Rajasthan High Court - Jaipur
Official Liquidator, Spark Plugs (I) ... vs Bank Of India And Ors. on 31 July, 2006
Equivalent citations: [2007]135COMPCAS495(RAJ), [2007]77SCL28(RAJ), 2006(3)WLC565
JUDGMENT Shiv Kumar Sharma, J.
1. The applicant-company M/s. Spark Plugs (I.) Ltd. through the official liquidator filed the present application for quashing the order dated October 7, 2005, passed by the Recovery Officer, DRT-1, Delhi. The applicant-company was ordered to be wound up by this Court vide order dated August 6, 2004, on the recommendation of the BIFR. The official liquidator took possession of the land, building, plant and machinery, etc., situated at Matsaya Industrial Area, village Guleta, District Alwar. The Debts Recovery Tribunal-1 allowed the recovery application filed by the Bank of India. The Recovery Officer issued order on February 10, 2005, restraining the applicant-bank from transferring or charging the properties of company in liquidation. The Recovery Officer also issued notice under rule 83 of the Second Schedule of the Income-tax Act read with Sections 25-28 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short "1993 Act"). Thereafter, vide notice dated March 28, 2005, the Recovery Officer informed that May 17, 2005, has been fixed for drawing up the proclamation of sale and settling the terms thereof. The official liquidator submitted reply to the notice. The Recovery officer allowed the request of the Bank of India vide its order dated October 7, 2005, for putting the property on public auction and rejecting the written objections filed by the official liquidator. The order of the Recovery Officer is based on the judgment delivered by the apex court in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406. The Recovery Officer fixed the reserve price of Rs. 2.10 crores and earnest money of Rs. 25 lakhs. The official liquidator was allowed 15 days time to bring offer for the property more than the above reserve price with 10 per cent, deposit of affront money. The Recovery Officer observed in the order that the sale proceeds shall be distributed amongst the respondent-bank and other defendants Nos. 4 to 8 who were the secured creditors on pari passu basis.
2. On February 20, 2006, M/s. Pravesh Builders Pvt. Ltd. filed application for modification dated February 8, 2006, passed by this Court in the above application. On May 12, 2006, the application for impleadment of M/s. Pravesh Builders Pvt. Ltd. was allowed. M/s. Pravesh Builders Pvt. Ltd. submitted in the application that the respondent-bank published a notice for auction of property of M/s. Spark Plug India in the newspaper Rajas-than Patrika dated December 4, 2006. It was also submitted in the application that M/s. Anupam Securities Pvt. Ltd. filed an objection against the order dated October 7, 2005, for restraining the auction of the property on the ground that a part of the said property has been already purchased by the company, i.e., M/s. Anupam Securities Pvt. Ltd. on December 20, 2003, in a public auction conducted by Jaipur Vidyut Vitaran Nigam Ltd. The Recovery Officer postponed the auction and vide order dated January 30, 2006, passed order for the auction of the property of M/s. Spark Plug India Ltd., and fixed the date for auction on February 3, 2006. M/s. Parvesh Builders contacted the court auctioner and applied for necessary and relevant forms. M/s. Pravesh Builders was found eligible and was allowed to participate in the said auction. They have also furnished EMD by draft dated February 2, 2006, for Rs. 25,00,000 (twenty-five lakhs). M/s. Pravesh Builders made a highest bid of Rs. 3.45 crores. Their offer was accepted by the court auctioner and under the direction of the Recovery Officer they have made payment of 25 per cent. of the bid amount through various drafts. In this manner M/s. Parvesh Builders paid a total amount of Rs. 86,25,000 (rupees eighty-six lakhs and twenty-five thousand only) with respect to the above auction of property of Ms/. Spark Plug India. M/s. Pravesh Builders submitted that counsel of the official liquidator before the Recovery Officer on February 15, 2006, filed copy of the order of this Court dated February 8, 2006, that the status quo with respect to the property of M/s. Spark Plug India be maintained for the aforesaid property. M/s. Pravesh Builders submitted that the official liquidator was directed by the Recovery Officer on January 30, 2006, to provide all necessary assistance to the court auctioner for conducting the auction. M/s. Pravesh Builders submitted that the circumstances clearly show that the order passed by this Court directing status quo directly affected the applicant as they have paid an amount of Rs. 86,25,000 for the property of M/s. Spark Plug India Ltd.
3. The respondent Bank of India filed reply admitting the order passed by the Debts Recovery Tribunal, Delhi, against M/s. Spark Plug India Ltd. Filing of objection by the official liquidator before the Recovery Officer was also admitted by the bank. The bank supported the case of Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406 relied on by the Recovery Officer in its order. The bank stated that the DRT has got the exclusive jurisdiction to decide the priorities amongst the various creditors subject to the provisions of Section 529A of the Companies Act. The bank denied that they had given any consent to sale the assets of the debtor-company through official liquidator.
4. Following points emerge from the arguments raised by the parties:
(i) Application filed under Sections 446 and 537 of the Companies Act is not maintainable.
(ii) The official liquidator cannot be allowed to take recourse to the aforesaid sections where a remedy was available before him to file an appeal against the order of auction under the provisions of the 1993 Act.
(iii) The official liquidator has a role only at the stage of distribution and cannot be said to have a role at the time of sale or while confirmation of the sale.
(iv) No infirmity has been alleged in the sale proceedings thus sale is liable to be confirmed.
(v) There is no provision under which the company court can set aside the order of sale as it cannot exercise any appellate or power of judicial review qua other statutory authorities.
(vi) The 1993 Act has an overriding effect over the provisions of the Companies Act.
5. The Second Schedule to the Income-tax Act, 1961, which has been adopted by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, is relevant. Rule 9 of the aforesaid Schedule provides that every question arises between the Tax Recovery Officer and the defaulter relating to the execution, discharge or satisfaction of a certificate is to be determined not by way of a suit but by order of the Tax Recovery Officer. The jurisdiction of any other court stands ousted by the aforesaid provisions and the order of auction could have been challenged by the official liquidator only by way of proceedings under the 1993 Act. (rule 9)
6. Learned Counsel canvassed that the non-applicability of the provisions of Sections 442, 536 and 446 of the Companies Act stood confirmed by the judgment passed by the hon'ble apex court in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406, which provides that even where a winding up order has been passed against a debtor company, the adjudication of liability and execution of the certification in respect of debts payable to the banks are respectively within the exclusive jurisdiction of the Debts Recovery Tribunal and the Recovery Officer and in such a case the company court's jurisdiction under Sections 442, 537 and 446 of the Companies Act stood ousted. It also provides that even the priorities among various creditors can be decided only by the Debts Recovery Tribunal in accordance with Section 19(19) of the Act read with Section 529A of the Companies Act and not in any other manner. Learned Counsel further urged that in the case of Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406, the apex court examined the issue with regard to the Companies Act, 1956, vis-a-vis 1993 Act and conclusively determined this issue. Paragraphs 21, 22, 23, 24, 25 and 50 which are relevant, reads as under (pages 76 to 78 and 87):
21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) (formerly under Section 19(7) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word 'recovery' in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under article 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act.
22. We hold that the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of the defendant to the appellant banks is concerned.
(ii) Execution of Certificate of Recovery Officer : Is this jurisdiction exclusive ?
23. Even in regard to 'execution', the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Act for recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by Sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the banks/financial institutions should go to the civil court or the company court or some other authority outside the Act for the actual realisation of the amount. The certificate granted under Section 19(22) has, in our opinion, to be executed only by the Recovery Officer. No dual jurisdictions at different stages are contemplated. Further, Section 34 of the Act gives overriding effect to the provisions of the RDB Act. That section reads as follows:
Section 34 : Act to have overriding effect.-(1) Save as otherwise provided in Sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984) and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).
The provisions of Section 34(1) clearly state that the RDB Act overrides other laws to the extent of 'inconsistency'. In our opinion, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner.
24. There is one more reason as to why it must be held that the jurisdiction of the Recovery Officer is exclusive. The Tiwari Committee which recommended the constitution of a special tribunal in 1981 for recovery of debts due to banks and financial institutions stated in its report that the exclusive jurisdiction of the Tribunal must relate not only in regard to the adjudication of the liability but also in regard to the execution proceedings. It stated in annexure XI of its report that all 'execution proceedings' must be taken up only by the Special Tribunal under the Act. In our opinion, in view of the special procedure for recovery prescribed in Chapter V of the Act, and Section 34, execution of the certificate is also within the exclusive jurisdiction of the Recovery Officer.
25. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other court or authority much less the civil court or the company court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point No. 1 is decided accordingly.
Points Nos. 2 and 3:
Does the Act overrides the provisions of sections 442 and 537 and Section 446 of the Companies Act ?
In our view, the decision of the Kerala High Court in Industrial Credit and Investment Corporation of India Ltd. v. Vanjinad Leathers Ltd. (in liquidation) , relied upon for the appellants, is correctly decided. It was pointed out in that case that the records leading to the decision in Industrial Credit and Investment Corporation of India Ltd. v. Srinivas Agencies shows that suits filed by banks and financial institutions were pending in civil courts and a winding up petition was filed later on in the High Court. The Kerala High Court held that the suits would stand transferred to the Debts Recovery Tribunal under Section 31 of the RDB Act automatically and that Section 446 of the Companies Act, 1956, could not be invoked in view of Section 34 of the RDB Act. The RDB Act was a special law overriding another special law, the Companies Act. Leave of the company court under Section 446(1) was not necessary nor could the suit be transferred to the company court under Section 446(2).
7. This judgment rendered in Rajasthan Financial Corporation v. Official Liquidator , relied upon by counsel for the official liquidator is also necessary to be looked into. Paragraphs 4, 14, 16 and 17, which are relevant for the present controversy read as under (pages 392, 397, 398, 399):
4. When this appeal came up for hearing before two learned judges, it was submitted that there was a conflict between the decisions in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406 and in International Coach Builders Ltd. v. Kar-nataka State Financial Corporation . The two learned judges taking note of this submission and taking note of the importance of the question of law involved, placed the matter before a larger Bench. That is how the matter has come before us.
14. In Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406, 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 decisions. This court held that even where a winding up petition is pending, or a winding up orders has been passed against the debtor company, the adjudication of liability and execution of the certificate in respect of debts payable to banks and financial institutions, are respectively within the exclusive jurisdiction of the Debts Recovery Tribunal and the Recovery Officer under that Act and in such a case, the company court's jurisdiction under sections 442, 537 and 446 of the Companies Act stood ousted. Hence, no leave of the company court was necessary for initiating proceedings under the Recovery of Debts Act. Even, the priorities among various creditors could be decided only by the Debts Recovery Tribunal in accordance with Section 19(19) of the Recovery of Debts Act read with Section 529A of the Companies Act and in no other manner. The court took into account the fact that Recovery of Debts Due to Banks and Financial Institutions Act, 1993, was a legislation subsequent in point of time to the introduction of Section 529A of the Companies Act by Act 35 of 1985, and it had overriding effect. But it noticed that by virtue of Section 19(19) of the Recovery of Debts Act, the priorities among various creditors had to be decided by the Recovery Tribunal only in terms of Section 529A of the Companies Act and Section 19(19) did not give priority to all secured creditors. Hence, it was necessary to identify the limited class of secured creditors who have priority over all others in accordance with Section 529A of the Companies Act. The court also held that the occasion for a claim by a secured creditor against the realisation by other creditors of the debtor under Section 529A read with proviso (c) to Section 529(1) of the Companies Act could arise before the Debts Recovery Tribunal only if the concerned creditor had stood outside the winding up and realised amounts and if it is shown that out of the amounts privately realised by it, some portion had been rateably taken away by the liquidator under clauses (a) and (b) of the proviso to Section 529(1). The court has not held that Section 529A of the Companies Act will have no application in a case where a proceeding under the Recovery of Debts Act has been set in motion by a financial institution. The court here was essentially dealing with the jurisdiction of the Debts Recovery Tribunal in the face of sections 442, 537 and 446 of the Companies Act.
16. In International Coach Builders Ltd. v. Karnataka State Financial Corporation [2003] 114 Comp Cas 614 : [2003] 10 SCC 482, this Court considered the correctness of the views expressed by the Karnataka High Court and Gujarat High Court. This court held that right is available to a financial corporation under Section 29 of the SFC Act against a debtor, if a company, only so long as there is no order of winding up. When the debtor is a company in winding up, the rights of financial corporations are affected by the provisions in Sections 529 and 529A of the Companies Act. It was also held that the proviso to Section 529 of the Companies Act creates a 'pari passu' charge in favour of the workmen to the extent of their dues and makes the liquidator the representative of the workmen to enforce such a charge. The decision of the Bombay High Court in Maharashtra State Financial Corporation v. Ballarpur Industries Ltd. , was approved. The reference to a larger Bench was occasioned by the fact that the decision in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406 was not adverted to in this decision. This decision recognises that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529A of that Act in a case where the debtor is a company in liquidation. As far as we can see, there is no conflict on the question of the applicability of Section 529A read with Section 529 of the Companies Act to cases where the debtor is a company and is in liquidation. 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 v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406 in view of the 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 SFC Act is concerned, since Section 529A was introduced by Act 35 of 1985 and the overriding provision therein would prevail over the SFC Act of 1951 as amended in 1956 and notwithstanding Section 46B of the SFC Act. As regards distribution of assets, there is no conflict. It seems to us that whether the assets are realised by a secured creditor even if it be by proceeding under the SFC Act or under the Recovery of Debts Act, the distribution of the assets could only be in terms of Section 529A of the Act and by recognising the right of the liquidator to calculate the workmen's dues and collect it for distribution among them pari passu with the secured creditors. The official liquidator representing a ranked secured creditor working under the control of the company court cannot, therefore, be kept out of the process.
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 assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the official liquidator and under the supervision of the company court. The right of a financial institution or of the Recovery Tribunal or that of a financial corporation or the court which has been approached under Section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the official liquidator being associated with it, giving the company court the right to ensure that the distribution of the assets in terms of Section 529A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion, any proceeding under the SFC Act. What we have is only a liquidation proceeding pending and the secured creditors, the financial corporations approaching the company court for permission to stand outside the winding up and to sell the properties of the company in liquidation. The company court has rightly directed that the sale be held in association with the official liquidator representing the workmen and that the proceeds will be held by the official liquidator until they are distributed in terms of Section 529A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this Court in the decisions referred to above. In this situation, we find no reason to interfere with the decision of the High Court. We clarify that there is no inconsistency between the decisions in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406 and in International Coach Builders Ltd. v. Karnataka State Financial Corporation [ in respect of the applicability of Sections 529 and 529A of the Companies Act in the matter of distribution among the creditors. The right to sell under the SFC Act or under the Recovery of Debts Act by a creditor coming within those Acts and standing outside the winding up, is different from the distribution of the proceeds of the sale of the security and the distribution in a case where the debtor is a company in the process of being wound up, can only be in terms of Section 529A read 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.'s case . 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.
8. Learned Counsel contended that the issue with regard to the Companies Act, 1956, vis-a-vis the 1993 Act stood finalised and concluded by Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406 and the said finding has not been distinguished by Rajasthan Financial Corporation's case which has only clarified, reconciled and affirmed in Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406. Learned Counsel laid stress on the submission that the order of auctioning was passed pursuant to the notice issued to the official liquidator and after hearing him and thus no illegality has been committed by the Recovery Officer while passing the auction order.
9. I have pondered over the rival submissions. Having carefully scanned the judicial pronouncements placed before me, I notice that the apex court in para. 16 of Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 : [2004] 4 SCC 406 indicated that the exclusion does not apply to the jurisdiction of the Supreme Court or of a High Court exercising power under articles 226 and 227 of the Constitution of India. At this juncture it will be relevant to refer B. Shoes Ltd. v. Indian Overseas Bank (Special Leave to Appeal (Civil) No. 3636 of 2003) wherein their Lordships of the Supreme Court vide order dated November 14, 2003, after granting leave framed the following question:
Whether the Debts Recovery Tribunal can direct sale of assets of a company which has been wound up and the official liquidator is appointed.
10. Looking to the fact that the issue involved in the instant matter is directly related to the question framed by the apex court, I see no illegality in the act of the official liquidator in filing the application.
11. Under Section 446 of the Companies Act, 1956, the company judge being the judge of the High Court can also exercise the powers under article 226/227 of the Constitution. Section 18 of the 1993 Act clearly exempts bar of jurisdiction in the case of High Courts while exercising power under article 226 or 227 of the Constitution. Therefore, it can be said that even if appeal lies against an order of the Debts Recovery Tribunal under the 1993 Act itself, in an appropriate case, the High Court still retains jurisdiction to entertain petitions under article 226 or 227 of the Constitution. The company judge while deciding the application under Section 446 of the Companies Act can also invoke power under article 226/227 of the Constitution.
12. For these reasons, I direct that the impugned order dated October 7, 2005, of the Recovery Officer (DRT) 1, Delhi, shall remain stayed till the disposal of Special Leave to Appeal (Civil) No. 3636 of 2003 titled B. Shoes Ltd. v. Indian Overseas Bank, by the apex court. The applications stands disposed of as indicated above without any order as to costs.