Delhi High Court
R.K. Aggarwal vs Official Liquidator & Ors. on 10 August, 2020
Equivalent citations: AIRONLINE 2020 DEL 1194
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw, Asha Menon
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 10th August, 2020
+ CO.APP. 10/2020, CM No.18562/2020 (for condonation of delay of
114 days in filing the appeal) & CM No.18564/2020 (for stay)
R.K. AGGARWAL ..... Appellant
Through: Mr. Mayank Kumar, Adv.
Versus
OFFICIAL LIQUIDATOR & ORS. ..... Respondents
Through: Ms. Ruchi Sindhwani & Ms. Megha
Bharara, Advs. for R-1.
Mr. Pushpender Aggarwal, Manager
(Law) of R-2.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
HON'BLE MS. JUSTICE ASHA MENON
[VIA VIDEO CONFERENCING]
JUSTICE RAJIV SAHAI ENDLAW
CM No.18563/2020 (for exemption)
1. Allowed, subject to just exceptions and as per the extant rules.
2. The application is disposed of.
CO.APP.10/2020, CM No.18562/2020 (for condonation of delay of 114
days in filing the appeal) & CM No.18564/2020 (for stay)
3. This appeal, under Section 483 of the Companies Act, 1956 read with
Rule 9 of the Companies (Court) Rules, 1959, impugns the order dated 13th
March, 2020 of the Company Court, allowing Company Application
No.3550/2016 of respondent no.2 RIICO Ltd. for direction to the respondent
no.1 Official Liquidator (OL) to hand over possession of secured assets of
the company in liquidation i.e. Nirmal Steel and Tubes (I) Ltd. to respondent
CO.APP No.10./2020 Page 1 of 13
no.2 RIICO Ltd., in terms of Section 13(4) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Securities Interest
(SARFAESI) Act, 2002 and to permit respondent no.2 RIICO Ltd. to sell the
secured assets by public auction under the provisions of SARFAESI Act and
to distribute the sale proceeds in accordance with provisions of Section 529
and 529A of the Companies Act. The challenge to the order is made by the
erstwhile Director of the company in liquidation i.e. Nirmal Steel Tubes (I)
Ltd. namely Mr. R.K. Aggarwal.
4. The counsel for the respondent no.1 OL, on seeing the matter in the
cause list and stating that no advance copy has been delivered and Mr.
Pushpender Aggarwal, Manager (Law) of respondent no.2 RIICO Ltd. on
advance notice, appear. Though none appears for respondent no.3 State
Bank of India (SBI) and respondent no.4 Rajasthan Financial Corporation
Ltd. (RFCL), but being prima facie of the opinion that the appeal is not
maintainable and that the presence of the respondent no.3 SBI and
respondent no.4 RFCL is not relevant for the purpose of the appeal, we have
proceeded to hear the counsel for the appellant at length.
5. The counsel for the appellant has contended, that (i) the company in
liquidation Nirmal Steel Tubes (I) Ltd., on 31st December, 1991 filed a
reference under Section 15 of the Sick Industrial Companies Act, 1985
(SICA) before the Board for Industrial and Financial Reconstruction (BIFR);
(ii) the company in liquidation Nirmal Steel Tubes (I) Ltd. had availed of
financial facility from respondent no.2 RIICO Ltd., by securing the assets of
the company being plant, machinery and premises of the company at A-
353A, RIICO Industrial Area, Bhiwadi District, Alwar, Rajasthan; (iii) since
CO.APP No.10./2020 Page 2 of 13
the company in liquidation filed a reference before the BIFR, the account of
the company with respondent no.2 RIICO Ltd. is deemed to have become
NPA as on 31st December, 1991; (iv) BIFR, vide order dated 23rd May, 1994
recommended the company Nirmal Steel Tubes (I) Ltd. for liquidation and
Company Petition No.112/1994 was registered in this Court; (v) vide order
dated 11th February, 2002 of the Company Court of this Court, a provisional
liquidator was appointed and took over possession of all the assets of the
company including the assets aforesaid secured with respondent no.2 RIICO
Ltd.; (vi) the Company Court, vide order dated 28th September, 2004,
ordered liquidation of the company and appointed the Official Liquidator
attached to this Court as the liquidator of the company; (vii) besides
respondent no.2 RIICO Ltd., respondent no.3 SBI and respondent no.4
RFCL were also the secured creditors of the company; (viii) respondent no.3
SBI initiated recovery proceedings against the company and its guarantors
before the Debt Recovery Tribunal (DRT), Rajasthan and got a recovery
certificate issued from DRT, Rajasthan; (ix) respondent no.2 RIICO Ltd.
never initiated any proceedings for recovery of its dues from the company;
(x) however after remaining quiet since 31st December, 1991, respondent
no.2 RIICO Ltd. issued a notice dated 20th July, 2015 under Section 13(2) of
the SARFAESI Act to the respondent no.1 OL only and thereafter filed
Company Application No.3550/2016 supra for direction to the respondent
no.1 OL to put respondent no.2 RIICO Ltd. into possession of the property
for purposes of sale under Section 13(4) of the SARFAESI Act; (xi) On 26th
August, 2015 RFCL gave consent to RIICO Ltd. in terms of Section 13(9) of
the SARFAESI Act for taking action under Section 13(4); (xii) the appellant,
being the ex-management of the company in liquidation Nirmal Steel and
CO.APP No.10./2020 Page 3 of 13
Tubes (I) Ltd. and also holding 75% of the share capital of the company in
liquidation Nirmal Steel and Tubes (I) Ltd., filed Company Application
No.835/2017 in Company Petition No.112/1994 contending that the
proceedings initiated under the SARFAESI Act were time barred; the same
objection was also taken in the reply filed to Company Application
No.3550/2016 supra; and, (xiii) in the meanwhile the appellant, being the ex-
management of the company in liquidation Nirmal Steel and Tubes (I) Ltd.,
entered into an One Time Settlement (OTS) with respondent no.3 SBI and
filed CA No.387/2018 in the Company Court informing the said OTS arrived
at with respondent no.3 SBI; however the appellant was unable to pay the
entire amount of OTS.
6. It is the contention of the counsel for the appellant that the SARFAESI
proceedings are barred by time and though the said plea was taken in reply to
Company Application No.3550/2016 as well as by way of CA No.835/2017
which is still pending but the Company Judge, in the impugned order has not
dealt with the same at all and hurriedly passed the impugned order allowing
Company Application No.3550/2016, accepting the undertaking of
respondent no.2 RIICO Ltd. to distribute the sale proceeds of the secured
assets in accordance with Sections 529 and 529A of the Companies Act.
7. On enquiry, as to the Article of the Schedule to the Limitation Act,
1963 applicable, the counsel for the appellant states that Article 62 would
apply and which provides limitation of 12 years commencing from the date
when the monies sued for becomes due. It is contended that the money
became due to respondent no.2 RIICO Ltd. on 31st December, 1991 and 12
years therefrom lapsed much prior to 20th July, 2015 when notice under
CO.APP No.10./2020 Page 4 of 13
Section 13(2) of the SARFAESI Act was issued first by respondent no.2
RIICO Ltd. and that too to the OL only.
8. We have enquired from the counsel for the appellant, whether not the
respondent no.2 RIICO Ltd., on reference under BIFR being made and on
liquidation being ordered, could not possibly have initiated any proceedings
for recovery and limitation for initiation whereof remained suspended.
9. The counsel for the appellant has referred to Somnath Manocha Vs.
Punjab and Sind Bank 2012 (129) DRJ 654 (DB) and has read out
paragraph 17 thereof to contend that the SARFAESI Act proceedings can
also become time barred. He has also referred to Benares Cotton & Silk
Mills Ltd. Vs. Sulbha Devi Gupta (1986) 60 CompCas 639, Rule 151 of the
Companies (Court) Rules and to Section 36 of the SARFAESI Act in this
regard.
10. We have examined the aforesaid judgments. While Benares Cotton &
Silk Mills Ltd. supra is of before even coming into force of the SARFAESI
Act in the year 2002 and thus not concerned with limitation for initiation of
action thereunder, in Somnath Manocha supra, the secured creditor initiated
recovery suit under Order 37 of the Code of Civil Procedure, only for
recovery of money, saving the right to sue subsequently on mortgage and
which suit was never filed and it was in this context that it was held that the
initiation of proceedings under SARFAESI Act was barred by time.
11. Prima facie, the reliance placed by the counsel for the appellant on
Article 62 of the Schedule to the Limitation Act is misplaced. Article 62
provides limitation for a suit to enforce payment of money secured by a
CO.APP No.10./2020 Page 5 of 13
mortgage or otherwise charged upon immovable property. The proceedings
under the SARFAESI Act are not for recovery of money but are more akin to
a proceeding for foreclosure of mortgage, limitation for a suit wherefor
provided in Article 63 (a) of the Schedule to the Limitation Act is of 30 years
commencing from the date when the money secured by the mortgage became
due. It thus appears that Article 63(a) and not Article 62 of the Schedule to
the Limitation Act would apply.
12. However, it is not deemed apposite to deal further on the said aspect
because we have also enquired from the counsel for the appellant, whether
not the challenge to the SARFAESI Act proceedings, on the ground of the
same being barred by limitation, is required to be made by way of a
proceeding under Section 17 of the SARFAESI Act and before the DRT and
the jurisdiction of this Court would be barred by Section 34 of the
SARFAESI Act. We may in this context notice that the SARFAESI Act
came into force only in the year 2002 and going by Article 63(a) of the
schedule to the Limitation Act, it cannot be said that the limitation of 30
years, even if counted from 31st December, 1991 has not expired or had
expired, for that matter, even by 20th July, 2015 when the notice under
Section 13(2) of the SARFAESI Act was issued. In this context it is
worthwhile to also mention that respondent no.2 RIICO Ltd., being
admittedly a secured creditor, was / is entitled to stay outside the winding up
process and was required to approach the Company Court only to take
possession from the Official Liquidator, of the secured assets, for the
purposes of sale and in accordance with Sections 529 and 529A of the
Companies Act. As far back as in M.K. Ranganathan Vs. Government of
CO.APP No.10./2020 Page 6 of 13
Madras AIR 1955 SC 604 it was held, (i) that the mortgagee of a company
in liquidation is in a position to say "the mortgaged property is to the extent
of the mortgage my property. It is immaterial to me whether my mortgage is
in winding up or not. I remain outside the winding up and shall enforce my
rights as mortgagee"; (ii) this is to be contrasted with the case in which such
a creditor prefers to assert his right, not as mortgagee, but as a creditor
saying "I will prove in respect of my debt", in which case he comes into the
winding up; (iii) when the mortgagee sells, with or without the concurrence
of liquidator, in exercise of a power of sale vested in him by the mortgage, it
is not necessary to obtain liberty to exercise the power of sale, although
orders giving such liberty have sometimes been made; and, (iv) the secured
creditor is thus outside the winding up and can realize his security without
the leave of winding up Court, though if he files a suit or takes other legal
proceedings for the realization of his security, he is bound to obtain the leave
of the winding up Court before he can do so although such leave would
almost automatically be granted. Though the said judgment was rendered
with reference to the provisions of the Companies Act, 1913 but the
corresponding provisions of the Companies Act, 1956 are pari materia with
the earlier Act and the position of law has not changed. It thus follows that
the claim of a secured creditor is against his security of which he is already
the owner to the extent of the security, and not against the company and thus
a secured creditor stands outside the winding up. However by amendments
of the year 1985 in Section 529 and with the incorporation of Section 529A
in the Companies Act, 1956, a pari passu charge on the security of the
secured creditors, in favour of the workmen to the extent of the workman's
portion in the security was created.
CO.APP No.10./2020 Page 7 of 13
13. Reference is this regard may be made to A.P. State Financial Corpn.
Vs Official Liquidator (2000) 7 SCC 291 holding that though the State
Financial Corporations Act, 1951 is a special Act vis-à-vis the Companies
Act but since the amendment to Section 529 and incorporation of Section
529A in the Companies Act, 1956 is of the year 1985 and contains a non-
obstante clause, it would prevail over the State Financial Corporations Act
and the statutory right of the State Financial Corporation to sell the property
under Section 29 of the State Financial Corporations Act has to be exercised
with the right of pari passu charge to the workmen created by the proviso to
Section 529 of the Companies Act and that Section 529A confers upon a
Company Court the duty to ensure that the workmen's dues are paid in
priority to all other debts. In International Coach Builders Ltd. Vs.
Karnataka State Financial Corpn. (2003) 10 SCC 482 it was further held
that the Official Liquidator, as the representative of the workmen to enforce
such pari passu charge, would have the right of representing the workmen
equally with the rights of the secured creditor and therefore State Financial
Corporation cannot act independently or by ignoring the Official Liquidator,
for enforcing their security and the realization of the security can only be
done by both the charge holders joining. In Rajasthan State Financial
Corpn. Vs Official Liquidator (2005) 8 SCC 190 it was further clarified that
though the right of the State Financial Corporation to sell the secured assets
has not been taken away, notwithstanding the winding up, but the same
stands restricted by the requirement of the Official Liquidator being
associated with it, giving the Company Court the right to ensure the
distribution of the assets in terms of Section 529A of the Companies Act. In
Laxmi Fibres Ltd. Vs. A.P. Industrial Development Corpn. Ltd. (2015) 16
CO.APP No.10./2020 Page 8 of 13
SCC 464 it was yet further clarified that after ensuring that the social
purpose of Sections 529 and 529A is achieved or ensured, the State Financial
Corporation can continue to enjoy their statutory rights as secured creditors
and they will not be reduced to the status of unsecured creditors and will not
be required to prove their debts or to stand in line with other unsecured
creditors.
14. We may notice, since the possession of the secured assets was with the
respondent no.1 OL pursuant to the recommendation of the BIFR and the
order of liquidation, respondent no.2 RIICO Ltd., for the purpose of
proceedings under the SARFAESI Act, was in any case required to apply to
the Company Court for direction to the respondent no.1 OL to handover
possession of the property for sale under the SARFAESI Act.
15. We have not been able to decipher any clear reply from the counsel for
the appellant to our aforesaid queries, qua jurisdiction of the Company Court
or of this Court in appeal against the order of the Company Court, to go into
the aspect of bar of limitation, if any to the proceedings under the
SARFAESI Act and jurisdiction therefor being exclusively of the DRT or
qua limitation.
16. We however entertain no doubts in this regard and merely because the
borrower qua the secured interest is in liquidation, would not vest the
Company Court, as whose appellate Court we are exercising jurisdiction,
with the jurisdiction over matters which can be raised under Section 17,
before the DRT.
CO.APP No.10./2020 Page 9 of 13
17. The counsel for the respondent no.1 OL, after learning of the
controversy from the hearing before the Court, has also referred to Pegasus
Assets Reconstruction Pvt. Ltd. Vs. Haryana Concast Ltd. (2016) 4 SCC 47
at paragraph 17, to contend that the sale of the secured assets has to be
carried out by the secured creditor and only the workmen dues have to be
ensured and which has been done in the impugned order by recording the
undertaking of respondent no.2 RIICO Ltd. qua distribution of sale proceeds
in accordance with Sections 529 and 529A of the Companies Act.
18. On going through Pegasus Assets Reconstruction Pvt. Ltd. supra we
also find the same to be a precedent on the query made by us to the counsel
for the appellant. The question for adjudication therein was, "whether a
Company Court, directly or through an Official Liquidator, can wield any
control in respect of a sale of a secured asset by a secured creditor in exercise
of powers available to such creditor under the SARFAESI Act". It was held,
(i) that the Recovery of Debts due to Banks & Financial Institutions Act is of
1993 i.e. later to the Companies Act and creates a special machinery for
speedy recovery of dues of banks and financial institutions and which by an
amendment of 2004 includes a registered securitization or reconstruction
company envisaged under SARFAESI Act and Section 18 thereof bars the
jurisdiction of ordinary Courts or authority in respect of matters falling
within the jurisdiction of Debt Recovery Tribunal as specified in Section 17
thereof; (ii) an Appellate Tribunal is provided under Section 20; (iii) the
power of such Tribunals extends to determining the debt due as well as its
realization; (iv) Section 34 confers overriding effect upon this Act over any
other law in force; (v) SARFAESI Act was enacted in 2002 to regulate
CO.APP No.10./2020 Page 10 of 13
securitization and reconstruction of financial assets and enforcement of
security interest, to clothe the banks and financial institutions with power to
take possession of securities and sell them; (vi) a reading of Sections 9 and
13 of the SARFAESI Act leaves no manner of doubt that for enforcements of
its security interest, a secured creditor has been not only vested with the
power to do so without the intervention of the Court or Tribunal but detailed
provisions have also been prescribed to take care of various eventualities
such as when the borrower company is under liquidation and for which,
proviso to Sub-Section (9) to Section 13 contains clear mandate keeping in
view the provisions of Sections 529 and 529A of the Companies Act; (vii)
thus the SARFAESI Act also has a overriding effect over other laws; (viii)
the Rules under the SARFAESI Act ensure that Official Liquidator is in
knowledge of the proceedings under the SARFAESI Act in case the
borrower happens to be a company under winding up; (ix) thus no order is
required by the Company Judge, for association of the OL, in order to protect
the interest of workers and to realize their dues; (x) in the event, in the
capacity of a borrower, the OL is not satisfied with the decisions or steps
taken by the secured creditor, it has sufficient opportunity to avail right of
appeal under Section 17 of the SARFAESI Act before the DRT; (xi) any
other view will lead to a conflict of rights and interest and the appellate fora
shall also differ, leading to a situation of uncertainty and conflict between the
two Acts; (xii) SARFAESI Act is a complete Code and there is thus no need
to borrow anything from the Companies Act; (xiii) the required provisions of
the Companies Act have been incorporated in the SARFAESI Act, for
harmonizing this Act with the Companies Act in respect of the dues of the
workmen; and, (xiv) in the circumstances, there is no plausible reason to take
CO.APP No.10./2020 Page 11 of 13
recourse to any provisions of the Companies Act and permit interference in
the proceedings under the SARFAESI Act either by the Company Judge or
the OL.
19. Once as per the aforesaid judgment, even the OL in the capacity of the
borrower, if aggrieved from steps taken by the secured creditor under the
SARFAESI Act is required to approach the DRT under Section 17 of the
SARFAESI Act, there is no doubt that the appellant claiming to be ex-
management of the company in winding up, also has to approach the DRT to
contend that the action under the SARFAESI Act is barred by time.
20. Though we have referred to and dealt with the argument of limitation
urged, to the limited extent aforesaid but are refraining ourselves from giving
further reasons so as not to prejudice the remedy, if any availed of by the
appellant before the DRT under Section 17 thereof.
21. The counsel for the respondent no.1 OL at this stage also contends that
if the appeal has been filed by Mr. R.K. Aggarwal in his capacity as ex-
management, as stated by him in the affidavit accompanying the appeal, the
appeal is not maintainable on this ground alone. Reference in this regard is
made to order dated 16th November, 2018 of a Division Bench of this Court
in Co. App. 24/2018 titled V.K. Sharma Vs. Official Liquidator. It is stated
that though a erstwhile shareholder of a company in liquidation is entitled to
appeal but not the ex-Director and since the appellant in the affidavit has
described himself as ex-Director, even though the appeal contains an
averment that he holds 75% of the shares of the company in liquidation, the
appeal is not maintainable.
CO.APP No.10./2020 Page 12 of 13
22. We may add that the Supreme Court also in Innoventive Industries
Ltd. Vs. ICICI Bank (2018) 1 SCC 407 has held that the appeal at the behest
of erstwhile Directors of a company in insolvency is not maintainable.
23. Mr. Pushpender Aggarwal, Manager (Law) of respondent no.2 RIICO
Ltd. only states that he needs time to engage an advocate. However since no
merit has been found in the appeal for lack of jurisdiction, we need not grant
any such time.
24. Dismissed.
RAJIV SAHAI ENDLAW, J.
ASHA MENON, J. AUGUST 10, 2020 'gsr'..
CO.APP No.10./2020 Page 13 of 13