value of the land per acre at Rs.One Crore. In so far as the valuation of the building, the valuation of the building was fixed at ₹ 9 Crores and the same is increased by another 50 percent. i.e., value of the building is fixed at ₹ 13.50 Crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion shall indicate that the Tender Forms shall be accompanied by Demand Drafts/Pay Orders for an amount representing 5% of the bid amount towards Earnest Money Deposit. The publication shall indicate that the Tender Forms along with the Demand Draft/Pay Order shall be sent in a sealed cover addressed to the Registrar General, High Court, Madras on or before the date indicated above viz., 16.06.2011. The upset price shall be indicated in the paper publication as follows:- (1) Land (120.70 Acres) - ₹ 120.00 crores (2)Land (4.96 Acres) - Rs. 4.96 crores (3)Building - Rs. 13.50 crores (4) Plant and Machinery & other movable assets - Rs. 66.00 crores ---------------------- ₹ 204.46 crores ---------------------- 135. The paper publication shall also indicate that the intending purchasers who wish to inspect the properties may give an indication to the Official Liquidator and that upon an intimation being delivered by the intending purchasers, the Official Liquidator will arrange an inspection at the convenience of the Official Liquidator and Tenderers. The Official Liquidator shall also cooperate with the intending purchasers to arrange for the inspection of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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