Rajasthan High Court - Jaipur
Pidilite Industries Ltd vs Rathi Syntex Ltd on 14 February, 2024
Author: Sameer Jain
Bench: Sameer Jain
[2023:RJ-JP:38294] (1 of 12) [COP-16/2014]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
S.B. Company Petition No. 16/2014
Khurana Textile Mills Pvt Ltd
----Petitioner
Versus
Rathi Syntex Ltd
----Respondent
Connected With S.B. Company Petition No. 2/2015 Pidilite Industries Ltd
----Petitioner Versus Rathi Syntex Ltd
----Respondent S.B. Company Application No. 3/2020 Khurana Textile Mills Pvt Ltd, Registered Office At 6A/81, Barodawala Mansion, Ist Floor, Dr. A.b. Road, Worli Mumbai- 400018 And Branch Office At Roop Industries Compound, Andheri Kurla Road, Sakinaka, Mumbai-400072, Through Its Authorised Person Mr. Rajinder Singh Khurana
----Petitioner Versus Rathi Syntex Limited, Registered Office At Rathi House, Bhawani Mandi, Jhalawar, Rajasthan-326502.
----Respondent S.B. Company Application No. 7/2020 Khurana Textile Mills Pvt Ltd, Registered Office At 6A/81, Barodawala Mansion, First Floor Dr. A B Road, Worli Mumbai- 400018 And Branch Office At Roop Industries Compound, Andheri Kurla Road Sakinaka, Mumni 72, Through Authorised Person Mr Rajinder Singh Khurana
----Petitioner Versus Rathi Syntex Ltd, Registered Office At Rathi House, Bhawani (Downloaded on 16/02/2024 at 10:50:31 PM) [2023:RJ-JP:38294] (2 of 12) [COP-16/2014] Mandi Jhalawar, Rajasthan-326502
----Respondent For Petitioner(s) : Mr. Shivanshu Naval with Ms. Akanksha Naval Mr. Ayush Sharma For Respondent(s) : Mr. Rahul Lodha for Mr. Ruvit Kumar, OL HON'BLE MR. JUSTICE SAMEER JAIN Order Reserved On: 01/12/2023 Pronounced On: 14/02/2023
1. Matter comes up on Report No. 12988/2021, filed by the Official Liquidator (for short "OL"), seeking the following reliefs:
"(i) The report may kindly be taken on record.
(ii) The Hon'ble Court may direct Bank of Baroda (for short "BoB") being Secured Creditor who has sold all the assets of the Company in liquidation to deposit a sum of Rs. 5 lakhs with the Official Liquidator as stated in para 6 of this report
(iii) Any other order/orders as may be deemed fit and proper in the circumstances of the case may also kindly be passed."
2. The details of the expenses sought to be recovered by the OL from the secured creditor are as under:
S. No. Particulars (Payment) Amount in Rupees 1 Advertisement expenses 370772 2 TDS 7908 3 GST 7710 4 Misc. legal expenses and T.A 4010 expenses 5 Professional valuation fees 1800 expenses TOTAL 392200 (Downloaded on 16/02/2024 at 10:50:31 PM) [2023:RJ-JP:38294] (3 of 12) [COP-16/2014] The details of the future expenses which are to be incurred are as under:
S. No Particulars (Payment) Amount in Rupees 1 H.Y. statement audit 15000 2 ROC fees (8x500) and other 2000 government fees and expenses 3 Office misc. expenses 15000 TOTAL 32000
3. Learned counsel for the OL submits that to meet the aforesaid expenses, the OL took a loan of Rs. 3,93,070/- from the common pool, out of which till date Rs. 3,92,200/- is the amount of expense incurred till date, which has not been paid by the secured creditor/BoB despite due intimations vide letters dated 03.03.2020, 09.07.2020 and 03.11.2020, i.e. immediately after receiving the intimation of sale from secured creditor/BoB vide letter dated 26.02.2020. Thereafter, since no payment was made by secured creditor/BoB, the present report was filed.
4. Learned counsel for the OL contends that the aforesaid amount is payable in view of Section 529 of Companies Act, 1956 (for short "Companies Act") read with Rule 292 of the Companies (Court) Rules, 1959 (for short "Companies Rules"). It is further contended that it is misconceived to state that since the secured creditor stayed outside the winding up proceedings and proceeded to sell the secured assets under the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "SARFAESI Act"), no expenses has incurred towards the security of the assets since it is undisputed that the secured creditor/BoB has filed an application (Downloaded on 16/02/2024 at 10:50:31 PM) [2023:RJ-JP:38294] (4 of 12) [COP-16/2014] for condonation of delay in filing claim before this Court. In support of his contentions, learned counsel for the OL has placed reliance on judgment of Bombay High Court in the case of Sterling Trade v. Trimbak Ispat (P) Ltd.: 2018 SCC OnLine Bom 12339 wherein it was held that each party contributes to the expenses in proportion to the benefit each party deprives.
5. Per contra, learned counsel for the secured creditor/BoB submits that the BoB had given certain credit facilities to the company under liquidation as secured creditor in the year 2010. The company under liquidation had mortgaged a total of seven immovable properties in favour of BoB. Subsequently, the loan account of the company under liquidation were classified as Non- performing Assets (for short "NPA") on 28.03.2014 and the BoB invoked the mortgage, took physical possession of the mortgaged properties and put the same to auction on 11.09.2015, 04.11.2015, 07.04.2016, 26.10.2017, 31.07.2019 and 05.02.2020 in exercise of powers under the SARFAESI Act. The auction notice dated 16.01.2020 was also issued to the company under liquidation and only thereafter did the BoB issued sale certificate with respect to the auctioned mortgaged properties in favour of auction purchaser. It is contended that the entire case of OL is primarily based on the purported liquidation expenses incurred by the OL in the liquidation process of Rathi Syntex Limited (company in liquidation). The same are false, baseless, unspecific and meritless as the OL has failed to substantiate its claim of Rs. 5,00,000/- as liquidation expenses. It is also highlighted that the (Downloaded on 16/02/2024 at 10:50:31 PM) [2023:RJ-JP:38294] (5 of 12) [COP-16/2014] BoB had, from time to time, intimated the developments in the recovery proceedings initiated under the SARFAESI Act.
6. Learned counsel for the secured creditor/BoB further contends that the OL has failed to mention under which provision of law is the secured creditor liable to pay the expenses so raised. Section 529 of the Companies Act clearly states that if a secured creditor, instead of relinquishing his security and providing his debts, proceeds to realize his security as in this case, it shall be liable to pay only such portion of the expense incurred by the liquidator for the preservation of the security before its realization by the secured creditor. In the case in hand, since the assets of the company under liquidation have always been in the possession of the secured creditor, the same was preserved and kept safe by the BoB at its own expense. Therefore, the OL is not entitled to claim any amount from the secured creditor under Section 529 of the Companies Act.
7. Learned counsel for the secured creditor/BoB further contends that the as per Rule 113 of the Companies Rules, the petitioner, i.e. Khurana Textile Mills Private Limited has to borne the expense for advertising and the OL cannot claim the same from secured creditor. Reliance in this regard is placed on judgment of Division Bench of Andhra Pradesh High Court in the case of CMD, APSFC, Hyd. vs. CMD, Southern Transformers and Electricals Ltd., Renigunta & Ors: 2000 (2) ALT 737.
8. Learned counsel for the secured creditor/BoB has also relied on Hon'ble Supreme Court judgment of Pegasus Assets Reconstruction (P) Ltd. v. Haryana Concast Ltd.: (2016) 4 (Downloaded on 16/02/2024 at 10:50:31 PM) [2023:RJ-JP:38294] (6 of 12) [COP-16/2014] SCC 47 to submit that OL cannot interfere in the SARFAESI proceedings and the powers under the Companies Act cannot be wielded by the Company Judge or the liquidator to interfere with proceedings by a secured creditor to realize its secured interest as per provisions of SARFAESI Act.
9. Heard the rival submissions, scanned the record and considered the judgments cited at Bar.
10. The winding up order of the company in liquidation was passed on 09.12.2017 and the charge of the company in liquidation was handed over to the Official Liquidator. Since the possession of the assets of the company in liquidation was with the secured creditor/BoB under SARFAESI Act, the OL was directed to co-ordinate with the BoB for the purpose of further proceedings. Vide order dated 21.05.2019, permission was granted to the OL to publish an advertisement in terms of Rule 148 of the Companies Rules inviting claims of secured creditors/workmen/contributories. It is with regard to the publication of these advertisements that the OL is seeking reimbursement from secured creditor/BoB.
11. The relevant provisions of the Companies Act and the Companies Rules, relevant for adjudication of the present report, are reproduced as under:
"Section 529 - Application of insolvency rules in winding up of insolvent companies (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to-
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities; and (Downloaded on 16/02/2024 at 10:50:31 PM) [2023:RJ-JP:38294] (7 of 12) [COP-16/2014]
(c) the respective rights of secured and unsecured creditors;
as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,
(a) the liquidator shall be entitled to represent the workmen and enforce such charge;
(b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen's dues; and
(c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A.
(2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section:
Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay his portion of the expenses incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.
Explanation.-For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmen's portion in relation to the security bears to the value of the security. (3) For the purposes of this section, section 529A and section 530-
(a) "workmen", in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947);
(b) "workmen's dues", in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:-
(i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services (Downloaded on 16/02/2024 at 10:50:32 PM) [2023:RJ-JP:38294] (8 of 12) [COP-16/2014] rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947);
(ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution;
(iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923 (8 of 1923) rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company;
(iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company;
(c) "workmen's portion", in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of-
(i) the amount of workmen's dues; and
(ii) the amounts of the debts due to the secured creditors.
Section 529A - Overriding preferential payment (1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company-
(a) workmen's dues; and
(b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub-
section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.
Rule 113 - Advertisement of the order Save as otherwise ordered by the Court, every order for the winding-up of a company by the Court, shall within 14 days of the date of making the order, be advertised by the petitioner in one issue each of a newspaper in the English language and a newspaper in the p; regional language circulating in the State or the Union Territory concerned and shall be served by the (Downloaded on 16/02/2024 at 10:50:32 PM) [2023:RJ-JP:38294] (9 of 12) [COP-16/2014] petitioner upon such person, if any, and in such manner as the Judge may direct. The advertisement shall be in Form No. 53. Rule 148 - Notice to creditors (1) The liquidator shall give not less than 14 days' notice of the date so fixed by advertisement in one issue of a daily newspaper in the English language and one issue of a daily newspaper in the regional language circulating in the State or Union Territory concerned, as he shall consider suitable. Such advertisements shall be in Form No. 63.
(2) The Liquidator shall also give not less than 14 days' notice of the date fixed, in a winding-up by the Court, to every person mentioned in the statement of affairs, as a creditor, who has not proved his debt and to every person mentioned in the statement of affairs as a preferential creditor, whose claim to be a preferential creditor has not been established or is not admitted, or where there is no statement of affairs, to the creditors as ascertained from the books of the company and, in any other winding-up, to each person who, to the knowledge of the Liquidator, claims to be a creditor or preferential creditor of the company and whose claim has not been admitted, to the last known address or place of abode of such person. Such notice shall be in Form No. 64 or 65 as the case may be, and shall be sent to each creditor by pre-paid, letter post under certificate of posting.
(3) All the rules hereinafter set out as to the admission or rejection of proofs shall apply with necessary variations to any claim to priority as a preferential creditor. Rule 292 - Where the company has no available assets Where a company against which a winding-up order has been made has no available assets, the Official Liquidator may, with the leave of the Court, incur any necessary expenses in connection with the winding-up out of any permanent advance or other fund provided by the Central Government, and the expenses so incurred shall be recouped out of the assets of the company in priority to the debts of the company:
Provided that where any money has been advanced to the Official Liquidator by the petitioning or other creditor or contributory for meeting any preliminary expenses in connection with the winding- up, the Official Liquidator may incur any necessary expenses out of such amount, and the money so advanced shall be paid out of the assets of the company in priority to the debts of the company."
12. As per Rule 148 of Companies Rules, it was incumbent upon the OL to publish the advertisement inviting claims from creditors of the company in liquidation. The same was a statutory (Downloaded on 16/02/2024 at 10:50:32 PM) [2023:RJ-JP:38294] (10 of 12) [COP-16/2014] obligation, and therefore the OL, in the facts of the case, had no option but to take funds out of the common pool to fulfill the said statutory obligation. The OL is thus entitled to seek refund of the expenses incurred in discharge of his statutory obligations. The question that remains to be answered is whether the secured creditor be made liable to refund the same out of the realized assets of the company in liquidation, as the OL had no available assets of the company in liquidation?
13. As per Section 529A of the Companies Act, workman's dues and dues of secured creditor stand on equal footing and have to be paid in priority to all other debts of the company. As per proviso to clause (c) of Section 529(1) of the Companies Act, even if the secured creditor realizes its security, the OL can enforce the charge of workman. In the case in hand, the company in liquidation had no available assets and the impugned advertisements were published with the leave of this Court. When the company in liquidation does not have available assets, the OL can incur necessary expenses and the said expenses can be recouped out of the assets of the company in priority to the debts of the company. Therefore, as per Rule 292 of the Companies Rules, the expenses incurred by the OL would have preferential charge over all other debts of the company. Only after adjusting these expenses, can the other dues of the company in liquidation be paid/settled.
14. The position that emerges now is that the statutory advertisements in questions, under Rule 148 of the Companies Rules, was issued to invite claims form secured creditors and workmen, whose dues stand on equal foorting. This Court is not in (Downloaded on 16/02/2024 at 10:50:32 PM) [2023:RJ-JP:38294] (11 of 12) [COP-16/2014] agreement with the contention of secured-creditor/BoB that since the assets were realized under the provisions of SARFESI Act, the OL cannot claim any right over the same. The realization of the assets under SARFAESI Act satisfied the debts owed to the secured-creditor by the company in liquidation. However, before the debts of the company could be paid, as per Rule 292 of the Companies Rules, the expenses incurred by the OL in discharge of his statutory obligations had to be repaid out of the assets of the company.
15. On a joint reading of the above quoted provisions, this Court has no hesitation in holding that the secured creditor/BoB, who has auctioned the assets of the company in liquidation and realized the same to settle the dues of the company, could not have done so prior to settling the expenses incurred by the OL in discharge of his staturoy obligation under Rule 148 of Companies Rules, as workman dues and dues to secured creditors stand on equal footing.
16. The judgment of CMD, APSFC, Hyd. (supra), relied upon by learned counsel for the secured creditor/BoB, is also on different facts and the issue therein pertained to deposit of preliminary expenses with the OL to meet advertisement to put into effect the winding up order. Whereas the present case relates to manner in which expenses incurred in connection with winding up of the companr are to be paid, shared, recouped or recovered.
17. In view of the above, the claim of the OL seeking payment to the tune of Rs. 3,92,200/- from the secured-creditor/BoB is found tenable. However, the future expenses so claimed, does not (Downloaded on 16/02/2024 at 10:50:32 PM) [2023:RJ-JP:38294] (12 of 12) [COP-16/2014] appear to have any statutory backing whatsoever, and is hereby held to be untenable.
18. Consequently, the secured-creditor/BoB is directed to release the payment of Rs. 3,92,200/- along with 6% simple interest from date of report to the date of payment.
19. Report No. 12988/2021, accordingly, stands disposed of.
20. Matters be listed in appropriate category on 01.03.2024.
(SAMEER JAIN),J Pooja /231-233 (Downloaded on 16/02/2024 at 10:50:32 PM) Powered by TCPDF (www.tcpdf.org)