Rajasthan High Court - Jodhpur
The Specified Undertaking Of The Uti vs M/S Derby Testiles Limited on 13 December, 2022
Author: Vinit Kumar Mathur
Bench: Vinit Kumar Mathur
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
S.B. Company Petition No. 7/2000
The Specified Undertaking Of The Unit Trust of India" having its
registered office at UTI Tower, G-N Block, Bandra Kurla Complex,
Bandra (E), Mumbai 400051
----Petitioner
Versus
M/s Derby Textiles Limited, Registered office at Marudhar
Industrial Area, Basni II Phase, Jodhpur.
----Respondent
For Petitioner(s) : Mr. Manoj Bhandari, Sr. Advocate
assisted by Mr. Aniket Tater.
Mr. Shivangshu Naval
Mr. Pratik Jain
Mr. Shailendra Gwala
Mr. Akash Shrivastava
Mr. Siddharth Tatiya
For Respondent(s) : Mr. Sanjay Jhanwar, Sr. Advocate
assisted by Mr. Rajat Sharma
Mr. Pranav Bafna
Mr. Sanjay Nahar
Mr. Sanjeet Purohit
Mr. Dharamveer Choudhary for
Mr. Anil Vyas
Mr. Naman Mohnot
Mr. Pushkar Tamini
Mr. Surendra Thanvi
Mr. D.K. Meena, Official Liquidator.
HON'BLE MR. JUSTICE VINIT KUMAR MATHUR
Order 13/12/2022 Heard learned counsel for the parties and scanned the material available on record.
The present company petition as well as the application preferred by the Kotak Mahindra Bank shall stand decided by this common order.
(Downloaded on 19/12/2022 at 09:41:21 PM)(2 of 34) [COP-7/2000] Instant company petition has been filed by the Specified Undertaking of the Unit Trust of India (UTI) against M/s Derby Textiles Limited having registered office at Marudhar Industrial Area, Basni, II Phase, Jodhpur.
Briefly, the facts noted in the present case are that respondent M/s Derby Textiles Limited through its Managing Director vide letter dated 21.08.1995 requested the petitioner for sanction of credit/loan of Rs.1 Crore against issuance of the Unsecured Transferable Notes (UTN) of Rs.1 Crore. The same was sanctioned by the petitioner vide letter dated 31.01.1996. The UTN for Rs.1 Crore was issued for a period of 12 months carrying interest @ 19.5% p.a. payable at quarterly rate.
The respondent-Company through its Managing Director's letter dated 20.12.1995 further requested the petitioner to subscribe to "Secured Redeemable Non-Convertible Debentures"
(SRNCD) of the face value of Rs.4 Crores on private placement basis to meet the respondent-Company's long term working capital requirements and other normal expenditures. The same was sanctioned by the petitioner vide letter dated 31.01.1996. In relation to the aforesaid SRNCD of Rs. 4 Crores, a subscription agreement dated 14.02.1996 was executed between the parties.
The SRNCD was required to be redeemed in one installment at the end of fifth year from the date of allotment, carrying an interest @19% p.a. payable on a quarterly basis.
The respondent-Company had also executed a Memorandum of Hypothecation and the Trustee Agreement on 12.09.1996 in favour of Debenture Trustee I.D.B.I. in relation to the SRNCD and had provided copies of both the aforesaid documents to the petitioner. Thereafter, the respondent-Company by Memorandum (Downloaded on 19/12/2022 at 09:41:21 PM) (3 of 34) [COP-7/2000] Entry dated 20.09.1996 created equitable mortgage of its immovable property in favour of Debenture Trustee I.D.B.I. and delivered the title deed of the property to the Trustee.
The respondent-Company having defaulted in making payment of principal amount as well as interest thereupon in respect of UTN and SRNCD as per the terms and conditions of the assistance, the petitioner was constrained to issue a recall notice dated 04.01.2000 to the respondent-Company. In these circumstances, the respondent-Company owed a sum of Rs.
8,48,07,764/- as on 31.01.2000 in the following manner:-
1. In respect of UTN of Rs. 1 Crore:
a) Principal Sum: Rs. 1,00,00,000/-
b) Penal Interest: Rs. 7,96,527/-
c) Simple Interest: Rs. 57,53,836/-
d) Overdue Interest: Rs. 24,93,028/-
_____________
Total: Rs. 1,90,43,391/-
_____________
2. In respect of SRNCD of Rs. 4 Crore:
a) Principal Sum: Rs. 4,00,00,000/-
b) Simple Interest: Rs. 1,88,62,123/-
c) Overdue Interest: Rs. 69,02,210/-
_____________
Total: Rs. 6,57,64,373/-
_____________
Since the respondent-Company was unable to pay the debts of the petitioner as mentioned above, the petitioner was constrained to file this winding up petition under Sections 433, 434 and 439 of the Companies Act, 1956 (hereinafter referred to as the "Act of 1956").(Downloaded on 19/12/2022 at 09:41:21 PM)
(4 of 34) [COP-7/2000] This Court on 01.03.2000 issued notices to the respondent-
Company and thereafter, the company petition was admitted vide order dated 23.03.2001. Thereafter, a Provisional Liquidator was appointed and he was asked to prepare the inventory list of the respondent-Company. A report was filed by the Official Liquidator with regard to inventory of the respondent-Company.
During the pendency of the present company petition, this Court on 10.01.2018 passed a detailed order taking note of the events having taken place in the present case. The order dated 10.01.2018 is reproduced as under:-
"At the outset, Mr. Ashwini Sharma, learned counsel appearing for the respondent company sought time to argue the matter stating that Mr. Arvind Chawla counsel appearing for the respondent company is not available today. In the instant company petition seeking winding up of the respondent company filed on 18.2.2000, notices were issued by this Court to the respondent company on 1.3.2000. On 16.8.2000 noticing the fact that the respondent company is avoiding service, this Court passed an order to effect the serve upon respondent company by publication and affixation of notice on the premises of the company. Despite service, nobody appeared on behalf of the respondent company and therefore, after hearing counsel for the petitioner, the petition was admitted on 23.3.01 and the notices were directed to be published in accordance with the Company (Court) Rules, 1959. On 9.9.02, learned counsel appearing for the respondent company made a statement that the respondent company intends to settle the account. Accordingly, the Court directed the petitioner company to supply the copy of the statement of accounts to the respondent company. On 18.10.02, the Court noticed that no efforts have been made by the respondent company to settle the accounts and directed the official liquidator to make inventory of the assets of the respondent company. The official liquidator attached to this Court tried to make inventory of the assets of the respondent company, but the Directors of the (Downloaded on 19/12/2022 at 09:41:21 PM) (5 of 34) [COP-7/2000] company did not furnish the keys and therefore, the official liquidator moved this Court to break the locks. Accordingly, vide order dated 2.5.03, the Court directed that if the Directors refuse to supply the keys on the request being made, the official liquidator will be at liberty to break open the locks for making inventory and he can make arrangements for security at the cost of the company. On 28.7.03, it was submitted on behalf of the respondent company that they will provide all assistance to the official liquidator in making the inventory and give an undertaking that they will not alienate any of the assets. Accordingly, the Court adjourned the matter to 25.8.03 with further directions that on that date arguments will be heard for possibility of appointment of the official liquidator. Later, the respondent company filed preliminary objections to the inventory report filed by the official liquidator. On 25.11.03, the matter was adjourned to 4.12.03 for hearing arguments on aspect of liquidation. On 4.5.04, noticing the fact that inventory list has not been so far completed, the Court adjourned the matter to 28.5.04. Thereafter, the matter was adjourned from time to time. Later, the respondent company made an application that company has been registered as sick company with BIFR and accordingly, vide order dated 2.1.06 while observing that when any decision is finally taken by the BIFR, the petitioner will have liberty to move before this Court, the matter was adjourned. On 7.12.10, the counsel appearing for the respondent company submitted that the matter is pending before AAIFR and therefore, the matter may be adjourned. Accordingly, the matter was adjourned to February, 2011. Even thereafter, the matter was adjourned from time to time on account of pendency of the proceedings before the AAIFR. On 10.10.14, the counsel appearing for the respondent company submitted that the appeal pending before the AAIFR stands decided, but a fresh reference in respect of the subsequent financial year is registered with the BIFR and therefore, hearing of present company petition needs to be deferred. Accordingly, while issuing directions to the respondent company to place on record the documents showing pendency of the reference before the BIFR, the matter was adjourned. On 23.1.15, the counsel appearing for (Downloaded on 19/12/2022 at 09:41:21 PM) (6 of 34) [COP-7/2000] the respondent company submitted that the appeal pending before the AAIFR is coming up for hearing on 9.3.15 and accordingly, the matter was adjourned. On 17.12.15, the respondent company was directed to file an affidavit regarding the status of the proceedings before the AAIFR. Finally, on 4.2.16, the counsel appearing for the respondent company submitted that the proceeding pending before AAIFR stands concluded and sought time to place the order passed by the AAIFR on record and accordingly, the matter was adjourned. Again on 21.7.16, the counsel appearing for the respondent company submitted that the last proceeding which was pending before the AAIFR stands terminated and the appeal of the company stands dismissed by the AAIFR, however, at the same time, counsel appearing for the respondent company pleaded no instructions in the matter. In this view of the matter, on 4.8.16, this Court directed to issue fresh notices to the respondent company, returnable on 7.9.16. On 7.9.16, Mr. S.N.Sharma, Director of the respondent company present in person sought time to engage another counsel. Again on 21.9.16, the Director appearing for the respondent company sought time to engage counsel and thereafter on 5.10.16, Mr. Ashwini Sharma, learned counsel put in appearance on behalf of the respondent company. Thereafter, on 26.10.16 and 23.11.16, adjournments were granted as prayed for by the parties. On 14.12.16, Mr. Budhmal Sharma, appeared for the respondent company and submitted that Mr. Ashwini Sharma counsel for the company is out of station and therefore, the matter was adjourned to 11.1.17. The matter was again listed on 25.1.17 and 8.2.17, however, learned counsel appearing for the respondent company sought time to argue the matter and the matter was adjourned to 15.2.17 with the clear stipulation that no further adjournment shall be granted. On 22.2.17, the matter was adjourned at the request of the learned counsel appearing for the petitioner and agreed to by the counsel appearing for the respondent. On 22.3.17, the arguments of the learned counsel for the petitioner were heard, however, on the request being made by the learned counsel for the respondent company to make submission, the matter was adjourned to 19.4.17 again with the clear stipulation that no further (Downloaded on 19/12/2022 at 09:41:21 PM) (7 of 34) [COP-7/2000] adjournment shall be granted in the matter. Thereafter, on 26.4.17, 24.5.17, 12.7.17 and 9.8.17, the matter was adjourned at the request of the learned counsel appearing for the respondent company. On 30.8.17, Mr. Himanshu Tak, learned counsel appearing for the respondent company sought adjournment on the ground that Mr. Ashwini Sharma, learned counsel appearing for the respondent company is suffering from viral fever. Accordingly, the matter was adjourned to 13.9.17. On 13.9.17, the matter was adjourned to 11.10.17. On 11.10.17, the matter was adjourned on account of non availability of counsel for the petitioner Mr. Sunil Beniwal. On 22.11.17, the application made on behalf of Specified Undertaking of the Unit Trust of India for substitution as petitioner was allowed and thereafter, on 6.12.17, while continuing the hearing, the matter was adjourned at the request made on behalf of the respondent company on account of non availability of counsel due to marriage in his family. It was made clear that no further adjournment shall be granted. Yet, on 20.12.17, the adjournment prayed for was allowed.
As noticed herein above, time and again the adjournments were sought on behalf of the respondent company on account of non-availability of the counsel Mr. Ashwini Sharma to argue the matter and today, the request is made that counsel for the respondent company Mr. Arvind Chawla is not available today.
Taking into consideration, the delaying tactics adopted by the respondent company as aforesaid, this Court is not inclined to grant any further adjournment in the matter and therefore, the prayer for adjournment is rejected.
The matters are heard.
Arguments concluded.
Put up for dictation of order on 17.1.18."
During the pendency of this company petition, an application (02/2015) was filed by one workman Dinesh Gaur in S.B. Company Petition No.09/2014 and this Court vide order dated 28.03.2022 passed following order:-
(Downloaded on 19/12/2022 at 09:41:21 PM)(8 of 34) [COP-7/2000] "The matter comes up on an application no.02/2015 in Company Petition No.9/2014.
Learned counsel for the petitioner submits that auction in question has already taken place. Learned counsel for the petitioner further submits that unless an Official Liquidator is appointed to secure the debts of the petitioner, the petitioner shall be permanently prejudiced being a prioritized creditor.
Despite service, none appears for the
respondent-Company.
In the interest of justice, further proceedings in case No.144/2004 before the Debt Recovery Tribunal, Jaipur shall remain stayed.
List after one week."
The order dated 28.03.2022 was assailed by the Kotak Mahindra Bank before the Hon'ble Supreme Court by way of filing a Special Leave Petition. The same was dismissed vide order dated 30.05.2022.
Thereafter, Kotak Mahindra Bank moved an application no.
(02/2022) for impleadment as a party respondent. This Court vide order dated 18.05.2022 allowed the said application and the Kotak Mahindra Bank was impleaded as party respondent.
The respondent- Kotak Mahindra Bank also filed an application no. (01/2022) before this Court in Company Petition No.9/2014 seeking vacation/modification of the interim order dated 28.03.2022, however, the same was rejected by this Court vide order dated 27.07.2022. Against the order dated 27.07.2022, the respondent-Kotak Mahindra Bank preferred a Special Leave Petition before Hon'ble the Supreme Court and the Supreme Court on 26.08.2022 passed the following order:-
(Downloaded on 19/12/2022 at 09:41:21 PM)(9 of 34) [COP-7/2000] "We have heard learned counsel for the parties. Since the company petitions and company application No. 2/2015 are listed before the High Court for final hearing on 10.10.2022, we request the High Court to decide the pending company petitions and company application No. 2/2015 on the date fixed, if not possible on the said date, at least in the month of October, 2022.
List on 17.11.2022."
That Hon'ble Supreme Court has disposed of the Special Leave Petition on 12.12.2022 in following terms:-
"It is informed to this Court that both the company petitions bearing S.B. Company Petition No. 9 of 2014 and S.B. Company Petition No. 7 of 2000 pending before the High Court of Judicature for Rajasthan at Jodhpur are listed today for further hearing.
Before this Court interim order passed by the Company Court dated 27.07.2022 is under challenge. Taking into consideration the subsequent events which has taken place and as the Company Petitions have already been partly heard by the High Court, we find no reason to interfere in the order impugned and we make it clear that the High Court may decide the pending company petitions on their own merits without being influenced by any observations made under the order/interim order impugned.
With the aforesaid observations, the Special Leave Petitions stand disposed of.
Pending application(s), if any, shall stand disposed of."
Mr. Manoj Bhandari, learned Senior Counsel for the petitioner submitted that the respondent-M/s Derby Textiles Limited has failed to repay the amount as reflected in the recall notice mentioned hereinabove. He submits that even the respondents (Downloaded on 19/12/2022 at 09:41:21 PM) (10 of 34) [COP-7/2000] had appeared before this Court on several occasions and without giving any satisfactory and plausible explanation, they are unable to deny the fact of receipt of the money from the petitioner. The respondent-Company has tried to oppose the petitioner's winding up petition on the ground of matters pending before the BIFR and other forums, however, the fact of the matter is that the amount due to the petitioner has not been repaid by the respondent-
Company.
Learned Senior Counsel further submits that though the postal receipts of the statutory notice issued to the respondents has not been filed, however, the very object of Section 434(1)(a) of the Act of 1956 has been achieved as after notice of the company petition, the representative of the respondent-Company has appeared before this Court and despite having given reasonable opportunity to pay the debts of the petitioner, the same has not been paid till date. Learned Senior Counsel further submits that the company's substratum is lost as the company is not in operation since long.
To buttress his arguments, learned Senior Counsel appearing on behalf of the petitioner has placed reliance on the following judgments of the Apex Court as well as the Allahabad High Court respectively:
1. Jignesh Shah & Anr. v. Union of India & Anr.
reported in (2019) 10 SCC 750.
2. Paramjit Lal Badhwar v. Prem Spinning and Weaving Mills Co. Ltd. (C.P. No.5/1981) decided on 14.02.1983.
(Downloaded on 19/12/2022 at 09:41:21 PM)(11 of 34) [COP-7/2000] Mr. Manoj Bhandari, learned Senior counsel therefore, prays that this company petition may be allowed and the winding up of the company may be ordered.
This Court admitted the company petition vide order dated 23.03.2001 and the same is well within the knowledge of the respondents as they appeared before this Court after the admission of the company petition.
Since nobody has appeared to oppose the submissions made by Mr. Manoj Bhandari, learned Senior Counsel, therefore, this Court is constrained to decide this company petition in the absence of the counsel for the respondent-Derby Textiles Ltd.
Mr. Sanjay Jhawar, learned Senior counsel appearing for Kotak Mahindra Bank submits that the application preferred by the respondent Bank for vacation/ modification of the interim order dated 28.03.2022 was dismissed by this Court vide order dated 27.07.2022. This order dated 27.07.2022 was assailed before the Hon'ble Supreme Court by filing a Special Leave Petition (SLP (c) No(s).14173-14174/2022) and the Hon'ble Supreme Court has passed an order for disposal of the company petition. During the pendency of the hearing of company petition, the Special Leave Petition preferred by the respondent Bank has been disposed of on 12.12.2022.
Learned Senior Counsel for respondent Bank submits that Kotak Mahindra Bank has stepped into the shoes of earlier secured creditors IDBI, IIBI, IFCI and ICICI by assignment on 26.10.2007 and 25.05.2012. Being secured creditors, the Kotak Mahindra Bank and erstwhile creditors preferred an Original Application before the Debt Recovery Tribunal (hereinafter referred to as DRT) (Downloaded on 19/12/2022 at 09:41:21 PM) (12 of 34) [COP-7/2000] and vide order dated 08.10.2004 DRT decreed the suit of respondent-Bank vide final order/R.C. no.144/2004 in Original Application No.500/2000. In pursuance of the decree passed by the DRT, the Recovery Officer of the DRT undertook the sale of movable/immovable assets of the respondent Company. He further submits that on 08.02.2022, the Recovery Officer of the DRT undertook the sale of immovable assets of the respondents and the sale confirmation was issued by the Recovery Officer for an amount of Rs.126 Crores approximately and in pursuance thereof on 15.03.2022, the sale certificate was issued by the Recovery Officer and in the meantime, the auction purchaser took the physical possession of the property.
Learned counsel for the respondent-Bank submits that since the DRT has already issued a decree in their favour and that has been executed by the Recovery Officer of the DRT, therefore, the respondent-Bank, who are the secured creditors, cannot be deprived of their dues. It has been allowed in their favour in accordance with law. Learned Senior counsel submits that Recovery Officer has disbursed the amount due to the Bank after taking the undertaking in consonance with the judgment of the Hon'ble Supreme Court in the case of Kotak Mahindra Bank Limited Vs. The Recovery Officer, Debts Recovery Tribunal, Nagpur & Anr., (Misc. Application No.326-327/2022 in SLP(C) No.8265- 8266/2021) passed on 27.07.2022. He, submits that the amount disbursed to the respondent-Bank is subject to the undertaking of any orders passed by DRT or any other court.
Learned Senior counsel has relied upon Section 17, 18, 19(19), 31B and 34 of the Recovery of Debts Due to Banks and (Downloaded on 19/12/2022 at 09:41:21 PM) (13 of 34) [COP-7/2000] Financial Institutions Act of 1993 (hereinafter referred to as 'the Act of 1993') and on the strength of these provisions, he submits that the jurisdiction of the Tribunal is exclusive and therefore, there is no difficulty in execution of the decree passed by the Debt Recovery Tribunal. Learned Senior counsel further submits that even the Recovery Officer has taken note of the interim order passed by this Court on 28.03.2022. The Recovery Officer has stated in his order dated 03.12.2022 that despite the disbursement of the amount to the respondent-Bank, an amount of Rs.10 Crores still remains with it, which will be sufficient for the purpose of disbursement to the concerned workmen (Dinesh Gaur who has filed the company petition no. 9/2014 before this court).
Learned Senior counsel further submits that the disbursement made by the Recovery Officer of the DRT is well within the framework of law and no illegality has been committed.
He further submitted that only the claim of the workmen of the erstwhile company ranks "Pari Passu" to the secured creditors in terms of Section 19 Sub Clause (19) of the Act of 1996 read with section 529 (A) of the Companies Act, 1956. Learned Senior counsel submits that in the facts and circumstances of the case, there is no violation of the interim order passed by this Court. He, therefore, submits that the disbursement made in favour of the petitioner should not be disturbed while passing the order of winding up of the respondent Company by this Court. Learned Senior counsel, submits that if any person aggrieved of the order passed by Recovery Officer, he can assail the validity of the same before DRT under Section 30 of the Recovery of Debts Due to Banks and Financial Institutions Act of 1993 and then, if he is (Downloaded on 19/12/2022 at 09:41:21 PM) (14 of 34) [COP-7/2000] further aggrieved, the appellate forum can be approached by the party concerned under the provisions of Act of 1993.
In support of his contention that the DRT is having exclusive jurisdiction for recovery of the dues of the financial institutions like banks who are the secured creditors, learned Senior counsel relied upon the following judgments of Hon'ble Apex Court:
(1) Allahabad Bank vs. Canara Bank and Ors.
(2000) 4 SCC 406, (2) Andhra Bank vs. Official Liquidator and Ors.
(2005) 5 SCC 75, (3) Bank of Maharashtra vs. Pandurang Keshav Gorwardkar and Ors. (2013) 7 SCC 754, (4) The Official Liquidator, U.P. and Uttarakhand vs. Allahabad Bank and Ors. (2013) 1 SCC 462 and (5) Jitendra Nath Singh vs. The Official Liquidator and Ors. (2013) 1 SCC 462.
I have considered the submissions made at the Bar and gone through the relevant documents available on record.
For brevity, Section 17, 18, 19 (19), 31 and 34 of the Recovery of Debts and Bankruptcy Act, 1993 are reproduced as under:-
17. Jurisdiction, powers and authority of Tribunals.--(1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.
[(1A) Without prejudice to sub-section (1),--
(a) the Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain and decide applications under Part III of Insolvency and Bankruptcy Code, 2016 (31 of 2016).(Downloaded on 19/12/2022 at 09:41:21 PM)
(15 of 34) [COP-7/2000]
(b) the Tribunal shall have circuit sittings in all district headquarters.] (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act.
[(2A) Without prejudice to sub-section (2), the Appellate Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain appeals against the order made by the Adjudicating Authority under Part III of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).]
18. Bar of jurisdiction.--On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17:
[Provided that any proceedings in relation to the recovery of debts due to any multi-State co-operative bank pending before the date of commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 (1 of 2013) under the Multi-State Co-operative Societies Act, 2002 (39 of 2002) shall be continued and nothing contained in this section shall, after such commencement, apply to such proceedings.]
19. Application to the Tribunal.--(1) Where a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction--
(a) the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding, for the time being; or] [(aa)] the defendant, or each of the defendants where there are more than (Downloaded on 19/12/2022 at 09:41:21 PM) (16 of 34) [COP-7/2000] one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain; or
(b) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain; or
(c) the cause of action, wholly or in part, arises:
[Provided that the bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (30 of 2004) for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act:
Provided further that any application made under the first proviso for seeking permission from the Debts Recovery Tribunal to withdraw the application made under sub-section (1) shall be dealt with by it as expeditiously as possible and disposed of within thirty days from the date of such application:
Provided also that in case the Debts Recovery Tribunal refuses to grant permission for withdrawal of the application filed under this sub-section, it shall pass such orders after recording the reasons therefor.] [(19) Where a certificate of recovery is issued against a company as defined under the Companies Act, 2013 (18 of 2013) and such company is under liquidation, the Tribunal may by an order direct that the sale proceeds of secured assets of such company be distributed in the same manner as provided in section 326 of the Companies Act, 2013 or under any other law for the time being in force.]
31. Transfer of pending cases.--(1) Every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under this Act, being a suit or proceeding the (Downloaded on 19/12/2022 at 09:41:21 PM) (17 of 34) [COP-7/2000] cause of action whereon it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal:
Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any court:
[Provided further that any recovery proceedings in relation to the recovery of debts due to any multi- State co-operative bank pending before the date of commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 (1 of 2013) under the Multi-State Co- operative Societies Act, 2002 (39 of 2002), shall be continued and nothing contained in this section shall apply to such proceedings.] (2) Where any suit or other proceeding stands transferred from any court to a Tribunal under sub-
section (1),--
(a) the court shall, as soon as may be after such transfer, forward the records of such suit or other proceeding to the Tribunal; and
(b) the Tribunal may, on receipt of such records, proceed to deal with such suit or other proceeding, so far as may be, in the same manner as in the case of an application made under section 19 from the stage which was reached before such transfer or from any earlier stage as the Tribunal may deed fit.
34. Act to have overriding effect.--(1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, (Downloaded on 19/12/2022 at 09:41:21 PM) (18 of 34) [COP-7/2000] 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), 1 [, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)].
A bare perusal of Sections 17, 18, 19 (19), 31 and 34 of act of 1993 shows that the DRT is having exclusive jurisdiction to deal with the Recovery of the secured creditors and is having an overriding effect over all other laws.
Hon'ble the Supreme Court has also discussed in detail in the case of Allahabad Bank vs. Canara Bank and Ors. (2000) 4 SCC 406 and formulated following points:-
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 Company 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, 529A and 530 etc. of the Companies Act or whether these questions are all within the (Downloaded on 19/12/2022 at 09:41:21 PM) (19 of 34) [COP-7/2000] 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- Clauses (1) and (2) of Section 529, Section 530 of the Companies Court also apply - apart from Section 529A - to the proceedings before the Tribunal under the RDB Act?
(5) Whether in view of provisions in Section 19(2) and 19(19) as introduced by Ordinance 1/2000, the Tribunal can permit the appellant-Bank alone to appropriate the an tire sale proceeds realised by the appellant except to the limited extent restricted by Section 529A? Can the secured creditors like the 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?
21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or Financial Institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) (formerly under Section 19(7)) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word 'recovery' in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226, 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act.
22. We hold that the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of (Downloaded on 19/12/2022 at 09:41:21 PM) (20 of 34) [COP-7/2000] adjudication of the liability of the defendant to the appellant Bank is concerned.
24. There is one more reason as to why it must be held that the jurisdiction of the Recovery Officer is exclusive. The Tiwari Committee which recommended the Constitution of a Special Tribunal in 1981 for recovery of debts due to Banks and Financial Institutions stated in its Report that the exclusive jurisdiction of the Tribunal must relate not only in regard to the adjudication of the liability but also in regard to the execution proceedings. It stated in Annexure XI of its Report that all "execution proceedings" must be taken up only by the Special Tribunal under the Act. In our opinion, in view of the special procedure for recovery prescribed in Chapter V of the Act, and Section 34, execution of the certificate is also within the exclusive jurisdiction of the Recovery Officer.
25. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decided accordingly.
50. For the aforesaid reasons, we hold that at the stage of adjudication under Section 17 and execution of the certificate under Section 25 etc. the provisions of the 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. In respect of the monies realised under the ROB Act, the question of priorities among the Banks and Financial Institutions and other creditors can be decided only by the Tribunal under the RDB Act 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 Companies act, 1956 and the latter Act has to yield to 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 proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against the respondents.
54. Where the defendant company is a company against which no winding up order is passed, the Company, in our view, is like any other defendant and if in such a (Downloaded on 19/12/2022 at 09:41:21 PM) (21 of 34) [COP-7/2000] situation a question of priority arises before the Tribunal, in respect of any monies realised under the RDB Act, as between the Bank or Financial Institutions on the one hand and the other creditors on the other, it will, in our opinion, be necessary for the Tribunal to decide such questions of priority bearing in mind principles underlying Section 73 of the CPC. Section 22 of the RDB Act, in our view, gives sufficiently wide powers to the Tribunal and the Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. This Court has explained that the powers under Section 22 are wider than those of Civil Courts and the only restriction on its powers is that principles of natural justice have to be followed. See Industrial Credit and Investment Corporation of India Ltd. v. Grapco Industries Ltd. and Ors. MANU/SC/0372/1999 : [1999]3SCR759 and Allahabad Bank, Calcutta v. Radha Krishna Maity and Ors. MANU/SC/0554/1999 : AIR1999SC3426 .
55. But under Section 73 CPC, sharing in the sale proceeds (here, sale proceeds realised under the RDB Act) is permissible only if a person seeking such share has obtained a decree or an order of adjudication from the Tribunal and has also complied with other conditions laid down under Section 73. In the present case, the Canara Bank is not in a position to invoke the principles underlying Section 73 CPC because it has not yet obtained any decree or adjudication of its debt from the Tribunal. Nor has it complied with other provisions underlying Section 73 CPC. Hence no relief can be granted on the basis of the said principles.
61. The respondent's contention that Section 19(19) gives priority to all "secured creditors" to share in the sale proceeds before the Tribunal/Recovery Officer cannot, in our opinion, be accepted. The said words are qualified by the words "in accordance with the provision of Section 529A". Hence, it is necessary to identify the above limited class of secured creditors who have priority over all others in accordance with Section 529A.
62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding up.
The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in Section 529. The insolvency rules are those contained in Sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that (Downloaded on 19/12/2022 at 09:41:21 PM) (22 of 34) [COP-7/2000] event, he will rank with the unsecured creditors and has to take his dividend as provided in Section 529(2). Till today, the Canara Bank has not made it clear whether it wants to come under this category.
64. The second class of secured creditors referred to above are those who come under Section 529A(1)(b) read with proviso (c) to Section 529(1). These are those who opt to stand outside the winding up to realise their security. Inasmuch as Section 19(19) permits distribution to secured creditors only in accordance with Section 529A, the said category is the one consisting of creditors who stand outside the winding up. These secured creditors in certain circumstances can come before the Company Court (here the Tribunal)and claim priority over all other creditors for release of amounts out of the other monies lying in the Company Court (here, the Tribunal). This limited priority is declared in Section 529A(1) but it is restricted only to the extent specified in Clause (b) of Section 529A(1). The said provision refers to Sub-clause (c) of the proviso to Section 529(1) and it is necessary to understand the scope of the said provision.
65. Under Sub-clause (c) of the proviso to Section 529(1), the priority of the secured creditor who stands outside the winding up is confined to the "workmen's portion" as defined in Section 529(3)(c). 'Workmen's portion' means the amount which bears to the value of the security, the same proportion which the amount of the workmen's dues bears to the aggregate of (a) workmen's dues and (b) the amounts of the debts due to all the creditors. This is explained in the illustration under the said provision. If the workmen's dues in all are (say) Rs. 1 lakh and the debt due to all secured creditors is Rs. 3 lakhs, the total amount due to all of them comes to Rs. 4 lakhs. Therefore, the workmen's share come to 25% (Rs. 1 lakh out of Rs. 4 lakhs). Now if the value of the security of a secured creditor (like Canara Bank) is Rs. 1 lakh, the 'workmen's portion' will be Rs. 25,000 which is the pro-rata amount to be shared by the said secured creditor. By virtue of Section 529A(1)(b) his priority over all others out of other monies available in the Tribunal is restricted to Rs. 25,000 only,
71. But the point here is that the occasion for such a claim by a secured creditor (here the Canara Bank ) against realisations by other creditors (like the Allahabad Bank) under Section 529A read with proviso
(c) to Section 529(1) can arise before the Tribunal only if the Canara Bank has stood outside winding up and realised amounts and if it shows that out of the amounts privately realized by it, some portion has been ratably taken away by the liquidator under Sub-clauses (a) and
(b) of the proviso to Section 529(1). It is only then that (Downloaded on 19/12/2022 at 09:41:21 PM) (23 of 34) [COP-7/2000] it can claim that it is to be re-imbursed at the same level as a secured creditor with priority over the realisations of other creditors lying in the Tribunal. None of these conditions is satisfied by Canara Bank. Thus, Canara Bank does not belong to the class of secured creditors covered by Section 529A(1)(b).
72. Therefore, the result is that the Canara Bank cannot rely on the words in Section 19(19) vis, "to be distributed among its secured creditors" for claiming any amount lying in the Tribunal towards its security nor can it claim priority as against the Allahabad Bank.
The next question is whether the amounts realised under the RDB Act at the instance of the appellant can be straightway released in its favour. Now, even if Section 19(19) read with Section 529A of the Companies Act does not help the respondent-Canara Bank, the said provisions can still have an impact on the appellant- Allahabad Bank which has no doubt a decree in its favour passed by the Tribunal. Its dues are unsecured. The 'workmen's dues' have priority over all other creditors, secured and unsecured because of Section 529A(1)(a). There is no material before us to hold that workmen's dues of the defendant company have all been paid. In view of the general principles laid down in National Textile Workers' Union etc. v. P.R. Ramakrishnan and Ors. MANU/SC/0025/1982 :
(1983)ILLJ45SC there is an obligation resting on this Court to see that no secured or unsecured creditors including Banks or Financial Institutions, are paid before the workmen's dues are paid, we are, therefore, unable to release any amounts in favour of the appellant Bank straightway.
77. We, therefore, direct the Registry of the Supreme Court to make over the monies deposited in this Court pursuant to sale of Shed No. 15, to the Debt Recovery Tribunal, Delhi and it will be for the said Tribunal to find out if there are any workmen's dues by issuing notice to the workmen or other persons/bodies which can furnish information in this behalf. The above monies to be sent from this Court as well as the monies realised by earlier sales,- in case they are not subject to any pending litigation - have to be first released towards the workmen's dues. The balance remaining will then be released in favour of the appellant-Bank in accordance with law and subject to the various principles stated in this judgment. In case any machinery or goods pledged to the Canara Bank are lying in the two other sheds already sold, it will be open to the Canara Bank to move the Tribunal/ Recovery Officer for their removal and for an inventory. The impugned order of the High Court is set aside, the appeal is allowed and disposed of as stated above. There will be no order as to costs.
(Downloaded on 19/12/2022 at 09:41:21 PM)(24 of 34) [COP-7/2000] The Hon'ble Supreme Court in the case of Andhra Bank vs. Official Liquidator and Ors. (2005) 5 SCC 75 stated :-
25. While determining the Point No. 6, however, a stray observation was made to the effect that the "workmen's dues" have priority over all other creditors, secured and unsecured because of Section 529-A(1)(a). Such a question did not arise in the case as the Allahabad Bank was indisputably an unsecured creditor.
26. Such an observation was, thus, neither required to be made keeping in view the fact situation obtaining therein nor does it find support from the clear and unambiguous language contained in Section 529-A(1)(a). We have, therefore, no hesitation in holding that finding of this Court in Allahabad Bank (supra) to the aforementioned extent does not lay down the correct law.
Hon'ble Supreme Court in the case of Bank of Maharashtra vs. Pandurang Keshav Gorwardkar and Ors. (2013) 7 SCC 754 stated that :-
48. As regards first point, this Court held in Allahabad Bank MANU/SC/0262/2000 : (2000) 4 SCC 406 that 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 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. On second and third point, it was held 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. To this extent, the Companies Act must yield to the provisions of the 1993 Act. The Court held that 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 was necessary for initiating or continuing the proceedings under the 1993 Act.(Downloaded on 19/12/2022 at 09:41:21 PM)
(25 of 34) [COP-7/2000]
49. As regards fourth and fifth point, this Court stated the legal position that it was not correct to say that Section 19(19) of the 1993 Act gives priority to all "secured creditors" to share the sale proceeds before DRT/Recovery Officer. It is only limited class of secured creditors who have priority over all others in accordance with Section 529A, It was also held that under Clause
(c) of the proviso to Section 529(1), the priority of the secured creditor who stands outside the winding up is confined to the "workmen's portion" as defined in Section 529(3)(c). This Court agreed with the proposition that the first part of clause(c) of the proviso to Section 529(1) is to be read along with the words "or the amount of workmen's portion in the security, whichever is less". That is, the priority of the secured creditor is only to the extent that any part of the said security is lost in favour of the workmen consequent to demands made by the Liquidator under Clauses (a) or
(b) or Clause (c) to proviso to Section 529(1).
50. On sixth point, it was held in Allahabad Bank MANU/ SC/0262/2000 : (2000) 4 SCC 406 that the "workmen's dues" have priority over all other creditors, secured and unsecured, because of Section 529A(1)(a) and no secured or unsecured creditor, including banks or financial institutions, can be paid before the workmen's dues are paid.
51. The view in Allahabad Bank MANU/SC/0262/2000 :
(2000) 4 SCC 406 that the workmen's dues have priority over all other creditors, secured and unsecured, because of Section 529A(1)(a) is no longer a good law and has been held to be so first by a three-Judge Bench in Andhra Bank MANU/SC/0203/2005 : (2005) 5 SCC 75 and recently again by a three-Judge Bench in Jitendra Nath Singh MANU/SC/0808/2012 : (2013) 1 SCC 462.
72. In light of the above discussion, we sum up our conclusions thus:
(i) If the debtor company is not in liquidation nor any provisional liquidator has been appointed and merely winding up proceedings are pending, there is no question of distribution of sale proceeds among secured creditors in the manner prescribed in Section 19(19) of the 1993 Act.
(ii) Where a company is in liquidation, a statutory charge is created in favour of workmen in respect of their 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 creditor of the debtor company.(Downloaded on 19/12/2022 at 09:41:21 PM)
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(iii) The above position is equally applicable where the assets of the debtor company have been sold in execution of the recovery certificate obtained by the bank or financial institution against the debtor company when it was not in liquidation but before the proceeds realized from such sale could be fully and finally disbursed, the company had gone into liquidation. In other words, pending final disbursement of the proceeds realized from the sale of security in execution of the recovery certificate issued by the debt recovery tribunal, if debtor company becomes company in winding up, Section 529A read with Section 529(1)(c) proviso come into operation and statutory charge is created in favour of workmen in respect of their dues over such proceeds.
(iv) The relevant date for arriving at the ratio at which the sale proceeds are to be distributed amongst workmen and secured creditors of the debtor company is the date of the winding up order and not the date of sale.
(v) The conclusions (ii) to (iv) shall be mutatis mutandis applicable where provisional liquidator has been appointed in respect of the debtor company.
(vi) Where the winding up petition against the debtor company is pending but no order of winding up has been passed nor any provisional liquidator has been appointed in respect of such company at the time of order of sale by DRT and the properties of the debtor company have been sold in execution of the recovery certificate and proceeds of sale realized and full disbursement of the sale proceeds has been made to the concerned bank or financial institution, the subsequent event of the debtor company going into liquidation is no ground for reopening disbursement by the DRT.
(vii) 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 (Downloaded on 19/12/2022 at 09:41:21 PM) (27 of 34) [COP-7/2000] 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 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.
(viii) 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.
(ix) Where the sale of security has been effected in execution of recovery certificate issued by the DRT under the 1993 Act, the distribution of sale proceeds has to be made by the DRT alone in accordance with Section 529A of the Companies Act and by no other forum or authority.
(x) 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.
(xi) 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 (Downloaded on 19/12/2022 at 09:41:21 PM) (28 of 34) [COP-7/2000] 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.
(xii) Section 19(19) is attracted only where a debtor company is in winding up or a provisional liquidator has been appointed in respect of such company. If the debtor company is not in liquidation or if in respect of such company no order of appointment of provisional liquidator has been made and merely winding up proceedings are pending, the question of distribution of sale proceeds among secured creditors in the manner prescribed in Section 19(19) of the 1993 Act does not arise.
Hon'ble Supreme Court in the case of The Official Liquidator, U.P. and Uttarakhand vs. Allahabad Bank and Ors. (2013) 1 SCC 462 stated following points :-
21. To appreciate the aforesaid submission, we may fruitfully refer to the dictum in Jyoti Bhushan Gupta and Ors. v. The Banaras Bank Ltd. MANU/SC/0364/1961 :
AIR 1962 SC 403, wherein the learned Judges, while stating about the jurisdiction of the Company Court, have opined that the jurisdiction is ordinary; it does not depend on any extraordinary action on the part of the High Court. The jurisdiction is also original in character because the petition for exercise of the jurisdiction is entertainable by the High Court as a court of first instance and not in exercise of its appellate jurisdiction. As the High Court adjudicates upon the liability of the debtor to pay the debts due by him to the Company, the jurisdiction is, therefore, civil. It has been further observed that normally a creditor has to file a suit to enforce liability for payment of a debt due to him from his debtor. The Legislature has, by Section 187 of the 1956 Act, empowered the High Court in a summary proceeding to determine the liability and to pass an order for payment, but on that account, the real character of the jurisdiction exercised by the High Court is not altered. After further analyzing, the four-Judge Bench proceeded to state thus:
The jurisdiction to deal with the claims of companies ordered to be wound up is conferred by the Indian Companies Act and to that extent the letters Patent are modified. There is, however, no difference in the character of the original civil jurisdiction which is conferred upon the High Court by Letters Patent and the jurisdiction conferred by special Acts. When in exercise (Downloaded on 19/12/2022 at 09:41:22 PM) (29 of 34) [COP-7/2000] of its authority conferred by a special statute the High Court in an application presented to it as a court of first instance declares liability to pay a debt, the jurisdiction exercised is original and civil and if the exercise of that jurisdiction does not depend upon any preliminary step invoking exercise of discretion of the High Court, the jurisdiction is ordinary.
22. The aforesaid enunciation makes it clear as crystal that while exercising jurisdiction under the 1956 Act, the High Court is exercising ordinary jurisdiction and not any extraordinary or inherent jurisdiction and that is why, the legislature has appropriately postulated that the jurisdiction of the High Court under Articles 226 and 227 of the Constitution would not be affected.
23. The aforesaid analysis makes it luculent that the DRT has exclusive jurisdiction to sell the properties in a proceeding instituted by the banks or financial institutions, but at the time of auction and sale, it is required to associate the Official Liquidator. The said principle has also been reiterated in Pravin Gada and Anr. v. Central Bank of India and Ors.
MANU/SC/1050/2012 : (2013) 2 SCC 101.
27. It has been submitted by Mr. Banerji, learned senior counsel, that if the Company Court as well as the DRT can exercise jurisdiction in respect of the same auction or sale after adjudication by the DRT, there would be duality of exercise of jurisdiction which the RDB Act does not envisage. By way of an example, the learned senior counsel has submitted that there are some categories of persons who can go before the DRT challenging the sale and if the Official Liquidator approaches the Company Court, then such a situation would only bring anarchy in the realm of adjudication. The aforesaid submission of the learned senior counsel commends acceptance as the intendment of the legislature is that the dues of the banks and financial institutions are realized in promptitude. It is to be noted that when there is inflation in the economy, the value of the mortgaged property/assets depreciates with the efflux of time. If more time is consumed, it would be really difficult on the part of the banks and financial institutions to realize their dues. Therefore, this Court in Allahabad Bank's case has opined that it is the DRT which would have the exclusive jurisdiction when a matter is agitated before the DRT. The dictum in the said case has been approved by the three-Judge Bench in Rajasthan State Financial Corporation and Anr. (supra). It is not a situation where the Official Liquidator can have a choice either to approach the DRT or the Company Court. The language of the RDB Act, being clear, provides that any person aggrieved can prefer an appeal. The Official Liquidator whose association is mandatorily required can indubitably be regarded as a person aggrieved relating (Downloaded on 19/12/2022 at 09:41:22 PM) (30 of 34) [COP-7/2000] to the action taken by the Recovery Officer which would include the manner in which the auction is conducted or the sale is confirmed. Under these circumstances, the Official Liquidator cannot even take recourse to the doctrine of election. It is difficult to conceive that there are two remedies. It is well settled in law that if there is only one remedy, the doctrine of election does not apply and we are disposed to think that the Official Liquidator has only one remedy, i.e., to challenge the order passed by the Recovery Officer before the DRT. Be it noted, an order passed under Section 30 of the RDB Act by the DRT is appealable. Thus, we are inclined to conclude and hold that the Official Liquidator can only take recourse to the mode of appeal and further appeal under the RDB Act and not approach the Company Court to set aside the auction or confirmation of sale when a sale has been confirmed by the Recovery Officer under the RDB Act.
29. In view of the aforesaid analysis, we concur with the view expressed by the Division Bench and hold that the Official Liquidator can prefer an appeal before the DRT. As he was prosecuting the lis in all genuineness before the Company Court and defending the order before the Division Bench, we grant him four weeks' time to file an appeal after following the due procedure. On such an appeal being preferred, the DRT shall deal with the appeal in accordance with law. The DRT is directed to decide the appeal within a period of two months after offering an opportunity of hearing to all concerned. Till the appeal is disposed of, the interim order passed by this Court shall remain in force. We hasten to clarify that have not expressed anything on the merits of the case.
30. Consequently, the appeal is disposed of in the above terms leaving the parties to bear their respective costs.
Hon'ble Supreme Court in the case of Jitendra Nath Singh vs. The Official Liquidator and Ors. (2013) 1 SCC 462 stated that :-
15. In the present case, the learned Company Judge and the Division Bench of the High Court have held that all secured creditors along with the workmen have pari passu charge over all the properties or assets of the company and would be entitled to the dues as secured creditors along with the workmen's dues by way of overriding preferential payments over all other dues under Section 529A of the Companies Act. The learned Company Judge of the High Court has also relied on some observations of this Court in Andhra Bank v.
Official Liquidator and Anr. (supra) in support of his order. These observations of this Court in Andhra Bank v. Official Liquidator and Anr. (supra) were in the context of the observations of this Court in Allahabad Bank v. Canara Bank and Anr. (supra) and are quoted as under:
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25. While determining Point (6), however, a stray observation was made to the effect that the "workmen's dues" have priority over all other creditors, secured and unsecured because of Section 529A(1)(a). Such a question did not arise in the case as Allahabad Bank was indisputably an unsecured creditor.
26. Such an observation was, thus, neither required to be made keeping in view the fact situation obtaining therein nor does it find support from the clear and unambiguous language contained in Section 529A(1)(a). We have, therefore, no hesitation in holding that finding of this Court in Allahabad Bank to the aforementioned extent does not lay down the correct law.
The aforesaid observations of this Court in Andhra Bank v. Official Liquidator and Anr. (supra) are, thus, to the effect that workmen will not have priority over the dues of the secured creditor and this is because of the unambiguous language of Section 529A(1) that the workmen's dues and the dues of the secured creditor to the extent such debts rank under Clause (c) of Sub-section (1) of Section 529 pari passu with such dues will have to be paid in priority to all other debts. But as we have held, only where under the second limb of the proviso to Clause (c) of Sub-section (1) of Section 529 the secured creditor opts to realize the security and is unable to realize a portion of his dues because of the pari passu charge created in favour of the workmen under the first limb of the proviso, he has pari passu charge to the extent indicated in Clause (c) of the proviso to Sub-section (1) of Section 529 and only such debts due to the secured creditor which rank pari passu with dues of the workmen under Clause (c) of the proviso to Sub-
section (1) of Section 529 have to be paid in priority over all other debts of the company. The High Court has clearly fallen in error by holding that all debts due to secured creditors will rank pari passu with the workmen's dues and have to be paid along with the workmen's dues in priority to all other debts of the company.
In view of the authoritative pronouncements of the Hon'ble Supreme Court in the aforesaid judgments, this Court is of the opinion that the Recovery Officer is not required to take any prior (Downloaded on 19/12/2022 at 09:41:22 PM) (32 of 34) [COP-7/2000] permission of the Company Court before disbursing the amount except the rider provided under Section 19 (19) of the Act of 1993 and Sections 529 and 529 A of the Companies Act, 1956.
The recovery officer vide order dated 03.12.2022 has ordered the disbursement of the amount in favour of Kotak Mahindra Bank after taking the undertaking in view of the observations made by the Apex Court in case of Kotak Mahindra Bank Ltd. Vs. Recovery Officer, Nagpur and another, therefore, no interference by this Court is warranted in the same. It is made clear that the disbursement made by the Debts Recovery Tribunal shall remain subject to the undertaking given by the Kotak Mahindra Bank.
As far as the disputes with respect to the RIICO pending before the Debt Recovery Appellate Tribunal, the tribunal shall decide the same without being influenced by the order passed by this Court and needless to say that the RIICO will take recourse available to them under the law.
The auction purchaser has also moved an application before this Court for modification/ vacation of the interim order passed by this Court, however, without pressing the same, he feels advised to move an appropriate application before the Recovery Officer and the same can be addressed before the DRT and other Forums provided under the Act of 1993.
As far as the interim order of this Court with respect to the possession of the auctioned property is concerned, this Court is not deliberating on the issue of the possession being handed over to anybody and it is made clear that since the company petition no. 09/2014 itself is disposed of, therefore, the interim order is (Downloaded on 19/12/2022 at 09:41:22 PM) (33 of 34) [COP-7/2000] also merged in the final order and the Recovery Officer will entertain all those claims and applications placed before him.
It is further made clear that the auction purchaser will facilitate the Official Liquidator for handing over the books of accounts and other documents of the erstwhile company, if the same are available with the auction purchaser and Official Liquidator will be free to access the Registered Office of the respondent Company i.e. Derby Textile Limited.
In the aforesaid circumstances, since the debt of Rs.1,90,43,391/- due to the UTN and Rs. 6,57,64,373/- due to SRNCD as on 31.01.2000 remain unpaid to the petitioner UTI, there is no bonafides on behalf of the M/s.Derby Textile Ltd for not paying the amount due to the petitioner, there is in fact no defence what of substantial defence to the winding up of the petition. There is no plausible explanation placed before this Court for not paying the dues of the petitioner which can prevent winding up of the company in question. Since the company is unable to pay the debts and the winding up of the company which effectively stands in representative capacity to subserve the public interest of closing down entities from generating debts, they cannot repay in the normal course of their business to grave detriment to the wheels of trade and commerce and hence public interest.
In view of the discussion made above, the petition seeking winding up of the company (M/s Derby Textiles Limited) is allowed. The respondent-Derby Textiles Limited is wound-up for being unable to pay its debts. The Official Liquidator attached to this Court is appointed as the Liquidator of the respondent (Downloaded on 19/12/2022 at 09:41:22 PM) (34 of 34) [COP-7/2000] company under Section 448 read with Section 449 of the Act of 1956. The Official Liquidator shall be free to exercise all powers under the Act of 1956 to bring about the early dissolution of the respondent company in accordance with law.
This winding up order be published by the petitioner in two newspapers i.e. The Times of India (English) Jodhpur Edition and Dainik Bhaskar (Hindi) Jodhpur Edition in terms of Rule 24 of the Companies (Courts) Rules, 1959.
The Citations be also published in Official Gazette. All costs to the account of the petitioner.
The Director/s of the respondent company is directed to file statement of affairs before the Official Liquidator as required under Section 454 of the Act of 1956.
A copy of this order be endorsed to the Official Liquidator attached to this Court for doing the needful.
(VINIT KUMAR MATHUR),J 229-231-Anil-Arora/-
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