Gujarat High Court
Kotak Mahindra Bank Ltd vs Official Liquidator Of Clarisis ... on 7 August, 2015
Equivalent citations: AIR 2016 (NOC) 37 (GUJ.)
Author: Vipul M. Pancholi
Bench: Vipul M. Pancholi
O/COMA/285/2011 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY APPLICATION NO. 285 of 2011
In COMPANY PETITION NO. 50 of 2011
In COMPANY APPLICATION NO. 248 of 2011
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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KOTAK MAHINDRA BANK LTD....Applicant(s)
Versus
OFFICIAL LIQUIDATOR OF CLARISIS ORGANICS LTD & 1....Respondent(s)
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Appearance:
MR NAVIN K PAHWA, ADVOCATE for the Applicant(s) No. 1
MR ASHOK L SHAH, ADVOCATE WITH MR PAVAN S GODIAWALA,
ADVOCATE for the Respondent(s) No. 2
MS AMEE YAJNIK, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
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HC-NIC Page 1 of 78 Created On Tue Aug 11 02:07:33 IST 2015
O/COMA/285/2011 CAV JUDGMENT
Date :07/08/2015
CAV JUDGMENT
1. The applicant-Kotak Mahindra Bank Limited has taken out the Judges' summons in which the following relief is prayed:
"1(A) That this Hon'ble Court may be pleased to direct the respondent Official Liquidator who is appointed as Provisional Liquidator pursuant to order dated 8.2.2011 made by this Hon'ble Court in Company Petition No.50/2010, to hand over possession of the secured assets particularly described in the schedule annexed hereto and marked as Annexure-"A", to the applicant who has already initiated measures under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 prior to the appointment of the Provisional Liquidator and permit the applicant to proceed further in relation thereto, in the interest of justice."
2. Heard learned advocate Mr.Navin K Pahwa for the applicant, learned advocate Ms.Amee Yagnik for respondent no.1-Official Liquidator and learned advocate Mr.Ashok L Shah with learned advocate Mr.Pawan C Godiawala for respondent no.2.
3. Learned advocate Mr.Pahwa for the Page 2 of 78 HC-NIC Page 2 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT applicant submitted that the State Bank of India (hereinafter referred to as `SBI' for the sake of convenience) had granted various credit facilities to Clarisis Organics Limited (hereinafter referred to as the `Company' for the sake of convenience). The said credit facilities were renewed from time to time. Against the said credit facilities, the company had mortgaged the properties being land and building bearing survey no.489, 502, 502/1/A, 502/1/B, 502/1/C, 502/2-P and consolidated survey no.489 situated at village Mokhsi, Taluka Savli, District Vadodara admeasuring 30,451 sq.mtrs. The Company had also hypothecated all its movables being raw materials, stock in progress, finished goods, packing materials, plant and machinery etc., except plant and machinery, other movables from 3.4.DCNB unit and 3.4 DCA project. The plant and machinery and other movables of the aforesaid unit and project have been hypothecated to Technology Information, Forecasting and Assessment Council (hereinafter referred to as `TIFAC' for the sake of convenience).
3.1 Learned advocate Mr.Pahwa further submitted that the Company had initially created mortgage in favour of ICICI Bank Limited, IDBI Bank Limited, IFCI Limited and SBI by way of joint mortgage by deposit of title deeds dated Page 3 of 78 HC-NIC Page 3 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 24.4.1991 in respect of the aforesaid immovable property. However, thereafter, credit facilities available by the Company from ICICI Limited, IDBI Limited and IFCI Limited were settled and thereby only SBI remained the exclusive first charge holder in priority of all other charges over the immovable property. At this stage, learned advocate further submitted that on 23.3.2006, the Deed of Assignment was executed between SBI and the applicant-bank whereby SBI assigned its debts due and payable by the company and assigning out all the aforesaid credit facilities in favour of the applicant. Thus, in pursuance to the Deed of Assignment, applicant has become full and absolute owner of the debts payable by the company to SBI. Learned advocate, therefore, submitted that the applicant-bank is the only bank legally entitled to receive repayment of amount or any part thereof including the right to file proceedings in its own name and to take all other steps as may be required to enforce its interest in the secured assets.
3.2 Learned advocate Mr.Pahwa further contended that the company failed and neglected to pay the amount payable to the applicant and, therefore, applicant issued demand notice dated 15.11.2006 to the company under the provisions of Section 13(2) of the Securitisation and Page 4 of 78 HC-NIC Page 4 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as `SARFAESI' Act for the sake of convenience). By way of the said notice, the company was called upon to repay the amount mentioned in the said notice together with interest. Learned advocate referred to the contents of the said notice which is produced at Annexure `B' to the compilation.
3.3 Learned advocate, thereafter, submitted that the company gave reply dated 3.1.2007 and raised certain objections. Therefore, the applicant considered the said objections raised by the company, rejected the same and by communication dated 25.1.2007 it was informed to the company that objections raised by it were rejected. Thereafter, company did not make the payment. Hence, the authorized officer of the applicant took constructive possession of the secured assets by issuing possession notice dated 12.12.2007. It was published in local daily newspapers on 14.12.2007. The said possession notice was also affixed at the site of the secured assets on 19.12.2007.
3.4 Learned advocate Mr.Pahwa thereafter submitted that when the authorized officer of the applicant went to take physical possession of the Page 5 of 78 HC-NIC Page 5 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT secured assets, the representatives of the company prevented the authorized officer from taking physical possession. In the meantime, the company also filed application under Section 17 of the SARFAESI Act before Debts Recovery Tribunal, Ahmedabad (hereinafter referred to as `DRT' for short) wherein demand notice dated 15.11.2006 as well as possession notice dated 12.12.2007 were challenged. At this stage, learned advocate Mr.Pahwa pointed out that the company was before Board for Industrial and Financial Reconstruction. (hereinafter referred to as `BIFR' for short). Therefore, the applicant informed the BIFR about the measures taken by the applicant under Section 13(4) of the SARFAESI Act. BIFR, therefore, by an order dated 17.12.2007 abated the reference. The company, therefore, preferred an appeal before Appellate Authority for Industrial and Financial Reconstruction. (hereinafter referred to as `AAIFR' for short). However, the said appeal was also came to be dismissed by the appellate authority by an order dated 4.2.2009. It is pointed out by learned advocate that the aforesaid orders were challenged by the company by filing Special Civil Application No.2361 of 2009 before this Court. However, the said petition was also disposed of by order dated 1.9.2009 by this Court in view of the statement Page 6 of 78 HC-NIC Page 6 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT made on behalf of the applicant that the application dated 14.12.2007 filed by the applicant before BIFR will be withdrawn and the applicant will move for recall of order dated 17.12.2007 made by BIFR. The applicant, therefore, moved BIFR with appropriate application. The applicant also affixed fresh possession notice in respect of secured assets on 29.1.2010. The company once again refused to handover the actual and physical possession to the authorized officer. The said possession notice once again came to be published in local dailies on 4.2.2010. In the meantime, on 23.7.2009, learned advocate of TIFAC admitted before the BIFR that the applicant represents more than 75% of the secured debts of the company. Learned advocate Mr.Pahwa further submitted that BIFR recorded its opinion in terms of Section 20(1) of Sick Industries (Special Provisions) Act of 1985 (hereinafter referred to as `SIC' Act for the sake of convenience) and recommended to this Court for winding up of the company. Thus, in view of the opinion of BIFR, the Company Petition No.50 of 2010 has been registered before this Court.
3.5 Thereafter, learned advocate contended that the company refused to handover the actual and physical possession to the authorized officer Page 7 of 78 HC-NIC Page 7 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT of the applicant. Therefore, the applicant filed an application before the learned District Magistrate, Vadodara under Section 14 of SARFAESI Act whereby assistance of District Magistrate was sought for for taking over the possession of the secured assets. In the meantime, the applicant came to know that this Court has admitted the Company Petition No.50 of 2010 by an order dated 8.2.2011 whereby the Official Liquidator attached with this Court is appointed as Provisional Liquidator to take over the possession of the assets of the company. The applicant came to know about the said aspect when SBI forwarded a copy of letter dated 8.3.2011 received by it from the Official Liquidator. The applicant, therefore, addressed a letter dated 16.3.2011 to Official Liquidator whereby the information was given to him about the proceedings taken out by the applicant under the SARFAESI Act in respect of the secured assets. It was also pointed out that the symbolic possession of the secured assets is already taken by the applicant. In spite of the aforesaid communication, the grievance is made by learned advocate that the Official Liquidator proceeded with taking over the possession of the assets of the company including the secured assets. The physical possession of the assets of the company was taken over on 18.3.2011.
Page 8 of 78HC-NIC Page 8 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 3.6 In the aforesaid background of the facts of the present case, learned advocate Mr.Pahwa would submit that the applicant is secured creditor of the company and is standing outside the liquidation proceedings. The applicant has already initiated measures under the provisions of SARFAESI Act, also filed an Original Application before the DRT which is pending. The symbolic possession of the assets has been taken over on 29.1.2010. Therefore, the applicant is entitled to proceed with the enforcement of the securities under the SARFAESI Act. He further contended that once the secured creditor has chosen to stand outside the liquidation proceedings, the role of the Official Liquidator is restricted to taking care of the interest of workmen of the company.
3.7 Learned advocate thereafter would contend that provisions of SARFAESI Act and more particularly Section 13(9) of the same provides that any amount realized from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956 and, therefore, the Official Liquidator cannot have any grievance against the reliefs prayed for in this application. The applicant is the sole secured creditor in respect of the secured assets and it has already taken over the Page 9 of 78 HC-NIC Page 9 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT symbolic possession prior to the taking over of the physical possession by the Official Liquidator. Only certain plant and machinery and movables which are hypothecated in favour of TIFAC by the company. Except that, the applicant is entitled to proceed against the secured assets as per the provisions of the SARFAESI Act.
3.8 Learned advocate Mr.Pahwa thereafter contended that it is now settled legal position that a secured creditor is entitled to proceed with the enforcement of its securities even when the company is in liquidation, and no permission from the Company Court is required before taking measures under the SARFAESI Act. At this stage, learned advocate referred to judgment and order dated 9.3.2006 rendered by this Court in Company Application No.177 of 2005 whereby this Court, after considering relevant provisions of SARFAESI Act vis-a-vis provisions of the Companies Act of 1956 has been pleased to allow the said application which was filed for direction against the Official Liquidator to hand over the possession of the assets of the Company in liquidation to the concerned bank which has initiated steps under SARFAESI Act.
3.9 Learned advocate Mr.Pahwa further pointed out that this Court passed an order on Page 10 of 78 HC-NIC Page 10 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 22.9.2011 in O.L.R.No.80 of 2011 whereby the action of the Official Liquidator in taking over possession was ratified by this Court. The applicant was also directed to deposit Rs. 1 lac with the office of the Official Liquidator to meet with the expenses of preparing inventory valuation report. The applicant is also directed to deposit Rs.15,750/- every month with the Official Liquidator towards security charges. He further submitted that on 17.7.2014, application filed by the Company under Section 17 of the SARFAESI Act is dismissed by the DRT.
3.10 Learned advocate Mr.Pahwa appearing for the applicant has placed reliance upon the decision rendered by the Hon'ble the Supreme Court in the case of ICICI Bank Limited v/s Official Liquidator of APS Star Industries Limited and others, reported in (2010)10 SCC 1. The Hon'ble the Supreme Court remanded the matter back to the Hon'ble Division Bench of this Court for considering the other issues with regard to registrations, stamp duty etc. The Hon'ble the Division Bench passed an order in O.J.Appeal No.156 of 2007 whereby the matter was remanded back to the learned Company Judge. The learned Company Judge, thereafter, passed an order in Company Application No.489 of 2006 on 28.1.2015.
Page 11 of 78HC-NIC Page 11 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 3.11 Learned advocate Mr.Pahwa thereafter has placed reliance upon the decision rendered by this Court in the case of Bank of India V/s O.L. Of Phar East Laboratories Ltd. reported in 2006 JX (Guj)146 which is produced at page 53 of the compilation. Learned counsel has mainly relied upon the observation made by this Court in paragraphs 23, 25 to 29.
3.12 Thereafter, he placed reliance upon the decision rendered by the High Court of Delhi in the case of Kotak Mahindra Bank Ltd. V/s Megnostar Telecommunicatios (P.)Ltd., reported in 2013(36) Taxmann.com 87 (Delhi). He mainly relied upon the observations made in paragraphs 22 to 26, 30 and 31 of the said judgment.
3.13 Then, he placed reliance upon the decision rendered by the High Court of A.P. in the case of Indian Bank V/s the Sub Registrar, reported in AIR 2015(AP) 38, more particularly, observations made in paragraphs 25 to 31, 36 and
37. 3.14 Thereafter, learned advocate Mr.Pahwa has placed reliance upon the decision rendered by the High Court of Bombay in the case of Akola Oil Industries V/s State Bank of India, reported in (2006)66 SCL 147 (Bom.), and more particularly, Page 12 of 78 HC-NIC Page 12 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT observations made in paragraphs 10 and 11.
3.15 Thereafter, learned advocate has relied upon the order dated 21.7.2009 passed by this Court in Special Civil Application No.7979 of 2008 and submitted that the said order is confirmed by the Division Bench of this Court and passed an order on 3.11.2009 in Letters Patent Appeal No.1951 of 2009. He submitted that the SLP No.7887 of 2010 filed against the order passed by the Division Bench of this Court has been dismissed by the Hon'ble Supreme Court by an order dated 26.3.2010.
3.16 With regard to the contention taken by the respondent in the reply affidavit that the applicant bank has not registered charge with the Registrar of Companies under the provisions of Section 125 of the Companies Act of 1956, learned advocate submitted that SBI has already registered the charge over the secured assets of the company. The applicant is an assignee and, therefore, such charge is not required to be registered. However, matter is pending before the Company Law Board. Learned advocate places reliance upon the decision rendered by High Court of Bombay in the case of IDBI Ltd., through its Authorized Officer, B.Srinivasa Rao, Deputy General Manager, Recovery Department V/s Official Page 13 of 78 HC-NIC Page 13 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Liquidator of Maharashtra Explosives Ltd. (in liqn.), reported in 2011 vol.113(4) BLR 2213. He mainly relied upon the observation made by the Bombay High Court in paragraphs 17,40,41,42,44,45,46.
3.17 Learned advocate further submitted that nobody has initiated any action under the Registration Act or with regard to the payment of the stamp duty against the applicant. Thus, it is not open for the respondents to contend that the applicant has not paid the proper stamp duty or proper registration is not made before the competent authority.
4. Learned advocate Mr.A.L.Shah appearing with learned advocate Mr.Pavan Godiawala for the intervenor mainly submitted that the intervenor is the creditor of the company in liquidation for an amount of Rs.1,34,929/- by way of unsecured loan/deposit advanced to the company. He submitted that there are other creditors/deposit holders having claim against the company and they are also supporting the case of the intervenor. He further pointed out that the intervenor is a shareholder (contributory) of the company and holding 85,100 equity shares of the company. The intervenor is also alleged to be a guarantor to the SBI for the loans/credit facilities granted Page 14 of 78 HC-NIC Page 14 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT by the SBI to the company.
4.1 Learned advocate Mr.Shah contended that the applicant-bank has filed this application on the basis that it is a secured creditor of the company on the basis of the Deed of Assignment executed by SBI with the applicant on 23.3.2006. The applicant is not a creditor of the company much less a secured creditor of the company. He pointed out that initially the bank had not produced the Deed of Assignment on the basis of which it is claiming to have acquired the rights from SBI. However, thereafter, such document was produced on record. He contended that from the Deed of Assignment received by the intervenor, it is revealed that the said deed is not duly stamped nor it is duly registered and, therefore, SBI cannot assign any claims or security interest in favour of the applicant. Thus, such Deed of Assignment creates no rights or security interest in favour of the applicant. He referred to the order dated 25.1.2002 issued in exercise of powers under Section 9(a) of the Bombay Stamp Act whereby rate of stamp duty applicable to instruction of Assignment of Debts with underlying securities came to be changed. Similarly, he referred to the order dated 1.4.2003 issued under the aforesaid section whereby rate of stamp duty has been changed. He Page 15 of 78 HC-NIC Page 15 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT referred to the Deed of Assignment and submitted that the said Deed of Assignment purports to transfer and assign rights etc. and securitize and assign debts, loans along with security interest in case of 143 parties. However, stamp duty of an amount of Rs.1,40,200/- is paid. In fact, the applicant is required to pay the stamp duty of at least Rs.1,43,00,000/-. Such type of stamp duty is payable and required to be calculated on the basis of per loan securitized or per debts assigned and not on the basis of per borrower or per party.
4.2 He further contended that the Deed of Assignment is not duly registered under the provisions of the Registration Act and consequently therefore the said applicant cannot create or transfer any rights in favour of the applicant. When any interest is created or extinguished in any immovable property, the document is compulsorily required to be registered under Section 17 of the Registration Act. As per Section 28 of the Registration Act, every document referred to in Section 17 of the said Act insofar as such document relates immovable property, it shall be presented for registration in the office of the Sub-Registrar within whose sub-district the whole or any part of the property to which such document relates is Page 16 of 78 HC-NIC Page 16 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT situated. In the present case, it is pointed out by learned advocate that the immovable property is situated in sub-district of Baroda and, therefore, the same is required to be registered at the office of Sub-Registrar, Vadodara. However, the Deed of Assignment is registered in Paldi sub-district Ahmedabad. Learned counsel referred to and relied upon Section 49 of the Registration Act also. He, therefore, contended that in absence of proper registration with the competent authority, such document cannot be relied as evidence. Hence, the applicant has not acquired any security interest in the properties of the company.
4.3 Learned advocate Mr.Shah would contend that the applicant was not entitled to issue notice under Section 13(2) of the SARFAESI Act. The applicant is not lender of the company. The applicant has not classified the account of the company as Non-performing Asset (for short `NPA' for the sake of convenience) at all. He submitted that the entire credit facilities were restructured by SBI on 28.10.2003 pursuant to which fresh loan agreement was entered into between SBI and company on 29.1.2004. On the restructuring, old arrangement was replaced by the new arrangement. Thus, any default under the old arrangement was given a go-by on the Page 17 of 78 HC-NIC Page 17 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT restructuring of the credit facilities by entering into new agreement on 29.1.2004. On the new financial arrangement under the restructuring, replacing the old financial arrangement, there was a novatio and old rights and obligations were replaced and substituted by new rights and new obligations. Thus, classification of the company's account as NPA under the old arrangement stood cancelled. It is specifically submitted by learned advocate Mr.Shah that after the new restructured financial arrangement, the account of the company has not at all been classified as NPA. He further submitted that even assuming without admitting that if the default is said to have taken place from the first day of the restructured arrangement dated 29.1.2004, the account would become NPA at the end of 90 days i.e. on 28.4.2004. He referred to the RBI guidelines and submitted that as per the said guidelines, a bank can sell its NPA only if the account has remained in its books as NPA for atleast two years. Under the new restructured financial arrangement, even if default has taken place on the very first day, the account could have been classified as NPA only on 28.4.2004 and have been sold by SBI only after two years from 28.4.2004 i.e.only after 28.4.2006. In the present case, the Deed of Assignment was executed on 23.3.2006, thereby SBI Page 18 of 78 HC-NIC Page 18 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT and the applicant have violated the guidelines of RBI.
4.4 At this stage, learned advocate Mr.Shah further submitted that after restructuring of credit facilities by SBI on 28.1.2004, the account of the company has not at all been classified as NPA even by SBI. Therefore, Section 13(2) of the SARFAESI Act is not applicable at all. Hence, the notice issued by the applicant on 15.11.2006 allegedly under Section 13(2) of the SARFAESI Act is not at all notice under the provisions of the said Act. Learned advocate submitted that for a notice to be qualified to be a notice under Section 13(2) of the SARFAESI Act, certain conditions are required to be fulfilled i.e. (1) it must be issued by secured creditor in respect of whom borrower is under a liability. (2) The borrower must have defaulted in repayment of the principal or installment of the secured creditor. (3) The secured creditor in respect of whom the default has been committed must have classified the account of the borrower in its books as a NPA. In the present case, the applicant has not complied with the said conditions.
4.5 Learned advocate Mr.Shah once again submitted that the company has not been Page 19 of 78 HC-NIC Page 19 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT classified as NPA after novatio of old credit facilities arrangement by new credit facilities arrangement in the year 2004. Even the earlier classification of the account of the company as NPA was by SBI and if it is taken into consideration, only the secured creditor i.e. SBI alone can issue a notice under Section 13(2) of the SARFAESI Act. The applicant shall not be entitled to issue such notice and, therefore, on this ground also the applicant is not entitled to initiate any action under Section 13(4) of the said Act.
4.6 Learned advocate Mr.Shah further submitted that the applicant is not at all the creditor of the company much less a secured creditor. The applicant is not entitled to initiate any action under the SARFAESI Act. The applicant has not lent any money to the company. The company has not borrowed any money from the applicant. The provisions of SARFAESI Act do not apply to the applicant which is neither a securitization company nor a reconstruction company. At this stage, learned advocate Mr.Shah referred to the statement of objects and reasons of SARFAESI Act. He referred to the definition of `Asset reconstruction' defined under Section 2(1)
(b) of SARFAESI Act. It provides that :
Page 20 of 78HC-NIC Page 20 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 2(1)(b) "asset reconstruction" means acquisition by any securitisation company or reconstruction company of any right or interest of any bank or financial institution in any financial assistance for the purpose of realisation of such financial assistance."
4.7 Learned advocate Mr.Shah thereafter referred to the word `Securitization" defined in Section 2(1)(z) which provides that :
2(1)(z) "securitisation" means acquisition of financial assets by any securitisation company or reconstruction company from any originator, whether by raising of finds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets or otherwise."
4.8 Learned counsel Mr.Shah thereafter referred to Section 3 of SARFAESI Act which provides for the registration of Securitization companies or reconstruction companies. Then, he placed reliance on Section 5 of the said Act which provides that any securitization company or reconstruction company may acquire financial assets of any bank or financial institution. Then he referred to Section 10 of the said Act which provides for the other functions of the securitization company or reconstruction company.Page 21 of 78
HC-NIC Page 21 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Section 12 gives power to Reserve Bank to determine policy and issue directions. Learned advocate thereafter placed reliance on Section 22 of the said Act which provides for keeping register of securitization, reconstuction and security interest transactions at the head office of central registrar. Section 23 of the said Act provides that the particulars of every transaction, securitization, asset reconstruction or creation of security interest shall be filed with the Central Registrar. Learned counsel then referred to Section 27 of the said Act which provides for the penalty in default or breach of certain provisions of the Act.
4.9 Learned advocate Mr.Shah thereafter referred to Section 15 of the SIC Act and more particularly 3rd proviso of the said section which provides that:
"Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-Page 22 of 78
HC-NIC Page 22 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT section (4) of section 13 of that Act. "
4.10 Then, he referred to Section 20(1) of SIC Act which provides as under:
"20(1) Where the Board, after making inquiry under section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court."
4.11 Learned advocate Mr.Shah thereafter contended that even if the provisions of the SARFAESI Act are applicable, even then the assignment made by SBI in favour of the applicant is bad in view of the guidelines issued by RBI. Learned advocate produced on record the guidelines dated 13.7.2005 issued by RBI. Clause 5(viii) provides that:
"A non-performing asset in the books of a bank shall be eligible for sale to other banks only if it has remained a non-performing asset for at least two years in the books of the selling bank."Page 23 of 78
HC-NIC Page 23 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Clause-6 of the said guidelines further provides that:
"6. Prudential norms for banks for the purchase/sale transactions (A) Asset classification norms
(i) The non-performing financial asset purchased, may be classified as `standard' in the books of the purchasing bank for a period of 90 days from the date of purchase. Thereafter, the asset classification status of the financial asset purchased, shall be determined by the record of recovery in the books of the purchasing bank with reference to cash flows estimated while purchasing the asset which should be in compliance with requirements in Para 5(iii).
(ii) The asset classification status of an existing exposure (other than purchased financial asset) to the same obligor in the books of the purchasing bank will continue to be governed by the record of recovery of that exposure and hence may be different.
(iii) Where the purchase/sale does not satisfy any of the prudential requirements prescribed in these guidelines the asset classification status of the financial asset in the books of the purchasing bank at the time of purchase shall be the same as in the books of the selling bank. Thereafter, the asset classification status will continue to be determined with reference Page 24 of 78 HC-NIC Page 24 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT to the date of NPA in the selling bank.
(iv) Any restructure/reschedule/rephrase of the repayment schedule or the estimated cash flow of the non-
performing financial asset by the purchasing bank shall render the account as a non-performing asset."
4.12 He submitted that in the present case, the Deed of Assignment is dated 23.3.2006 and therefore the said guidelines are applicable. In spite of that, the same has been violated. Hence, the assignment itself is bad.
4.13 Learned advocate Mr.Shah would submit that the company was borrower of lender-SBI. The account of the company was declared as NPA in the year 2001. Thereafter, the said account was restructured by entering into another agreement and as submitted earlier, thereafter, SBI has not declared the account of the company as NPA. The applicant, after executing the Deed of Assignment with SBI, issued the notice under Section 13(2) of the SARFAESI Act on 15.11.2006. Therefore, after the account of company was declared as NPA in 2001, notice was issued after a period of more than 5 years and, therefore, the action under SARFAESI Act was initiated after a period of limitation. If no limitation is prescribed for initiation of action even then, the same is required to be initiated within a reasonable Page 25 of 78 HC-NIC Page 25 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT time. In support of this contention, learned advocate Mr.Shah has placed reliance upon the order dated 20.9.2007 passed by this Court in Special Civil Application No.13426 of 2007. Then, he placed reliance upon another order dated 20.10.2008 passed by this Court in Special Civil Application No.9945 of 2008. Learned advocate then placed reliance upon the order dated 2.4.2009 passed by Division bench of this Court in LPA No.1266 of 2008 and more particularly, relied upon observation made in paragraph 9 of the said order.
4.14 Thus, learned advocate Mr.Shah submitted that after declaring the account of the company as NPA in the year 2001, SBI had not initiated any action under SARFAESI Act till March, 2006, when the Deed of Assignment was executed with applicant. It can be presumed that SBI has waived the statutory right to initiate action under the SARFAESI Act and, therefore, once the said right is waived, it cannot be assigned by executing deed with the applicant.
4.15 Learned advocate Mr.Shah thereafter referred to provision of Sections of 125 and 135 of the Companies Act of 1956. Section 125 of the said Act provides that certain charges are void against liquidator or creditors unless the same Page 26 of 78 HC-NIC Page 26 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT have been registered with Registrar of Companies. Section 135 provides that terms or conditions or extent or operation of any charge registered with Registrar is modified, the same is to be sent to Registrar for registration.
4.16 Learned advocate Mr.Shah referred to the circular issued under Section 135 of the Companies Act which provides as under:
"A question has been raised as to whether the transfer or assignment of his rights by the charge-holder would amount to modification of charge within the meaning of section 135, requiring the filing of a return by the company to the Registrar of Companies in Form No.14 accompanied by the prescribed filing fee. The question has been examined in this Department in all its aspects. It is considered that whenever a charge is assigned in favour of another person, the assignee becomes the de jure charge- holder. Such charge would, therefore, amount to a modification of charge requiring registration under section
135. This conclusion is supported by the accepted practice of making the names of the parties in a contract as the relevant terms of the contract. Moreover, under section 130, one of the particulars to be entered by the Registrar in the register of charges (Form No.13) on payment of the prescribed fee by the company is about the persons entitled to the charge. Hence, if the particulars regarding the assignee of the charge are not duly entered by the Registrar in the register Page 27 of 78 HC-NIC Page 27 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT of charges on the transfer of rights by the original charge-holder, the creditors or shareholders, inspecting such register, would not be able to know who the present charge-holders are. The registration of this modification of share should, therefore, be effected by the company concerned in Form No.14 on payment of the prescribed filing fee."
4.17 Thus, learned advocate submitted that the applicant has not registered the charge or the modification as required under Sections 125 and 135 of the Companies Act and, therefore, the applicant is not having any right against the Official Liquidator or the company.
4.18 Learned advocate Mr.Shah further contended that the applicant is not a secured creditor within the meaning of Section 2(1)(zd) of SARFAESI Act. He referred to the definition given in the said section and submitted that no security interest is created in favour of the applicant.
4.19 Learned advocate Mr.Shah then submitted that the applicant has wrongly relied upon the decision rendered by the Hon'ble the Supreme Court in the case of ICICI Bank Limited (supra). The issue before the Hon'ble Court was in a narrow compass i.e. the question whether the bank can assign NPA or not. In paragraph 9 of the Page 28 of 78 HC-NIC Page 28 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT decision, the Hon'ble Supreme Court observed with regard to the issue before the company court and thereafter in paragraph 51 in last three lines, the Hon'ble Supreme Court observed as under:
"That, an account receivable becomes an NPA only because of the default committed by the borrower(s) who fails to repay. Lastly, it may be mentioned that the said SARFAESI Act, 2002 was enacted enabling specified SPVs to but NPAs from the banks. However, from that it does not follow that the banks inter se cannot transfer their own assets. Hence the said SARFAESI Act, 2002 has no relevance in this case."
However, from that it does not follow that the banks interse cannot transfer their own assets. Hence, the said SARFAESI Act of 2002 has no relevance in this case. He, therefore, submitted that the Hon'ble the Supreme Court has not considered in detail the provisions with regard to the SARFAESI Act.
4.20 Learned advocate Mr.Shah has relied on the provision of Sections 28 and 49 of the Registration Act, 1908.
"28. Place for registering documents relating to land -Save as in this Part otherwise provided, every document mentioned in section 17, sub-section (1), clauses (a), (b), (c),(d) and (e), section 17, sub-section (2), insofar as Page 29 of 78 HC-NIC Page 29 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT such document affects immovable property and section 18, clauses (a)(b)P(c) and (cc), shall be presented for registration in the office of a Sub-
Registrar within whose sub-district the whole or some portion of the property to which such document relates is situate.
49. Effect of non-registration of documents required to be registered - No document required by section 17 [or by any provision of the Transfer of Property Act, 1882 (4 of 18820], to be registered shall -
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:
[Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877), or as evidence of any collateral transaction not required to be effected by registered instrument."
He submitted that the State of Tamil Nadu has made an amendment in Section 28 of the Registration Act which provides that :
"28. Place for registering documents relating to land:- Save as in this part otherwise provided:- (a) Every document mentioned in clauses (a),(b),(c),(d) and
(e) of sub-section (1) and sub-section Page 30 of 78 HC-NIC Page 30 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT (2) of Section 17 in so far as such document affects immovable property and in clauses (a),(b),(c) and (cc) of Section 18, shall be presented for registered in the office of a Sub-
Registrar within whose sub-district the whole or some portion of the property to which such document relates is situate in the State of Tamil Nadu; and
(b) any document registered outside the State of Tamil Nadu in contravention of the provisions of clause (a) shall be deemed to be null and void."
4.21 Thereafter, learned advocate has placed reliance upon the decision rendered by the Madras High Court in the case of Veena Textiles Limited V/s The Authorised Officer delivered on 1.8.2014 in Writ Petition No.8761 of 2014. Learned advocate has placed reliance upon paragraphs 13 and 14 of the said decision.
"13. It is not in dispute that the above properties thus assigned under the deed of assignment dated 25.05.2011, are admittedly situated in Tamil Nadu and not within the jurisdiction of the Registering Authority at Calcutta. Therefore, it is very clear that the said assignment deed made at Calcutta in respect of property situated in Tamil Nadu and got registered before the Registering Authority, Calcutta was against Section 28 of the Registration Act as amended by the Tamil Nadu Act 19 of 1997 with effect from 29.03.1997, which reads as follows:-Page 31 of 78
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28. Place for registering documents relating to land:- Save as in this part otherwise provided:- (a) Every document mentioned in clauses (a),(b),(c),(d) and
(e) of sub-section (1) and sub-section (2) of Section 17 in so far as such document affects immovable property and in clauses (a),(b),(c) and (cc) of Section 18, shall be presented for registered in the office of a Sub-
Registrar within whose sub-district the whole or some portion of the property to which such document relates is situate in the State of Tamil Nadu; and
(b) any document registered outside the State of Tamil Nadu in contravention of the provisions of clause (a) shall be deemed to be null and void.
14. A perusal of the above said provision of law would show that the document registered outside the State of Tamil Nadu in contravention of the provisions of clause (a) of Section 28 of the Registration Act shall be deemed to be null and void. Therefore, there cannot be any doubt that the deed of assignment dated 25.05.2011 is deemed to be null and void, since the same was made in violation of Section 28(b) of the Registration Act. Consequently, the first respondent, having not empowered to act legally against the petitioners in pursuant to the said deed of assignment dated 25.05.2011, was not entitled to initiate the proceedings before the second respondent under the SARFAESI Act, which has resulted in passing the impugned order by the second respondent under Section 14(3) of the SARFAESI Act."
Page 32 of 78HC-NIC Page 32 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 4.22 Learned advocate Mr.Shah therefore submitted that in the present case, from the Assignment Deed placed on record, it is clear that some of the properties which are described in the Deed of Assignment are situated in Tamil Nadu. Therefore, in absence of proper registration, the document namely Deed of Assignment itself is void.
5. Learned advocate Ms.Amee Yajnik appearing for the Official Liquidator referred to report filed by the Official Liquidator and mainly contended that the applicant is not a secured creditor and, therefore, it is not entitled to initiate proceedings under the SARFAESI Act. She further contended that the applicant has not registered its charge with Registrar of Companies as per Section 125 of the Companies Act of 1956 and therefore the Official Liquidator is entitled to reject the claim of the applicant as secured creditor. Thereafter, she contended that the applicant has nowhere stated with regard to dues of ICICI Bank Limited, IFCI Limited and IDBI Limited i.e. other secured creditors. She pointed out the averments made in paragraph 12 of the affidavit in support of Judges' summons that during the hearing of 23.7.2009 before BIFR, the advocate for TIFAC admitted that the applicant represents more than Page 33 of 78 HC-NIC Page 33 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 75% for secured debts. However, she submitted that no confirmation of the aforesaid statement is available from the other secured creditors like ICICI Bank Limited, IFCI Bank Limited and IDBI Limited. What is the claim of TIFAC is also not stated. Thus, in view of absence of details, this Court may not consider the averments of the applicant.
5.1 Learned advocate Ms.Yajnik further contended that the sale of assets of the company in winding up and distribution of sale proceedings of assets of the company can only be under Sections 529, 529A and 530 of the Companies Act, 1956 in association with the liquidator under the supervision of the company Court. Sale of assets of the company in liquidation and realized security can be exercised only after obtaining permission from the company Court. Learned counsel has placed reliance upon the decision rendered by the Hon'ble the Supreme Court in the case of Rajasthan State Financial Corporation and Another V/s Official Liquidator and Another, reported in 2005(8) SCC 190.
5.2 Learned counsel thereafter submitted that without prejudice to the aforesaid contention, if the securitization company seeks Page 34 of 78 HC-NIC Page 34 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT to sell or transfer the assets of the company in liquidation, opting the course under Section 13(4) of the SARFAESI Act could be exercised by securitization company only after obtaining permission from the company Court. She refers to Section 35 of the SARFAESI Act which provides with a non-obstant clause for overriding effect of this provision over anything inconsistent with the provision of that Act. She submitted that it is only inconsistency which would bar the application of other laws and not otherwise. There is no inconsistency between the issues of supervisory direction in order to achieve avowed object of Section 529A of the Companies Act as accorded by different provisions of Section 13(9) of SARFAESI Act. In support of such contention, she placed reliance upon the decision rendered by the High Court of Punjab and Haryana in the case of Haryana State Industrial and Infrastructure Development Company V.Haryana Concast Limited & another reported in (2010)158 CC 168 (P & H).
6. Learned advocate Mr.Pahwa appearing for the applicant submitted that under the SARFAESI Act, secured creditor having security interest in the property can enforce the same. He has once again relied upon the decision rendered by the Hon'ble Supreme Court in the case of ICICI Bank Page 35 of 78 HC-NIC Page 35 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Limited (supra). Learned advocate thereafter referred to the observation made by the Division Bench of this Court in O.J.Appeal No.156 of 2007 and more particularly paragraph 4.1 of the said order. Paragraph 4.1 reads as under:
"4.1 In light of the above observations made by the Apex Court, Mr.Mihir Joshi, learned Senior Counsel submitted that the issue regarding substitution has already been concluded by the Apex Court. Mr.Ashok Shah, learned Senior Counsel has tried to contest this contention by submitting that the issue of substitution is not concluded by the Apex Court. We cannot accept this submission of Mr.Shah. A bare reading of the observations of the Apex Court in para 46 as extracted hereinabove makes it explicitly clear that the moment ICICI Bank Ltd. transfers the debt with underlying security, the borrower(s) ceases to be the borrower(s) of the bank and becomes the borrower(s) of Kotak Mahindra Bank Ltd (assignee). Thus it is explicitly clear that Kotak Mahindra Bank has become entitled to recover the amount from the borrowers and therefore their prayer for substitution cannot be rejected."
6.1 Learned advocate Mr.Pahwa thereafter referred to the order dated 28.1.2015 passed by the learned Company Judge in Company Application No.489 of 2006 and allied matters and relied upon the observations made in paragraphs 2,10,11,12 to Page 36 of 78 HC-NIC Page 36 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT 14 and 15.
6.2 He, therefore, contended that the learned advocates for the opponents had not made any submissions with regard to registration or stamp duty as observed in the said order and, therefore, it is not open for them to challenge at this stage in these proceedings about the said issues.
6.3 Without prejudice to the aforesaid contention, learned advocate Mr.Pahwa would submit that Deed of Assignment is already registered by the competent authority and no objection is taken by the said authority while registering the said document. Similarly, stamp duty authority adjudicated the stamp duty which is duly paid by the applicant on the Deed of Assignment. Therefore, in this application which is filed by the applicant, it is not open for the present respondents to take objection about the registration as well as stamp duty before this Court. He once again submitted that nobody has initiated any action with regard to the aforesaid aspects against the applicant. Therefore, submissions canvassed by the learned advocates of the respondents are misconceived.
6.4 Learned advocate for the applicant Page 37 of 78 HC-NIC Page 37 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT referred to the definition provided in Section 2(1)(zd) and 2(1)(zf) in SARFAESI Act. He submitted that security interest is created in favour of the applicant.
6.5 Thereafter, learned advocate submitted that the account of the company in liquidation became NPA on 30.9.2001. As per the request of the borrower, the account of the borrower was restructured. However, as per the said arrangement also, the borrower could not make the payment and hence SBI called upon the borrower to make the payment by communication dated 7.9.2005 and thereafter the present applicant issued notice under Section 13(2) of the SARFAESI Act on 15.11.2006 to the borrower. He, therefore, submitted that there is no delay in initiation of the proceedings as alleged by the respondents.
6.6 With regard to registration of the charge under Sections 125 and 135 of the Companies Act with Registrar of Companies, learned advocate Mr.Pahwa submitted that SBI registered the charge with Registrar of Companies under Section 125 of the Companies Act. Learned advocate has placed reliance upon the decision rendered by the High Court of Bombay in Company Application No.624 of 2010 and in Company Application No.1123 of 2009. Learned advocate, Page 38 of 78 HC-NIC Page 38 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT therefore, submitted that present application be allowed.
7. I have considered the submissions advanced on behalf of learned advocates for the parties. I have also gone through the documents produced on record as well as the provision of law and decisions relied upon by the learned advocates for the parties.
8. The issue which is required to be considered by this Court is whether the Provisional Liquidator can be directed to hand over the possession of the secured assets described in the schedule to the applicant on the basis of the Deed of Assignment entered into between the SBI and the applicant or not?
9. For deciding the aforesaid issue, certain important aspects emerging from the record are required to be considered which are as under:
(a) SBI granted various credit facilities to the company in liquidation. Said credit facilities were renewed from time to time. The company had mortgaged certain properties, description of which is given in the schedule at Annexure `A' of the compilation.Page 39 of 78
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(b) The company had initially created mortgage in favour of three other banks also by way of joint mortgage by deposit of title deeds. Credit facilities available by the company from three other companies were settled and only SBI remained as the exclusive first charge holder.
(c) On 30.9.2001, account of the company became NPA. On the basis of the request of the company, SBI restructured the credit facilities on 28.10.2003. On 29.1.2004, fresh loan agreement was entered into between SBI and the company. However, as per the said new arrangement also, the company had not made payment and defaulted. Therefore, on 7.9.2005, SBI called upon the company to make the outstanding payment.
(d) The Deed of Assignment was executed between SBI and the applicant-bank on 23.3.2006 whereby SBI assigned its debts due and payable by the company and assigned all the credit facilities in favour of the applicant.
(e) On 15.11.2006, the applicant issued notice under Section 13(2) of the SARFAESI Act and on 3.1.2007, the company replied to the said notice. The objection of the company was considered and rejected.
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(f) On 12.12.2007, the applicant has taken measures under Section 13(4) of the SARFAESI Act. The applicant affixed the possession notice. The company was before BIFR. The applicant informed the BIFR about the action taken by it under SARFAESI Act. BIFR, therefore, abated the reference. The appeal preferred by the company was also dismissed. The petition was preferred before this Court which was also disposed of. Thereafter, the applicant issued fresh possession notice in January, 2010 in respect of the secured assets. Thereafter, BIFR finally recorded its opinion under Section 20(1) of SIC Act and had recommended this Court for winding up of the company. This Court, therefore, on 8.2.2011 appointed Official Liquidator to take over the possession of the properties of the company. An order of winding up was passed on 23.3.2011. At the time of taking over the possession by the Official Liquidator, the applicant has already initiated the action under the SARFAESI Act.
10. In view of the aforesaid broad facts of the present case, the submissions canvassed on behalf of the learned advocates of the parties are required to be considered.
11. At this stage, following provisions of Page 41 of 78 HC-NIC Page 41 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT SARFAESI Act are required to be kept in mind while deciding the issue involved in this matter. Section 2(1)(zd) provides that:
2 (1)(zd) : "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes-
(i) debenture trustee appointed by any bank or financial institution;
or
(ii) securitisation company or
reconstruction company, whether
acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be;
or
(iii) any other trustee holding
securities on behalf of a bank or
financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance."
Similarly, section 2(1)(zf) defines the word `security interest'. It reads as under:
"2 (1)(zf): security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31."
Thus, the present applicant who is a bank can be said to be a secured creditor within the meaning Page 42 of 78 HC-NIC Page 42 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT of provision of SARFAESI Act. The said secured creditor has a security interest within the meaning of Section 2(1)(zf) of the said Act.
12. The applicant-bank has already initiated the measures under the provisions of the SARFAESI Act in November, 2006. The symbolic possession of the assets of the company in liquidation has been taken over on 29.1.2010. On the basis of the opinion of BIFR, this Court admitted Company Petition No.50 of 2010 by an order dated 8.2.2011 and thereafter pursuant to the order passed by this Court, the Official Liquidator has taken over the physical possession of the assets of the company on 18.3.2011. From the record, it appears that the applicant-bank is the sole secured creditor in respect of the secured assets. Thus, as observed above, the applicant who is a secured creditor having security interest in the property of the company in liquidation has preferred this application for the reliefs prayed for in the Judges' summons.
13. In the case of ICICI Bank Ltd (supra), the Hon'ble Supreme Court has held as under:
"51. In view of the above exposition of law, we find that under the impugned deed of assignment only the account receivables in the books of ICICI Bank Ltd. has been transferred to Kotak Page 43 of 78 HC-NIC Page 43 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Mahindra Bank Ltd. The obligations of ICICI Bank Ltd. towards its borrower(s) (customer) under the loan agreement secured by deed of hypothecation/mortgage have not been assigned by ICICI Bank Ltd. to the assignee Bank, namely, Kotak Mahindra Bank Ltd. Hence, it cannot be said that the impugned deed of assignment is unsustainable in law. The obligations referred to in the impugned deed of assignment are the obligations, if any, of ICICI Bank Ltd. towards Kotak Mahindra Bank Ltd. (assignee) in the matter of transfer of NPAs. For example, when an account receivable is treated as NPA and assigned to the assignee Bank, the parties have to follow certain guidelines issued by RBI. If there is a breach of the guidelines or statutory directions issued by RBI by the assignor in regard to transfer of NPA then the assignee Bank can enforce such obligations vis-a-vis the assignor Bank. It is these obligations which are referred to in the impugned deed of assignment. That, an account receivable becomes an NPA only because of the default committed by the borrower(s) who fails to repay. Lastly, it may be mentioned that the said SARFAESI Act, 2002 was enacted enabling specified SPVs to buy NPAs from the banks. However, from that it does not follow that the banks inter se cannot transfer their own assets. Hence the said SARFAESI Act, 2002 has no relevance in this case.
52. Before concluding, we may state that NPAs are created on account of the breaches committed by the borrower. He violates his obligation to repay the debts. One fails to appreciate the opportunity he seeks to participate in Page 44 of 78 HC-NIC Page 44 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT the "transfer of account receivable"
from one bank to the other.
Conclusion:
53. As stated above, by the impugned judgment, the Division Bench of the Gujarat High Court upheld the order of the Company Court only on one ground, namely, assignment of debts by the banks inter se is an activity which is impermissible under the Banking Regulation Act, 1949. However, the Division Bench did not go into other issues which arose for determination before the Company Court, including applicability of the provisions of the Registration Act, 1908."
14. The Hon'ble Supreme Court in the case of Official Liquidator, Uttar Pradesh and Uttarakhand V/s Allahabad Bank and Others, reported in (2013)4 SCC 381, considered the question whether the Company Judge under the Companies Act of 1956 has jurisdiction at the instance of the Official Liquidator to set aside the auction or sale held by the Recovery Officer under the Recovery of Debts Due to Banks and Financial Institutions Act of 1993 (hereinafter referred to as `RDB Act' for short) or whether the Official Liquidator is required to follow route as engrafted under the RDB Act by filing an appeal assailing the auction and resultant confirmation of sale. The Hon'ble Supreme Court, after considering the provisions of the Companies Page 45 of 78 HC-NIC Page 45 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Act of 1956 and the provision of RDB Act, held that in view of Section 34 of the RDB Act, the Tribunal has exclusive jurisdiction and, hence, the Company Court cannot use its powers under Section 442 of Companies Act,1956 against the Tribunal/Recovery Officer. The special provisions made under the RDB Act have to be applied. In view of Section 34 of RDB Act, it overrides the Companies Act, 1956 to the extent there is anything inconsistent between the Acts. The DRT has exclusive jurisdiction to sell the properties in a proceeding instituted by the banks or financial institutions but at the time of auction and sale, it is required to associate the Official Liquidator. Once the Official Liquidator is associated, needless to say, he has a role to see that there is no irregularity in conducting the auction and appropriate price is obtained by holding the auction in a fair, transparent and non-arbitrary manner in consonance with the Rules framed under the RDB Act of 1993. It is further held that the Official Liquidator protects the interests of the workmen and the creditors and, hence, his association at the time of auction and sale has been thought appropriate. Thus, he has been conferred locus standi/standing to put forth his stand in the said matters. Therefore, anyone who is aggrieved by any act done by th Recovery Officer can prefer an appeal before the Tribunal.
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15. In the case of Kotak Mahindra (supra), the High Court of Delhi has observed and held in paragraphs 22 to 26, 30 and 31 as under:
"22. Even though the DRT Act also does not provide for associating the official liquidator with sale and section 19(19) thereof requires the DRT to only order the sale proceeds to be distributed in accordance with the provisions of section 529A but the Supreme Court still directed association of the official liquidator in the sale. According to us the said ratio of the Supreme Court in the context of DRT Act and SFC Act, would not apply to a sale under the SARFAESI Act because while the sale under the DRT Act or the SFC Act is with the intervention of the court, i.e., the DRT or the District Judge, the sale under the SARFAESI Act is to be by the secured creditor, i.e., the bank/financial institution itself, without the intervention of the court. We also find express pointers in the SARFAESI Act against associating the official liquidator in such sale. The second proviso to section 13(9) permits a secured creditor, who opts to realise his security interest instead of relinquishing his security and proving his debt under proviso to sub-section(1) of section 529 of the Companies Act, to retain the sale proceeds after depositing the workmen's dues with the official liquidator in accordance with the provisions of section 529A. The third proviso to section 13(9) requires the official liquidator to intimate to the secured creditor the workmen's dues or an estimate thereof in accordance Page 47 of 78 HC-NIC Page 47 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT with section 529A of the Companies Act. The fourth proviso to section 13(9) makes the secured creditor liable to pay the balance if any of the workmen's dues if the deposit earlier with the official liquidator is on an estimate. The sixth proviso to section 13(9) also requires the secured creditor to furnish an undertaking to the liquidator to pay the balance of the workmen's dues if any. We are of the opinion that were the official liquidator intended to be associated with the sale (making the same possible only with the intervention of the company court and which would be contra to the purpose of the SARFAESI Act) the sale proceeds would have been received by the official liquidator and the need for the provisos aforesaid would not have arisen. The provisos aforesaid are indicative of the secured creditor, while on the one hand being entitled to exercise the right to sell without intervention even of the official liquidator/company court and on the other hand being made liable for the dues of the workmen. The language of section 13(9) and provisos thereto is thus clearly suggestive of the role of the official liquidator being confined only to determination of the workmen's dues and receiving payment thereof and undertaking from the secured creditor.
The Supreme Court in Rajasthan Financial Corpn. (supra) as aforesaid, has already carved out a difference between the "right to sell" and the "distribution of sale proceeds". The SARFAESI Act does not even vest the power of such distribution in the official liquidator. Significantly, section 13(9) permits sale only under agreement between the secured creditors representing not less than three-fourths in value of the Page 48 of 78 HC-NIC Page 48 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT amount outstanding and makes the said agreement binding on all the secured creditors. The question thus of distribution by the official liquidator to other secured creditors also does not arise.
23. As far as the reason behind associating the official liquidator in sale, of ensuring that a proper price is fetched for the assets, is concerned, we find the SARFAESI Act and the Rules framed thereunder to be a complete code in that respect. Rules 5 and 8 of the SIE Rules require the authorised officer of the bank/financial institution to obtain the estimated value of the asset from an approved valuer and in consultation with the secured creditor fix the reserve price of the property. The mode of sale has similarly been prescribed exhaustively particularly in rule 8 relating to sale of immovable assets. We are of the view that requiring the official liquidator to be associated in sale will lead only to conflict.
24. Though sale of the secured asset by the secured creditor under the SARFAESI Act is without the intervention of the court but a safety valve preserving the rights of the debtor/borrower/mortgagor or for that matter any other person (see United Bank of India v. Satyawati Tondon [2010] 158 Comp.Cas.251 (SC) aggrieved from the measures taken by the bank/financial institution under section 13(4) of the Act is provided in section 17 of the Act. The Legislature in making the sale under the SARFAESI Act without the intervention of the court, constituted DRT only as the forum for redressal of grievances. We are of the Page 49 of 78 HC-NIC Page 49 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT view that if the debtor/borrower/mortgagor himself/herself/itself has not been given any right of participation in the sale except in the manner provided in section 17 of the Act, the question of our interpreting the provisions in a manner vesting such right in the official liquidator who is but a successor-in-interest of the debtor/borrower/mortgagor and also representing the interest of the workmen and other creditors of such debtor/borrower/mortgagor, does not arise. Significantly, the Legislature in enumerating in section 31 the cases/situations in which the provisions of the SARFAESI Act are not to apply, did not choose to list the case/situation where the debtor/borrower/mortgagor is a company in liquidation.
25. Though the language of section 17 of the SARFAESI Act suggests that the right to appeal thereunder is only against the measures under section 13(4) of the Act but the Supreme Court in Authorized Officer, Indian Overseas Bank v. Ashok Saw Mill [2009]94 SCL 73 has held that the remedy under section 17 is not confined to the stage contemplated under section 13(4) but is available qua action taken by the secured creditor after the stage contemplated under section 13(4) also. The scrutiny by the DRT under section 17 is thus not confined only to whether the measures under section 13(4) are in accordance with the SARFAESI Act and the Rules framed thereunder but also extends to the actions of the secured creditor under section 13(5) to (13). It is thus not as if the debtor/borrower/mortgagor Page 50 of 78 HC-NIC Page 50 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT or for that matter, in the case of such a debtor/borrower/mortgagor being in liquidation, the liquidator is without any remedy or that the sale is merely at the whim and fancy of the secured creditor and his authorised officer. Not only are the modalities of sale prescribed but a forum for redressal of grievances with respect thereto is also provided in the form of DRT. The official liquidator, thus if of the view that appropriate price is not being or has not been fetched or relating to issues of distribution, has the remedy before the DRT.
26. If it were to be held that the official liquidator (who acts under the dictates of the company court) is to be also associated with the sale, it will naturally open up the fora of the company court also for entertaining matters relating to such sale and which as aforesaid is not only likely to lead to conflicts but is also contrary to the spirit of the SARFAESI Act of sale being without the intervention of the court.
30. The remedies of the official liquidator with respect to such a sale are only before the DRT in accordance with section 17 of the SARFAESI Act and not before the company court. The SARFAESI Act being a later legislation to the incorporation of section 529A in the Companies Act thus prevails over the Companies Act and sale as provided for under the SARFAESI Act holds good during the pendency of winding up petition against the debtor/borrower/mortgagor and also after a winding up order is made and remains unaffected therefrom.
31. We are therefore, with respect, Page 51 of 78 HC-NIC Page 51 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT unable to agree with the dicta of the Punjab and Haryana High Court in Haryana State Industrial and Infrastructure Development Corpn. (supra) and axiomatically allow these appeals and set aside the judgment of the learned single Judge. The applications filed by the bank and the auction purchaser for de-sealing of the property would thus stand allowed. However, the sale proceeds in custody of the bank are subject to the claims if any under sections 529 and 529A of the Companies Act. The bank to accordingly comply, specially with the provisos to section 13(9) of the SARFAESI Act. We may highlight that the Supreme Court recently in Employees Provident Fund Commissioner V. Official Liquidator of Esskay Pharmaceuticals Ltd. [2011] 110 SCL 520/15 taxmann.com 140(SC) has also held the dues under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, to be a first charge on the assets of an establishment and to be paid in priority to all other debts while distributing the sale proceeds."
16. The High Court Andhra Pradesh in the case of AIR 2015 AP 38 has observed and held in paragraphs 25 to 31, 36 and 37 as under:
"25. Again the Apex Court in case of Jagdish Singh V.Heeralal MANU/SC/1126/2013 :(2014)1 SCC 479, observed in paragraph 24 of the report as proposition of law as follows:
"Any person aggrieved by any of the measures referred to in sub-section (4) Page 52 of 78 HC-NIC Page 52 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT of Section 13 has got a statutory right of appeal to the DRT under Section 17. The opening portion of Section 34 clearly states that no civil court shall have the jurisdiction to entertain any suit or proceeding in respect of any matter which a DRT or an Appellate Tribunal is empowered by or under the Securitisation Act to determine. The expression in respect of any matter referred to in Section 34 would take in the measures provided under sub-section (4) of Section 13 of the Securitisation Act. Consequently, if any aggrieved person has not any grievance against any measures taken by the borrower under sub-section (4) of Section 13, the remedy open to him is to approach the DRT or the Appellate Tribunal and not the civil court. The civil court in such circumstances has no jurisdiction to entertain any suit or proceedings in respect of those matters which fall under subsection (4) of Section 13 of the Securitisation Act because those matters fell within the jurisdiction of the DRT and the Appellate Tribunal.
Further, Section 35 says, the Securitisation Act overrides other laws, if they are inconsistent with the provisions of that Act, which takes in Section 9 CPC as well.
26. Noting above pronouncement, we are of considered opinion when the legislature intends legality and validity of sale under the provisions of Section 13 of SARFAESI Act has to be brought for scrutiny before the Debts Recovery Tribunal, by virtue of Section 17 of SARFAESI Act the jurisdiction of the company court cannot be inferred to have been conferred rather by necessary implication, the same is held to be Page 53 of 78 HC-NIC Page 53 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT ousted. It is true that Section 34 mentioned the words Civil Court (not apparently company court), but in our view after winding up order is passed by virtue of the provisions of Section 446(2) of the Companies Act, the Company Court exercises jurisdiction of the civil court. So, essentially, the company court becomes civil court. What is important is not the nomenclature of the Court, but power and functions exercised by that Court. In view of discussions above, accepting argument of Mr.S.Ravi and rejecting contention of the learned counsel for the respondent and Official Liquidator, we hold that the company court has no jurisdiction to deal with the issues arising out of action of secured creditor under Section 13 of SARFAESI Act.
27. But, in this case, the learned trial Judge has not only exercised jurisdiction of the company court but also that of writ court. No one can debate now that writ court has jurisdiction within its own power as enshrined in Articles 226 & 227 of the Constitution of India to entertain any dispute and it cannot be taken away by way of simple legislation.
28. Now, we examine the third question. We have already discussed that to the extent of inconsistency provision of SARFAESI Act will prevail over Companies Act. We examine whether there has been apparently inconsistent provision for taking action by the secured creditor in this Act vis-a-vis Companies Act. It will appear from Section 13 (1), as quoted above, it clearly provides that without intervention of the Court or Tribunal action can be taken for sale of Page 54 of 78 HC-NIC Page 54 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT securities, whereas the provisions of Section 537 of Companies Act requires leave of Company Court. We, accordingly, hold this is apparent inconsistency in two competing provisions in two different Acts on the same subject. Similar view is expressed by the Division Bench of the Bombay High Court in case of The Akola Oil Industries (under liquidation) through Official Liquidator V. State Bank of India MANU/MH/0501/2005 : 2006(1) Bom.CR.362. Therefore, the provisions of SARFAESI Act will prevail over the provisions of Section 537 of the Companies Act to the extent of inconsistency. We, accepting contention of Mr.S.Ravi, hold that no leave is required under Section 537 of the Companies Act, moreover jurisdiction of the Company Court is also ousted as discussed above.
29. Next, the question appears to us whether the provisions of Section 531 & 531A of the Companies Act will be applied or not in this case.
30. We have already held to the extent of inconsistency provision of the Companies Act are to be overlooked. For this, we have to examine the provisions of sub-sections (4) & (6) of Section 13 of the SARFAESI Act to find element of inconsistency on this issue. These provisions are set out hereunder:
13. Enforcement of security interest:
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-Page 55 of 78
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(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured asset; Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt;
Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt.
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
(emphasis supplied) (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or Page 56 of 78 HC-NIC Page 56 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
31. It is clear from sub-section (6) the moment action taken under sub-section(4) by the secured creditor or any manager on his behalf of the secured creditor for transfer all rights shall vest in the transferee in relation to the secured assets. In other words, if action taken under Section 13(4) is found to be lawful and valid in accordance with SARFAESI Act, no other legal provision can invalidate it. Whereas Sections 531 & 531A provide otherwise if any transfer including sale is effected in violation thereof the same is invalid and void. Thus it appears that there has been glaring inconsistency naturally, we are constrained to hold that the provisions of Section 531 & 531A have no manner of application and the same do not apply in case of valid sale undertaken under the SARFAESI Act and the Rules framed thereunder. Besides we fail to comprehend how Section 531A is applicable carefully reading the same on fact in this case. In order to apply this section, three factual conditions must be satisfied viz., (i) transfer must be by the company (ii) it must be voluntary (iii) such transfer must be within one year before presentation of winding up petition. In this case admittedly transfer is not made by company not even on behalf of the company, but by secured creditor, appellant herein, by virtue of power coupled with right under sub-section (4) of Section 13 of the SARFAESI Act. This could have been decided by the Debts Recovery Tribunal itself since writ Page 57 of 78 HC-NIC Page 57 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT court has decided on the admitted fact. Thus the decision of the Hon'ble trial judge while applying the aforesaid provisions in the instant sale without examining the implications of sub- sections (1), (4) & (6) of Section 13 of SARFAESI Act at all, is unacceptable legally. We accordingly overrule these findings and decisions in this regard.
36. In case of Kotak Mahindra Bank Limited V. Megnostar Telecommunications Private Limited MANU/DE/4385/2012 :
(2013) 176 Company Cases 246 (Delhi) Delhi High Court did not deal with applicability of Sections 531, 531A and 537 of the Companies Act in view of provisions of SARFAESI Act, however dwelt upon applicability of Sections 529 and 529A of Companies Act. While doing so it was held amongst others that sale proceeds fetched by sale under this Act are subject to the claims, if any, under Sections 529 and 529A of the Companies Act.
37. Punjab and Haryana High Court in case of Haryana State Industrial and Infrastructure Development Company V.Haryana Concast Limited & another MANU/PH/1162/2009 : (2010)158 Company Cases 168 while examining legal implication of provision of Sections 13(4), 9, 35 of SARFAESI Act vis-a-vis Section 529A of Companies Act held that there is no inconsistency of the provision of Section 13 of SARFAESI Act with Sections 529 and 529A of the Companies Act, 1956 as by the proviso in sub-section (9) of Section 13 above two sections of the Companies Act are saved."
Page 58 of 78HC-NIC Page 58 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT
17. Special Civil Application No.7979 of 2008 was preferred under Articles 226 and 227 of the Constitution of India by concerned petitioners challenging the threatened action of the respondent of the said petition i.e. Kotak Mahindra Bank under Section 13(4) of the SARFEESI Act wherein it was prayed that the Court may declare that the respondent-bank (Kotak Mahindra) has not acquired any right pursuant to the Deed of Assignment dated 23.3.2006 and, therefore, not entitled to take action under the provisions of SARFAESI Act and to quash and set aside the public advertisement issued in the newspaper and with further prayer to restrain the bank from taking action in pursuance to the said advertisement. In the said matter also, the SBI took the possession of secured assets belonging to the company in liquidation and by virtue of Deed of Assignment dated 23.3.2006, the SBI assigned the debts to Kotak Mahindra Bank. Learned counsel for the said petitioners raised similar contention in the said petition that the Deed of Assignment dated 23.3.2006 is not valid and unenforceable since it created no right in favour of Kotak Mahindra Bank. It does not bear proper stamp duty. The assignments of debts by SBI to Kotak Mahindra Bank is a novatio and it is not binding to the borrowers. Kotak Mahindra Bank is not a securitization company or a Page 59 of 78 HC-NIC Page 59 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT reconstruction company and either original lender or a securitization company to which the debt is assigned by the original lender only can take measure under the SARFAESI Act. The said petitioner is not a borrower of Kotak Mahindra Bank within the meaning of Section 2(f) of SARFAESI Act read with Section 5(2) of the said Act. However, learned Single Judge of this Court dismissed the said petition on the ground that the petitioners can prefer an appeal before the DRT under Section 17 of SARFAESI Act and on the ground of alternative remedy, the said petition was dismissed. The said petitioners challenged the order passed by the learned Single Judge by filing LPA No.1951 of 2009. The Hon'ble Division bench also dismissed the said appeal. In paragraph 3 of the said order, the Hon'ble Division Bench has observed as under:
"3. In view of the aforesaid assignment, the respondent-Bank filed Company Application No.318 of 2007 and 100 of 2008 seeking permission to proceed with sale of the assets of the company in liquidation. By order dated 29.2.2008, the Company Court, after hearing the learned Counsel for the parties, allowed the above two Company Applications in the following terms:
"8. Having heard the learned advocates appearing for the respective parties and having gone through the application as well as earlier orders passed by this Court, the Court is of the view that Page 60 of 78 HC-NIC Page 60 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT though the Court is not considering the applicant-Bank as the secured creditor, since all the secured creditors except GIIC have assigned their debts in favour of the applicant-Bank under the Securitization Act, there may not be any objection to permit the applicant Bank to proceed with the sale of the assets of the company in liquidation. Earlier, this Court has passed an order in Company Application No.239 of 2005 on 17.02.2006 whereby this Court has issued direction to constitute sale committee comprising of applicant, GIIC and the Official Liquidator for finalizing the value of the property and the modalities on which the property is required to be sold.
9. In the above view of the matter, since all other secured creditors except GIIC have assigned their debts in favour of the present applicant they are not required to be joined as the member of the sale committee as their interest may be taken care by the applicant before the property of the company in liquidation is put to sale under the Securitization Act. The Court hereby directs to constitute sale committee consisting of the present applicant GIIC and the Official liquidator for finalizing the value of the property and the modalities on which the property is required to be sold. This application is accordingly disposed off. However, before putting the property to sale, the meeting of the sale committee be called and in the said meeting, reserved price and other modalities shall be set out. After the offers are received, and auction is held, the applicant may submit fresh application for acceptance of any of such offers and confirmation Page 61 of 78 HC-NIC Page 61 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT of sale in favour of highest bidder.
10. Granting of these two applications, however, may not be construed as granting of status of secured creditor to the applicant-Bank.
11. Subject to the aforesaid observations and directions, both these applications are accordingly, disposed off."
18. Thus, when another petitioners challenged the Deed of Assignment dated 23.3.2006 executed between the SBI and the present applicant-bank on various grounds including the ground of stamp duty as well as other grounds which are recorded by learned Single Judge in the said order, this Court has not entertained the said petition by observing that the petitioners can prefer appeal before the DRT. The said order is confirmed by the Hon'ble Division Bench against which SLP No.7887 of 2010 filed by the aggrieved party was dismissed by the Hon'ble Supreme Court and, therefore, I am of the opinion that in the present proceedings which is filed by the Kotak Mahindra Bank i.e. the applicant-the intervenor cannot raise such type of contentions before this Court. If they have any grievance, they can approach before the appropriate authority/forum/Tribunal but the said issues cannot be agitated in the proceedings filed by Page 62 of 78 HC-NIC Page 62 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT the applicant.
19. The contention of the intervenor that the Deed of Assignment does not bear proper stamp duty and same is not properly registered before the concerned registering authority, such contention is also not required to be accepted in view of the fact that the said issues were kept open by the Hon'ble Supreme Court while remanding the matter back to the Division Bench of this Court and Division Bench remanded the matter back to the learned Company Judge, the Official Liquidator as well as the concerned respondents have not challenged the said aspects before this Court which is clear from the order passed by this Court in Company Application No.489 of 2006 rendered by the learned Company Judge on 28.1.2015. This Court observed in paragraphs 10 to 15 as under:
"10. Mr.Roshan Desai, learned counsel for the Official Liquidator submitted that the relief claimed in the applications has already been granted by the Supreme Court and the Division Bench and hence, these applications for substitution stand decided. Vis-a-vis the other issues that were raised before the Company Court at the time when the earlier decision came to be rendered, namely, compliance with the provisions of the Registration Act, Stamp Act etc., it was submitted that the parties may raise the same before the appropriate Page 63 of 78 HC-NIC Page 63 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT forum.
11. Dr.Amee Yajnik and Mr.J.S.Yadav, learned advocates appearing on behalf of the Official Liquidator in some of the matters, reiterated the submissions advanced by Mr.Roshan Desai, learned counsel for the Official Liquidator.
12. Mr.A.L.Shah, learned counsel appearing with Mr.D.S.Vasavada, learned advocate for the Textile Labour Association, submitted that the Supreme Court has held that assignment of debts is a permissible activity and has permitted substitution. Accordingly, the applications for substitution stand allowed. As regards the other issues which were raised before the Company Court when the previous decision came to be rendered, it was submitted that once the applications stand allowed in view of the decision of the Supreme Court and the Division Bench, the question of deciding the rights of the parties on merits does not arise in these applications and such questions would be decided by the appropriate forum at an appropriate stage. However, nothing remains to be done by this court in these applications.
13. This Court has considered the submissions advanced by the learned counsel for the respective parties and has perused the earlier order passed by the Company Court as well as the order passed by the Supreme Court in the above-referred matter as well as the order dated 30.9.2014 passed by the Division Bench remanding the matter to this court.
14. From the submissions advanced by the Page 64 of 78 HC-NIC Page 64 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT learned counsel for the respective parties, it is apparent that the common refrain of the learned counsel is that these applications are limited to the prayer for substitution, which stand allowed by the Supreme Court as well as by the Division Bench by holding that such substitution is permissible in law and hence, the matters come to an end. The other issues as to whether the individual deeds of assignment meet with the requirements of other enactments, like the Registration Act, the Stamp Act, etc., do not arise in the present applications and that as and when such issues are raised at an appropriate stage before the appropriate forum, the same would be decided by the concerned forum.
15. In the light of the fact that it is common ground between the respective parties that the applications being limited to substitution, which relief stands granted in terms of the above decisions of the Supreme Court and the Division Bench and that though the matters have been remanded to the Company Court by permitting the parties to raise issues other than the issue of substitution, none of the parties deem it fit to raise any other issues before this court on the ground that such issues do not fall for consideration by this court at this stage and that such issues are required to be decided by the appropriate authority at an appropriate stage when such issues are raised before the concerned authority, in the opinion of this court, nothing further remains to be done in these applications."
Thus, now it is not open for the respondents to Page 65 of 78 HC-NIC Page 65 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT agitate the said issue. However, it is open for them to agitate the said issue before the appropriate forum as observed by this Court.
20. Apart from that, it is clear from the material produced on the record that the Deed of Assignment is already registered by the competent authority and no objection is taken by the said authority while registering the said document. The said document is registered in the year 2006 and, therefore, now the respondent/intervenor herein cannot challenge the same after more than five-six years that too in the proceedings initiated by the applicant-bank. Similarly, it is also clear from the record that stamp duty authority adjudicated the stamp duty. Accordingly, the applicant-bank has duly paid the same on the Deed of Assignment. Thus, the respondent/intervenor cannot agitate such issue in the proceedings filed by the applicant-bank. It is pertinent to note at this stage that the registering authority or the stamp duty authorities have not at all initiated any action till today against the applicant-bank. Thus, I am of the opinion that the contentions raised by the respondent and intervenor are misconceived and are required to be discarded.
21. Another contention raised by the Page 66 of 78 HC-NIC Page 66 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT intervenor is that in view of Sections 125 and 135 of the Companies Act of 1956, when the applicant has not registered charge or modified the charge registered with the Registrar of Companies, the applicant is not having any right against the Official Liquidator or the Company.
22. However, the said contention is required to be considered in view of the decision rendered by the various High Courts. In the case of Pridhvi Asset Reconstruction & Securitization Company Limited V/s M/s Pennar Peterson Limited (In Liquidation) Rep. by Official Liquidator, High Court of A.P., in Company Application No.411 of 2014 on 22.4.2014, the High Court of Andhra Pradesh has observed as under:
"The only issue that needs consideration in this application is whether the applicant cannot claim disbursement of money without registration of the assignment of the securities with the ROC."
Thereafter, it is observed as under:
"As noted above, it is the admitted case that the provisions of Section 125 of the Act have been complied with by the banks in whose favour, the charge of the assets of the respondent-Company was created. However, it does not appear that the applicant, in whose favour the charge of assets of the respondent-Page 67 of 78
HC-NIC Page 67 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT Company is assigned, has sent the particulars of the assignment of the ROC and got the same registered. On a close reading of Section 135 of the Act, I am unable to accept the submission of the learned Counsel for the petitioner and the Official Liquidator that a deed of assignment falls within the provisions of Section 135 of the Act. The said provision takes within its sweep the modification pertaining to terms or conditions of the charge or the extent or operation of any charge. It is no one's case that any of the terms or conditions of the charge or extent or operation of charge are modified. All that is done is that the banks, which held the charges and which are registered, have transferred their interests to the applicant. If the parliament intended that such transfer or assignment is required to be registered with the ROC once again, nothing would have been prevented it from using the words `transfer' or `assignment' in the said provision. Absence of these words would indicate that once a charge is registered with the ROC, a subsequent assignment need not be once again registered. The reason for this is not far to seek. The main purpose of registration of charge with the ROC is to prevent the Companies from indulging in creation of fake charges with intent to defraud the shareholders and creditors of the Company. Once the charge is registered, it would hardly make any difference whether such charge is held by X, Y or Z. That seem to be the obvious reason why no provision is made for registration of assignment.
The learned Counsel contended that in some cases the assignment has also been Page 68 of 78 HC-NIC Page 68 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT registered. Merely because such a practice was followed, the same would not expand the scope of the extant statutory provision.
It is not the pleaded case of either the petitioner or the Official Liquidator that the transfer or assignment made by the Banks, which held charge, is mala fide or that the same is intended to defeat the interests of the unsecured creditors. But for the assignment, the nine banks, in whose favour the adjudication has been made, would have been entitled to receive the money. Hence, from the point of view of the unsecured creditors, it hardly makes any difference whether the nine banks, which held the charge, or the applicant herein get money.
For the aforesaid reasons, I do not find any merit in the objections of the applicant and the Official Liquidator."
23. Similarly, in the case of IDBI Ltd. (supra), the question before the Bombay High Court was whether the Company Court has jurisdiction under Section 446 of the said Act to decide the question whether the charge of the secured creditors are registered under Section 132 of the said Act and to the extent such charges are not registered, claims of the secured creditors against the Official Liquidator can be declared as void in view of the provisions of Section 125 of the said Act? The Hon'ble Bombay High Court held in paragraphs 44 to 46 as under:
Page 69 of 78HC-NIC Page 69 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT "44. The questions whether the charge is registered or there is a non-compliance of Section 125(1) of the said Act, are the disputed questions of fact. In fact, the determination by the Official Liquidator under Rule 163 of the said Rules by the communication dated 20th February, 2009, impugned in the appeals, is on the basis that the charge is registered. The Official Liquidator himself has produced the copies of the certificates of registration of the charges on record. Hence, the registration of charges by the Registrar of Companies is not disputed.
45. What has to be seen is the non- compliance of Sub-section (1) of Section 125 of the said Act. The Debts Recovery Tribunal, in exercise of its jurisdiction under Section 17 of the RDB Act, has delivered its judgment and order on 31st August, 1995 recording the finding that the charges of out standings have been secured by the deeds of hypothecation and the mortgage of the property. It has also decided the question as to what extent the secured creditors are entitled to recover the out standings. It has been held that the Official Liquidator's liability shall be restricted to the extent of available estate, workmen's dues and claims of other secured creditors. The ICICI Bank Ltd. (Kotak Mahindra Bank Ltd.), IDBI and IFCI Ltd. are held to be first charge holders, whereas the Bank of Maharashtra and the Bank of India have been held to be the second charge holders.
46. In the judgment of the Apex Court in Allahabad Bank's case, cited supra, it Page 70 of 78 HC-NIC Page 70 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT has been held in Para 49 thereof that at the stage of adjudication under Section 17 and execution of the certificate under Section 25, the provisions of the RDB Act confer exclusive jurisdiction upon the Tribunal and the Recovery Officer in respect of the debts payable to the banks and financial institutions and there can be no interference by any Court under Section 442 read with Section 537 or under Section 446 of the Companies Act. In Para 31 of the said judgment (which is reproduced in Para 32 above), it has been held that the Company Court cannot use its powers under Section 446 of the said Act against the Tribunal/Recovery Officer and Sections 442,446 and 537 cannot be applied against the Tribunal. In view of this, the matter is completely determined by the Debts Recovery Tribunal and this Court has no jurisdiction under Section 446 to re-
open the issues concluded by the judgment and order passed by the Debts Recovery Tribunal under Section 17 of the RDB Act."
24. In another case decided by the High Court of Bombay in the case of Ashish Bhatia V/s The Official Liquidator, High Court passed in Company Application No.1123 of 2009 on 18.8.2011, the Bombay High Court as observed and held in paragraph 11 as under:
"11. Equally, it is stated that assuming it comes into existence on account of documents that are executed, yet, there is no compliance with section 125(1) of the Companies Act. It is pertinent to Page 71 of 78 HC-NIC Page 71 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT note that it is not the company which is raising this objection but it is the applicant who is a ex-director, has raised this objection. The company in liquidation has no objection to the second respondent proceeding on the basis that the property was equitably mortgaged to it. That the documents evidencing title are deposited with an intention to create mortgage is something on which, both, the second respondent and company in liquidation, have proceeded; that all the monies and advances have been utilised and facilities have been availed of. In such circumstances, it is too late in the day now to argue that there is no compliance with section 125(1) of the Companies Act. While it is true that the legal position as enunciated by the Division Bench in Kamani's case (supra) would apply with full force, yet, as far as sub-section 1 to be attracted, there must be a charge to which section 125(1) applies. That must be sofar as any security on the company's property or undertaking, that charge is void against liquidator and any creditor of the company. Unless the prescribed particulars of the charge together with instruments, if any, by which the charge is created or evidenced or a copy thereof verified in prescribed manner are filed with the Registrar for registration, in the manner required by the Act within 30 days from its creation, sub-section 2 of section 125 of Companies Act, at once clarifies that nothing in sub-section 1 shall prejudice any contract or obligation for repayment of money secured by the charge. The charges to which the section applies are enlisted then in sub-section 4. Therefore, firstly it must be proved Page 72 of 78 HC-NIC Page 72 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT that charge created by a company to which the section applies, has been so created. That the instant arrangement with respondent No.2 is in the nature of a charge to which section 125(1) applies has not been clarified at all. Further, it is the argument of the applicant that the charge is void as against the liquidator or creditor unless registered. Therefore, that is for the purpose of Companies Act and that it is clear that the same is qua the liquidator and the creditor of the company. In these circumstances, one cannot hold on the strength of this provision that the security interest in a later enactment is in any way affected because of non compliance with section 125(1) of the Companies Act. There is nothing in the Securitisation Act, which is a later Statute, which would in any way make section 125 or part V of the Companies Act applicable to any security interest created under the Securitisation Act or will have any effect on it. In such circumstances, if on the own force of the Securitisation Act in terms of the security interest created in favour of the second respondent, the second respondent can proceed to take steps to sell company's property, then, I do not see how that sale can be questioned or nullified at the instance of a person like the applicant and only because in his opinion section 125(1) of the Companies Act is not complied with. For the sale to be nullified, it must be demonstrated that there is something in the Securitisation Act which makes Section 125 applicable to the security interest created in the said Act and as understood by the Securitisation Act. A perusal of the relevant provisions of Page 73 of 78 HC-NIC Page 73 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT both enactments leave me in no manner of doubt that Securitisation Act does not envisage any such compliance. In these circumstances, the argument that the sale is bad in law for non compliance with section 125(1) of the Companies Act cannot be accepted and must be rejected."
25. Thus, in view of the aforesaid decision rendered by the various High Courts, I am of the opinion that in the present case, SBI has registered its charge under Section 125 of the Companies Act before ROC over the secured assets of company, the applicant is an assignee and, therefore, if the applicant has not registered its charge over the secured assets before the Registrar of Companies, it cannot be said that the applicant is not entitled to proceed against the secured assets.
26. Another contention of learned advocate of the intervenor is that the account of the company in liquidation was declared NPA in the year 2001 by SBI. Thereafter, credit facilities were restructured by SBI and fresh agreement was entered into in January, 2004. Thereafter, the account of the company in liquidation was never declared as NPA. SBI has thereafter not initiated the proceedings under SARFAESI Act and therefore waived its right and hence the applicant-bank Page 74 of 78 HC-NIC Page 74 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT cannot now initiate the proceedings under the SARFAESI Act against the company in liquidation after a period of five years.
27. In my opinion, the aforesaid contention is misconceived. It is true that the account of the company in liquidation was declared NPA in the year 2001. However, at the request of the company in liquidation, the SBI has restructured the credit facilities. However, so far as that facility is concerned, also, the company in liquidation has not complied with the terms. SBI has, therefore, issued the notice on 7.9.2005 to the company in liquidation and called upon the borrower to make the payment. However, the borrower-company in liquidation has not made the payment as per the notice. Thereafter, the SBI assigned its debts in favour of the applicant- bank by Deed of Assignment dated 23.3.2006. Thereafter, the applicant-bank has issued the notice under SARFAESI Act on 15.11.2006. Thus, in my view, there is no delay in initiation of the proceedings nor it can be said that SBI had waived its right to initiate action against the company in liquidation.
28. It is further required to be noted that the Official Liquidator filed Appeal No.27 of 2007 before the DRT against the applicant-bank.
Page 75 of 78HC-NIC Page 75 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT However, learned advocate Mr.Pahwa has placed on record the order dated 17.7.2014 passed by DRT below Exh.23 whereby the said appeal was disposed off as dismissed for default due to want of prosecution. The Official Liquidator or the intervenor has not placed any other material on record to show that the said appeal has been restored. Thus, the fact remains that the Liquidator did file an appeal before the DRT. It is clarified that if the said appeal is restored on file of DRT, it is open for the Official Liquidator to take all available contentions before the learned Tribunal.
29. In view of the aforesaid discussion, the other contentions are not further dealt with in detail and the decisions relied upon by learned advocates for the respondents are not applicable to the facts of the present case.
30. Thus, the relief prayed for in this Judges' summons is required to be allowed. The respondent no.1 herein is hereby directed to hand over the possession of the secured assets particularly described in schedule annexed at Annexure `A' to the applicant who has already initiated measures under the provisions of the SARFAESI Act. The applicant is also permitted to proceed further in relation to the secured assets Page 76 of 78 HC-NIC Page 76 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT subject to compliance of provisions of proviso to Section 13(9) of the Act. However, it is clarified that the applicant-bank has to inform the Official Liquidator about the steps which it will take against the secured assets.
31. With the above observation, this application is accordingly allowed and disposed of.
(VIPUL M. PANCHOLI, J.) Srilatha When this judgment is pronounced in the open Court, learned advocate Mr.A.L.Shah appearing with learned advocate Mr.Godiawala for the intervenor requested that this Court may grant stay of this judgment for a period of three weeks so that the intervenor can approach before the Hon'ble Division Bench against this judgment. Learned advocate Mr.Pahwa appearing for the applicant has vehemently opposed the request made by the learned advocate for the intervenor.
In the interest of justice, I am of the view that request made by learned advocate Mr.Shah is required to be accepted. This judgment and order is stayed for a period of three weeks.
Page 77 of 78HC-NIC Page 77 of 78 Created On Tue Aug 11 02:07:33 IST 2015 O/COMA/285/2011 CAV JUDGMENT (VIPUL M. PANCHOLI, J.) Srilatha Page 78 of 78 HC-NIC Page 78 of 78 Created On Tue Aug 11 02:07:33 IST 2015