Gujarat High Court
Bank Of Baroda vs Official Liquidator on 6 September, 2018
Author: R.M.Chhaya
Bench: R.M.Chhaya
C/COMA/304/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/COMPANY APPLICATION NO. 304 of 2015
In
COMPANY PETITION NO. 141 of 2013
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BANK OF BARODA
Versus
OFFICIAL LIQUIDATOR
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Appearance:
MR BHARAT T RAO(697) for the PETITIONER(s) No. 1,2,3
MR PATHIK M ACHARYA(3520) for the RESPONDENT(s) No. 1
NOTICE SERVED BY DS(5) for the RESPONDENT(s) No. 2,3
OFFICIAL LIQUIDATOR(16) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE R.M.CHHAYA
Date : 06/09/2018
ORAL ORDER
1. The applicants herein, who are Secured Creditors of the Company in liquidation - respondent no.3 herein, have prayed as under: "(A) Your Lordships may be pleased to direct the Official Liquidator being Provisional Liquidator respondent no.1 herein to hand over the secured assets immovable as well as movable of the respondent no.3 as detailed in notice issued under Section 13(2) of the Act to the applicants and further permit the applicants banks to take further proceedings for regularization of the said secured assets under the provisions of SARFAESI Act.
(B) ... ... ..."
Page 1 of 12 C/COMA/304/2015 ORDER2. Heard Mr. Bharat T. Rao, learned advocate for the applicants and Mr. Pathik M. Acharya, learned advocate for the Official Liquidator. Though served, no one appears for other respondents.
3. The facts reveal that by an order dated 23.06.2015 passed by this Court in Company Petition no.141 of 2013, respondent no.3 Company was ordered to be provisionally wound up and the Official Liquidator attached to this Court has been appointed as provisional liquidator. As can be seen from the record, the Official Liquidator has taken charge of the assets, movable and immovable properties of the said Company. Applicant no.1 - Bank of Baroda informed the office of the Official Liquidator by a communication dated 01.09.2015 that applicant no.1 - Bank has taken steps under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act") and therefore, contended that as the applicants are Secured Creditors, they stand outside the winding up process and also intimated to the office of the Official Liquidator that applicant no.1 in particular intends to enforce the securities under the Page 2 of 12 C/COMA/304/2015 ORDER provisions of the SARFAESI Act. Further facts which were also brought to the notice of this Court by the learned advocate for the applicants are necessary to be mentioned at this stage. That, the loan was advanced by the applicants to respondent no.3-Company somewhere in the year 201011. It deserves to be noted that as the loan remained unpaid, all the applicants declared the account of respondent no.3 Company as NonPerforming Asset on 01.10.2012, 12.12.2012 and 03.08.2012 respectively by applicants no.1, 2 and 3. As the record indicates, Company Petition no.141 of 2001 was filed by the petitioner on 06.05.2013 who is the creditor before this Court. As can be seen from the record of the application, a notice as provided under Section 13(2) of the SARFAESI Act was issued by the applicant on 08.06.2013 followed by a further notice as provided under Section 13(4) of the SARFAESI Act dated 27.01.2014, whereby the applicants took symbolic possession as provided under the provisions of the SARFAESI Act. Thereafter, by an order dated 23.06.2015, this Court passed the order of provisional winding up of the respondentCompany and the Official Liquidator came to be appointed as provisional liquidator. The provisional liquidator has also declared before this Court and as can be seen from the communication Page 3 of 12 C/COMA/304/2015 ORDER dated 25.08.2015 that the Official Liquidator took charge of the assets and properties of the Company in liquidation on 25.08.2015 and ultimately, by a judgment and order dated 07.06.2017, Company Petition no.141 of 2013 came to be allowed and respondent no.3Company was ordered to be wound up. The learned advocate for the applicants has submitted that the applicants, as Secured Creditors, have already taken possession of the secured assets of the Company in liquidation before the order of winding up and relying upon the judgment of the Hon'ble Apex Court in the case of Pegasus Assets Reconstruction Private Limited Vs. Haryana Concast Limited & Anr., reported in (2016) 4 SCC 47, it was contended that the possession of the property is to be given only to the Secured Creditors i.e. the applicants. It was therefore contended that the application may be allowed as prayed for.
4. Per contra, Mr. Pathik M. Acharya, learned advocate for the Official Liquidator has opposed the present application. Relying upon the report dated 21.07.2016 as well as the further report dated 10.02.2018, it was contended that the possession of the movable and immovable properties of the Company in liquidation was taken over by the Official Page 4 of 12 C/COMA/304/2015 ORDER Liquidator as provisional liquidator on 25.08.2015 after intimating the ExDirectors of the Company in liquidation as well as the Secured Creditors including the applicants. It was further contended that only because the applicants, as Secured Creditors, have undertaken proceedings under the SARFAESI Act, provisions of Section 456 of the Companies Act, 1956 would not become inoperative. It was contended that once the Official Liquidator takes charge of the Company in liquidation and when he takes over possession, he is the custodian of the Company and the Secured Creditors have no right to dispose of the property. It is therefore contended that the application deserves to be dismissed.
5. No other or further contentions and/or submissions are made by the learned advocates appearing for the respective parties.
6. Record clearly indicates that the applicants, more particularly, applicant no.1 has taken the proceedings under the provisions of the SARFAESI Act. Applicant no.1 issued a notice as provided under Section 13(2) of the SARFAESI Act on 08.06.2013 and the symbolic possession was also taken under Section 13(4) of the SARFAESI Act on 27.01.2014. The Hon'ble Apex Court in the case of Pegasus Assets Page 5 of 12 C/COMA/304/2015 ORDER Reconstruction Private Limited (supra) has held that when the proceedings under the SARFAESI Act are undertaken by the Secured Creditors, direct or indirect control or interference by the Company Court or through the Official Liquidator is not envisaged and has observed thus in Paragraphs 23, 25 and 30: "23. A reading of Sections 9 and 13 of the SARFAESI Act leaves no manner of doubt that for enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower company is under liquidation for which proviso to subsection (9) of Section 13 contains clear mandate keeping in view the provisions of Section 529 and 529A of the Companies Act, 1956. Since significant amendments were introduced in Section 529 while inserting Section 529A through Amendment Act 35 of 1985, effective from 24.5.1985 and with the aid of a non obstante clause in subsection (1) of Section 529A workmen's dues were given preference over other dues and made to stand pari passu with dues of the secured creditors, in case of apparent conflict, this Court through various judgments has upheld the proceedings under the RDB Act as it happens to be a later Act with overriding effect over other laws. The interest of the workmen in Page 6 of 12 C/COMA/304/2015 ORDER respect of dues payable to them as per Section 529 and 529A of the Companies Act has been protected by permitting, wherever necessary, association of 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 get the details of the workers dues as ascertained under the Companies Act, placed before the authorized officer and seek proper distribution of the amount realised from the sale of Page 7 of 12 C/COMA/304/2015 ORDER secured assets in accordance with various provisos under subsection (9) of Section 13 of the SARFAESI Act.
25. In the event, in the capacity of a borrower the Official Liquidator is not satisfied with the decisions or steps taken by the secured creditor or the authorized officer, at appropriate stage it has sufficient opportunity to avail right of appeal under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. There is a right of further appeal under Section 18 before the Appellate Tribunal. On the other hand, if the view taken by Punjab & Haryana High Court in Pegasus is accepted, there shall be a conflict of rights and interest of the secured creditor who have the right and liberty to realize their secured interest in accordance with the provisions of the SARFAESI Act on one hand, and the statutory rights and liability of the Official Liquidator acting under the orders of the Company Judge as per provisions of the Companies Act, on the other. The appellate fora shall also differ, leading to a situation of uncertainty and conflict between the two Acts. In such a scenario, we respectfully agree with the Delhi view and disapprove that of the Punjab & Haryana High Court.
30. Since we have held earlier in favour of views of Delhi High Court, it is not necessary to burden this judgment with the case laws which support that view and have been noted by the High Court. We are in agreement with the submissions Page 8 of 12 C/COMA/304/2015 ORDER advanced on behalf of respondent Kotak Mahindra Bank as well as respondent No.2 that there is no lacuna or ambiguity in the SARFAESI Act to warrant reading something more into it. For the purpose it has been enacted, it is a complete code and the earlier judgments rendered in the context of SFC Act or RDB Act visà vis the Companies Act, cannot be held applicable on all force to the SARFAESI Act. There is nothing lacking in the Act so as to borrow anything from the Companies Act till the stage the secured assets are sold by the secured creditors in accordance with the provisions in the SARFAESI Act and the Rules. At the post sale stage, the rights of the persons or parties having any stake in the sale proceeds are also taken care of by subsection (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 subsection (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 Page 9 of 12 C/COMA/304/2015 ORDER 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 liquidator to discharge his duties and obligations arising under Section 529A of the Companies Act. Thus, it is evident that the required provisions of the Companies Act have been incorporated in the SARFAESI Act for harmonizing this Act with the Companies Act in respect of dues of workmen and their protection under Section 529A of the Companies Act. In view of such exercise already done by the legislature, there is no plausible reason as to take recourse to any provisions of the Companies Act and permit interference in the proceedings under the SARFAESI Act either by the Company Judge or the liquidator. As noted earlier, the Official Liquidator as a representative of the borrower company under winding up has to be associated, not for supplying any omission in the SARFAESI Act but because of express provisions therein as well as in the Rules. Hence the exercise of harmonizing that this Court had to undertake in the context of SFC Act or the RDB Act is no longer warranted in respect of SARFAESI Act visàvis the Companies Act."
Page 10 of 12 C/COMA/304/2015 ORDER7. Similar view is taken by the Hon'ble Apex Court in the case of Authorized Officer, Asset Reconstruction Co. (India) Ltd. Vs. Official Liquidator of M/s. Jhagadia Copper & Ors., rendered in Civil Appeal no.869899 of 2017 dated 05.07.2017.
8. In light of the aforesaid therefore, the applicants, as Secured Creditors, have resorted to the provisions of the SARFAESI Act and would be entitled to the possession of the secured assets, movable and immovable properties of the Company in liquidation and the applicants are therefore at liberty to take further proceedings for regularization of the said secured assets under the provisions of the SARFAESI Act.
9. Mr. Pratik Acharya, learned advocate appearing for the Official Liquidator submitted that during the interregnum period, when the possession has remained with the Official Liquidator, the Official Liquidator has incurred security expenses, which should be reimbursed by the applicant. Mr. Rao, learned advocate appearing on behalf of the applicant, upon instructions, states that the applicant shall pay the security charges. Accordingly, the Official Liquidator shall intimate the applicant with a copy of the invoice of the Page 11 of 12 C/COMA/304/2015 ORDER security charges, which may be paid by the applicant.
10. Accordingly, the application is allowed.
(R.M.CHHAYA, J) MAULIK R. PANDYA Page 12 of 12