Andhra HC (Pre-Telangana)
Indian Bank Main Branch Bank Street ... vs The Sub Registrar Sub-Registrar Office ... on 11 November, 2014
Equivalent citations: AIR 2015 HYDERABAD 38, (2015) 3 BANKCAS 261
Author: Sanjay Kumar
Bench: Sanjay Kumar
THE HONOURABLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HONOURABLE SRI JUSTICE SANJAY KUMAR
Writ Appeal Nos.1420 of 2013 and and batch
11-11-2014
Indian Bank Main Branch Bank Street Koti, Hyderabad Rep. by its Dy. General
Manager & Authorized Officer Appellant
The Sub Registrar Sub-Registrar Office Makundi Village Bellary District
Karnataka and others Respondents
!COUNSEL FOR APPEALLANT : Sri S. Ravi, Senior Counsel,
for Sri Ambadipudi Satyanarayana
COUNSEL FOR RESPONDENT NOs.1, 2 and 4: Government Pleader for
Revenue
COUNSEL FOR RESPONDENT NO.3 : Sri M. Anil Kumar
<GIST:
>HEAD NOTE:
? CITATIONS: 1. (2000) 4 SCC 406
2. (2005) 8 SCC 190
3. (2013) 176 Company Cases 246 (Delhi)
4. 2006 (1) Bom. CR. 362
5. (2010) 158 Company Cases 168
6. (2014) 1 SCC 479
7. (2013) 10 SCC 83
8. (2014) 5 SCC 610
9. (2013) 1 SCC 1
10. (2008) 15 SCC 1
11. (2013) 4 SCC 381
12. (2013) 2 SCC 101
THE HONBLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA
AND
THE HONBLE SRI JUSTICE SANJAY KUMAR
WRIT APPEAL NOs.1420 & 1424 of 2013
and
O.S.A NOs.34 & 35 of 2013
COMMON JUDGMENT:(Per the Honble The Chief Justice Sri Kalyan Jyoti Sengupta) All the four appeals are taken up for hearing analogously for the sake of convenience as they owe origin to common judgment and order passed by the Honble trial Judge, dated 29.4.2013, in Writ Petition Nos.19297 of 2012 & 33655 of 2011, and Company Application Nos.1972 of 2011 & 421 of 2013 in Company Petition No.215 of 2010.
All these appeals are preferred by the Indian Bank, a secured creditor of a company - M/s. Laran Sponge & Minerals Private Limited now in liquidation (hereinafter referred to as the said Company). The facts leading to preferring the appeals are shortly put hereunder:
The said company availed itself of various credit facilities from the appellant Bank and in consideration thereof it hypothecated its plant and machinery and other movables as securities therefor. Apart from the above securities, one Smt. P. Latha and one Sri P. Vara Prasada Raju, who are the Directors of the said company, stood guarantors for repayment of dues of the appellant. They mortgaged their immovable properties viz., large plot non- agricultural land situated in the State of Karnataka and two flats in Hyderabad. As there has been default in repayment of the loan amount by the said company to the appellant, the loan accounts were classified as Non Performing Asset (NPA). Accordingly, the appellant Bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFAESI Act) took possession of the said securities followed by notification for sale of both mortgaged and hypothecated properties issued by the Authorized Officer of the appellant bank on 28th August, 2011. One M/s. United Steel Allied Industries Private Limited (hereinafter referred to as auction purchaser) who is the 1st respondent in W.A. No.1424 of 2013 and O.S.A. No.34 of 2013 participated in the auction on 29.9.2010 and came to be declared as the highest bidder. Accordingly, auction purchaser, in terms of the conditions of sale, deposited 25% of the sale price. On 1.11.2010, one M/s. SBI Global Factors Limited, being another secured creditor, filed company petition being C.P.No.215 of 2010 for winding up, and the said petition was allowed on 18.7.2011. Consequently, the Official Liquidator was appointed to take possession of the assets of the said company. Admittedly, appellant did not approach Company Court either before or after winding up order seeking leave of the Court for sale. After depositing 25% of sale price, the auction purchaser could not pay the balance 75% of sale consideration within the fifteenth day from the date of sale. It appears that the auction purchaser, subsequent to the sale on 24.11.2010, applied for grant of loan and pursuant thereto, the appellant Bank sanctioned and granted loan to the said auction purchaser on 7.1.2011. The balance 75% of sale consideration was adjusted by the appellant Bank from that loan account and thereafter sale certificate was issued on 18.01.2011. The tender agreement and other documents connected with the sale were sent to the Sub-Registrar, Halakundi Village, Bellary District, Karnataka for registration. At this stage, the Official Liquidator addressed a letter on 20.09.2011 to the said Sub- Registrar, informing that the borrower company (the said company) was wound up in the company petition being C.P. No.215 of 2010 and he was appointed Liquidator and requested the Sub-Registrar not to register any document with regard to the properties of the borrower. Because of the letter of the Official Liquidator, the Sub- Registrar is alleged to have not taken steps, hence the appellant Bank was constrained to file the above writ petition being W.P. No.33655 of 2011 on 14.12.2011 for a direction to the Sub- Registrar to register the sale certificate with regard to auction of the said properties. Simultaneously, the appellant Bank also filed Company Application being No.1972 of 2011 on 27.12.2011 for a direction to the Official Receiver to clarify suitably with regard to the mortgaged properties in his letter dated 20.09.2011 addressed to the Sub-Registrar. While the matter stood thus, the auction purchaser complained that the possession of the said properties was not given and further there were dues claimed by several authorities and that the property is not free from encumbrance. As such, the auction purchaser avoided the sale and more so the appellant Bank threatened the auction purchaser to treat the loan account as Non Performing Asset. In this background, auction purchaser filed W.P.No.19297 of 2012 on 26.6.2012 for the relief claimed therein. Thereafter, the auction purchaser also filed company application being C.A. No.421 of 2013 for setting aside the sale alleging several irregularities, suppression of facts and violation of Sections 531, 531A and 537 of the Companies Act. It was further alleged that the properties are not properly valued and the encumbrances were not disclosed and possession was not delivered effectively. It was also asserted that there were several claims of taxes etc., of a large sum of more than One crore and as such the sale is liable to be set aside.
Thus, the aforesaid proceedings were brought in connection with the aforesaid sale and the same were heard by the Honble trial Judge analogously.
In these proceedings, the Official Liquidator appeared and supported the stand taken by the auction purchaser and contended that the entire sale is void as leave of the Company Court was not obtained under Sections 446 and 537 and further, it was violative of Sections 531 and 531A of the Companies Act. It is alleged that the sale being void as it was done within six months before commencement of the winding up of the said company under Section 531 of the Companies Act. Effect of such sale is fraudulent preference and accordingly invalid. It is also void under Section 531A of the Companies Act. Therefore, the Official Liquidator asserts he has every right to oppose the registration even without asking for setting aside the sale, as it is void. SBI Global contends that there was no proper and valid notification or valuation of the property and since the winding up process has been initiated by it, Indian Bank cannot claim any priority and the sale should be declared void and invalid. Obviously, the appellant denied all the allegations and claimed that after issuing notification, sale was duly completed and auction purchaser deposited the earnest money. Auction purchaser deposited 25% of the consideration amount and as the auction purchaser has no sufficient fund for payment of 75% of the balance consideration, had applied for loan and the same was sanctioned and granted, and out of loan amount 75% of consideration money was adjusted. Thereafter the sale certificate was issued and possession was also handed over to the auction purchaser. Thus the sale was completed as registration of sale certificate or other document in connection therewith is not mandatory requirement under law. It is also contended that since the sale was conducted under the SARFAESI Act, being a special and later enactment, inconsistent provisions of the Companies Act, 1956 are overridden. In the context of above contention and rival contention, the Honble trial Judge formulated the following points for consideration to decide the matter.
(1) Whether a valid sale has been conducted on behalf of the Indian Bank by the Authorized Officer under SARFAESI Act? (2) Whether the sale is void and fraudulent as contended by the Official Liquidator (wrongly typed in the copy of the judgment as Receiver)?
(3) Whether the sale is vitiated for several of the irregularities raised by the auction purchaser and if so it is liable to be set aside?
The Honble trial Judge held that the sale conducted by the authorized officer is hit by the provisions of Sections 531, 531A & 537 of the Companies Act. It was held that since no leave of the Court was obtained, as required under sub-section (b) of Section 537 of the Companies Act, the sale is void. It was also held that it is an invalid sale as it was held within six months from the date of presentation of winding up petition, and also under Section 531A as the sale was held within a period of one year from the date of presentation of winding up petition. That apart, the learned Trial Judge held that the mandatory requirement for holding the sale as provided under Rule 9 (1) (2) (3) (4) & (5) of the Rules framed under the SARFAESI Act, having not been adhered to, the sale is also invalid. Therefore, His Lordship set aside the same and the writ petition (W.P.No.19297 of 2012) and company application (C.A. No.421 of 2013) filed by the auction purchaser were allowed, and the writ petition (W.P.No.33655 of 2011) and company application (C.A. No.1972 of 2011) filed by the appellant were dismissed.
Sri S. Ravi, learned Senior Advocate, submits that the provisions of the Companies Act, 1956, in particular Sections 442, 446 and 537 thereof, have no manner of application as the said provisions have been ousted by virtue of the provisions of Section 35 of the SARFAESI Act, which is a later and special enactment as the same are inconsistent with Section 13 of SARFAESI Act. Even the provisions of Section 37 of this Act, saves amongst others, the Companies Act, 1956, but not entirely but to the extent of compatibility. He says provision of Section 13 of SARFAESI Act is incompatible with above provision. While examining identical provision being Section 34 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as RDB Act), the Supreme Court in the case of Allahabad Bank v. Canara Bank and Rajasthan State Financial Corporation v. Official Liquidator has ruled that in case of Special Legislation like this, the provisions of Sections 442, 446 and 537 of Act 1956 stood ousted and that a person aggrieved by sale under the RDB Act has to approach the Debts Recovery Tribunal and not the Company Court.
Following the principle laid down by the Supreme Court, the Delhi High Court in Kotak Mahindra Bank Ltd. v. Megnostar Telecommunications Pvt. Ltd. and the Bombay High Court in The Akola Oil Industries v. State Bank of India , while examining the scope of SARFAESI Act, held that the provisions of the SARFAESI Act will have overriding effect over the Companies Act. It is candid to say, the Punjab and Haryana High Court has taken a contrary view in Haryana State Industrial and Infrastructure Development Corporation v. Haryana Concast Ltd. . He also contends that provisos to Section 13(9) of the SARFAESI Act provide internal evidence as to the extent to which the provisions of the Companies Act are applicable to the proceedings under the SARFAESI Act stands. The reference to the Companies Act in Section 37 of the SARFAESI Act will not make any difference. The right of a bank to sell without the intervention of Court in terms of the provisions of Section 13(1) of the SARFAESI Act would prevail over the provisions of Sections 446 and 537 of Act 1956 in view of overriding effect of the SARFAESI Act as stated in Section 35 therein. He contends with the support of judgment of the Supreme Court in case of Jagdish Singh v. Heeralal & others that sale held under SARFAESI Act can only be questioned before Tribunal under DRT alone, Company Court has no jurisdiction.
He also submits that Company Application No.421 of 2013 in Company Petition No.215 of 2010 and Writ Petition No.19297 of 2012 filed by the auction purchaser are mala fide. The auction purchaser after having accepted the conclusion of the sale and having paid consideration money is estopped from setting up such plea. He argues that the immovable property admittedly belonged to the guarantors, who are private individuals, and the said company has nothing to do with it. The movable properties belonged to the company and were hypothecated to the appellant bank and the subsequent hypothecation to SBI Global Factors Limited does not invalidate the sale by the appellant.
Learned counsel for the Official Liquidator, while opposing this appeal, contends that the contention of the appellant is un- acceptable as the principle laid down by the Apex Court in Allahabad Bank case (1 supra) does not apply as the Apex Court in the said Case, looking into the provisions of the RDB and FI Act, wherein the said Act was stated to be overriding Act 1956. Therefore, the principle laid down therein has no manner of application as the appellant bank has proceeded under the SARFAESI Act and unlike in the DRT the consequential proceedings of notice for default, attachment and sale are conducted by an Authorized Officer appointed by Bank/Financial Institution and not by a Tribunal as in DRT. An Authorized Officer under the SARFAESI Act, being subordinate to a Presiding Officer does not have equal rights and the act of Indian Bank is prone to investigation or enquiry by the Honble Company Court. He contends thus, Indian Banks right to proceed against the companys assets does not subsist as it does not have a charge over the same as per the provisions of Act 1956. He informs the Court that till date the appellant Indian Bank has not filed any document to prove their charge either before the Company Court or before this Honble High Court and thus violated the provisions of Act 1956. He argues hypothetically that in case the land on which the borrowers unit exists is the personal property of the borrower and the relation and the title of the lands in question were mortgaged to the bank by way of deposit of title deed, the other assets standing on the land, such as buildings, plant & machinery, current assets, furniture etc., are the exclusive properties of the company in liquidation and as such the Indian Bank has no right under any statute to proceed against the borrower company independently.
His further contention is that the appellant bank has violated the provisions of Sections 441, 446, 531, 531(a) and 537 of Act 1956 and Section 37 and Rules 5, 6 and 8(6)(a) of SARFAESI Act. He further contends, with the support of the judgment of the Supreme Court in Sri Siddeswara Cooperative Bank Limited v. Ikbal the appellant has also violated the provisions of Section 13(9) of the SARFAESI Act, inasmuch as there is no consent between the parties - the purchaser, borrower and the secured creditor. The sale is violative of the above provision because SBI Global Factors Ltd., the other secured creditor, was not associated by them while conducting the sale. That apart, the Official Liquidator, who is also a secured creditor, since he represents the workers, was also not associated with the sale conducted by the Indian Bank. The balance amount of purchase price shall be paid by the purchaser to the Authorized Officer on or before the fifteenth day of confirmation of sale of the immovable property or within such extended period as may be agreed upon in writing between the parties. This would be clear from the provisions of Rule 9(4) of the SARFAESI Act as the purchaser has remitted the sale consideration or arranged to adjust the sale consideration after the stipulated period. He complains that the appellant bank has also grossly violated the provisions of Sections 531 and 537 of Act 1956 that clearly mandates that sales as affected by the parties concerning the assets of the company in liquidation, as was done by the Indian Bank, are hit by the provisions of Act 1956. Apart from the judgment cited by him as above, he has placed reliance on the following decisions.
(i) Rajasthan State Financial Corporation and another v. Official Liquidator (2 supra)
(ii) Sri Siddeswara Cooperative Bank Ltd. v. Ikbal (7 supra)
(iii) Haryana State Industrial and Infrastructure Development Corporation v. Haryana Concast Ltd. (5 supra) Learned counsel for respondent No.1, namely the auction purchaser, submits that the provisions of Act 1956 have full application in view of the provisions of Section 37 of the SARFAESI Act, which carves out, amongst others, the Companies Act found mischief the provision of overriding in Section 35 of the SARFAESI Act. According to him, if Sections 35 and 37 of the SARFAESI Act are read together, it postulates that in the event any of the provisions of Act 1956 not being inconsistent with the provisions of the SARFAESI Act, the application of both the Acts should be complementary to each other and both are in tandem. He says that the Supreme Court decisions in Allahabad Bank case (1 supra) and Rajasthan State Financial Corporation v. Official Liquidator (2 supra) were rendered in the context of the provisions of Section 34 of the RDB Act and the said Act overrides Act 1956 to the extent there is anything inconsistent between the two Acts, and the Company Courts jurisdiction is ousted.
(On close scrutiny of the two judgments of the Apex Court, the point for consideration before this Honble Court is whether the said judgment is applicable to the SARFAESI Act, or not?) He contends that it is distinguishable for the reason, in the RDB Act there is no protective coverage to the Companies Act which could be found in Section 37 of the SARFAESI Act which clearly mentioned the provisions of the SARFAESI Act are framed in addition to the provisions of the Companies Act and not in derogation thereof. In that context, the Honble Apex Court held that the jurisdiction of the Company Court is ousted. He contends that the provisions of the SARFAESI Act will not in any way nullify or annul or impair the effect of the provisions of the Companies Act. In this case, admittedly auction took place and bid was confirmed on 29.09.2010 and the petition for winding up was presented before the Company Court on 01.11.2011 and thus it is clear that by the date of presentation of the said petition, sale was not even concluded. Hence, as per Section 441 of the Companies Act, winding up of a company by the Tribunal shall be deemed to commence at the time of presentation of the petition for winding up. Thus, the sale is subject to the provisions of Act 1956 from the date of commencement of the winding up proceedings, i.e., 1.11.2011 and as per Section 446(d) of Act 1956 any question whatsoever, whether on law or fact, which may relate to or arise in the course of the winding up of the company, the Company Court has jurisdiction to entertain and dispose of the same and hence the claim petition filed by the respondent auction purchaser is not maintainable and the Company Court was right in declaring that the said is void. He says that Section 537 of Act 1956 is mandatory and not directory. The word used in the provision is shall, which necessarily indicate mandatory character. Further, the very object of the provisions relating to winding up are to protect and balance the interest of various secured creditors, public dues and workmen etc. If without leave of the Court, the assets of the company are sold, the same will jeopardize the very object. On his part of legal submissions, he has placed reliance on the following decisions:
(i) Mathew Varghese v. M. Amritha Kumar and others (paragraphs 45 and 46 of the judgment)
(ii) Saharas case (para 66 of the judgment)
(iii) Bakemens Industries case (paras 40 & 76 of the judgment) Learned counsel for the SBI Global Factors Limited argues on the same lines as has been argued by the learned counsel for the Official Liquidator and opposes these appeals.
After hearing the learned counsel for the parties appearing before us and taking note of the submissions and going through the material, which have been produced before us, the following questions have fallen for our consideration:
(1) Whether the sale of the mortgaged property owned by private individuals can be brought before the learned Company Judge or in Writ Court for scrutiny?
(2) Whether the Company Court can decide the question raised with regard to the invalidity of sale in view of provisions of the SARFAESI Act read with Recovery of Debts due to Banks and Financial Institutions Act, 1993?
(3) Whether the provisions of Sections 531, 531A & 537 of the Companies Act, 1956 have any manner of application with regard to sale of securities conducted under the SARFAESI Act?
(4) Whether the learned trial Judge was justified in entertaining and deciding the writ petitions with regard to the alleged irregularity and illegality in conducting sale on the basis of material supplied under the provisions of SARFAESI Act and the Rules framed thereunder?
While deciding the first issue, we need to examine what is the factual aspect of the matter namely who is the owner and mortgagor of the properties mortgaged.
In paragraph-12 (clauses A & B) of the counter-affidavit filed by the appellant Bank in W.P. No.19297 of 2012 specifically stated amongst others as follows:
Smt. P. Vara Prasada Raju and Smt P. Latha are the guarantors to the loan facility availed by the said borrower. The said loan facilities are secured by the following securities. Sl.
No. Description of the property Nature of Security Name of the Mortgagor
1.
Ac.18-65 of Non Agricultural lands situated at Halakundi of Bellary Taluk and District, Karantaka together with structures constructed thereon Mortgage P. Latha (Guarantor)
2. Flat No.301, 3rd Floor, Bhawani Towers, Plot Nos.1 & 2, Vengal Rao Nagar, Hyderabad Mortgage P. Vara Prasada Raju (Guarantor)
3. Flat No.403, Vayuputhra Towers, Premises bearing No.482 of MIG-1, Premises No.483 of MIG-1 of KPHB Colony, Balanagar Mandal, Hyderabad.
Mortgage Smt. P. Latha It was stated that the aforesaid mortgage as part of the securities. The said couple who are the Directors of the said company stood guarantors. It is further stated that the said company failed to repay the loan amount as per the terms of sanction and also loan documents and thus committed default in repayment of dues to the Bank. Because of failure as above, the said loan accounts were classified as Non Performing Asset accounts and the appellant Bank, being secured creditor, as per the provisions of SARFAESI Act, 2002, has invoked the provisions of the said Act after following due process of law as contemplated under the said Act and the Security Interest (Enforcement) Rules, 2002 has taken possession of the said properties and sold the secured assets i.e., the above said hypothecated and mortgaged properties.
In the affidavit in reply of the auction purchaser, while dealing with the above statement of the appellant Bank, in paragraph-7 made the following statement.
. the averments in paragraph 11 and 12 (A) to (E) of counter-affidavit the facts borne out of record and hence they do not need any reply. The 2nd respondent Bank in these paragraphs narrated all the facts that led to filing of various cases against the borrower, filing of writ petition against the Sub-Registrar when he refused to register the Sale Certificate issued in favour of petitioner Company (auction purchaser) and various proceedings taken place in Company Petition filed against M/s. Laran Sponge & Minerals (P) Limited, and they are all matter of record.
Thus, there is no denial of fact that the two individual persons may be Directors, are the owners of the immovable properties mortgaged. However in reply affidavit itself and also in the above writ petition has vaguely stated that the said land was given to the company on lease till January, 2015. However, there is no document to support the statement, as under the law lease is required to be created by written registered document, in the absence thereof we think that by virtue of the provisions of Section 17 read with Section 49 of the Registration Act, 1908 such transaction is not admissible in evidence and need not be taken into consideration.
Moreover, going by the provisions of Section 92 of the Evidence Act, the fact which is required to be established by document no oral evidence is admissible. It is also settled provision of law under Section 102 of Evidence Act the burden of proof of any fact rest on him who will fail if no evidence is brought. Under these circumstances, here, we are unable to accept that the company has got any interest in any of immovable properties which have been mortgaged. These immovable properties exclusively belong to two private individuals. This is pointed out in the company application filed by the appellant and it will be clear from the prayer portion thereof, which is stated hereunder:
this Honble Court may be pleased to direct the Official Liquidator to clarify his communication dated 20.09.2011 to the Sub-Registrar, Halkundi Village, Bellary District, Karnataka that the instructions given in the said letter not to transfer, alienate, create any third party charge over the property standing in the companys name without the leave of the Honble High Court or until further orders from his office are not applicable to the personal immovable properties sold by the petitioner Bank relating to the guarantors of the company namely Sri P. Varaprasad Raju and Smt. P. Latha together with the plant and machinery existing on the said properties The impugned judgment was delivered dealing with not only company applications but also the writ petitions. But whether mortgaged securities can be brought for scrutiny before the Company Judge or not is the question. On careful reading of the entire judgment of His Lordship, we do not find that this issue was at all addressed. It appears that His Lordship proceeded on the basis that all the securities belonged to the company. It is settled position of law that shareholders and directors stands separate from the Company, as far as the legal status is concerned. We, therefore, clarify and hold that the Company Court has no jurisdiction in any manner whatsoever to deal with mortgaged properties even assuming the contention raised by the auction purchaser that the question of illegality and invalidity with regard to sale, is correct. This is absolutely inherent lack of jurisdiction.
Therefore, we hold in exercise of jurisdiction under the Companies Act finding and decision of the learned Trial Judge with regard to mortgaged properties is without jurisdiction. The Company Court is concerned with regard to the assets and properties of the company in liquidation.
But this does not solve the problem as it appears that His Lordship rendered the judgment not only entertaining above company applications but also the writ petitions as well. On proper scanning of the two proceedings brought by the auction purchaser, it appears to us in the writ petition the auction purchaser questions the right of the appellant Bank demanding the alleged outstanding dues in connection with the loan transaction, granted to the auction purchaser. It seems to us that the auction purchaser has tried to correlate the loan transaction with completion of sale of the secured properties. It is asserted that since the sale is not valid and proper in view of the various provisions under SARFAESI Act and the Rules framed thereunder, there is no transfer of ownership and as such subsequent loan transaction become redundant and illegal and adjustment of consideration money from the loan account is consequently illegal and invalid. In the company application filed by the auction purchaser, it is asserted that in view of Sections 531, 531A & 537 of the Companies Act sale held become void and invalid. So, the Honble trial judge by combining two questions decided the matter with the reasoning given therein.
We deal with the jurisdiction of the company court in view of the provisions of SARFAESI Act at the first instance. The provisions of Sections 531, 531A & 537 are required to be reproduced hereunder:
531. Fraudulent preference. (1) Any transfer of property, movable or immovable, delivery of goods, payment, execution or other act relating to property made, taken or done by or against a company within six months before the commencement of its winding up which, had it been made, taken or done by or against an individual within three months before the presentation of an insolvency petition on which he is adjudged insolvent, would be deemed in his insolvency a fraudulent preference, shall in the event of the company being wound up, be deemed a fraudulent preference of its creditors and be invalid accordingly:
Provided that, in relation to things made, taken or done before the commencement of this Act, this sub-section shall have effect with the substitution, for the reference to six months, of a reference to three months.
(2) For the purposes of sub-section (1), the presentation of a petition for winding up by the Tribunal and the passing of a resolution for winding up in the case of a voluntary winding up, shall be deemed to correspond to the act of insolvency in the case of an individual.
531A. Avoidance of voluntary transfer.- Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by the tribunal or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator.
537. Avoidance of certain attachments, executions, etc., in winding up by Tribunal.- (1) Where any company is being wound up by the Tribunal--
(a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or
(b) any sale held, without leave of the Tribunal, of any of the properties or effects of the company after such commencement, shall be void.
(2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government.
On reading of the aforesaid three Sections, it appears that any transfer of assets of the company is effected in violation of Sections 531 & 531A is void altogether incurably, but it is void under Section 537 if it is done without leave of the Company Court. Here, admittedly, no leave of the Company Court was obtained. In this context, we examine the contentions of the learned Senior Counsel Mr. S. Ravi that no leave is required, as jurisdiction of Company Court is ousted in view of the provisions of Sections 13, 37 & 35 of the SARFAESI Act. We, therefore, set out the Sections 13 and 35 of the SARFAESI Act in connection with the said submission.
13. Enforcement of security interest.-- (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor any be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require, the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.
(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:-
(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.
(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.
(5-A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale.
(5B) Where the secured creditor, referred to in sub-section (5A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of Section 13.
(5C) The provisions of section 9 of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property.
(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 in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
(7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.
(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.
(9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than sixty per cent in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors.
Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956):
Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529A of that Act:
Provided also that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditors and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator:
Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator:
Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any.
Explanation:- For the purposes of this sub-section,-
(a) "record date" means the date agreed upon by the secured creditors representing not less than sixty per cent in value of the amount outstanding on such date;
(b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor.
(10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.
(11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act.
(12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed.
(13) No borrower shall, after receipt of notice referred to in sub-
section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.
35. The provisions of this Act to override other laws.-- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
Section 35 of the SARFAESI Act, no doubt, provides for overriding effect over other Acts which were in force on the date of commencement of the Act to the extent of inconsistency. We think that it would be unjust if we do not read and take into consideration of Section 37 of the SARFAESI Act, which is set out hereunder.
37. Application of other laws not barred.- The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.
A reading of Section 37 of the Act above makes apparently clear that the provisions of the Companies Act also are saved. We think in this context reading both the Sections 35 and 37 of SARFAESI Act harmonized interpretation to get true import and effect, is to be given. According to us, the provisions of the Companies Act under Section 37 above are saved to the extent of consistency with the provisions of the SARFAESI Act. In other words, any of the provisions of the SARFAESI Act expressly run counter to the provisions of the Companies Act, the provisions of SARFAESI Act will prevail over the Companies Act because it is special and later legislation. It is settled position of law by the Honble Supreme Court that subsequent special legislation overrides general legislation in the same field or in case of inconsistency.
In the case of Allahabad Bank case (1 supra) the Supreme Court while examining the scope of the provisions of Recovery of Debts due to Banks and Financial Institutions Act, 1993 held that it being subsequent legislation and being a special law which would prevail over the general law namely the Companies Act, 1956. The language of Section 34 of the RDB Act is almost similar to that of the SARFAESI Act. The only distinguishing feature is that the provisions of Companies Act was not saved at all therein as it will appear from sub-section (2) of Section 34 of the RDB Act.
It will appear from Section 34 of the SARFAESI Act the jurisdiction of the civil court has been ousted absolutely in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine. It will appear from Section 17 of the SARFAESI Act that any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by this secured creditor or his authorized officer under this Chapter may make application to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken. If aforesaid provision of sub-section (1) of Section 17 is read with Section 34, it would be clear that the Civil Court has no jurisdiction to entertain any move to challenge the action of secured creditor under this Act. A fairly recent decision of the Supreme Court in the case of Official Liquidator, U.P. and Uttarakhand v. Allahabad Bank and others ruled in paragraph-35 of the report as follows.
35. It has been submitted by Mr Banerji, learned Senior Counsel, that if the Company Court as well as DRT can exercise jurisdiction in respect of the same auction or sale after adjudication by DRT, there would be duality of exercise of jurisdiction which the RDB Act does not envisage. By way of an example, the learned Senior Counsel has submitted that there are some categories of persons who can go before DRT challenging the sale and if the Official Liquidator approaches the Company Court, then such a situation would only bring anarchy in the realm of adjudication. The aforesaid submission of the learned Senior Counsel commends acceptance as the intendment of the legislature is that the dues of the banks and financial institutions are realised in promptitude. It is to be noted that when there is inflation in the economy, the value of the mortgaged property/assets depreciates with the efflux of time. If more time is consumed, it would be really difficult on the part of the banks and financial institutions to realise their dues. Therefore, this Court in Allahabad Bank case has opined that it is DRT which would have the exclusive jurisdiction when a matter is agitated before DRT. The dictum in the said case has been approved by the three-Judge Bench in Rajasthan State Financial Corpn. It is not a situation where the Official Liquidator can have a choice either to approach DRT or the Company Court. The language of the RDB Act, being clear, provides that any person aggrieved can prefer an appeal. The Official Liquidator whose association is mandatorily required can indubitably be regarded as a person aggrieved relating to the action taken by the Recovery Officer which would include the manner in which the auction is conducted or the sale is confirmed. Under these circumstances, the Official Liquidator cannot even take recourse to the doctrine of election. It is difficult to conceive that there are two remedies. It is well settled in law that if there is only one remedy, the doctrine of election does not apply and we are disposed to think that the Official Liquidator has only one remedy i.e. to challenge the order passed by the Recovery Officer before DRT. Be it noted, an order passed under Section 30 of the RDB Act by DRT is appealable. Thus, we are inclined to conclude and hold that the Official Liquidator can only take recourse to the mode of appeal and further appeal under the RDB Act and not approach the Company Court to set aside the auction or confirmation of sale when a sale has been confirmed by the Recovery Officer under the RDB Act.
(emphasis supplied) Again the Apex Court in case of Jagdish Singh v. Heeralal (6 supra) 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) 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 got 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 sub- section (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.
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 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.
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.
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--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 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 (4 supra). 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.
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.
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:-
(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 in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
(emphasis supplied) 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 Sections 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 court has decided on the admitted fact. Thus the decision of the Honble 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.
Other decisions cited by various learned counsel in our view are of no help. These decisions are rendered on different issues as discussed hereunder.
In the case of Pravin Gada v. Central Bank of India the Supreme Court accepting earlier decisions of the Supreme Court held in paragraph 18 of the report.
A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company in liquidation, through its Recovery Officer but only after notice to the Official Liquidator or the liquidator appointed by the Company Court and after hearing him.
In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the Company Court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation.
In case of Kotak Mahindra Bank Limited v. Megnostar Telecommunications Private Limited (3 supra) 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.
Punjab and Haryana High Court in case of Haryana State Industrial and Infrastructure Development Company v. Haryana Concast Limited & another (5 supra) while examining legal implication of provision of Sections 13 (4), 9, 35 of SARFAESI Act vis--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.
In an unreported decision of the learned Single Judge of this Court in the matter of M/s. Pioneer Alloy Casting Limited (in liquidation) on C.A. No.525 of 2012, no legal ratio is to be found. His Lordship following judgment of the Supreme Court and those of other High Courts granted relief.
Now, the fourth question is whether the sale can be held invalid because of the alleged non-compliance of the mandatory provisions of the Rules framed under the SARFAESI Act.
The learned trial Judge himself has noted that there is not enough material to examine the allegations made by the writ petitioners and countered by the appellant. In spite of noting this fact, the learned trial Judge thought that it should be decided and so decided. We are of the view that all materials namely advertisement, conditions of sale and other things are not produced before us also. Therefore we do not like to decide this issue conclusively nor do we accept such decision of the learned Trial Judge in absence of such materials and also for the reasons stated hereunder.
The learned trial Judge has not rendered any findings as to whether the loan granted to the auction purchaser subsequent to the auction being held are correlated to sale of the securities. In other words, whether repayment of the loan is dependent upon lawful and valid completion of sale held by the appellant under the SARFAESI Act. It is the contention of the auction purchaser that since sale was not valid nor complete, so also sale certificate issued in the context of the provisions of the Companies Act as well as the provisions of the Rules 7, 8 & 9 framed under the SARFAESI Act adjustment of balance consideration amount against loan amount is illegal. His Lordship with respect without deciding this issue granted relief as prayed for to the auction purchaser in the writ petition. Whether the demand of the Bank for repayment of loan after adjustment of the sale consideration money is lawful or not, whether the same have been linked with the sale and whether the sale under the law is complete or not, or whether the auction purchaser can back out after bidding and offering to pay price for sale by depositing 25% of the same, all these questions are required to be decided in great detail.
The learned trial Judge by necessary implication proceeded assuming that the loan transaction between the appellant and the auction purchaser are having correlation with the completion of sale namely handing over possession of the property and payment of balance sale consideration money. We think that this approach in exercise of writ jurisdiction is absolutely unwarranted and the writ petitions should not have been entertained at all. It is not a pure question of law on admitted fact. All the questions and controversy are disputed questions of fact and law and could not be decided in writ jurisdiction. Hence we hold that granting relief to the auction purchaser as prayed for in the writ petition is not sustainable under the law. Therefore, we set aside the same and dismiss the writ petitions leaving all questions open. It would be open for the auction purchaser to approach the Debts Recovery Tribunal so also Official Liquidator or any other claimant.
These Appeals are accordingly allowed. There will be no order as to costs.
Consequently, pending miscellaneous petitions, if any, shall also stand closed.
_______________________ Kalyan Jyoti Sengupta, CJ _______________ Sanjay Kumar, J Dt. 11.11.2014