TMI Blog2023 (2) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... tory charge is to the extent of workmen s portion in relation to the security held by the secured creditors of the company as illustrated by Section 529 of the Act. In the light of the provisions contained in RDB Act, which has an overriding effect, two propositions emerge. First, RDB Act confers exclusive jurisdiction upon DRT for determination of the matters specified in Section 17. Second, the Act ousts jurisdiction of all other Courts in determining and deciding the issues which are within the province of the Authorities under RDB Act, save and except the powers of the Supreme Court and High Court under Articles 226 and 227 of the Constitution. Both the submissions on behalf of the applicant that the Official Liquidator ought to have taken physical possession of the subject assets, despite the secured creditor having initiated steps to enforce the security interest therein, and before sale respondent No. 3 must have obtained the permission of the Company Court, fell through. Application dismissed. - INTERIM APPLICATION (L) NO-13618 OF 2022 IN INTERIM APPLICATION (L) NO-8062 OF 2022 IN COMPANY PETITION NO-322 OF 2015 - - - Dated:- 1-2-2023 - N.J. JAMADAR, J. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the liquidation proceeding. It was, therefore, incumbent upon the Official Liquidator to take physical possession of all the assets of the company in liquidation including the land, plant and machinery situated at Aurangabad (the subject assets). The Official Liquidator, according to the applicant, failed to take possession of the subject assets despite statutorily bound by the provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959. In the meanwhile, the respondent No. 3 sans permission of the Company Court, moved to take physical possession of the subject assets with the assistance of the District Magistrate, Aurangabad. As the Official Liquidator, according to the applicant, remained a mute spectator the District Magistrate took forcible possession of the subject assets on 16th February, 2022, and delivered the same to respondent No. 3. The applicant alleges there was a collusion between the Official Liquidator and respondent No. 3. In any event, there was a dereliction of duty on the part of the Official Liquidator. Hence, the application to declare the action of respondent No. 3 to take over the possession of the assets of the company in liquidation as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions contained in the Companies Act and the SARFAESI Act. It was further urged by Mr. Vaghela, with a degree of vehemence, that once a winding up order is passed, the assets of the company in liquidation become custodia legis and no entity can deal with the assets of the company in liquidation sans the permission of the Company Court. In the instant case, the subject assets have been sold without obtaining the permission of the Company Court and also behind the back of the Official Liquidator and, therefore, the entire action from the stage of taking possession to sale deserves to be quashed and set aside. 9) Mr. Shanay Shah, the learned Counsel for the Official Liquidator, submitted that both the applications are wholly misconceived. The foundational premise of the applications that the Official Liquidator committed dereliction of duty is completely unfounded. At no stage the Official Liquidator had either taken or claimed to have taken possession of the subject assets. He submits that the contention that the Official Liquidator was not apprised of the action of the secured creditor is against the weight of the record. In any event, since the respondent No. 3 Bank had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.] (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section: [Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to 3 pay his portion of the expenses] incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.] [ Explanation .- For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less amount which bears to such expenses the same proportion as the workmen' s portion in relation to the security bears to the value of the security.] (3) For the purposes of this section, section 529A and section 530,- (a) workmen , in relation to a company, means the employees of the company, being workmen within the meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditors of the company as illustrated by Section 529 of the Act. 13) In the case of Allahabad Bank V. Canara Bank (2000) 4 SCC 406 in essence, the impact of the provisions contained in Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act), a subsequent legislation, on the provisions of the Companies Act, 1956, arose for consideration. In the context of the controversy sought to be raised on behalf of the applicants, the following questions considered by the Supreme Court in the case of Allahabad Bank (supra) deserves to be noted- (1) Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres? (2) Whether for initiation of various proceedings by the banks and financial institutions under the RDB Act, leave of the Company Court is necessary under Section 537 before a winding-up order is passed against the company or before provisional liquidator is appointed under Section 446(1) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propositions emerge. First, RDB Act confers exclusive jurisdiction upon DRT for determination of the matters specified in Section 17. Second, the Act ousts jurisdiction of all other Courts in determining and deciding the issues which are within the province of the Authorities under RDB Act, save and except the powers of the Supreme Court and High Court under Articles 226 and 227 of the Constitution. 17) A useful reference in this context can be made to a three Judge Bench judgment of the Supreme Court in the case of Jitendra Nath Singh Vs. Official Liquidator and Others (2013) 1 SCC 462 , wherein the Supreme Court expounded the import of the provisions contained in Sections 529 and 529A of the Companies Act, 1956. The Supreme Court culled out the propositions in paragraph No. 16. The first proposition reads as under:- 16. Our conclusions on interpretation of the provisions of Sections 529 and 529A of the Companies Act, therefore, are: 16.1 a secured creditor has only a charge over a particular property or asset of the company. The secured creditor has the option to either realize his security or relinquish his security. If the secured creditor relinquishes his sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself. Second, the Bank had filed a proceeding to recover its debt against the company in liquidation before the DRT. Third, the Official Liquidator called upon the respondent No. 3 Bank to implead the Official Liquidator in the DRT proceeding. These facts indicate that the respondent No. 3- Bank had already initiated the proceeding other than a winding-up proceeding to enforce the security, and before a forum created under the special enactment. 22) The mere fact that the secured creditor files an Affidavit in Proof of Debt with the Official Liquidator, by itself, is not sufficient to draw an inference that the secured creditor has relinquished his security. It requires conscious act on the part of the secured creditor to infer relinquishment of security than mere filing of a claim in response to public notice issued by the Official Liquidator. In the case at hand, as noted above, at the first possible opportunity, the respondent No. 3- Bank asserted its claim over the secured assets by pointing out that it had taken symbolic possession of the secured assets and had instituted a proceeding before DRT. A useful reference in this context can be made to the following observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim before the official liquidator, relinquishes his security and agrees to the distribution of the sale proceeds through the official liquidator, subject to jurisdiction of the Company Court, could always be said to be not standing outside the winding up proceedings. However, where he institutes a petition, proceeds with it and seeks realisation of security before a forum outside the Company Court, then he obviously pursues the remedy beyond mere filing of a claim and would be a person standing outside the winding up proceedings and shall be subject to the rights enforced by the official liquidator in terms of the proviso to Section 529 of the Act . As it has also been held by this Court in the case of ICICI Bank (supra), the secured creditor has to take some positive steps to participate in the winding up petition. (emphasis supplied) 23) In my view, the aforesaid pronouncement is on all four with the facts of the case at hand as the respondent No. 3 Bank had done all that was required to enforce the security and stand outside the liquidation process by i) taking symbolic possession of the secured assets, ii) instituting the proceeding for recovery before DRT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Official Liquidator with the proceedings before the Debts Recovery Tribunal under the RDB Act. In our considered judgment, the same view is required to be taken in context of SARFAESI Act also, for the additional reason that Section 13 requires notice to the borrower at various stages which in the case of a company under winding up being a borrower would mean requirement of notice to the Official Liquidator. The Security Interest (Enforcement) Rules, 2002 (for brevity, the Rules ) framed under the provisions of SARFAESI Act also require notice upon the borrower or his agent at different stages. For sale of immovable secured assets, as per Rule 8, the authorized officer can take possession by delivering a Possession Notice to the borrower and by affixing Possession Notice on the outer door or at some conspicuous place of the property. Before the sale also, the authorized officer is required to serve to the borrower a notice of 30 days. Thus the Rules also ensure that the Official Liquidator is in knowledge of the proceedings under the SARFAESI Act in case the borrower happens to be a company under winding up. As a borrower, the Official Liquidator has ample opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (9) of Section 13 and its five provisos (not numbered). It is significant that as per subsection (9) a sort of consensus is required amongst the secured creditors, if they are more than one, for the exercise of rights available under sub-section (4). If borrower is a company in liquidation, the sale proceeds have to be distributed in accordance with the provisions of Section 529A of the Companies Act even where the company is being wound up after coming into force of the SARFAESI Act, if the secured creditor of such company opts to stand out of the winding up proceedings, it is entitled to retain the sale proceeds of its secured assets after depositing the workmen s dues with the liquidator in accordance with the provisions of Section 529A of the Company Act. The third proviso is also meant to work out the provisions of Section 529A of the Companies Act, in case the workmen s dues cannot be ascertained, by relying upon communication of estimate of such dues by the liquidator to the secured creditor, who has to deposit the amount of such estimated dues with the liquidator and then it can retain the sale proceeds of the secured assets. The other two provisos also are in aid of the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the assets of the Company under Section 536 (2) of the Companies Act, 1956. 27) Reliance placed by Mr. Vaghela on the judgment of the Supreme Court in the case of Bakemans Industries Private Limited Vs. New Cawnpore Flour Mills and Others (2008) 15 SCC 1 , also does not advance the cause of the submission as the issue involved in the said case was about the exercise of supervisory power by the Company Court over the sale of the assets of the company in liquidation under the provisions of Section 29 of the SFC Act, 1951. 28) In conclusion, if the aforesaid exposition of law in the case of Pegasus (supra) is considered in the light of the law postulated in the case of Allahabad Bank (supra), both the submissions on behalf of the applicant that the Official Liquidator ought to have taken physical possession of the subject assets, despite the secured creditor having initiated steps to enforce the security interest therein, and before sale respondent No. 3 must have obtained the permission of the Company Court, fell through. 29) Resultantly, both the applications deserve to be dismissed. 30) Hence, the following order. ORDER Applications stand dismiss ..... 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