Bombay High Court
The Official Liquidator Of Mafatlal ... vs United Metachem Pvt. Ltd. (Petitioner) on 1 December, 2022
Author: N. J. Jamadar
Bench: N. J. Jamadar
2-OLR-137-22+.DOC
Sayali Upasani
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
OFFICIAL LIQUIDATORS REPORT NO.137 OF 2022
IN
COMPANY PETITION NO.743 OF 1990
In the matter of Companies Act, I of 1956, and
In the matter of Mafatlal Engineering Industries Ltd (In
Liquidation)
M/s United Metachem Pvt Ltd ...Petitioner
AND
COMPANY APPLICATION NO.331 OF 2019
IN
COMPANY PETITION NO.743 OF 1990
The Sub-Divisional Officer, Thane & Anr ...Applicants
And
United Metachem Pvt Ltd ...Petitioner
Vs
The Official Liquidator of M/s Mafatlal
Engineering Industries Ltd (In liqn) & Anr ...Respondents
Ms. Jyoti Chavan, AGP, for the Applicant in C.A. No.331 of 2019
Mr. Mayur Khandeparkar, Ms. Akanksha Saxena, G. Aniruth P.
Mr. Parth Shah, for Applicant in IAL/4114/2022.
Mr. Subit Chakrabarti with Ms. Apurva Pawar and Mr. Abhay
Jariwala i/b Vidhi Partners, for the Applicant in
IAL/4915/2022 and Respondent No. 2 in
IAL/31865/2022.
Mr. Sanjay Singhvi, Sr. Adv a/w Ms. Rohini Thyagarajan, for
Workman.
Mr. P.G. Lad with Shreya Shah, for Respondent/Mhada..
Mr. Rohit Gupta with Ms. Jyoti Sanap i/b V. Deshpande for
ARCIL
Mr. Arun Siwach with Karan Gandhi i/b Cyril Amarchand
Mangaldas, for ICICI Bank
Mrs. M.P. Thakur, for Sangharsh Kamgar Samiti of Mafatlal.
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CORAM: N. J. JAMADAR, J.
DATE : 30th November, 2022 &
1st December, 2022.
ORAL ORDER:-
1. The Official Liquidator has filed this report seeking, inter alia, the following directions.
"(a) That in view of the above, whether this Hon'ble Court may be pleased to permit the Official Liquidator to handover possession of land which Official Liquidator is in possession to DRT Receiver on "As is where is an Whatever there is basis" and permit the Official Liquidator to withdraw the security."
2. M/s. Mafatlal Engineering Industries Ltd., the company in liquidation, was ordered to be wound up by an order dated 30th September, 1999, passed by this Court in Company Petition No.743 of 1990. Consequently, the Official Liquidator has been appointed the liquidator with usual powers under the Companies Act, 1956.
3. The Sub-Divisional Officer, Thane and the Mumbai Rail Vikas Corporation Ltd., preferred an application being Company Application No. 331 of 2019, seeking permission to acquire the land admeasuring 4416.96 square Meters more particularly shown in MR Plan No.9/2018 (Exhibit-C to the affidavit in support of the Company Application No.331 of 2/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC 2019) (subject land) forming part of the assets of the company in liquidation. By an order dated 30th August, 2019, this Court directed the Court Receiver to hand over the subject land to the Official Liquidator upon the state depositing an amount of Rs.35 Crores with the Official Liquidator. Pursuant thereto, Mumbai Rail Vikas Corporation Ltd., deposited a sum of Rs.35 Crores with the Official Liquidator. Thereupon the Court Receiver handed over the possession of the subject land to the Official Liquidator on 4th October, 2019. By a subsequent order dated 9th October, 2019, the said Company Application No.331 of 2019, came to be disposed of. However, the question of delivery of the possession of the subject land to the State authorities was left open to be decided on the adjourned date.
4. As regards the balance land of the company in liquidation admeasuring 4,87,158.13 square meters, (larger parcel of land) the Official Liquidator made three attempts to sell the said land. However, those attempts did not fructify as no offers were received.
5. While the Official Liquidator was in the process of liquidation, Invent ARC, a secured creditor of the company in liquidation, preferred Misc. Application No.1196 of 2022, in Recovery Proceeding No.196 of 2003, seeking, inter alia, 3/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC directions to the Official Liquidator to hand over possession of the immovable property described in the schedule being Exhibit-B hereto, to the Recovery Officer of the DRT or to a private receiver as may be appointed by the Recovery Officer. The Official Liquidator resisted the said application.
6. By an order dated 24th August, 2022, the Recovery Officer disposed of Misc. Application No.1196 of 2022, with a direction to Official Liquidator to hand over the immovable properties bearing survey Nos. 90 to 103, 139 to 170, 172 to 235, 242, 257 to 260, 265 to 271, 273 and 443 admeasuring about 1,004,256 square meters together with all building and structures, all plant and machinery attached to the earth or permanently fastened to anything attached to the earth as described in the schedule being Exhibit-B thereto and the DRT Receiver came to be appointed as the receiver for the said purpose.
7. In view of the aforesaid order, the Official Liquidator by this Report seeks directions to hand over the possession of the land, which is in Official Liquidator's possession to DRT Receiver on "as is where is and whatever there is basis". The Official Liquidator asserts that the Official Liquidator is in possession of land admeasuring 4,87,158.13 square meters 4/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC (larger parcel of land) and another parcel of land admeasuring 4416.96 square meters, (subject land) handed over by the Court Receiver to the Official Liquidator pursuant to the order passed by this Court on 30 th August, 2019 in Company Application No.331 of 2019. In the circumstances, the Official Liquidator cannot hand over the land admeasuring 1,004,256 square meters to DRT Receiver, since Official Liquidator is in possession of land admeasuring to 4,91,575.09 square meters only. It is further asserted that post deposit of the sum of Rs.35,29,26,146.40/-, by Mumbai Rail Vikas Corporation Ltd., the Official Liquidator has declared dividend to workers and secured creditors.
8. An affidavit-in-reply is filed on behalf of the Invent Asset Securitisation and Reconstruction Pvt. Ltd., the secured creditor, who had moved the Misc. Application No. 1196 of 2022 in Recovery Proceeding No.196 of 2003, before the Recovery Officer. After adverting to the circumstances in which the recovery certificate came to be granted under Section 19 (22) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ("the RDB Act"), on 26th June, 2003, and the proceedings initiated by Invent to execute the said Recovery Certificate, it is contended that, in view of the order 5/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC passed by the Recovery Officer, the Official Liquidator is bound to hand over possession to the receiver appointed by the Recovery Officer.
9. Invent further contends that in view of the order passed by the Recovery Officer, the prayer in the report so far as the land in respect of which Metro Rail Vikas Corporation has laid a claim, (subject land) can no longer survive and be proceeded with before this Court as the said land forms part of the security, the subject matter of the recovery certificate. Invent asserts that the Official Liquidator is bound to deliver the possession of the land admeasuring 1,004,256 square meters and, in the least, furnish a satisfactory explanation as to the status of the remainder of the said land, apart from the land admeasuring 4,91,575.09 square meters which is the subject matter of the report.
10. When this report was heard, the State sought hearing on the Company Application No. 331 of 2019. As the issues which arise for determination in the OLR and the aspect of delivery possession, which was left to be adjudicated at a later date in Company Application No. 331 of 2019, overlap the parties were heard in the OLR as well as the Company Application No.331 of 2019.
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11. Before adverting to note the submissions on behalf of the parties, it may be expedient to note the orders passed by this Court in Company Application No. 331 of 2019, for the issues which crop up for consideration get crystallized. In Company Application No. 331 of 2019, the Sub-Divisional Officer, Thane and the Mumbai Rail Vikas Corporation Ltd, the joint applicants therein, had, inter alia, sought the following reliefs.
"(a) That this Hon'ble Court be pleased to allow the Company (InLiquidation) admeasuring 4416.96 square Meters, as more particularly shown in MR Plan No.9/2018 (Exhibit-C to the affidavit in support of the Company Application) through negotiations and that the Applicants be permitted to deposit a sum of Rs.35,29,26,146.40/- in this Hon'ble Court being the compensation payable in respect of the said land;
(b) That this Hon'ble Court be pleased to direct the Court Receiver, High Court, Bombay to hand over possession of the lands admeasuring 4416.96 square meters as more particularly shown in MR Plan 9/2018 (Exhibit-C to the affidavit in support of the Company Application) to the Official Liquidator, High Court, Bombay;
(c) That upon the Official Liquidator, High Court, Bombay receiving possession of the lands admeasuring 4416.96 square meters as more particularly shown in MR Plan No.9/2018 (Exhibit-C to the affidavit in support of the Company Application) this Hon'ble Court be pleased to direct eh Official Liquidator, High Court, Bombay to hand over possession of the said lands to the Applicants and the Official Liquidator, High Court, Bombay be further directed to execute the necessary documents in favour of the Applicant No. 2 in respect of the acquisition of the said land;"
12. On 30th August, 2019, this Court directed the Court Receiver to hand over the possession of the subject land to the Official Liquidator, upon the State depositing an amount of 7/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC Rs.35 Crores with the Official Liquidator. Simultaneously, M/s. Shetgiri and Associates were directed to value the subject land. Albeit, the said order was passed without prejudice to the rights and contentions of the parties.
13. Paragraphs 1 to 6 of the said order read as under.
"1. Today, Mr. Amol Shetgiri of M/s. Shetgiri and Associates has submitted his report. Copies of the same be handed over to the Advocates for the parties, upon payment of requisite copying charges.
2. Mr. Amol Shetgiri of M/s. Shetgiri and Associates shall value the land which is the subject matter of Company Application (L) No. 333 of 2019 on an urgent basis. He shall submit his report to this Court on or before 13th September, 2019.
3. As far as the subject property is concerned, the Court Receiver shall handover the same to the Official Liquidator upon the State depositing the amount of Rs.35 Crores to the official Liquidator.
4. This order is passed without prejudice to the rights and contentions of the parties.
5. All contentions of the parties are kept open in Company Application (L) No.333 of 2019.
6. The land which is in the possession of the Court Receiver shall be handed over to the Official Liquidator."
(emphasis supplied)
14. On 9th October, 2019, after considering the report of M/s Shetgiri and Associates, this Court further directed the applicants to deposit an amount of Rs.29,26,147/-, with the Official Liquidator in addition to the amount of Rs.35 Crores, already deposited by the applicants. This Court was persuaded to dispose of the application. However, the issue as to whether 8/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC the possession of the subject land be handed over to the applicants, as prayed for, was left to be decided on the adjourned date. Paragraph Nos. 1 and 2 of the order dated 9 th October, 2019, read as under.
"1. The report is submitted by Mr. Amol Shetgiri dated 5th October, 2019, is taken on record. Copies of the same be handed over to the Advocates for the parties upon payment of requisite copying charges. Without prejudice to the rights and contentions of the parties, the Applicants i.e. Sub Divisional Officer, Thane and MRVCL, are allowed to deposit an amount of Rs.29,26,147/- with the Official Liquidator within four weeks from today. This amount shall be in addition to the amoutn of Rs.35 Crores already deposited by the Applicants.
2. The Company Application is accordingly disposed of. However, the issue as whether the possession of land should be handed over to the Applicants as prayed for in the report shall be decided on the adjourned date."
15. In the backdrop of the aforesaid orders, Ms. Chavan, the learned AGP submitted that the Court had permitted the Official Liquidator to dispose a portion of the land of the company in liquidation for a valuable consideration. Pursuant to the orders of the Court, the applicants deposited the amount with the Official Liquidator. Thereupon the Official Liquidator, in turn, adjudicated the claims of the workers and secured creditors and disbursed the said amount. Since only the aspect of delivery of possession of the subject premises by the Official Liquidator to the applicants was kept open to be adjudicated at a later date, the Official Liquidator be now 9/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC ordered and directed to hand over the possession of the subject land to the applicants as each day's delay is adversely affecting the cause of the public as the subject premises was proposed to be acquired for an important public purpose.
16. The fact that the application came to be disposed keeping open the aspect of the delivery possession, according to Ms. Chavan, does not detract materially from the claim of the applicants as the Court had, post application of mind, directed the delivery of possession by the Court Receiver to the Official Liquidator upon deposit of a sumptuous amount.
17. The prayer of the applicants in Company Application No.331 of 2019, to deliver the possession of the subject land to the applicant was not contested by parties apart from Invent, the secured creditor. Neither the workers nor other secured creditors resisted the prayer of delivery of possession, primarily on the ground that, post receipt of the consideration, the Official Liquidator has disbursed the amounts to secured creditors and the workers.
18. Mr. Khandeparkar, the learned Counsel for the Invent would urge that the fact that this Court had directed the State to deposit, the amount of Rs.35,29,26,146.40/-, with the Official Liquidator by itself does not imply that the Court 10/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC authorized the disposal of the subject premises. Mr. Khandeparkar laid emphasis on the fact that both the orders dated 30th August, 2019 and 9th October, 2019, were expressly passed without prejudice to the rights and contentions of the parties. According to Mr. Khandeparkar, in the face of such orders, it can not be urged that the Court had determined the entitlement of the applicants to acquire the subject premises by way of private negotiations with the Official Liquidator. Since the subject land is a part of the security in respect of which Recovery Certificate has been issued in the year 2003 itself, the disposition of the said property must be by the orders of the Authorities appointed under the RDB Act, 1993, urged Mr. Khandeparkar.
19. It would be appropriate to first deal with issue of the delivery of the possession of the larger parcel of land by the Official Liquidator to the receiver. Mr. Khandeparkar would urge that once an order is passed by the authorities under the RDB Act, 1993, the Official Liquidator is enjoined to hand over the security to the receiver attached to DRT or private receiver. And even permission of the Company Court is not necessary.
20. To bolster up this submission, a strong reliance was placed on a judgment of a learned Single Judge of this Court 11/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC in the case of Divya Chemicals Ltd., in re1. In the said case, this Court was confronted with the question as to whether once the recovery certificate is issued by DRT in favour of the Bank and Financial Institutions, who are the secured creditors, then the sale of immovable properties can be carried out by the Official Liquidator in winding up proceedings under the Companies Act (1 of 1956) or such sale is to be conducted by the Debt Recovery Officer in execution of recovery certificate?
21. After adverting to the judgment of the Supreme Court in the case of Allahabad Bank V. Canara Bank2, this Court enunciated that once a recovery certificate is issued in respect of the secured assets in favour of Banks and Financial Institutions which is a subject matter of a recovery certificate, then the Recovery Officer and particularly DRT have an exclusive jurisdiction, and the Company Court can not through the Official Liquidator in winding up of the company dispose of immovable properties of the company and distribute the sale proceeds thereof. Holding thus, the Court answered the question by observing that the Official Liquidator is not 1 (2005) SCC Online Bom, 1542.
2(2000) 4 SCC 406.
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2-OLR-137-22+.DOC empowered and or entitled to dispose of and or sale immovable properties which were secured in favour of the Bank and Financial Institutions and in respect of which there is a recovery certificate issued by the DRT.
22. At this juncture, it may be suffice to note that on the aspect of the delivery of possession of the larger parcel of land of the company in liquidation to the receiver appointed by the Recovery Officer, in view of the line of decisions including Allahabad Bank (supra), Jitendra Nath Singh Vs. Offical Liquidator and Others3 and Bank of Maharashtra Vs. Pandurang Keshav Gorwardkar4 the legal position has crystallised to the effect that once recovery certificate is issued, Recovery Officer has exclusive jurisdiction to execute it qua the secured assets. Consequently, in view of the order of the Recovery Officer, the Official Liquidator would be enjoined to hand over the security to the receiver appointed by the Recovery Officer.
23. This propels me to the aspect of the adjudication of the claims of the workmen post delivery of possession of the larger parcel of land to the receiver. Mr. Singhvi, the learned 3(2000) 4 SCC 406 4(2013) 7 SCC 754 13/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC Senior Counsel for the workmen urged that the said adjudication has to be by the Official Liquidator in accordance with the provisions contained in the Companies Act, 1956. Per Contra, Mr. Khandeparkar would urge that even the aspect of the adjudication of the claims of the workmen and consequent disbursement is required to be determined by the Recovery Officer.
24. In order to properly appreciate the submissions, it may be advantageous to extract the relevant provisions contained in Sections 529 and 529A of the Companies Act, 1956.
"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
(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: 1 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 14/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC
(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.] (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 ); ............
(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.
Illustration The value of the security of a secured creditor of a company is Rs. 1, 00, 000. The total amount of the workmen' s dues is Rs. 1, 00, 000. The amount of the debts due from the company to its secured creditors is Rs. 3, 00, 000. The aggregate of the amount of workmen' s dues and of the amounts of debts due to secured creditors is Rs. 4, 00, 000. The workmen' s portion of the security is, therefore, one- fourth of the value of the security, that is Rs. 25, 000.] 529 A. Overriding preferential payment. 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.]
25. A conjoint reading of the provisions contained in Section 529 and 529A, would indicate that a secured creditor has the option to realise his security or relinquish his security. 15/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 :::
2-OLR-137-22+.DOC If the secured creditor exercises the option to realise his security, he is entitled to do so in a proceedings other than the winding up proceedings. The workmen of the company in widening up also acquire the status of secured creditors. Where a company is in liquidation, a statutory charge is created in favour of workmen in respect of dues over the security of every secured creditor and this charge is pari passu with that of the secured creditor. Such statutory charge is to the extent of workmen's portion in relation to the security held by the secured creditors of the company as illustrated by Section 529 of the Act.
26. A useful reference in this context can be made to a three Judge Bench judgment of the Supreme Court in the case of Jitendra Nath Singh (supra), wherein the Supreme Court expounded the import of the provisions contained in Section 529 and 529A of the Companies Act, 1956. The Supreme Court culled out the propositions in paragraph No. 16 as under.
"16. Our conclusions on interpretation of the provisions of Sections 529 and 529A of the Companies Act, therefore, are:
16.1 a secured creditor has only a charge over a particular property or asset of the company. The secured creditor has the option to either realize his security or relinquish his security. If the secured creditor relinquishes his security, like any other unsecured creditor, he is entitled to prove the debt due 16/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC to him and receive dividends out of the assets of the company in the winding up proceedings. If the secured creditor opts to realize his security, he is entitled to realize his security in a proceeding other than the winding up proceeding but has to pay to the liquidator the costs of preservation of the security till he realizes the security.
16.2 over the security of every secured creditor, a statutory charge has been created in the first limb of the proviso to clause (c) of sub- section (1) of Section 529 of the Companies Act in favour of the workmen in respect of their dues from the company and this charge is pari passu with that of the secured creditor and is to the extent of the workmen's portion in relation to the security of any secured creditor of the company as stated in clause (c) of sub- section (3) of Section 529 of the Companies Act.
16.3 where a secured creditor opts to realize the security then so much of the debt due to such secured creditor as could not be realized by him by virtue of the statutory charge created in favour of the workmen shall to the extent indicated in clause (c) of the proviso to sub-section (1) of Section 529 of the Companies Act rank pari passu with the workmen's dues for the purposes of Section 529A of the Companies Act.
16.4 The workmen's dues and where the secured creditor opts to realize his security, the debt to the secured creditor to the extent it ranks pari passu with the workmen's dues under clause (c) of the proviso to sub-section (1) of Section 529 of the Companies Act shall be paid in priority over all other dues of the company."
(emphasis supplied)
27. In the light of the aforesaid enunciation of law, the question that wrenches to the fore is, whether the exclusive jurisdiction conferred on DRT and the recovery officer under the provisions of RDB Act, extends to the determination of workmen's claim against the debtor company.
28. A three Judge Bench of the Supreme Court in the case of Rajasthan State Financial Corporation and Anr Vs. 17/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC Official Liquidator and others5 had an occasion to consider the aspect of determination of the workmen's claim, while the company in liquidation was a debtor before the DRT. After analyzing the provisions contained in Sections 529 and 529A of the Companies Act, 1956, and the provisions of RDB Act as well as the State Financial Corporation Act, 1951 ("SFC Act") the Supreme Court held that there was no conflict as regards the distribution of assets of the company in liquidation in the judgment of the Supreme Court in the cases of Allahabad Bank (supra) and International Coach Builders Ltd Vs. Karnataka State Financial Corporation6. It was enunciated that where the assets are realised by a secured creditor even if it be by proceedings under the SFC Act or under the RDB Act, the distribution would only be in terms of Section 529A of the Companies Act and by recognising the right of the Liquidator to calculate the workmen's dues and collect it for distribution among them pari passu with the secured creditors. The Official Liquidator representing a ranked secured creditor working under the control of the Company Court can not, therefore, be kept out of the process.
5(2005) 8 SCC 190.
6(2003) 10 SCC 482.
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29. Delineating the procedure to be adopted by authorities under the RDB Act and/or the SFC Act, the Supreme Court held that once a winding up proceedings has been commenced and the Liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the Bank or Financial Institutions coming under the RDB Act, or of financial corporations coming under SFC Act can only be with the association of the Official Liquidator and under the supervision of the Company Court. The right of a financial institution or the Recovery Tribunal or that of a financial corporation or the Court which has been approached under Section 31 of SFC Act, to sell assets may not be taken away, but the same stands restricted by the requirement of the Official Liquidator being associated with it, giving to the Company Court, the right to ensure that the distribution of the assets in terms of Section 529 A of the Companies Act takes place.
30. The aforesaid pronouncement was followed with approval in the case of Bank of Maharashtra (supra) on which a strong reliance was placed by Mr. Singhvi. The said case arose out of a reference made to a Larger Bench as the 19/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC question whether the claims of the workmen who claimed to be entitled to payment pari passu have to be considered by the Official Liquidator or whether their claims have to be adjudicated upon by the DRT was likely to arise in a large number of cases where recoveries were sought to be made pursuant to the certificates issued by the DRT.
31. After adverting to the provisions of the Companies Act, 1956, and the decisions in the cases of Allahabad Bank, Rajasthan State Financial Corporation and Jitendra Nath Singh (supra), the Supreme Court framed the following question for determination.
"Whether Section 19 (19) of RDB Act clothes DRT with jurisdiction to determine the workmen's claims against the debtor company?"
32. The Supreme Court answered the aforesaid question in the negative holding inter alia that the position stated in Allahabad Bank (supra) that priorities, so far as amounts realised under the RDB Act, are concerned, are to be worked out only by DRT admits of no ambiguity and is legally sound but this statement cannot be read as laying down the proposition that in respect of amounts realised under the RDB 20/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC Act, DRT has power, competence or authority to determine the workmen's dues of the debtor company. The manner of distribution among secured creditors of the monies realised under the RDB Act, does not clothe DRT to adjudicate the claims of secured creditors other than the Banks and Financial Institutions against the company under Section 19 (19). Any statement of law to the contrary in Allahabad Bank (supra) must be held to be not a good law.
33. The Supreme Court postulated the principles in paragraph No. 67. Few of the propositions bear upon the issue of jurisdiction of the Recovery Officer to adjudicate the claims of the workmen and the aspect of the jurisdiction of the Company Court when a recovery certificate is issued by DRT. Hence, they are extracted bellow.
"67.7. However, before full and final disbursement of sale proceeds, if the debtor company has gone into liquidation and a liquidator is appointed, disbursement of undisbursed proceeds by DRT can only be done after notice to the liquidator and after hearing him. In that situation if there is claim of workmen's dues, the DRT has two options available with it. One, the bank or financial institution which made an application before DRT for recovery of debt from the debtor company may be paid the undisbursed amount against due debt as per the recovery certificate after securing an indemnity bond of restitution of the amount to the extent of workmen's dues as may be finally determined by the liquidator of the debtor company and payable to workmen in the proportion set out in the illustration appended to Section 529(3)(c) of the Companies Act. The other, DRT may set apart tentatively portion of the undisbursed amount towards workmen's dues in the ratio as per the illustration following 21/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC Section 529(3)(c) and disburse the balance amount to the applicant bank or financial institution subject to an undertaking by such bank or financial institution to restitute the amount to the extent workmen's dues as may be finally determined by the liquidator, falls short of the amount which may be distributable to the workmen as per the above illustration. The amount so set apart may be disbursed to the liquidator towards workmen's dues on ad hoc basis subject to adjustment on final determination of the workmen's dues by the liquidator.
67.8. The first option must be exercised by DRT only in a situation where no application for distribution towards workmen's dues against the debtor company has been made by the liquidator or the workmen before the DRT.
67.10. The workmen of the company in winding up acquire the standing of the secured creditors on and from the date of winding up order (or where provisional liquidator has been appointed, from the date of such appointment) and they become entitled to the distribution of sale proceeds in the ratio as explained in the illustration appended to Section 529(3)(c) of the Companies Act.
67.11. Section 19(19) of the 1993 Act does not clothe DRT with jurisdiction to determine the workmen's claim against the debtor company. The adjudication of workmen's dues against the debtor company in liquidation has to be made by the liquidator. In other words, once the company is in winding up the only competent authority to determine the workmen's dues is the liquidator who obviously has to act under the supervision of the company court and by no other authority.
68. For the above conclusions, we hold, as it must be held, that the claims of the workmen who claim to be entitled to payment pari passu have to be considered and adjudicated by the liquidator of the debtor company and not by the DRT. We answer the question accordingly."
(emphasis supplied)
34. In view of the aforesaid pronouncement, Mr. Khandeparkar is not justified in canvassing a submission that the adjudication of the workmen's dues is also within the domain of the recovery officer. I am, therefore, persuaded to 22/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC direct that the aspect of distribution of the claim of the workmen, post realisation of the assets of the company in liquidation, shall be in conformity with the enunciation of law in the case of Rajasthan State Financial Corporation and Bank of Maharashtra (supra).
35. This takes me to the issue of the delivery of the possession of the subject premises to the applicants in Company Application No.331 of 2019. I have noted the orders which were passed by this Court directing the applicant to deposit the amount with the Official Liquidator and further order of approving the distribution of the amount so deposited amongst the workmen and the creditors. I have also referred to a judgment of learned Single Judge of this Court in the case of Divya Chemical Ltd., (supra), on which Mr. Khandeparkar heavily banked upon. It is necessary to note that the Divya Chemicals Ltd.,(Supra),in turn, draws support and sustenance to its view from the judgment of the Supreme Court in the case of Allahabad Bank (supra). It would therefore be advantageous to appreciate as to what questions fell for consideration in the case of Allahabad Bank (supra) and the enunciation of law therein.
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36. In the case of Allahabad Bank, in essence, the impact of the provisions contained in RDB Act, a subsequent legislation, on the provisions of the Companies Act, 1956 arose for consideration. In the context of the controversy at hand, the following questions considered by the Supreme Court in the case of Allahabad Bank deserve to be noted.
(1) Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres? (2) Whether for initiation of various proceedings by the banks and financial institutions under the RDB Act, leave of the Company Court is necessary under Section 537 before a winding-up order is passed against the company or before provisional liquidator is appointed under Section 446(1) and whether the Company Court can pass orders of stay of proceedings before the Tribunal, in exercise of powers under Section 442? (3) Whether after a winding-up order is passed under Section 446(1) of the Companies Act or a provisional liquidator is appointed, whether the Company Court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution and priority under Section 446(2) and (3) read with Sections 529, 529-A and 530 etc. of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal?
37. The first question was answered by the Supreme Court in paragraph No. 25 as under.
"25.....the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of DRT and Recovery Officer and no other court or authority much less the 24/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC civil court or the company court can go into the said questions relating to the liability and the recovery, except as provided in the 1993 Act."
38. The second and third questions were answered by the Supreme Court in paragraph 50 as under.
"50 For the aforesaid reasons, we hold that at the stage of adjudication under Section 17 and execution of the certificate under Section 25, the provisions of 1993 Act confer exclusive jurisdiction on the DRT and the Recovery Officer in respect of debts payable to banks and financial institutions and there can be no interference by the company court under Section 442 read with Section 537 or under Section 446 of the Companies Act. In respect of the moneys realized under the 1993 Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by DRT and in accordance with Section 19(19) read with Section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the former. This position holds good during the pendency of the winding-up petition against the debtor Company and also after a winding-up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceeding in favour of the appellant and against the respondents."
39. In the light of the provisions contained in RDB Act, which has an overriding effect, two propositions emerge. First, RDB Act confers exclusive jurisdiction upon DRT for determination of the matters specified in Section 17. Second, the Act ousts jurisdiction of all other Courts in determining and deciding the issues which are within the province of the Authorities under RDB Act, save and except the powers of the Supreme Court and High Court under Articles 226 and 227 of 25/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC the Constitution. As a necessary corollary, after the issue of a certificate of recovery, exclusive jurisdiction is conferred on the Recovery Officer in the matter of execution of the Recovery Certificate. To put it in other words, the adjudication of liability as well as the recovery of the amount by execution of the Recovery Certificate are within the exclusive domain of DRT and Recovery Officer, respectively, and no other Court or authority can deal with the said issues except to the extent provided by RDB Act itself.
40. At this juncture, it may be apposite to note the powers of the Liquidator. Section 547 of the Companies Act, 1956, inter alia, empowers the Liquidator in winding up, with the sanction of the Court/Tribunal, to sell the immovable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels.
41. In the facts of the case, the core question which crops up for consideration is whether the directions by this Court to the applicants to deposit the amount with the Official Liquidator constitutes an imprimatur of the Court to the disposal of the subject land by a private contract through negotiation. 26/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 :::
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42. It is true that this Court had embarked upon an exercise to ascertain the value of the subject land by appointing a valuer and, post consideration of the report of the valuer, directed the applicants to make further deposit.
43. I have perused the valuer's report. The amount which the applicants were directed to deposit exceeds in good measure the value of the subject land arrived at by the valuer having regard to the provisions contained in the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
44. The aforesaid factors in my view can not be considered de hors the fact that Court had directed the applicants to deposit the amount without prejudice to the rights and contentions of the parties. The order of approving distribution of dividend also proceeded on the same footing.
45. While approving the distribution of the amount so deposited by the applicants by an order dated 4 th November, 2019, this Court, as is evident from the order, was concerned with the interest of the parties, more particularly, the workers. The Court thus approved the distribution of dividend @10 paisa to the rupee to 3054 workers of the company (in 27/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC liquidation) and creditors amounting to Rs.32,81,07,202.40/-. The opening part of the first paragraph reads as under.
"1. Without prejudice to the rights and contentions of the parties as regards the quantum of distribution and the claim, in the interest of all the parties more particularly the workers, the OL Report dated 14th October, 2019, being OLR 237/2019 is allowed in terms of prayer clauses (a) to (c) which are reproduced hereunder...."
46. The fact that the Court, at the stage of distribution as well, had not entered into the question of legality of the disposal of the subject land and the relative merits of the competing claims of the workers and the creditors becomes evident from paragraph 7 of the said order, which reads as under.
"7. This order is being passed without prejudice and to sub serve the interest of all the parties. All contentions are kept open."
47. In the light of the aforesaid orders, Mr. Khandeparkar was within his rights in advancing a submission that the question as to whether the Liquidator could have disposed the assets of the company in liquidation in respect of which a recovery certificate was issued in the year 2003, or for that matter whether the Company Court could have exercised the jurisdiction, was not gone into by this Court. 28/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 :::
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48. It is imperative to note that the pronouncement of the Supreme Court in the case of Allahabad Bank, as regards the jurisdictional competence of the Company Court vis-a-vis the Authorities under the RDB Act, in respect of the secured assets has been consistently followed. Though in the case of Andhra Bank Vs. Official Liquidator and Another7, the Supreme Court held that the observations in paragraph No.76 of the judgment in the case of Allahabad Bank, to the effect that, "the workers dues have priority over all other creditors, secured and unsecured because of Section 529A (1) (a)" does not lay down a correct law. Yet, the binding efficacy of the judgment of the Supreme Court in the case of Allahabad Bank (supra) that at the stage of adjudication under Section 17 and execution of the certificate under Section 25, the provisions of RDB Act, 1993, confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to Banks and Financial Institutions and there can be no interference by the company Court under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956, remains intact.
7(2005) 5 SCC 75 29/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC
49. I am mindful of the facts that the applicants moved this Court to direct the Official Liquidator to deliver the possession of the subject premises as it is required for an emergent public purpose and the applicants did comply with the directions of this Court to deposit a substantial amount. However, the pivotal question is of exercise of jurisdiction by the Company Court. In the light of the enunciation of law, I am afraid with the grant of Recovery Certificate by DRT in respect of the property of the company in liquidation, including the subject land, this Court, within the bounds of the Companies Act, 1956, could have exercised the jurisdiction to authorize disposal of the secured assets, where the secured creditor has not relinquished his security, and instead opted to realise his security by obtaining a Recovery Certificate.
50. The aforesaid orders passed by this Court, albeit equitable, do not advance the cause of the applicants as the issue turns upon the jurisdiction of the Court. A useful reference in this context can be made to the observations of the Supreme Court in the case of Andhra bank (supra). In the said case, a Company Court had directed the appellant therein, a secured creditor, to pay a sum of Rs.38 Lakhs to the Official liquidator on an ad-hoc basis for the purpose of 30/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC disbursing the salaries to the officers, staff and workers of the Company. The Supreme Court held that despite wide powers under Section 446 of the Companies Act, the Court could not have exercised the jurisdiction without considering jurisdictioned issue. Observations in paragraphs No. 28 to 31 are material and hence extracted bellow.
"28. By reason of the order dated 12.10.1993, the learned Single Judge while issuing various directions, directed :
"Andhra Bank is directed to pay a sum of Rs.38 lacs to the official liquidator for the purpose of disbursing forthwith the salary to the officers, staff and workers of New tobacco Co. Ltd., both at Calcutta and Durgapur, before the ensuing Puja. The Official Liquidator will disburse such salary to the officers, staff and workers of New Tobacco Co. Ltd., as aforesaid, before the ensuing Puja."
29. No reason has been assigned in support of the said direction. The contentions of the parties had not been noticed. What impelled the learned Judge in issuing the said directions is not discernible. The jurisdictional question had also not been addressed.
30. Whether the workmen could be directed to be paid on an ad hoc basis having regard to their claim of past dues vis-`-vis the claim of the Appellants had not been deliberated upon. When a matter is not pending before the Tribunal under the RDB Act, in terms of Section 19(19) thereof, the secured creditors would not get priority per se as it is qualified by the words "in accordance with the provisions of Section 529-A". The claims of the secured creditors are, thus, required to be considered giving priority over unsecured creditors but their claim would be pari passu with the workmen.
31. Section 446 of the Companies Act indisputably confers a wide power upon the Company Judge, but such a power can be exercised only upon consideration of the respective contentions of the parties raised in a suit or a proceeding or any claim 31/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC made by or against the company. A question of determining the priorities would also fall for consideration if the parties claiming the same are before the court. Section 446 of the Companies Act ipso facto confers no power upon the court to pass interlocutory orders. The question as to whether the courts have inherent power to pass such orders, in our opinion, does not arise for consideration in this proceeding. Assuming such a power exists, it was imperative that the same should have been exercised on consideration of the factors laid down by this Court in Morgan Stanley Mutual Fund etc. vs. Kartick Das etc. [(1994) 4 SCC 225]. An unreasoned order does not subserve the doctrine of fair play [See M/s. Mangalore Ganesh Beedi Works Vs. CIT.)"
(emphasis supplied)
51. The upshot of the aforesaid consideration is that in view of the grant of the Recovery Certificate under RDB Act, this Court could not have legitimately exercised the power to authorise the disposal of the secured assets. Resultanly, the directions to the applicants, to deposit the amount and disposal of the Company Application No. 331 of 2019, would not enure to the benefit of the applicants as this Court was not, in the fact situation, vested with the jurisdiction to give its imprimatur to the disposal of the subject land. I am, therefore, of the view that the Court can not direct the Official Liquidator to hand over the possession of the subject land to the applicants.
52. Since the applicants acted in conformity with the directions of the Court, I deem it in the fitness of things to 32/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC issue appropriate directions to protect the interest of the applicants and also to work out equities.
53. Hence, the following order.
:ORDER:
i) The Official Liquidator's Report stands allowed in terms of prayer clause "a" (extracted above).
ii) The adjudication of the claims of the workmen shall be by the Official Liquidator in conformity with the provisions contained in Sections 529 and 529A of the Companies Act, 1956.
iii) The Recovery Officer shall determine the aspect of distribution of the assets of the company in liquidation having regard to the provisions contained in Sections 529 and 529A of the Companies Act, 1956 and the judgments of the Supreme Court in the cases of Rajasthan State Financial Corporation Ltd and Bank of Maharashtra (supra).33/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 :::
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iv) Company Application No. 331 of 2019, to the extent it seeks directions to the Official Liquidator to hand over the possession of the subject land stands dismissed.
v) Applicants are at liberty to initiate the process for acquisition of the subject land in accordance with law.
vi) The applicants shall, however, be entitled to credit of the amount which they have deposited with the Official Liquidator as regards their liability to pay the compensation in the event they proceed to acquire the subject land.
vii) The amount which has been paid to the workmen and creditors shall be adjusted against the amount which those workmen and creditors would be entitled to under Sections 529 and 529A of the Companies Act, 1956 at the time of final distribution by the Recovery Officer.
viii) In the sale proclamation which the Recovery Officer may issue, it shall be clearly and prominently mentioned that the subject land is a 34/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 ::: 2-OLR-137-22+.DOC subject matter of the acquisition process by the applicants.
ix) In the event the Recovery Officer realises the proceeds after the sale of the secured assets, an amount equivalent to the sum of Rs.35,29,26,147/-, and interest thereon at the rate of 8% p.a, from the date of deposit, shall be kept aside. The said amount shall abide the decision which may be taken depending upon the outcome of the acquisition process.
(x) Liberty to the parties to move for appropriate directions qua the said amount.
The OLR and application stand disposed.
[N. J. JAMADAR, J.] 35/35 ::: Uploaded on - 07/12/2022 ::: Downloaded on - 06/01/2023 09:46:16 :::