Punjab-Haryana High Court
Avi Exports (India) Ltd. vs Industrial Finance Corpn. Of India Ltd. ... on 30 March, 2006
Equivalent citations: [2007]74SCL112(PUNJ&HAR)
Author: Hemant Gupta
Bench: Hemant Gupta
JUDGMENT Hemant Gupta, J.
1. The official liquidator has sought setting aside of the sale certificate dated 9-2-2005, issued by respondent No. 3, in respect of the assets of the company in liquidation in terms of the recovery certificate dated 29-4-2003, issued under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ('the Act').
2. The petitioner-company was ordered to be wound up by this Court vide order dated 16-12-1999. The official liquidator attached to this Court was appointed as its liquidator. In compliance thereof, the official liquidator took possession of the factory premises of the company in liquidation situated at village Bhankpur, Tehsil Gannaur, District Sonepat on 7-1-2000.
3. Respondent No. 1, Industrial Finance Corporation of India Ltd., filed an original application before the Debts Recovery Tribunal constituted under the Act for recovery of Rs. 30,32, 19,553 along with pendante lite and future interest against AVI Packaging (India) Ltd. The company in liquidation was impleaded as defendant No. 6, as guarantor. It is the case of the petitioner that respondent No. 1 has invoked the jurisdiction of the Debts Recovery Tribunal in the year 2001, without the permission of the court in terms of section 446 of the Companies Act, 1956. In execution of recovery certificate, auction notice in respect of the company in liquidation was published in daily newspapers on 23-11-2004. The official liquidator, thus, found that the property has been sold by way of auction on 27-11-2004. The official liquidator sought stay of further proceedings from this Court. On 3-2-2005, this Court was pleased to stay further proceedings in pursuance of auction notice. On 24-3-2005, stay of proceedings in respect of recovery of assets of the company was ordered to continue till further orders. It is the case of the official liquidator that in spite of communication of the order of stay dated 3-2-2005, the sale certificate has been issued on 9-2-2005. It is further pointed out that in pursuance of such certificate of sale, the auction purchaser has removed all the machinery and other movable components from the factory premises. It is, thus, prayed that any sale of assets of the company in liquidation by any other person except with the express leave of the court which passes the winding-up order is void. Therefore, the sale confirmation in favour of auction purchaser respondent No. 2 is void and liable to be set aside.
4. It is the stand of respondent No. 1 that the original application was filed before the Debts Recovery Tribunal, Jaipur, on 16-2-2000, and it was transferred to the Debts Recovery Tribunal, Chandigarh, on the establishment of the Tribunal at Chandigarh. The original application was decided in favour of the said respondent on 29-4-2003. It is pointed out that the factum of winding-up was not known to the said respondent. Neither the official liquidator nor the management of the company apprised the said respondent about the factum of winding-up. It is further mentioned that a local Commissioner was appointed by the Debts Recovery Tribunal, Chandigarh, to inspect the site in June, 2004. Even in the report so submitted by the local Commissioner, it has not been pointed out that the company was under liquidation. It is pointed out that an appeal has been filed against the order dated 24-3-2005. Still further, it is pointed out that the auction purchaser has taken possession of the property in question prior to 7-2-2005. It has also been pointed out that in terms of the judgment of the Hon'ble Supreme Court in Allahabad Bank v. Canara Bank [2000] 101 Comp. Cas. 64, the Recovery Officer has complete jurisdiction and power to adjudicate upon the matter pertaining to the debts falling within the Act even if the company is under liquidation.
5. On behalf of respondent No. 2 auction purchaser, it has been pointed out that the sale was conducted by public auction on 27-11-2004, and was confirmed on 12-1-2005, by the Recovery Officer. Since the sale was confirmed, the certificate of sale was issued on 9-2-2005. It was further stated that the assets in question were not in actual possession of the official liquidator nor was there any security guard or any official on behalf of the official liquidator or the board showing the property to be is possession of the official liquidator. Initially, the Debts Recovery Tribunal has passed an order of attachment on 4-6-2004, which was effected by the local Commissioner on 10-6-2004.
6. I have heard learned Counsel for the parties at some length and found that the sale conducted by respondent No. 1 in pursuance of the Recovery Certificate issued under the Act cannot be said to be void for not seeking the permission of this Court either under section 446 or 536 of the Companies Act, 1956 ('Companies Act').
7. Learned Counsel for the petitioner has relied upon a recent judgment of the Hon'ble Supreme Court in Rajasthan Financial Corpn. v. Official Liquidator [2005] 128 Comp. Cas. 3871, to contend that where the company is in the process of winding-up, sections 529 and 529A of the Companies Act get attracted and that there is a preferential payment provided for workmen's dues and debts due to the secured creditors. Since the official 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, therefore, 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. However, the said judgment referred to by learned Counsel for the petitioner is not applicable to the facts of the present case. In fact, it is the judgment of the Hon'ble Supreme Court in Allahabad Bank's case {supra) which is directly on the issue where the jurisdiction of the Debts Recovery Tribunal under the Act viz-a-viz, the company court arose for decision wherein it was held that no leave of the company court was necessary for initiating proceedings under the Act. In Allahabad Bank's case (supra) it was held to the following effect:
We are of the view that the appellant's case under the RDB Act- with an additional section like Section 34-is on a stronger footing for holding that leave of the company court is not necessary under Section 537 or under section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the company court cannot also use its powers under section 442 against the Tribunal/Recovery Officer. Thus, sections 442, 446 and 537 cannot be applied against the Tribunal.
8. Still later it has been held that the provisions of the Act overrides of the Companies Act, 1956. It was held as under:
Alternatively, the Companies Act, 1956, and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, Section 34. A similar situation arose in Maharashtra Tubes Ltd v. State Industrial and Investment Corporation of Maharashtra Ltd. , where there was inconsistency between two special laws, the State Financial Corporations Act, 1951 and the Sick Industrial Companies (Special Provisions) Act, 1985. The latter contained Section 32 which gave overriding effect to its provisions and was held to prevail over the former. It was pointed out by Ahmadi, J., that both special statutes contained non obstante clauses but that the 1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obstante clause in section 46B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is special one. Therefore, in view of Section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts....
For the aforesaid reasons, we hold that at the stage of adjudication under Section 17 and execution of the certificate under Section 25, etc., the provisions of the RDB Act, 1993, confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to banks and financial institutions and there can be no interference by the company court under section 442 read with Section 537 or under section 446 of the Companies Act, 1956. In respect of the monies released under the RDB Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with Section 19(19) read with Section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993, are to the above extent inconsistent with the provisions of the Companies Act, 1956, and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding-up petition against the debtor company and also after a winding-up order is passed. No leave of the company court is necessary for initiating or continuing the proceedings under the RDB Act, 1993.
9. In Rajasthan Financial Corporation's case (supra) while considering the judgment rendered by the Supreme Court in Allahabad Bank's case {supra) it was found that the said judgment is not applicable in respect of the claim of the financial corporation under the State Financial Corporations Act since Section 529A of the Companies Act was introduced by Act No. 35 of 1985 and the overriding provisions therein will prevail over the State Financial Corporations Act, 1951, as amended in 1956, and notwithstanding section 46B of the State Financial Corporations Act but in respect of the Act, it being a subsequent legislation and being a special law, it will prevail upon the general law, i.e., the Companies Act. It was held to the following effect:
...The conflict, if any, is in the view that the Debts Recovery Tribunal could sell the properties of the company in terms of the Recovery of Debts Act. This view was taken in Allahabad Bank's case (supra) in view of Recovery of Debts Act being a subsequent legislation and being a special law would prevail over the general law, the Companies Act. This argument is not available as far as the State Financial Corporations Act is concerned, since Section 529A was introduced by Act 35 of 1985 and the overriding provision therein would prevail over the State Financial Corporations Act of 1951 as amended in 1956 and notwithstanding section 46B of the State Financial Corporations Act....
10. In view thereof, the permission of the company court was not required by a bank or financial institution while proceeding under the Act, the Act being a special and subsequent legislation will prevail over the provisions of the Companies Act. The judgment in Rajasthan Financial Corporation's case (supra) is not applicable as the question involved in the said case was arising between an earlier statute, i.e., the State Financial Corporations Act, 1951 and Section 529A of the Companies Act. Since the said provision of the Companies Act is subsequent legislation, it was held that the latter statute will prevail over the earlier Act.
11. However, the official liquidator has a right to determine the dues of the workmen as provided under Section 529A of the Companies Act. Therefore, as and when the official liquidator determines the dues, if any, payable to the workmen, it shall have a right to seek apportionment of the sale proceeds of the assets of the company from respondent No. 1.
12. Thus, it is held that the financial institution possesses right to sell the property in terms of the provisions of the Act, thus, the issuance of the sale certificate on 9-2-2005, after its confirmation by the Recovery Officer on 12-1-2005, cannot be said to be illegal or void.
13. Therefore, I do not find that the sale conducted by respondent No. 1 is suffering from any illegality or irregularity so as to declare the same as void. However, such sale shall be subject to the right of the official liquidator to claim workmen's dues, if any, determined and found payable by the official liquidator from the sale proceeds of the assets released by respondent No. 1.
14. The company application stands disposed of accordingly.