Calcutta High Court
Disbursement Also vs Unknown on 22 September, 2008
Author: Pinaki Chandra Ghose
Bench: Pinaki Chandra Ghose
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
ORIGINAL SIDE
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A.P.O.T. No. 592/07 C.A. No. 101/06
A.C.O. No. 227/07 C.A. No. 541/99
A.C.O. No. 228/07 C.P. No. 92/98
The Bank of Rajasthan Ltd.
V e r s u s
The Official Liquidator & Ors.
A.P.O.T. No. 593/07 C.A. No. 102/06
A.C.O. No. 229/07 C.A. No. 543/99
A.C.O. No. 230/07 C.P. No. 91/98
The Bank of Rajasthan Ltd.
V e r s u s
The Official Liquidator & Ors.
A.P.O.T. No. 594/07 C.A. No. 103/06
A.C.O. No. 231/07 C.A. No. 542/99
A.C.O. No. 232/07 C.P. No. 90/98
The Bank of Rajasthan Ltd.
V e r s u s
The Official Liquidator & Ors.
P r e s e n t: -
The Hon'ble Mr. Justice PINAKI CHANDRA GHOSE a n d The Hon'ble Mr. Justice SANKAR PRASAD MITRA For the appellant: Mr. P. C. Sen, Sr. Advocate Mr. Ranjan Bachawat, Advocate Mr. Tilak Bose, Advocate Mr. Rudraman Bhattacharya, Advocate Mr. Shamim Ahmed Ranju, Advocate For the respondent: Mr. A. K. Dhandhenia, Advocate Mr. Biswapati Das, Advocate Heard on : 7.2.2008 & 18.2.2008.
Judgment on : 22.9.2008 PINAKI CHANDRA GHOSE, J.: This appeal is directed against a judgment and/or order dated September 18, 2007 passed by the Hon'ble Company Judge whereby His Lordship was pleased to hold that the Official Liquidator need not transmit the sale proceeds held by him to the Recovery Officer of the Debts Recovery Tribunal - II, New Delhi (hereinafter referred to as "the Tribunal") and His Lordship further held that it would be open to such Recovery Officer to apply under Section 28(4) of the Recovery of debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the said Act"), if it deems fit.
The facts revealed from the case that three Companies viz. Ganapati Exports Ltd., Ganapati Combines Ltd. and Ganapati Commerce Ltd. (in liquidation) were wound up by virtue of an order passed by the Hon'ble High Court.
The only question arose in this matter is that the primacy of the said Act of 1993 over the Company Court's jurisdiction to interfere with an order passed by the Recovery Officer under the said Act.
It is to be noted that the appeals have been filed by the secured creditor Bank of Rajasthan Ltd. (hereinafter referred to as "the Bank") and at the instance of the said Companies, they were directed to be wound up.
It further appears that the Bank is a secured creditor of the said three Companies of Ganapati Group (in liquidation) and at the behest of the Bank, the said Companies were wound up. The assets of the said three Companies (in liquidation) were sold off by the Official Liquidator pursuant to the order so passed by the Hon'ble Court. The sale proceeds are in the hands of the Official Liquidator for the ascertainment of the creditor's dues and also for determination of the priorities in terms of Section 529A of the Companies Act, 1956.
It further appears that the Recovery Officer directed the Official Liquidator to transmit the sale proceeds lying in the hand of the Official Liquidator to the Recovery Officer of the appropriate Debts Recovery Tribunal.
Furthermore, it is the case of the Bank that the Tribunal has primacy over the said matters by virtue of the provisions of the said Act. It is the duty of the Official Liquidator to assist the Tribunal in the matter of disbursement also.
It is further contended before us that the Company Court has no jurisdiction to interfere with the order of the Tribunal, even in case of a Company wound up by an order of the Company Court. It is further submitted that the application which has been filed by the Official Liquidator before the Hon'ble Company Court inter alia praying for an Order, the Learned Recovery Officer dismissed the objections taken by the Official Liquidator in its report upholding the exclusivity issues of the Act of 1993 and directed to deposit all proceeds to the Debts Recovery Tribunal-II, New Delhi on 10th January, 2006 in R.C. case No. 144 of 2001.
Furthermore, the Official Liquidator prayed for an order before the Hon'ble Company Court that the Recovery Officer not to further proceed with the matter in recovery case in the said R.C. case No. 144 of 2001 and also in other matters.
It is submitted that there is no lease pending before this Company Court and further there is no appeal lying from the order so passed by the Recovery Officer before the Company Court, and hence, it is submitted that the Company Court had no jurisdiction to pass such order on the application so filed by the Official Liquidator.
It is further contended that the Bank has already obtained the Certificate in its recovery proceedings and is in the process of executing such Certificates before the Recovery Officer. The prayers made by the Official Liquidator cannot be taken up by the Company Court since that would be tantamount to anal an order passed by an Officer under the Act of 1993. The Company Court does not exercising supervisory jurisdiction over the Tribunal and, therefore, it is submitted that the order so passed by the Hon'ble Company Court is not sustainable in the eye of law.
Mr. Sen, Learned Senior Advocate appearing in support of this appeal submitted before us that the order so passed by the Hon'ble First Court is a nullity since the Court has no jurisdiction to pass such order.
The attention of this Court is also drawn to Section 18 of the said Act of 1993 and it is submitted that the Official Liquidator is not without remedy against the order so challenged in the present proceedings. It is also emphatically submitted that under the Act itself, the Official Liquidator has remedy to challenge the said order before the appropriate Forum but certainly not before the Company Court.
It is pointed out that the adjudication of liability and recovery of the amount by execution of the certificate are within the exclusive jurisdiction of the Tribunal and in fact, the Recovery Officer has expressed his views in the Order dated September 24, 2003 where the Recovery Officer agreed with the Official Liquidator that the matter could not be dealt with by him without reference to the Court presiding over the liquidation proceedings. The Bank filed an appeal from the said order and the Presiding Officer on May 7, 2004, directed the Recovery Officer to proceed with the matter without requiring the Bank to take Leave of the Company Court presiding over the liquidation proceedings. Therefore, the question arose whether the Act of 1993 would prevail over the Companies Act.
In support of his contention, Mr. Sen relied upon the judgments reported in (2000) 4 SCC 406 [Allahabad Bank vs. Canara Bank & Ors.] and (2005) 8 SCC 190 [Rajasthan State Financial Corporation & Anr. vs. Official Liquidator & Anr.] and submitted that the Hon'ble Supreme Court held that the jurisdiction of the Tribunal under the said Act in regard to the adjudication was exclusive as was the Authority of the Recovery Officer in matters relating to execution of Certificate granted by the Tribunal.
He further contended that the Hon'ble Supreme Court held that the Companies Act was a general statute and the 1993 Act was a special statute and hence, the Hon'ble Supreme Court held as a proposition of law that in view of Section 34 of the said Act, the said Act would have overriding effect over the Companies Act.
Reliance was also placed on the judgments reported in (2006) 10 SCC 452 [ICICI Bank Ltd. (since substituted by Standard Chartered Bank) vs. Sidco Leathers Ltd. & Ors.] and (2003) 10 SCC 482 [International Coach Builders Ltd. vs. Karnataka State Financial Corporation] respectively wherein it was held that where the special statute did not contain any specific provision dealing with contractual and other statutory rights between different kinds of secured creditors, the specific provisions contained in the general statute would prevail.
It is further submitted on behalf of the appellant that His Lordship should appreciate the scope of the provisions of Sections 30 and 18 of the said Act respectively and according to Mr. Sen, the Tribunal had only jurisdiction to pass necessary direction regarding the sale proceeds held by the Official Liquidator without supervision of the Company Court and further submitted that under Section 18 of the said Act, the Court has no jurisdiction to interfere with the matter in question.
Mr. Sen also drew our attention to Section 34 of the said Act which has a non obstante clause. According to Mr. Sen, where two statutes have a similar non obstante clause, it is the later which has to prevail over the earlier as the legislature is presumed sustaining the non obstante clause in order to obliterate the effect of the non obstante clause, contained in the former statute.
Therefore, he submitted that the order which has been passed by the Hon'ble First Court, should be set aside.
On the contrary, the point submitted by Mr. Dhandhenia, Learned Advocate appearing in support of the Official Liquidator that the Official Liquidator shall act in the matter as an Officer of this Court since the Official Liquidator filed the said application before the Hon'ble First Court only to have an order from His Lordship to act in accordance with the order so to be passed by the Court.
We have heard the Learned Advocate for the parties. We have also perused the facts of this case and the point as urged in this matter by Mr. Sen that whether by virtue of provisions of 1993 Act, the Learned Tribunal has the primacy over the amount which are held by the Official Liquidator and the Official Liquidator has the duty to assist the Learned Tribunal in the matter of disbursement and like.
Mr. Sen further submitted that there is a little role for the Company Court or for the Official Liquidator to bring the matter before the Company Court since the Authority of the Learned Tribunal and its Officer under the 1993 Act has the wide amplitude as laid down by the Supreme Court.
It is further submitted that the Authority deciding the priorities and making disbursement in respect of the Companies (in liquidation) which are defendants in proceedings before the Debts Recovery Tribunal under the vests in the Learned Tribunal and such matter should no longer lie with the Company Court in respect of the liquidation of the concerned Companies.
It is further submitted that since the Company Court has no longer retained its authority over such matter there is no obligatory jurisdiction "to ensure that the facts do not go amidst before the Learned Tribunal".
Therefore, according to Mr. Sen, the prayers made by the Official Liquidator could not have been taken up by the Company Court and it is further submitted that the purpose of this application is only to anal an order passed by an Officer empowered under the 1993 Act. It is further pointed out that the Company Court has no supervisory jurisdiction over the Learned Tribunal or any Officer under the said Act.
Therefore, the Court should refrain from going into the question urged by the Official Liquidator in view of the provisions of Section 18 of the said Act. The Official Liquidator has a right to challenge the said order which was passed by the Learned Tribunal before the Forum created under the said Act.
It further appears that the Bank has obtained certificate in its recovery proceedings and is in the process of executing such certificates before the Recovery Officer. The Official Liquidator appeared on behalf of the defendants, the Company (in liquidation) in the said proceedings before the Learned Tribunal which has custody of the assets on the said Companies (in liquidation).
It also appears that the Official Liquidator kept the Recovery Officer informed of the progress made in the liquidation proceedings, claims receipt from creditors of the Companies (in liquidation) as well as the sale of assets of the Companies (in liquidation) pursuant to the directions of the Court.
It further appears that the Bank before the Learned Tribunal contended that the Learned Tribunal has exclusive jurisdiction but the Recovery Officer agreed that the matter could not be dealt with by him without reference to the Company Court and the Bank was aggrieved by the said Order which was passed on September 21, 2003 and thereby filed an appeal before the Presiding Officer of the Learned Tribunal.
When the Presiding Officer by an Order dated May 7, 2004 directed the Recovery Officer to preside over with the matter without taking any leave from the Company Court, he presided over the liquidation proceedings. At that point of time, the question arose whether the said Act would prevail over the Companies Act and whether the Authority of the Learned Tribunal under the 1993 Act hold sway over the Companies Court jurisdiction regarding the certificate debtor companies which were in liquidation.
In the decision reported in (2000) 4 SCC 406 (supra) the Supreme Court held that the appellant bank obtained a simple money decree against the Company from the Debts Recovery Tribunal on 31st January, 1998 under Section 19 of the said Act. A recovery proceeding was filed before the Recovery Officer and the Canara Bank also filed an application as a secured creditor before the same Tribunal for recovery of the debt from the same Company and the respondents application remain undecided when the matter went up before the Hon'ble Supreme Court. A third party had filed a winding up petition against the said debtor company.
In that case, an order was passed by the Company Judge under Sections 442, 537 of the Companies Act on 9th March, 1999 staying further sales of the debtor company's assets and also restraining the disbursement of the monies already realised in other sides, the said order was challenged before the Hon'ble Supreme Court and the following points were raised for consideration in paragraph 13 of the said judgment which are reproduced hereunder:
"13. From the aforesaid contentions, the following points arise for consideration:
(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?
(4) Whether in case it is decided that the distribution of monies is to be done only by the Tribunal, the provisions of Section 73 CPC and sub-sections (1) and (2) of Section 529, Section 530 of the Companies Court also apply -- apart from Section 529-A -- to the proceedings before the Tribunal under the RDB Act? (5) Whether in view of provisions in Sections 19(2) and 19(19) as introduced by Ordinance 1 of 2000, the Tribunal can permit the appellant Bank alone to appropriate the entire sale proceeds realised by the appellant except to the limited extent restricted by Section 529-A. Can the secured creditors like Canara Bank claim under Section 19(19) any part of the realisations made by the Recovery Officer and is there any difference between cases where the secured creditor opts to stand outside the winding up and where he goes before the Company Court?
(6) What is the relief to be granted on the facts of the case since the Recovery Officer has now sold some properties of the Company and the monies are lying partly in the Tribunal or partly in this Court?"
The Hon'ble Supreme Court further expressed the opinion that the jurisdiction of the Learned Tribunal under the said Act in regard to the adjudication was exclusive as was the Authority of the Recovery Officer in matters relating to execution of the certificate granted by the Learned Tribunal. The Supreme Court also considered the effect of Sections 442, 446 and 537 of the Companies Act in respect of the Companies which were defendants or certain debtors in proceedings under the 1993 Act and accordingly held as follows:
"34. While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour of jurisdiction and powers of the Company Court in Sudarsan Chits (I) Ltd. Case [(1984) 4 SCC 657], and other cases the said principle, in our view, cannot be invoked in the present case against the Debts Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion, the very same principle mentioned above equally applies to the Tribunal/Recovery Officer under the RDB Act, 1993 because the purpose of the said Act is something more important than the purpose of Sections 442, 446 and 537 of the Companies Act. It was intended that there should be a speedy and summary remedy for recovery of thousands of crores which were due to the banks and to financial institutions, so that the delays occurring in winding-up proceedings could be avoided.
Tiwari Committee Report: adjudication, execution and priorities"
The Supreme Court has also decided the question in assessing the priorities amongst the creditors of the Company. Even in regard to "priorities" among creditors, the said Committee stated in Annexure I as follows:
"The Adjudication Officer will have such power to distribute the sale proceeds to the banks and financial institutions being secured creditors, in accordance with inter se agreement/arrangement between them and to the other persons entitled thereto in accordance with the priorities in the law."
The above recommendations as to working out "priorities" have now been brought into the Act with greater clarity under Section 19(19) as substituted by Ordinance 1 of 2000. Priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act.
Section 19(19) of the RDB Act is reproduced hereunder:
19. (19) "Where a certificate of recovery is issued against a company registered under the Companies Act, 1956, the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors in accordance with the provisions of Section 529-A of the Companies Act, 1956 and to pay the surplus, if any, to the company."
Section 19(19) is clearly inconsistent with Section 446 and other provisions of the Companies Act. Only Section 529-A is attracted to the proceedings before the Tribunal. Thus, on questions of adjudication, execution and working out priorities, the special provisions made in the RDB Act have to be applied.
The Hon'ble Supreme Court concluded that a view had rightly been taken by some High Courts and that the said Act was a special Statute and as such the provision of the said special Statute would prevail over the provision in the general statute, if there is a conflict between the provisions of the two enactments.
The Supreme Court also held that there could be a situation in law where the same statute is treated as a special statute vis-à-vis one legislation and again as a general statute vis-à-vis yet another legislation.
Alternatively, the Companies Act, 1956 and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, Section 34. A similar situation arose in "Maharashtra Tubes Ltd. v. State Industrial and Investment Corpn. of Maharashtra Ltd."[(1993) 2 SCC 144] where there was inconsistency between two special laws, the Finance Corporation Act, 1951 and the Sick Industries Companies (Special Provisions) Act, 1985. The latter contained Section 32 which gave overriding effect to its provisions and was held to prevail over the former. It was pointed out by Ahmadi, J. that both special statutes contained non obstante clauses but that the, "1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obstante clause in Section 46-B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one". (SCC p. 157, para 9) Therefore, in view of Section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts.
In the decision reported in (2006) 10 SCC 452 (supra) the following questions were raised for consideration before the Court which are reproduced hereunder:
"(a) Whether significance is lost in respect of inter se right of priority between two sets of secured creditors in view of Section 529-A of the Companies Act?
(b) Whether Section 48 of the Transfer of Property Act stands overridden by Section 529-A of the Companies Act?
(c) Whether the appellant can be said to have relinquished his right to claim as a secured creditor as it had not opted in terms of Section 47 of the Provincial Insolvency Act?"
The Hon'ble Supreme Court further held that there are two secured categories, viz., those who desire to go before the Company Court and those who stand outside the winding up proceeding.
The Supreme Court further held that the second class of the secured creditors are those who come under Section 529-A(1)(b) of the Companies Act i.e. those who opt to stand outside the winding up to realise their security.
They also can, in certain circumstances, go before the Company Court.
In the case of Allahabad Bank(supra) Jagannadha Rao, J., referring to the Tiwari Committee Report, 1981 as regards framing of the RDB Act of 1993, stated the law in the following terms: (SCC p. 426, para 37) "37. Even in regard to 'priorities' among creditors, the said Committee stated in Annexure I as follows:
'The Adjudication Officer will have such power to distribute the sale proceeds to the banks and financial institutions being secured creditors, in accordance with inter se agreement/arrangement between them and to the other persons entitled thereto in accordance with the priorities in the law.' The above recommendations as to working out 'priorities' have now been brought into the Act with greater clarity under Section 19(19) as substituted by Ordinance 1 of 2000 [inter alia, whereof]. Priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act. Section 19(19) of the RDB Act reads as follows:
'19. (19) Where a certificate of recovery is issued against a company registered under the Companies Act, 1956, the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors in accordance with the provisions of Section 529-A of the Companies Act, 1956 and to pay the surplus, if any, to the company.' Section 19(19) is clearly inconsistent with Section 446 and other provisions of the Companies Act. Only Section 529-A is attracted to the proceedings before the Tribunal. Thus, on questions of adjudication, execution and working out priorities, the special provisions made in the RDB Act have to be applied."
In that case, this Court was not called upon to decide the question as to whether having regard to the provisions contained in Section 529-A of the Companies Act those who stand outside the winding-up proceedings will have to proceed with the proceedings initiated by them. Therein, the Court was concerned with the interpretation of Section 446 of the Companies Act, 1956 vis-à-vis the provisions of the RDB Act, namely, as to whether for instituting or continuing proceedings thereunder, permission of the Company Court was required to be obtained. Having regard to the finding that the RDB Act was a special statute enacted by Parliament much after the Companies Act came into force, it was opined that no permission was required since the Debts Recovery Tribunal had exclusive jurisdiction with respect to matters concerning recovery of dues by banks and financial institutions.
This legal position was considered by a Bench of this Court in the case of Rajasthan State Financial Corpn. v. Official Liquidator (supra) wherein one of us (Balasubramanyan, J.) was a member. It was stated as follows: (SCC pp. 198-99, para 14) "14. In Allahabad Bank v. Canara Bank (supra) the question of jurisdiction of the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 vis-à-vis the Company Court arose for decision. This Court held that even where a winding-up petition is pending, or a winding-up order has been passed against the debtor company, the adjudication of liability and execution of the certificate in respect of debts payable to banks and financial institutions, are respectively within the exclusive jurisdiction of the Debts Recovery Tribunal and the Recovery Officer under that Act and in such a case, the Company Court's jurisdiction under Sections 442, 537 and 446 of the Companies Act stood ousted. Hence, no leave of the Company Court was necessary for initiating proceedings under the Recovery of Debts Act. Even the priorities among various creditors, could be decided only by the Debts Recovery Tribunal in accordance with Section 19(19) of the Recovery of Debts Act read with Section 529-A of the Companies Act and in no other manner. The Court took into account the fact that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was a legislation subsequent in point of time to the introduction of Section 529-A of the Companies Act by Act 35 of 1985 and it had overriding effect. But it noticed that by virtue of Section 19(19) of the Recovery of Debts Act, the priorities among various creditors had to be decided by the Recovery Tribunal only in terms of Section 529-A of the Companies Act and Section 19(19) did not give priority to all secured creditors. Hence, it was necessary to identify the limited class of secured creditors who have priority over all others in accordance with Section 529-A of the Companies Act. The Court also held that the occasion for a claim by a secured creditor against the realisation by other creditors of the debtor under Section 529- A read with proviso (c) to Section 529(1) of the Companies Act could arise before the Debts Recovery Tribunal only if the creditor concerned had stood outside the winding up and realised amounts and if it is shown that out of the amounts privately realised by it, some portion had been rateably taken away by the Liquidator under clauses (a) and (b) of the proviso to Section 529(1). The Court has not held that Section 529-A of the Companies Act will have no application in a case where a proceeding under the Recovery of Debts Act has been set in motion by a financial institution. The Court there was essentially dealing with the jurisdiction of the Debts Recovery Tribunal in the face of Sections 442, 537 and 466 of the Companies Act."
Therefore, Allahabad Bank (supra), is not an authority for the proposition that in terms of Section 529-A of the Companies Act the distinction between two classes of secured creditors does no longer survive. The High Court, thus, in our considered opinion, was not correct in that behalf.
In fact in the case of Allahabad Bank (supra) it was categorically held that the adjudication officer would have such powers to distribute the sale proceeds to the banks and financial institutions, being secured creditors, in accordance with inter se agreement/arrangement between them and to the other persons entitled thereto in accordance with the priority in law.
The Supreme Court further held that the provisions of the Companies Act may be a special statute but if the special statute does not contain any specific provision dealing with the contractual and other statutory rights between different kinds of the secured creditors, the specific provisions contained in the general statute shall prevail.
Therefore, what must not be lost sight of is the context in which the Supreme Court rendered judgment in the Allahabad Bank case. In view of the legal fiction in Section 441 of the Companies Act, winding up proceedings are deemed to commence on the date of presentation of the petition. Such deeming provision takes effect only upon the company being wound up, for the date of commencement of winding up is irrelevant if the petition is dismissed or permanently stayed. In view of the legal fiction, the other provisions relating to liquidation become applicable upon commencement of winding up proceedings and till such proceedings are alive.
The Supreme Court addressed the larger issue as to the conflict of the provisions of the two Acts and held that the 1993 Act would prevail but the Supreme Court's opinion cannot be widened to give Section 19(19) of the 1993 Act any more effect than would appear from such provision. In fact, the Supreme Court used words of limitation in the Allahabad Case (supra) that need to be adhered to.
Moreover, Section 19(19) of the 1993 Act does not cover every situation where the principal defendant in bank claim is a company, though a plain reading of the sub-section would imply otherwise. The expression "company registered under the Companies Act, 1956"
appearing in the sub-section has to be construed to imply "company in liquidation" or else the sub-section would carry no meaning.
The proceeds from the sale of a secured asset of a company, other than a company in liquidation have to be made over to such company to the extent the same are in excess of the value of the certificate. In such a case there would be no question of distribution of the assets among secured creditors or of priorities being decided in terms of Section 529-A of the Companies Act. It is only when the certificate is against a company in liquidation that the certificate holder has to await the assessment of priorities to receive its share in accordance with the provisions of Section 529-A of the Companies Act. If the certificate debtor company is not in liquidation, the certificate holder bank need not be detained upon the security being sold and its certificate would be discharged from the sale proceeds, if it is enough to meet the amount covered by the certificate. Hence, the recovery officer under the said Act exercises much the same authority as a court executing a decree. If the certificate holder is a secured creditor of the certificate debtor, it is such security which has first to be sold to ascertain whether the proceeds therefrom are enough to meet the quantum covered by the certificate. If the secured asset does not meet the value of the certificate, the recovery officer as any other court executing a money decree, would have the power to sell the other assets of the certificate debtor for the certificate claim to be satisfied. Whether or not a certificate debtor is a company or a company in liquidation, the recovery officer will follow the same procedure as to the sale of the secured and other assets of the certificate debtor.
But, the expression "the sale proceeds of such company" appearing in Section 19(19) of the 1993 Act limits the distribution contemplated in the words that follow such expression in the sub-section. Where the certificate debtor is a company in liquidation, the Recovery Officer will distribute such proceeds from the sale of the assets of the company in liquidation that the Recovery Officer sells.
If the company in liquidation has other available assets to be sold upon the secured asset not meeting the certificate claim, the Recovery Officer can call upon the concerned Official Liquidator to have such other available assets of the company in liquidation sold under the aegis of the Recovery Officer and such Recovery Officer will then distribute, on the basis of the priorities recognised by Section 529-A of the Companies Act, such of the proceeds that have been realised by the sales conducted by the Recovery Officer. The sub-section does not recognise that the Recovery Officer will call upon the concerned Official Liquidator to produce before him all monies realised out of previous sales of assets of the company in liquidation for the Recovery Officer to be exclusively overseeing the distribution of the entire lot of the sale proceeds.
Such view would appear from the careful words used by the Supreme Court in the Allahabad Bank case (supra). At paragraph 37 of the report, the Supreme Court laid down that "priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act".
At paragraph 51 of the report, the Supreme Court reiterated that "the adjudication, execution and distribution of the sale proceeds and working out priorities ... ... ... so far as the monies realised under the RDB Act are concerned - that has to be done only by the Tribunal and not by the Company Court".
At paragraph 55 of the report, the Supreme Court referred to the applicability of Section 73 of the Code of Civil Procedure in the matter of "sharing in the sale proceeds (here, sale proceeds realised under the RDB Act)". At paragraph 56, the position has been clarified in unequivocal terms as follows:
"56. The discussion here is confined to sharing the realisations made by the Recovery Officer under the RDB Act where winding up proceedings are pending in the Company Court against the defendant company."
The same thought is reflected in the opening sentences of paragraphs 58 and 76 respectively of the report.
In the decision reported in (2005) 8 SCC 190 (supra) the Supreme Court held that once winding up of a company is resorted to, Sections 529 and 529-A of the Companies Act get attracted. Section 528 of the said Act provides for debts of all descriptions to be admitted to proof.
Section 529 makes applicable the rules of insolvency in the winding up of insolvent companies. The rules with regard to debts provable, the valuation of annuities and future and contingent liabilities, and 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, apply. Section 529(1)(c) of the said Act deals with the rights of creditors.
Furthermore, a combined reading of Sections 529-A and 529 indicates that notwithstanding anything contained in any other law for the time being in force or in the Companies Act itself, there is a preferential payment provided for workmen's dues and debts due to the secured creditors to the extent such debts rank under clause (c) of the proviso to Section 529(1) pari passu with such dues.
Therefore, when the assets of the company are sold and the proceeds realised, the debts by way of workmen's dues and that of the secured creditors have to be paid in full if the assets are sufficient to meet them and if they are not sufficient, in equal proportions.
The Court further held that in the best interests of all concerned, the sale of the assets had to be conducted by the Official Liquidator under the supervision of the Company Court. It may be noted that in that case, the financial corporation had sought permission of the Company Court to initiate proceedings under Section 29 of the SFC Act.
Furthermore, in the case of Maharashtra State Financial Corpn. v. Official Liquidator (supra) the Bombay High Court took the view that rights conferred on a financial corporation as a mortgagee under Section 29 of the SFC Act are not obliterated when the company is in winding up situation. The statutory right under Section 29 to sell the property, had to be exercised consistently with the rights of a pari passu charge-holder in whose favour a statutory charge is created by the proviso to Section 529 of the Companies Act when the company is in liquidation.
Therefore, such a power can be exercised only with the concurrence of the Official Liquidator and the Official Liquidator is required to take the permission of the Court before giving such concurrence since he is an officer of the Court and is required to act under the directions of the Court while exercising his powers on behalf of the workers. The Court held that there was no inconsistency between the SFC Act and Section 529 read with Section 529-A of the Companies Act and hence Section 46-B of the SFC Act was not attracted.
The Court further held that in the case of conflict in power between the Official Liquidator appointed by the Company Court and the Receiver appointed by the civil court in a suit filed by the secured creditor, the interest of the Official Liquidator should have precedence.
The distribution of the assets could only be in terms of Section 529-A of the Act and by recognising the right of the Liquidator to calculate the workmen's dues and collect it for distribution among them pari passu with the secured creditors. The Official Liquidator representing a ranked secured creditor working under the control of the Company Court cannot, therefore, be kept out of the process.
Hence, on the authorities what emerges is that once a winding-up proceeding has commenced and the Liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the Official Liquidator and under the supervision of the Company Court.
Furthermore, the right of a financial institution or of the Recovery Tribunal or that of a financial corporation or the court which has been approached under Section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the Official Liquidator being associated with it, giving the Company Court the right to ensure that the distribution of the assets in terms of Section 529-A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion any proceeding under the SFC Act.
The question is that it is only a liquidation proceeding pending and the secured creditors, the financial corporations approaching the Company Court for permission to stand outside the winding up and to sell the properties of the company-in-liquidation. The Company Court has rightly directed that the sale be held in association with the Official Liquidator representing the workmen and that the proceeds will be held by the Official Liquidator until they are distributed in terms of Section 529-A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this Court in the decisions referred to above.
In this situation, the Court finds no reason to interfere with the decision of the High Court. The Court also clarifies that there is no inconsistency between the decisions in Allahabad Bank v. Canara Bank (supra) and in International Coach Builders Ltd. v. Karnataka State Financial Corpn. (supra) in respect of the applicability of Sections 529 and 529-A of the Companies Act in the matter of distribution among the creditors.
The right to sell under the SFC Act or under the Recovery of Debts Act by a creditor coming within those Acts and standing outside the winding up, is different from the distribution of the proceeds of the sale of the security. The distribution in a case where the debtor is a company in the process of being wound up, can only be in terms of Section 529-A read with Section 529 of the Companies Act.
After all, a Liquidator represents the entire body of creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in Section 530 of the Companies Act under the directions of the Company Court. In other words, the distribution of the sale proceeds under the direction of the Company Court is his responsibility.
Further, to ensure the proper working of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the Company Court, that a proper price is fetched for the assets of the company-in-liquidation. It was in that context that the rights of the Official Liquidator were discussed in the case of International Coach Builders Ltd. (supra).
The Debts Recovery Tribunal and the District Court entertaining an application under Section 31 of the SFC Act should issue notice to the Liquidator and hear him before ordering a sale, as the representative of the creditors in general.
In the decision reported in (2003) 10 SCC 482 (supra) the Supreme Court held that "Pari Passu" means "with equal steps, equally, without preference". The expression is "used especially of creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other". It is also defined as "with equal steps, that is to say, proceeding side by side at the same place".
The rights of the "pari passu" charge-holders would run equally, temporally and potently, with the rights of the secured creditors. The Official Liquidator, as the representatives of the workmen, to enforce such "pari passu" charge would have the right of representing the workmen equally with the rights of the secured creditors.
Hence, the Official Liquidator, as the representative of the workmen's "pari passu" charge, would be in the position of a co-mortgagee.
It is well-established law that where there are co-
mortagagees, one co-mortgagee cannot sell without consent of the co-mortgagee or institute any proceedings for sale of mortgaged property without joining the other co-
mortgagees either as plaintiffs or as defendants. All of them should join in the suit for enforcing the security, but if some of them refuse to join, they have to be included as defendants, not merely as proforma parties, but as necessary parties inasmuch as the mortgage right vests in them alongwith the plaintiff-mortgagees.
The same principle would be substantially true and applicable in the case of a mortgagee and a "pari passu"
charge-holder over the same security for realising the security. The realisation of the security can only be done by both the charge-holders joining and realising the security simultaneously. If a sale takes place, it can only be simultaneously for recovery of the claim of all "pari passu" charge-holders and sale proceeds are required to be divided proportionately in the same proportion as their dues.
Thus, SFCs cannot unilaterally act to realise the mortgaged properties without the consent of the Official Liquidator representing workmen for the "pari passu"
charge in their favour under the proviso to Section 529 of the Companies Act, 1956.
If the Official Liquidator does not consent, SFCs have to move the Company Court for appropriate directions to the Official Liquidator who is the "pari passu"
charge-holder on behalf of the workmen. In any event, the Official Liquidator cannot act without seeking directions from the Company Court and under its supervision. The unhindered right hitherto available to SFcs to realise their security, without recourse to the Court, no longer holds true as the right vested in the Official Liquidator is a statutory impediment to such exercise and has to be reckoned with. And since the Official Liquidator can do nothing without the leave or concurrence of the Court, all necessary applications must, therefore, come to the Company Court.
After analysing these decisions and after perusing the materials on record placed before us and the judgment of the Hon'ble First Court, we are of the opinion that the Hon'ble Company Judge after analysing all these decisions came to the conclusion that Section 28(4) of the said Act of 1993 permits a Recovery Officer to apply before the Court in whose custody there is money belonging to the certificate debtor.
We further hold that upon a Company being wound up, the Official Liquidator comes to be in custody of all assets and properties of the Company (in liquidation). It is also correctly held that the Authority of the Official Liquidator under Section 456(1) of the Companies Act, 1956 approved such authority of the Official Liquidator as the custodian of all assets and properties of a Company (in liquidation). Such function of the Official Liquidator is also recognized under the Company Court and the Companies Act (Court Rules, 1959).
It is also true that the non obstante clause in Section 446(2) yields to the overriding provisions of the 1993 Act but it is necessary to notice the scope of the Company Courts' Authority over all matters relating to a Company (in liquidation).
Hence, in our considered opinion, the Hon'ble Company Judge has correctly assessed the position of the Official Liquidator in respect of the Company (in liquidation) and we also hold that His Lordship has correctly came to the conclusion that the Official Liquidator need not transmit the sale proceeds held by him to the Recovery Officer, Debts Recovery Tribunal-II, New Delhi and it will be open to such Recovery Officer to apply under Section 28(4) of the said Act.
For the reasons stated hereinabove, we affirm the Order so passed by the Hon'ble Company Judge and dismiss this appeal.
(PINAKI CHANDRA GHOSE, J.) I agree.
(SANKAR PRASAD MITRA, J.)