TMI Blog2022 (9) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... om the provisions of Section 4 which speaks of an ongoing action not only against the financial establishment but also against a promoter, director - and then come the other words - partner, manager or member of the financial establishment. Mr Kumbhakoni s construct, if read in its strictest fashion, would probably result in a liability attaching to shareholders of the company because they would be members of the financial establishment in question, i.e., the company. The State Legislature could never have framed an enactment or a legislation on any entry that falls within List I. There was simply no legislative competence for it. If this be so, the MPID Act cannot possibly be said to cover any portion of the field that is fully occupied by the Companies Act - there are no provision in the MPID Act to support the stand taken by the State Government. There can be no divesting of the powers and authority of the company Court and of the OL only on account of the MPID Act. Appeal dismissed. - APPEAL NO. 396 OF 2017 WITH OFFICIAL LIQUIDATOR’S REPORT NO. 252 OF 2015 IN COMPANY PETITION NO. 278 OF 2014 WITH APPEAL NO. 85 OF 2018 IN OFFICIAL LIQUIDATOR’S REPORT NO. 126 OF 2013 WI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interests of creditors of the company under the Companies Act and those who enjoy a statutorily-defined priority in distribution. On the other are the interest of these small depositors for whose benefit the State enacted the MPID Act. 3. The learned Single Judge, RD Dhanuka J, considered precisely this question. In summary, he concluded that where a company is ordered to be wound up, there is an automatic vesting of the assets of the company in the company court, represented for all practical purposes by the OL. An order by the State Government under the MPID Act notifying the company cannot have the effect of divesting the company court of the assets of the company or of transferring that asset-vesting to the MPID Court. The Companies Act 1956 (and now its successor statute, the Companies Act 2013) provide that unsecured creditors are entitled to receive their dues pro-rata only after preferential payments are made to secured creditors and those ranked pari passu with secured creditors. The competent authority or the MPID Court is not jurisdictionally competent to adjudicate on these preferential payments or, for that matter, on the claims of any other unsecured creditors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a trustee and a custodian of all assets and properties of a company in liquidation and must deal with them in accordance with the provisions of the Companies Act. The provisions of Section 6 of the MPID Act excluding the jurisdiction could not oust the jurisdiction of the company Court. In paragraph 120, Dhanuka J returned the finding that there is no conflict between the two statutes and that both operate in distinct fields. He then addressed the specific reliefs sought and issued a series of directions. 6. The facts are not many. We will take them for the purposes of illustration in the case of Aryarup Tourism Club Resorts Private Limited ( Aryarup ). The first order of winding up was of 26th September 2014. A liquidator stood appointed. On 29th October 2014, the OL found that the registered office was originally owned by one Santosh Dhuwali prior to 2006. The next day, 30th October 2014, the OL issued notice to the ex-directors of Aryarup and to the Petitioning Creditor as also his Advocates. He scheduled a meeting few days later and called upon the ex-directors to furnish necessary particulars including information about creditors and debtors. The ex-directors were to file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) deposit includes and shall be deemed always to have included any receipt of money or acceptance of any valuable commodity by any Financial Establishment to be returned after a specified period or otherwise, either in cash or in kind or in the form of a specified service with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include- (i) amount raised by way of share capital or by any way of debenture, bond or any other instrument covered under the guidelines given, and regulations made, by the SEBI, established under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (ii) amounts contributed as capital by partners of a firm; (iii) amounts received from a Scheduled bank or Co-operative bank or any other banking company as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949); (iv) any amount received from- (a) the Industrial Development Bank of India, (b) a State Financial Institution, (c) any financial institution specified in or under section 6-A of Industrial Development Bank of India Act, 1964 (18 of 1964), or (d) any other institution th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or make payment of interest or other benefits assured or to provide the services against which the deposit is received, the Government may, in order to protect the interest or depositors of such Financial Establishment, after recording reasons in writing, issue an order by publishing it in the Official Gazette, attaching the money or the property believed to have been acquired by such Financial Establishment, either in its own name or in the name of any other person from out of deposits, collected by the Financial Establishment, or if its transpires that such money or other property is not available for attachment or not sufficient for repayment of the deposits, such other property or the said Financial Establishment or the promoter, director, partner or manager or member of the said Financial Establishment as the Government may think fit. (2) On the publication of the order under Sub-section (1), all the properties and assets of the Financial Establishment and the persons mentioned therein shall forthwith vest in the Competent Authority appointed by the government, pending further orders from the Designated Court. (3) The Collector of a District shall be competent to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct deals with a financial establishment as defined. It is not limited to a company. In that scenario, i.e. where the financial establishment is not a company, no question of winding up arise. Second, it appears from a careful reading Section 4 that the MPID Act is in fact predicated on the financial establishment (where it is a company) not being in liquidation and of it being an active and going concern. This is inter alia apparent from the provisions of Section 4 which speaks of an ongoing action not only against the financial establishment but also against a promoter, director - and then come the other words - partner, manager or member of the financial establishment. Mr Kumbhakoni s construct, if read in its strictest fashion, would probably result in a liability attaching to shareholders of the company because they would be members of the financial establishment in question, i.e., the company. That is in fact not the contemplation of the Act at all. Member in such a case must be read in the context of, say, an association of persons. But the liability does not stop at promoters or directors. It extends to partners and even to managers. All of these are internal indicators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment. Even worse would be the condition of workmen of the company. All these interests, statutorily mandated by the Companies Act. would, on an acceptance of Mr Kumbhakoni s argument, be relegated to second place after the interests of depositors. 18. There is another aspect to this. Mr Engineer points out that under Section 7 of the MPID Act and particularly sub-section (4) the only distribution that is contemplated is a distribution to depositors. The MPID Court therefore has no jurisdiction over any other form of creditor. 19. From the Constitutional perceptive to, the two operate in different fields. The Companies Act and the necessary parliamentary competence is traceable to Entries 43 and 44 of List I, the Union List in the VIIth Schedule to the Constitution. The legislative competence of the State Legislature in enacting the MPID Act is traceable, on the other hand to Entries, 1, 30 and 32 of the State List, i.e. List II of the VIIth Schedule to the Constitution of India. This takes us to a very quick consideration of Articles 246 and 254 of the Constitution of India, which read thus: 246. Subject-matter of laws made by Parliament and by the Legislatures of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State. (Emphasis added) 20. It is clear from the emphasized portions above that the State Legislature could never have framed an enactment or a legislation on any entry that falls within List I. There was simply no legislative competence for it. If this be so, the MPID Act cannot possibly be said to cover any portion of the field that is fully occupied by the Companies Act. 21. It is for this reason that Dhanuka J correctly said that the two operate in distinct fields, a position that Mr Kumbhakoni also accepts. 22. Several decisions of the Supreme Court have dealt with statutes that are in pari materia with the MPID Act though applicable to other States: Puducherry (2012) 10 SCC 575.; Andhra Pradesh (2013) 10 SCC 677. and Tamil Nadu KK Baskaran v State Rep By Its Secretary, Tamil Nadu Ors.2011 (3) SCC 793. 23. The constitutional validity of the Maharashtra Act itself has also been upheld by the Supreme Court in KK Baskaran by which a Full Bench decision of this Court invalidating the statute and holding it to be ultra vires was set aside. 24. Mr Kumbhakoni s submission, however, is on the impact of the non obstante clause in Section 4 of the MPID Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion that it was the MPID Act that fully occupied the field . 27. The early case of Union of India v HS Dhillon (1971) 2 SCC 779 is authority, if any is needed, for the proposition that even if there is such a conflict it is the parliamentary legislation that will prevail. 28. Mr Kamat for the OL in the City Limouzines case also draws attention to the decision in A Talukdar Co v Official Liquidator. (2016) 14 SCC 289. There the Supreme Court took the view that once a company was ordered to be wound up the assets of the company come into the custody of a company court and no arrangement after winding up without leave of that Court can be recognized regarding those assets. This is precisely the finding returned by Dhanuka J. 29. Mr Kamat also draws our attention to paragraph 51 of the Supreme Court regarding the Insolvency and Bankruptcy Code in Innoventive Industries Ltd v ICICI Bank Anr.(2018) 1 SCC 407. This is for the proposition that Presidential Assent is only required where a State Legislation is in regard to an act under an entry in List III of the VIIth schedule or one in the concurrent List. Mr Kumbhakoni s submission that the State Government obt ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
