Gujarat High Court
Rasiklal S Mardia vs Official Liquidator Of Mardia Steel ... on 27 February, 2018
Author: C.L.Soni
Bench: C.L. Soni
C/COMA/212/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY APPLICATION NO. 212 of 2015
In
COMPANY PETITION NO. 104 of 2002
With
OFFICIAL LIQUIDATOR REPORT NO.78 of 2012
In
COMPANY PETITION NO. 104 of 2002
With
R/OFFICIAL LIQUDATOR REPORT NO. 22 of 2013
In
COMPANY PETITION NO.69 OF 2001
With
R/COMPANY APPLICATION NO. 499 of 2016
In
COMPANY PETITION NO. 69 of 2001
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RASIKLAL S MARDIA
Versus
OFFICIAL LIQUIDATOR OF MARDIA STEEL LIMITED (IN LIQUIDATION)
==========================================================
Appearance:
PARTY-IN-PERSON, ADVOCATE Application No.1
MR SHALIN MEHTA, SENIOR ADVOCATE, with MR HEMANG M SHAH for
the RESPONDENT(s) No. 2
MS KJ BRAHMBHATT for the RESPONDENT(s) No. 1
OFFICIAL LIQUIDATOR for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE C.L. SONI
Date : 27/02/2018
COMMON ORAL ORDER
1. The Company Application No.212 of 2015 is filed with judge's summons for following prayers:-
(a) to direct the Official Liquidator to refund me an amount of Rs.31,00,000/- along with accrued interest being the amount deposited by me in the capacity of the promoter of the revival scheme towards security charges and other shortfall;
(b) ....."
2. Official Liquidator Report No.78 of 2012 is filed for bringing to the notice of this Court the facts stated therein and for orders/ directions which may be deemed fit to be issued by this Court, wherein further report dated 19.12.2017 is filed for following orders/ directions:-Page 1 of 33 C/COMA/212/2015 ORDER
a) This Hon'ble Court may be pleased to permit the Official Liquidator to engage Govt Approved Valuer to carry out inventory cum valuation and also photography, videography of the assets of the company in liquidation situated at Ratlam (M.P.) thorough panel valuer of the Official Liquidator on "as is where is and whatever basis".
b) This Hon'ble Court may be pleased to permit the Official Liquidator to call the meeting of sale committee comprising the secured creditor after receiving valuation report of assets and properties of the Company in liquidation from the valuer.
c) This Hon'ble Court may be pleased to permit the Official Liquidator to open the sealed cover valuation report received from the valuer in the sale committee meeting to decide the EMD & Upset Price, Edition of News papers, schedule etc. and crave leave to file further report after meeting of assets sale committee for further direction of this Hon'ble Court in the matter.
d) ....."
3. Official Liquidator Report (OLR) No.22 of 2013 is filed for following orders/ directions:-
a) It may be declared that in view of the decision of the Hon'ble Court reported in 2009(2) Gujarat Law Reporter page 1158, Kotak Mahindra Bank Ltd. V/s APS Star Ltdl. (In Liquidation), ARCIL is not a secured creditor of the company in liquidation;
b) It may be declared that only right available to ARCIL is as per order dated 16.02.2009 passed by the Hon'ble Supreme Court of India in SLP No.2240 of 2009;
c) It may be declared that the notice dated 24 th December 2009 issued by ARCIL being Annexure "I" to as bad, illegal and void and ARCIL is not entitled to sell the assets of the company in liquidation;
d) Pending the hearing and final disposal, ARCIL Respondent be directed not to confirm or issue sale certificate without proper permission of this Hon'ble Court, as directed to it by this Hon'ble Court vide order dated 18.08.2010 passed in SCA No.9685 of 2010;
e) ....."
4. In above OLR, the ex-Directors of Maredia Steel Limited, who are the applicants of Company Application No.212 of 2015, are Page 2 of 33 C/COMA/212/2015 ORDER joined as respondent Nos.2 and 3 as per the order dated 3.9.2015 passed in Civil Application (OJ) No.560 of 2013. The respondent No.1- Assets Reconstruction Company (India) Limited (ARCIL) has filed reply opposing the prayers made in the OLR inter alia on the ground that the reliefs prayed for in in the present Judge's Summons are identical to the reliefs prayed in Company Application No.292 of 2010 which was dismissed by this Court.
5. Company Application No.499 of 2016 is filed by ARCIL with Judge's Summons for the following reliefs:-
(a) Your Lordships be pleased to issue appropriate directions to the Official Liquidator to appoint a valuer to carry out valuation of the immovable and movable assets at the Ratlam unit of Mardia Steel Ltd. (in liqn.)
(b) Your Lordships be pleased to direct the Official Liquidator to increase the value by 10% to 20% as assessed by the valuer and issue an advertisement in leading newspapers across the State of Gujarat as well as State of Madhya Pradesh for inviting bids for movable and immovable assets of Ratlam unit of Mardia Steel Ltd. (in liqn.);
(c) Your Lordships may be pleased to direct the Official Liquidator to undertake auction process of the movable assets lying at the Ratlam unit of Mardia Steel Ltd. (in liquidation) before this Hon'ble Court;
(d) Your Lordships be pleased to direct the Official Liquidator to re-pay the security expenses borne by Arcil from September 2012 upto the date of handing over possession to the successful purchaser and within 10 days from realization of the entire sale consideration from the purchaser and before such sale proceeds are disbursed amongst the creditors of Mardia Steel Ltd. (in liqn.);
(e) ....."
6. Some facts which need to the first noticed are as under:-
6.1. Company Petition No.69 of 2001 was filed seeking winding up of Maredia Steel Ltd. ('the company'). Company Petition No.104 of 2002 was registered on receipt of the opinion from BIFR for winding up of the company. The Court initially appointed the Official Liquidator as provisional liquidator vide order dated 29.4.2003 in Page 3 of 33 C/COMA/212/2015 ORDER Company Petition No.104 of 2002 and thereafter passed order dated 23.7.2003 in both the company petitions directing that the company be wound up and appointed the Official Liquidator as liquidator of the company. The Official Liquidator took the possession of the assets and properties of the company in liquidation and filed OLR No.103 of 2003 and prayed for constitution of the sale committee.
However, after the sale process was undertaken, the ex-Directors filed Company Application No.446 of 2008 proposing the scheme for revival of the company in liquidation, wherein order was made to call for the meeting of the interested parties for considering the scheme, and to dispense with the meeting with shareholders. The ex-Directors then filed Company Petition Nos.275 of 2008, 276 of of 2008 and 277 of 2008 for sanction of the scheme. Learned Company Judge rejected all the petitions, against which OJ Appeal No.8 of 2009 was filed by the ex-Directors. In such OJ Appeal, Division Bench granted interim relief for implementation and operation of the revival scheme subject to the result of the appeal vide order dated 19.2.2009 and thereafter, vide order dated 13.3.2009 passed in Civil Application (OJ) No.85 of 2009 filed by the ex-Directors, Division Bench ordered the Official Liquidator to handover the possession of the assets of the company as listed in the inventory prepared at the instance of the Official Liquidator to the ex-Directors within 10 days from the date of the order. Pursuant to such order, the Official Liquidator handed over the possession of the assets of the company to the ex-Directors on 20.3.2009. However against the orders dated 19.2.2009 and 13.3.2009 passed by Division Bench, the Official Liquidator preferred Special Leave Petition (Civil) Nos.34013-34014 of 2009 before Hon'ble Supreme Court which were on grant of leave registered as Civil Appeal Nos.8149-8150 of 2009. Hon'ble Supreme Court set aside the above orders and remitted the matters to the Division Bench of this Court for de novo consideration in accordance with law vide its order dated 7.12.2009. As stated in OLR No.22 of 2013, even after Hon'ble Page 4 of 33 C/COMA/212/2015 ORDER Supreme Court passed order, the ex-Directors did not handover the possession of the assets of the company to the Official Liquidator and it is alleged therein that in connivance and collusion with the ex-Directors, the ARCIL issued notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act') to the company in liquidation, the Official Liquidator and the ex-Directors calling upon them to make payment of Rs.14,10,08,24,722/- and to take action under Section 13(4) of the SARFAESI Act on failure to make payment within 60 days. Such notice was challenged before this Court by filing Special Civil Application No.1529 of 2010 by ex- Director Shri Rakesh Maredia but, the challenge was not accepted by observing that remedy of appeal under Section 17 of the SARFAESI Act was available if any measure under Section 13(4) was taken. This order was challenged before Hon'ble Supreme Court by filing SLP No.17645 of 2010 but such petition was disposed of as withdrawn. The ex-Director- Shri Rakesh Maredia also filed Securitization Application No.31 of 2010 before the Debts Recovery Tribunal-I, Ahmedabad wherein though the Tribunal rejected the interim relief application vide order dated 30.7.2010, but continued ad-interim order of stay granted on 16.7.2010 till 31.8.2010 and therefore, ARCIL filed Special Civil Application No.9685 of 2010 before this Court. In such petition, Division Bench of this Court made order dated 18.8.2010, staying the operation of the order dated 30.7.2010 passed by the Tribunal and permitted the ARCIL to go on with the auction proceeding but with direction not to confirm sale or issue sale certificate without prior permission of the Court. However, the said petition was disposed of as infructuous by observing that the Tribunal may proceed with the Securitzation Application No.31 of 2010 and decide the same on merits. The OJ Appeal No.8 of 2009 pending before Division Bench came to be then dismissed by the Division Bench vide its judgment dated 7.10.2011. While dismissing the appeal, Division Bench made following observation in para 53 of Page 5 of 33 C/COMA/212/2015 ORDER the judgment:-
53. On the aspect of interim orders dated 19.02.2009 and 13.03.2009, it appears that vide order dated 19.02.2009 as recorded hereinabove, direction was issued to implement the scheme, but the Court specifically provided that the implementation and operation of the revival scheme will be subject to the result of the appeal. Further, in the interim order dated 13.03.2009, the possession of the assets was ordered to be handed over, but that too has to be interpreted and construed subject to the final order which may be passed in the appeal by the Court. In any case, both the impugned orders are expressly set aside by the Apex Court as per the order dated 08.12.2009 in the above referred Civil Appeals No.8149/09 and 8150/09. The attempt was made to contend that pursuant to the interim orders passed for handing over of the possession and implementation of the scheme, the properties as per the scheme were transferred to KDPL and ADPL and thereafter, ARCIL (one of the creditor representing the interest of the secured creditors as an assignee) has exercised the power under the SARFAESI Act and has taken over the possession of the property coupled with the circumstance of OJ CA No.246/11 preferred by Official Liquidator to get back the assets of the Company in liquidation. However, in the said Civil Application Court may be required to examine the rights if any of the ARCIL as may be available in law which may fall outside the scope of the present appeal. But we find it sufficient to declare that both the interim order passed in the present appeal, in view of the orders passed by the Apex Court dated 07.12.2009 and in view of the dismissal of the present appeal would no more remain in operation and the rights if any by virtue of any interim order in the present appeal accordingly have come to an end of the parties concerned.
6.2. The Civil Application No.246 of 2011 in OJ Appeal No.8 of 2009 filed by Official Liquidator against the appellants of the appeal (the ex-Directors) to handover the possession of the assets of the company in liquidation to the Official Liquidator was then disposed of vide order dated 7.11.2012 with following orders made in para 9 thereof:-
9. Hence, the following orders:-
(a) It is hereby declared that the rights of the original appellant, respondents No.1 and 2 herein to retain the possession of the properties of the company in liquidation pursuant to the interim order passed in OJ Appeal No.8 of 2009 have come to Page 6 of 33 C/COMA/212/2015 ORDER an end and, therefore, the OL would be entitled to get back the possession of the company in liquidation from the original appellant. However, as the possession of the properties of the company in liquidation is now stated to have been acquired by one of the secured creditors, ARCIL -
respondent No.3 herein, it would be for the OL to seek appropriate direction before the Company Court seized with the proceedings of winding up of the company in liquidation for asserting the rights as may be available in law qua the properties of the company in liquidation against the secured creditors having exercised the power under the SARFAESI Act. At that stage, the rights and contentions of the OL under the Companies Act as well as of the secured creditors under the SARFAESI Act shall remain open. If such application is made, we are sure that the learned Company Judge shall examine the matter in accordance with law and decide the same by passing appropriate orders.
6.3. The ex-Directors filed two other applications, being Misc. Civil Application (OJ) No.181 of 2011 seeking review of the order whereby Civil Application (OJ) No.138 of 2011 was disposed of in view of the order made in OJ Appeal No.8 of 2009 and Misc. Civil Application (OJ) No.184 of 2011 to review the judgment and order made in OJ Appeal No.8 of 2011. The Division Bench disposed of Misc. Civil Application (OJ) No.181 of 2011 on the ground that no valid ground was made out to review the order made in Civil Application (OJ) No.138 of 2009, however, it allowed Misc. Civil Application No.184 of 2011 to the extent of making correction of the mistake committed in para 7 of the judgment dated 7.10.2011 passed on OJ Appeal No.8 of 2009.
7. Learned senior advocate Mr. Shalin Mehta with learned advocate Mr. Hemang Shah for the ARCIL submitted that by virtue of the decision rendered by Hon'ble Supreme Court in Civil Appeal No.8393 of 2010, prayers made in para 55(a) and (b) of OLR No.22 of 2013 shall not survive.
8. In view of above submission, the Court finds it appropriate to refer to the judgment dated 12.1.2009 rendered by Division Bench of this Court in OJ Appeal No.156 of 2007 and allied appeals in the case of Kotak Mahindra Bank Vs. M/s. APS Star India Ltd. (in Page 7 of 33 C/COMA/212/2015 ORDER liquidation) reported in 2009(2) GLR 1158 and to the order dated 16.2.2009 passed by Hon'ble Supreme Court in S.L.P. No.2240 of 2009 as in the context of the judgment reported in the case of Kotak Mahindra Bank Ltd. (supra) and the order dated 16.2.2009 passed by Hon'ble Supreme Court, the Official Liquidator has made prayers in para 5(a) and 5(b) of OLR No.22 of 2013.
9. The challenge made in the above-referred OJ Appeals was against the order dated 9.7.2007 passed by learned Company Judge in different applications rejecting the prayers made by the applicants for their substitution in place of secured creditors as assignees of the secured creditors. The Division Bench dismissed the appeals by summarizing its conclusions in para 48 of its judgment dated 12.1.2009, as under:-
48. To summarise:
a. neither the definition of the term ?banking? as appearing in Section 5(b) of the B.R. Act, nor the extended meaning available in terms of provisions of Section 6 of the B.R. Act can take within its sweep the transaction in question;
b. the provisions of the B.R. Act do not give any right to deal in securities acquired at the time of lending;
c. the right to realize a security to ensure recovery of outstanding debt cannot be stretched to mean a right to deal in securities;
d. the definition of ?banking policy? under Section 5(ca) of the B.R. Act cannot permit framing of such a policy which permits trading in debts as the debts are not acquired as a part of banking activity but come into existence upon advancement of a loan. The requirements of Section 5(ca) of the B.R. Act cannot be said to have been met with by such an assignment;
e. any guidelines formulated by RBI cannot be part of banking policy because under Section 35A of the B.R. Act RBI has powers to issue directions after recording satisfaction that it is necessary to issue directions to banking companies having regard to the factors stated in Section 35A of the B.R. Act. The present transaction cannot fall within any of the four prescribed requirements so as to enable RBI to record satisfaction for the purposes of issuing directions. No directions are in fact issued and guidelines cannot be Page 8 of 33 C/COMA/212/2015 ORDER equated with directions;
f. none of the clauses (a), (c), (f), (g), (l), (m), (n) and (o) of Section 6 (1) of the B.R. Act cover the transaction in question;
g. the activities envisaged by Section 6(1)(a) of the B.R. Act make it clear that concept of buying and selling is available as part of additional business only for certain specified categories of activities;
h. the activities relating to lending with or without security only permits such an activity when read in juxtaposition with other activities and the concept of buying and selling the debts with the underlying securities cannot be part of the activity of lending;
i. when certain specified activities specifically permit the activity of buying and selling the said concept cannot be read into the activity of lending by resorting to provisions of general law. Once a special enactment is in existence reliance on provisions of the T.P. Act cannot be permitted, more so in light of provisions of Section 6(2) of the B.R. Act which prohibits any other form of business, other than those specified in Section 6(1) of the B.R. Act;
j. the activity envisaged by Section 6(1)(g) of the B.R. Act is not an activity which can be termed to be a part of business of a banking;
k. the activities envisaged by Section 6 of the B.R. Act are supplemental or additional forms of business, in addition to the business of banking and not independent thereof;
l. Section 2 of the B.R. Act stipulates that the provisions of the B.R. Act are in addition to the provisions of other laws for the time being in force, save as expressly provided in the B.R. Act and, therefore, it cannot be stated that Section 6(1)(g) of the B.R. Act provides for the same form of permissible mode of business which is envisaged by general law;
m. the concept of trading in debts is, by its very nature, abhorrent to the concept of banking in any form, either the form of primary business of banking or the additional activities envisaged by Section 6 of the B.R. Act;
n. the entire transaction is based on a speculative form of activity which can never be a permissible mode of activities as part of, or in addition to, or incidental to or conducive to the promotion for advancement of the business of a banking company;
o. the transaction in question is not a form of business which Page 9 of 33 C/COMA/212/2015 ORDER the Central Government has specified to be a form of business in which it would be lawful for a banking company to engage in, as notified in the official gazette;
p. Section 6(2) of the B.R. Act read with Section 8 of the B.R. Act and the Explanation under Section 8 of the B.R. Act make it clear that the kind of activity reflected by the present transaction cannot be permitted under the provisions of the B.R. Act. From this it cannot be inferred that because of the prohibition in the B.R. Act recourse can be had to general law;
q. the activity undertaken in the form of the transaction in question cannot be termed to be either in the interest of the bank or in the interest of the customer or in the interest of banking industry in general;
r. to lump all outstanding loans and as a consequence the respective borrowers, in one basket by treating each one of them as one category would be doing injustice to the basic fabric of the trust reposed by the customer in the bank or the banker;
s. when a property of a person is required to be taken over/acquired a meaningful and reasonable opportunity of hearing has to be granted and mere intimation, after the assignment is complete, cannot be treated as sufficient compliance of this requirement in law. The transaction in question cannot be equated with recovery of outstanding loan, even in the hands of the assignor bank and mere making of entries cannot be determinative of the respective rights of the parties;
t. the pari passu charge envisaged by a conjoint reading of Sections 529 and 529A of the Companies Act is available only in relation to first charge holder and the second charge holder cannot be equated with the first charge holder. Therefore, clubbing of debts where the charges might be different does not give a right to the assignee to seek substitution in place of the first charge holder assignor bank;
u. provisions of the Securitisation Act read with objects and reasons make it clear that if the transaction in question is upheld it would mean permitting an act, which is not directly permitted by the Securitisation Act, by referring to provisions of the T.P. Act;
v. recovery of a loan can only be from the borrower while the transaction in question essentially amounts to trading in debts;
w. the transaction in essence is transfer of NPAs and thus the consideration received for transfer of assets cannot be Page 10 of 33 C/COMA/212/2015 ORDER termed to be towards recovery of outstanding loan;
x. the transaction in question terminates the contract of the customer with the assignor bank and the assignee bank has not entered into any contract with the customer and thus involves the concept of novation;
y. the proceedings before a Company Court cannot be equated with proceedings of a civil suit before a civil Court and the application for substitution cannot be considered and dealt with as if the dispute was between two private litigants;
z. the provisions of the T.P. Act, even if available to the assignor and the assignee banks, cannot claim primacy over provisions of B.R. Act and the Companies Act.
10. However, when the judgment of Division Bench was challenged before Hon'ble Supreme Court by different banks/ financial institutions in Civil Appeal No.8393 of 2010 with allied appeals, Hon'ble Supreme Court passed interim order dated 16.2.2009, which reads as under:-
Indian Bank Association and Reserve Bank of India are permitted to intervene.
Office is directed to list these matters for final hearing on 14th April,2009.
Pending hearing and final disposal of the Special Leave Petitions, on furnishing undertakings, both by the assignor banks and assignee banks, the assignee banks shall be permitted to participate in proceedings held by Asset Sales Committee, as also proceedings before the Company Court, without prejudice to the rights and contentions of the parties before us. It is made clear that in the event of dismissal of these Special Leave Petitions, the assignor banks and the assignee banks will reverse the transactions which they enter into during the interim period within the period to be stipulated by this Court at the final hearing of the matters. This order is required to be passed in order to see that the secured debts do not go unrepresented. Pending hearing and final disposal of the Special Leave Petitions, we further direct that any disbursement to secured creditors shall, where the debt stands assigned, be made to the assignees. This order will not be construed as an acceptance of the assignments pending the present Special Leave Petitions.
Parties to complete their pleadings within three weeks from today.Page 11 of 33 C/COMA/212/2015 ORDER
Liberty to file documents, if so advised.
But, finally, Hon'ble Supreme Court set aside the judgment rendered by the Division Bench of this Court with following conclusion and order:
23. As stated above, by the impugned judgment, the Division Bench of the Gujarat High Court upheld the order of the Company Court only on one ground, namely, assignment of debts by the banks inter se is an activity which is impermissible under the Banking Regulation Act, 1949.
However, the Division Bench did not go into other issues which arose for determination before the Company Court, including applicability of the provisions of the Registration Act, 1908.
24. In the circumstances, we set aside the impugned judgment(s) on the question of assignment of debts as an activity permissible under the Banking Regulation Act, 1949. However, we remit these matters to the Division Bench of the High Court(s) for consideration of other issues raised in this batch of cases. Subject to above, the impugned judgment(s) is set aside and the civil appeals are allowed with no order as to costs."
11. When put to learned advocate Ms. Brahmbhatt appearing for the Official Liquidator whether after the order of Hon'ble Supreme Court, first two prayers made in OLR No.22 of 2013 would survive or could be considered by this Court, she fairly stated before the Court that the first two prayers may not survive. Even otherwise since the question posed before Hon'ble Supreme Court was whether the assignment of debts of the banks inter-se was not an activity which was permissible under the Banking Regulation Act, 1949 ('BR Act') when the challenge made against the decision rendered by the Division Bench in the case reported in 2009(2) GLR 1158, decision on such question by Division Bench would not have affected the ARCIL claiming to be the assignee of the Banks- the secured creditors of the company in liquidation and therefore also, the prayers made in para 55(a) and (b) cannot be entertained. Then comes the prayer contained in para 55(c) of OLR No.22 of 2013 under which the Official Liquidator has sought declaration that the Page 12 of 33 C/COMA/212/2015 ORDER notice dated 24.12.2009 issued by the ARCIL under Section 13(2) of the SARFAESI Act is bad, illegal and void and that the ARCIL is not entitled to sell the assets of the company in liquidation. Such prayer is also not required to be considered as the remedy of appeal under Section 17 of the SARFAESI Act would be available if measures were taken under Section 13(4) of the SARFAESI Act. However, it is urged before the Court by learned advocate Ms. Brahmbhatt and ex- Director Mr. Rasik Maredia appearing as party-in-person for himself and his brother- another ex-Director that by virtue of the observations made by the Division Bench in para 53 of the judgment dated 7.10.2011 in OJ Appeal No.8 of 2009 and order dated 7.11.2012 in Civil Application (OJ) NO.246 of 2011, this Court is required to decide the rights and contentions of ARCIL under the SARFAESI Act and of the Official Liquidator under the Companies Act, 1956 ('the Act') and whether ARCIL could be considered as secured creditor of the company in liquidation.
12. Learned advocate Ms. Brahmbhatt submitted that the ARCIL though knew that the ex-Directors were handed over the possession by the Official Liquidator pursuant to the interim order made by the Division Bench in OJ Appeal No.8 of 2009 and after Hon'ble Supreme Court set aside the interim orders made by the Division Bench of this Court, they were required to handover possession of company's properties to the Official Liquidator, it managed to secure the possession of the properties of the company from the ex-Directors in purported exercise of the powers under SARFAESI Act without leave of this Court. Ms. Brahmbhatt submitted that not only the ARCIL took the possession of the company's properties without leave of this Court but it even sold away the properties in violation of the order dated 7.11.2012 passed in Civil Application (OJ) No.246 of 2011 filed by the Official Liquidator. Ms. Brahmbhatt submitted that as per the order dated 7.11.2012, when the Official Liquidator was given liberty to seek appropriate direction before this Court for Page 13 of 33 C/COMA/212/2015 ORDER asserting his rights to get back the possession of the company's properties from ARCIL and when at that stage, the rights and contentions of the Official Liquidator were to be decided under the Act, vis-a-vis the rights of ARCIL under the SARFAESI Act, it was not open to the ARCIL to deal with the properties of the company in any manner till the rights of both the parties were finally decided. Ms. Brahmbhatt submitted that to decide on the rights of the ARCIL would include to decide on the issue as to whether the ARCIL could ever be considered as secured creditor in the facts of the case. She submitted that the documents on record, including the copies of the communications exchanged between the ex-Directors and the Banks would reveal that the ARCIL just acted as an investor to help the ex-Directors and it is not assignee of rights, title or interest in the financial assets held by the Banks against the company. She therefore, submitted that since ARCIL has acted in clear violation of the orders made by the Division Bench in Civil Application (OJ) No.246 of 2011 and since ARCIL cannot be considered to be assignee of secured creditors of the company in liquidation, the ARCIL is required to be directed to deposit sale proceeds of the company's properties and the sale made by ARCIL of the company's properties is also required to be declared as invalid and void.
13. Mr. Rasiklal Maredia appearing as party-in-person while taking the Court to the documents from page No.1238 onwards, which are communications from the banks to him, submitted that ARCIL has never got any right as assignee of the financial assets of the secured creditors as the ARCIL fraudulently made assignment agreements with the Banks as it simply provided financial help for payment to the Banks under OTS scheme. He submitted that since the ARCIL cannot be considered as assignee, it is not the secured creditor under the SARFAESI Act, and therefore, it had no authority to take possession and to sell the company's properties in exercise of the powers under the SARFAESI Act. Mr. Maredia has taken the Page 14 of 33 C/COMA/212/2015 ORDER Court to the provisions of the SARFAESI Act, especially Section 5 of the SARFAESI Act and the SARFAESI Rules so as to submit that the ARCIL could be simply considered as money lender and not in business of securitisation and assets reconstruction and therefore, all actions taken by ARCIL in purported exercise of the powers under Section 13 of the SARFAESI Act are illegal and invalid and the sale made by the ARCIL of the company's properties is required to be declared as invalid and void. He submitted that ARCIL has committed serious violation of the orders made by Division Bench of this Court, especially of the order dated 7.11.2012 by selling the properties of the company. He submitted that when as per the order dated 7.11.2012, the rights and contentions of ARCIL under the SARFAESI Act were to be finally decided by this Court, it was not open to ARCIL to deal with the company's properties, till this Court decided on such rights. Mr. Maredia submitted that when there is deliberate and serious violation of the order made by this Court, the ARCIL not only cannot be permitted to retain the sale proceeds of the company's properties but the purchasers of the company's properties also do not get valid title to the company's properties and therefore, the Court may declare the sale made by ARCIL of the company's properties as invalid and void and direct restoration of the company's properties to the Official Liquidator and also direct the ARCIL to deposit the sale proceeds with the Official Liquidator to deal with it appropriately.
14. Learned senior advocate Mr. Shalin Mehta has raised preliminary objection by submitting that since the Company Application No.292 of 2010 for identical prayers was dismissed by this Court, the prayers sought in OLR No.22 of 2013 are barred by principles of constructive res judicata. Mr. Mehta submitted that whether ARCIL is a secured creditor of the company in liquidation is not the question left to be decided when the Division Bench disposed of OJ Appeal No.8 of 2009 and Civil Application (OJ) No.246 Page 15 of 33 C/COMA/212/2015 ORDER of 2011. Mr. Mehta submitted that since the status of ARCIL as secured creditor was never disputed either by the Official Liquidator or by the ex-Directors, it is not open to them to challenge the status of ARCIL as secured creditor. Mr. Mehta submitted that as per the observations made by the Division Bench in the judgment rendered in OJ Appeal No.8 of 2009 and as per the orders passed in Civil Application (OJ) No.246 of 2011, this Court is required to decide only the rights and contentions of the Official Liquidator under the Act vis-a-vis the rights and contentions of ARCIL under SARFAESI Act. Mr. Mehta submitted that the Division Bench having taken note of the fact that possession of the company's properties was taken over by ARCIL under the SARFAESI Act, now what remains to be decided by this Court is whether the Official Liquidator shall be entitled to get back the possession of the company's properties under the Act, when ARCIL by remaining outside the winding up proceedings has exercised its powers under the SARFAESI Act. Mr. Mehta submitted that though the Division Bench had permitted the Official Liquidator to assert his rights to seek possession of the company's properties, the Official Liquidator since did not assert his right, it was always open to the ARCIL to proceed to take further action for sale of the properties. Mr. Mehta submitted that the Official Liquidator was well informed at every stage of sale process, however the Official Liquidator never raised any objection till sale of the company's properties was made. Mr. Mehta submitted that even otherwise as per the law settled by Hon'ble supreme Court, the ARCIL was always entitled to initiate action under the SARFAESI Act for taking possession of the company's properties and for sale thereof without intervention of the Court and the Official Liquidator is not entitled to assert any right to the company's properties except to claim for workers' dues as provided in Section 13(9) of the SARFAESI Act. Mr. Mehta submitted that in any case, the ex-Directors are not entitled to make any grievance against the ARCIL exercising its power under Section 13 of the SARFAESI Act as the Division Bench has given Page 16 of 33 C/COMA/212/2015 ORDER clear declaration in its order dated 7.11.2012 passed in Civil Application (OJ) No.246 of 2011 that their rights to retain possession of the company's properties pursuant to the interim order passed in OJ Appeal No.8 of 2009 have come to an end and rights and contentions only of the Official Liquidator and the ARCIL were kept open. Mr. Mehta submitted that in view of such clear declaration and the order made by the Division Bench, the ex-Directors cannot be heard to say that the ARCIL is not the secured creditor and that it could not have initiated action for taking possession of the company's properties from them and to sell the said properties under the SARFAESI Act. Mr. Mehta submitted that simply because the ex-Directors are allowed to be joined as parties in OLR 22 of 2013, they would not become entitled to agitate the issues concerning status and rights of the ARCIL as secured creditors of the company in liquidation. Mr. Mehta submitted that there are separate assignment agreements entered between the ARCIL and the Banks and as mentioned in the assignment agreements, the ARCIL is the securitisation and assets reconstruction company and registered as such, as per Section 3 of the SARFAESI Act and based on such assignment agreements, the ARCIL was entitled to initiate action under Section 13 of the SARFAESI Act. Mr. Mehta submitted that if anybody has any objection against the ARCIL acting as an assignee of the secured creditors, it could only be the Banks- the secured creditors with whom the ARCIL has entered into the assignment agreements and no other person, including the ex-Directors, can raise such issue. Mr. Mehta submitted that whether the ARCIL is assignee of rights in secured assets of the company, whether the assignment agreement is without consideration, whether the ARCIL has just acted as an investor to financially assist the ex-Directors for their revival scheme, are not the questions which would fall for consideration within the jurisdiction of this Court under the Act.
Page 17 of 33 C/COMA/212/2015 ORDER15. In OLR No.78 of 2012, learned advocate Ms. Brahmbhatt submitted that though initially the grievance was made as regards non-registering of the First Information Report ('FIR') by the concerned police authorities at Ratlam as regards the complaint of theft of company's properties at Ratlam and in that context, orders/ directions are sought from this Court, however subsequently investigation was made by the concerned police station and the assets of the company were recovered and now the Official Liquidator may be permitted to engage approved valuer to carry out the inventory/ valuation, photography, videography of the assets of the company in liquidation situated at Ratlam (M.P.) and to call the meeting of the sale committee for appropriate further action towards sale of the assets of the company in liquidation at Ratlam. .
16. As regards Company Application No.212 of 2015, party-in- person- Mr. Maredia submitted that in connection with proposal for revival scheme, he deposited Rs.5 lac towards security expenses and Rs.1 lac towards inventory pursuant to the order dated 15.2.2008 passed by learned Company Judge in OLR No.110 of 2007 and deposited further amount of Rs.25 lac being the cost demanded by the Official Liquidator as recorded in order dated 13.3.2009 passed by Hon'ble Division Bench from which the Official Liquidator incurred expenses towards security charges to protect the company's properties. Mr. Maredia submitted that since his scheme for revival of company was not approved, he becomes entitled to get refund of the above amounts deposited by him, which comes to Rs.31 lac. However, on objection raised by learned advocate Ms. Brahmbhatt that Rs.1 lac since was deposited towards interest, Mr. Maredia cannot ask for refund of said amount. Mr. Maredia fairly stated that he does not press for refund of Rs.1 lac.
17. Learned advocate Ms. Brahmbhatt submitted that in view of the order dated 7.11.2012 passed in Misc. Civil Application (OJ) No.181 of 2011, the Official Liquidator is not to make any payment Page 18 of 33 C/COMA/212/2015 ORDER of refund to the applicants. She also pointed out that since as per the order dated 3.9.2005 passed in Company Application No.242 of 2012, the Official Liquidator was permitted to pay an amount of Rs.53,84,647/- to the security agency and Rs.7,49,070/- towards excise, custom and service tax, it will be difficult for the Official Liquidator at this stage to make any payment to the applicants.
18. Learned advocate Ms. Brahmbhatt submitted that since ARCIL after taking over possession of the properties of the company sold the properties and got entire sale proceeds, the ARCIL is liable to deposit full amount of security charges and other cost incurred by the Official Liquidator in connection with the properties and the bill for security expenses was of Rs.74,64,342/- as on December 2012. She submitted that ARCIL may be directed to deposit such amount of bill for security expenses with the Official Liquidator, as if the ex- Directors are held entitled to refund of the amount claimed by them, the Official Liquidator will be required to refund such amount to them.
19. Learned senior advocate Mr. Mehta submitted that since the applicant had volunteered to initially deposit the amount of Rs.6 lac towards security expenses and inventory cost and later on deposited Rs.25 lac demanded by the Official Liquidator as cost for the revival scheme, the applicant shall not become entitled to refund of such amount on his failing to get the revival scheme approved. Mr. Mehta submitted that the possession of the company's properties initially remained with the Official Liquidator and thereafter, by virtue of the interim order made by the Division Bench in OJ Appeal No.8 of 2009 filed by the ex-Directors, the possession of the company's properties came in the hands of the ex-Directors and therefore, till the ARCIL got possession of the company's properties from the ex-Directors in exercise of the powers under the SARFAESI Act, the ARCIL would not be liable to pay any cost or security expenses in connection with the company's Page 19 of 33 C/COMA/212/2015 ORDER properties. Mr. Mehta submitted that the Division Bench in its order dated 7.11.2012 in Misc. Civil Application (OJ) No.181 of 2011 filed by the ex-Directors has already decided that the ex-Directors are not entitled to refund of Rs.25 lac deposited by them and therefore, they are not entitled to get refund of any amount.
20. In the background of the facts stated above as also on hearing the submissions made by learned senior advocate Mr. Mehta, learned advocate Ms. Brahmbhatt and by party-in-person Mr. Rasiklal Maredia, the question which needs to be first answered is whether the ARCIL could have sold the company's properties under the SARFAESI Act. From the orders contained in para 9 of the order dated 7.11.2012 in Civil Application (OJ) No.246 of 2011, as reproduced above, it does not appear that there was any restraint order against ARCIL not to deal with or sell the company's properties, taken possession of by it, under Section 13(4) of the SARFAESI Act. In fact, the Division Bench after having noticed that the ARCIL had taken possession of the company's properties in exercise of the powers under the SARFAESI Act, left it open to the Official Liquidator to seek appropriate directions from this Court, to get back the possession of the company's properties from ARCIL by asserting his rights under the Act and did not issue any further direction or any order against ARCIL, except observing that on the Official Liquidator making any application asserting his rights under the Act, the rights and contentions of ARCIL under the SARFAESI Act vis-a-vis the rights and contentions of the Official Liquidator under the Act would be decided. Therefore, in absence of any restraint order against ARCIL not to deal with or sell the company's properties under its possession, it cannot be said that the ARCIL sold away the company's properties in violation of the order made by this Court.
21. It is not in dispute that the ARCIL, by remaining outside the winding up proceedings, initiated action under Section 13 of the Page 20 of 33 C/COMA/212/2015 ORDER SARFAESI Act in relation to the secured assets of the company in liquidation for which the ARCIL claims to be assignee of the secured creditors of the company in liquidation under Assignment Agreements. As per the provisions made in Section 13 of the SARFAESI Act, the secured creditors are entitled to initiate action under Section 13 SARFAESI Act in connection with the secured assets of the company in liquidation without intervention of the Court. As defined in Section 2(b) of the SARFAESI Act, the asset reconstruction means acquisition by any reconstruction company of any right or interest of any Bank or financial institution in any financial assistance for the purpose of realisation of such financial assistance. As per the definition of secured creditor in Section 2(zd), the asset reconstruction company is also secured creditor under SARFAESI Act. Section 13 of the SARFAESI Act provides for enforcement of the security interest and sub-section (9) thereof provides for distribution of the amount realized from sale of the secured assets of the company in liquidation in accordance with Section 529(A) of the Act and second proviso to sub-Section (9) gives right to the secured creditor, who opts to realize his security, instead of relinquishing his security and proving for his debt under Section 529 of the Act, to retain sale proceeds of secured assets sold after depositing workmen's dues with the Official Liquidator in accordance with Section 529(A) of the Act. Therefore, when the secured creditor or the assignee of the secured creditor decides to enforce security by remaining outside the winding up proceedings, the Official Liquidator shall have limited right only to assert for distribution of amount from the amount realized by the secured creditor to the extent of workmen's dues and he being agent of the company appointed by this Court, that is to say, he having stepped in the shoes of the company, which is borrower of the secured creditor, if has any grievance against the action initiated by the secured creditor or its assignee under the SARFAESI Act, he will be required to file appeal before the Tribunal under Section 17 of the Page 21 of 33 C/COMA/212/2015 ORDER SARFAESI Act and cannot raise any grievance in that regard before this Court under the Act.
22. In the case of Pegasus Assets Reconstruction Private Limited Vs. Haryana Concast Limited and Another reported in (2016)4 SCC 47, Hon'ble Supreme Court has examined the question as to the control or interference by the Company Court directly or through the Official Liquidator in the sale of the secured assets of the company in liquidation by secured creditor under the SARFAESI Act. In this judgment, Hon'ble Supreme Court has held and observed in para 20 to 31 as under:-
20. All the aforesaid Acts are Central legislations enacted for specific purposes. The SFC Act enables the State Governments to establish a Financial Corporation for a State on the lines of Central Industrial Finance Corporation set up under Act XV of 1948 to provide medium and long term credit to industrial undertakings, somewhat outside the normal lending activities of Commercial Banks. This Act, inter-alia, vests special privileges in the State Financial Corporations in the matter of enforcement of its claims against borrowers, through sections such as 29, 30, 31 and
32. Coercive steps including sale of secured property is, vide Section 31 required to be taken by moving appropriate application before the concerned District Judge as per procedure prescribed under Section 32. Section 46B does bestow overriding status on this Act over the then existing law but not over the Companies Act of 1956 which is a later law. Hence, in several judgments it has rightly been held that if the defaulter is a company under winding up, a State Financial Corporation can at best be a secured creditor who may opt to remain out of winding up but nonetheless it will be subject to orders passed in accordance with law under the Companies Act.
21. The RDB Act is of 1993, i.e. later to the Companies Act. Its avowed object is to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. This Act creates a special machinery for speedy recovery of dues of banks and financial institutions which, by an amendment of 2004 now include a registered securitization company or reconstruction company envisaged under the SARFAESI Act. Section 18 bars the jurisdiction of ordinary courts or authority in respect of matters falling within the jurisdiction of Tribunal as specified in Section 17. An Appellate Tribunal is provided under Page 22 of 33 C/COMA/212/2015 ORDER Section 20. The power of the tribunal extends to determining the debt due as well as its realization. Section 34 confers over-riding effect upon this Act over any other law in force.
22. In contrast, the SARFAESI Act was enacted in 2002 to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. Inter-alia, one of the main objects of this Act is to clothe the banks and financial institutions in India with power to take possession of securities and sell them. All its significant provisions have been noted in detail in Mardia Chemicals in which vires of this Act was examined and upheld.
23. A reading of Sections 9 and 13 of the SARFAESI Act leaves no manner of doubt that for enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower company is under liquidation for which proviso to sub-section (9) of Section 13 contains clear mandate keeping in view the provisions of Section 529 and 529A of the Companies Act, 1956. Since significant amendments were introduced in Section 529 while inserting Section 529A through Amendment Act 35 of 1985, effective from 24.5.1985 and with the aid of a non obstante clause in sub-section (1) of Section 529A workmen's dues were given preference over other dues and made to stand pari passu with dues of the secured creditors, in case of apparent conflict, this Court through various judgments has upheld the proceedings under the RDB Act as it happens to be a later Act with overriding effect over other laws. The interest of the workmen in respect of dues payable to them as per Section 529 and 529A of the Companies Act has been protected by permitting, wherever necessary, association of the Official Liquidator with the proceedings before the Debts Recovery Tribunal under the RDB Act. In our considered judgment, the same view is required to be taken in context of SARFAESI Act also, for the additional reason that Section 13 requires notice to the borrower at various stages which in the case of a company under winding up being a borrower would mean requirement of notice to the Official Liquidator. The Security Interest (Enforcement) Rules, 2002 (for brevity, 'the Rules') framed under the provisions of SARFAESI Act also require notice upon the borrower or his agent at different stages. For sale of immovable secured assets, as per Rule 8, the authorized officer can take possession by delivering a Possession Notice to the borrower and by affixing Possession Notice on the outer door or at some conspicuous place of the property. Before the sale also, the authorized officer is required to serve to the borrower a notice of 30 days. Thus the Rules also ensure that the Official Liquidator is in knowledge of the proceedings under the SARFAESI Act in Page 23 of 33 C/COMA/212/2015 ORDER case the borrower happens to be a company under winding up. As a borrower, the Official Liquidator has ample opportunity to get the details of the workers dues as ascertained under the Companies Act, placed before the authorized officer and seek proper distribution of the amount realised from the sale of secured assets in accordance with various provisos under sub- section (9) of Section 13 of the SARFAESI Act.
24. The above discussion supports the view taken by Delhi High Court that no order is required by the Company Judge for association of the Official Liquidator in order to protect the interest of workers and to realize their dues. Sufficient provisions have been made for this purpose under the SARFAESI Act and the Rules framed thereunder.
25. In the event, in the capacity of a borrower the Official Liquidator is not satisfied with the decisions or steps taken by the secured creditor or the authorized officer, at appropriate stage it has sufficient opportunity to avail right of appeal under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal. There is a right of further appeal under Section 18 before the Appellate Tribunal. On the other hand, if the view taken by Punjab & Haryana High Court in Pegasus is accepted, there shall be a conflict of rights and interest of the secured creditor who have the right and liberty to realize their secured interest in accordance with the provisions of the SARFAESI Act on one hand, and the statutory rights and liability of the Official Liquidator acting under the orders of the Company Judge as per provisions of the Companies Act, on the other. The appellate fora shall also differ, leading to a situation of uncertainty and conflict between the two Acts. In such a scenario, we respectfully agree with the Delhi view and disapprove that of the Punjab & Haryana High Court.
26. Coming to the case laws, on behalf of Megnostar, Delhi view was assailed by placing reliance upon Rajasthan State Financial Corporation. In this case decided by three Judges, this Court examined the grievance of Rajasthan State Financial Corporation in the context of conflict between the SFC Act and the Companies Act. After taking note of various earlier judgments of this Court in the case of Allahabad Bank v. Canara Bank (2000) 4 SCC 406; International Coach Builders Ltd. v. Karnataka State Financial Corporation (2003) 10 SCC 482; Industrial Credit and Investment Corporation of India Ltd. v. Srinivas Agencies (1996) 4 SCC 165; and A.P. State Financial Corporation v. Official Liquidator (2000) 7 SCC 291, it was held in para 16 that a financial corporation has the right to proceed under Section 29 of the SFC Act against a debtor, if it is a company, only so long as there is no order of winding up. When the debtor is a company in winding up, the provisions of Sections 529 and 529A of the Companies Act would affect the rights of financial corporations because of a "pari passu" charge in favour of the workmen. In respect Page 24 of 33 C/COMA/212/2015 ORDER of such dues of the workmen the Official Liquidator has to be accepted as their representative.
27. In the context of RDB Act, reliance was placed upon another judgment of this Court by three Judges in the case of Bank of Maharashtra v. Pandurang Keshav Gorwardkar (2013) 7 SCC 754 wherein this Court held that the Debts Recovery Tribunal is not empowered to adjudicate/ determine dues of workmen of debtor-company. Once the company is in winding up workmen's dues can be determined only by the liquidator under supervision of Company Court and by no other authority. In para 53, while considering Rajasthan State Financial Corporation decided by three Judges' Bench it was noticed that once a winding up proceeding has commenced, the distribution of the proceeds of the sale of the assets at the instance of the banks or financial institutions coming under the RDB Act or SFC Act can only be with the association of the Official Liquidator and under the supervision of the Company Court. The reason for such a view was recognized to lie in Section 529A of the Companies Act which governs the distribution of assets as provided therein. But it was also noted that since there was a conflict as to who would be competent to sell the assets, it was held that for this purpose the DRT would be competent because the RDB Act of 1993 being a later and special law shall prevail over the Companies Act which is a general law.
28. Reliance was also placed upon this Court's judgment in Employees Provident Fund Commissioner v. Official Liquidator (2011) 10 SCC 727. This case had arisen in the context of dues payable by an employer under Section 11 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and the question was whether in granting priority, such dues would be subject to Section 529A of the Companies Act. The answer was in the affirmative, i.e., the Companies Act would, in this matter hold its field as there is no situation of conflict.
29. On behalf of respondent Bank, Kotak Mahindra as well as Respondent No. 2, auction purchaser, the judgment in the case of Rajasthan State Financial Corporation (supra) was distinguished by placing reliance upon factual and legal situation prevailing in that case as noted in Paragraph 2 of the judgment. It was pointed out that Section 32 (10) of the SFC Act contains ample clarification that if liquidation proceedings have commenced in respect of the borrower before an application is made under sub-section (1) of Section 31, the financial corporation will not get any preference over the other creditors unless it is conferred on it by any other law. In that case no proceeding had been initiated under the SFC Act and all developments had taken place in the liquidation proceeding. Rajasthan State Financial Corporation was therefore unable to take any advantage of provisions under SFC Act. At the end of paragraph 2, this Page 25 of 33 C/COMA/212/2015 ORDER Court rightly held that "2.....a mere right to take advantage of any enactment without any act done towards availing of that right cannot be deemed a right accrued."
30. Since we have held earlier in favour of views of Delhi High Court, it is not necessary to burden this judgment with the case laws which support that view and have been noted by the High Court. We are in agreement with the submissions advanced on behalf of respondent Kotak Mahindra Bank as well as respondent No.2 that there is no lacuna or ambiguity in the SARFAESI Act to warrant reading something more into it. For the purpose it has been enacted, it is a complete code and the earlier judgments rendered in the context of SFC Act or RDB Act vis-à-vis the Companies Act, cannot be held applicable on all force to the SARFAESI Act. There is nothing lacking in the Act so as to borrow anything from the Companies Act till the stage the secured assets are sold by the secured creditors in accordance with the provisions in the SARFAESI Act and the Rules. At the post sale stage, the rights of the persons or parties having any stake in the sale proceeds are also taken care of by sub-section (9) of Section 13 and its five provisos (not numbered). It is significant that as per sub-section (9) a sort of consensus is required amongst the secured creditors, if they are more than one, for the exercise of rights available under sub-section (4). If borrower is a company in liquidation, the sale proceeds have to be distributed in accordance with the provisions of Section 529A of the Companies Act even where the company is being wound up after coming into force of the SARFAESI Act, if the secured creditor of such company opts to stand out of the winding up proceedings, it is entitled to retain the sale proceeds of its secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529A of the Company Act. The third proviso is also meant to work out the provisions of Section 529A of the Companies Act, in case the workmen's dues cannot be ascertained, by relying upon communication of estimate of such dues by the liquidator to the secured creditor, who has to deposit the amount of such estimated dues with the liquidator and then it can retain the sale proceeds of the secured assets. The other two provisos also are in aid of the liquidator to discharge his duties and obligations arising under Section 529A of the Companies Act.
Thus, it is evident that 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 dues of workmen and their protection under Section 529A of the Companies Act. In view of such exercise already done by the legislature, there is no plausible reason as to take 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 liquidator. As noted Page 26 of 33 C/COMA/212/2015 ORDER earlier, the Official Liquidator as a representative of the borrower company under winding up has to be associated, not for supplying any omission in the SARFAESI Act but because of express provisions therein as well as in the Rules. Hence the exercise of harmonizing that this Court had to undertake in the context of SFC Act or the RDB Act is no longer warranted in respect of SARFAESI Act vis-à-vis the Companies Act.
31. The aforesaid view commends itself to us also because of clear intention of the Parliament expressed in Section 13 of the SARFAESI Act that a secured creditor has the right to enforce its security interest without the intervention of the court or tribunal. At the same time, this Act takes care that in case of grievance, the borrower, which in the case of a company under liquidation would mean the liquidator, will have the right of seeking redressal under Sections 17 and 18 of the SARFAESI Act.
In light of the above principles of law settled by Hon'ble Supreme Court and for the reasons stated above, the Official Liquidator cannot challenge the action taken by the ARCIL before this Court. Thus, the relief prayed in para 55(c) of the Official Liquidator Report No.22 of 2013 also cannot be granted. However, Mr. Maredia and Ms. Brahmbhatt both contended that the ARCIL cannot be considered as secured creditor of the company in liquidation. Such contention by Mr. Maredia is on the premise that the Banks- the secured creditors of the company in liquidation had agreed to assign all their rights in the secured assets to him on ARCIL investing the amount decided under the OTS Scheme for his benefit by way of financial help to him and such financial help by ARCIL by way of investment, would not confer any right of assignment of right, title or interest in the financial assets of the company in liquidation to the ARCIL and therefore the ARCIL cannot be considered as assignee of the secured creditor of the company in liquidation. The contention of Ms. Brahmbhatt is on the premise that the assignment agreements placed on record do not reflect payment of consideration by ARCIL for purchase of the secured assets of the company in liquidation from the secured creditors and the terms and conditions of the assignment agreements would not make the Page 27 of 33 C/COMA/212/2015 ORDER ARCIL the assignee of the secured creditor for secured assets of the company in liquidation. Though Mr. Mehta sought to rely on material to show payment of consideration and referred the relevant terms and conditions to establish that ARCIL is assignee of secured creditors, however without referring to the same, the Court finds that the above contention raised by Mr. Maredia and learned advocate Ms. Brahmbhatt cannot be accepted in view of the fact that the status of the ARCIL as assignee of the secured creditor was never disputed before this Court. Before the Division Bench, only grievance made by the Official Liquidator was that the ex-Directors though were required to handover possession to the Official Liquidator, they handed over possession to ARCIL. In the context of such grievance, the Division Bench in its order dated 7.11.2013 has observed that when the Official Liquidator asserts his right to seek possession, the right and contention of ARCIL and Official Liquidator shall be decided. However, the Division Bench has clearly recorded that the rights of ex-Directors have come to an end. The Court finds that the assignment agreements placed on record by ARCIL clearly reflect that the ARCIL has purchased the right, title, interest etc. in the financial assets of the company in liquidation from the Banks- the secured creditors as securitization and assets reconstruction company registered under Section 3 of the SARFAESI Act. When the secured creditors have not challenged the status of the ARCIL as their assignee, the legality or otherwise of the assignment agreements or status of ARCIL as assignee of the secured creditors of the company in liquidation is not required to be examined at the instance of the Official Liquidator and/or Mr. Maredia in exercise of the powers under the provisions of the Act. In such view of the matter, no flaw could be found in ARCIL taking action under the SARFAESI Act to sell the company's properties by remaining outside the winding up proceedings. Therefore, OLR No.22 of 2013 is required to be rejected.
Page 28 of 33 C/COMA/212/2015 ORDER23. However, as regards the prayer made in Official Liquidator's further report dated 19.12.2017 in OLR No.78 of 2012, since the properties at Ratlam are stated to have been recovered by the police authorities during the investigation in the FIR, the Official Liquidator could be permitted to engage Government approved valuer to carry out the inventory/ valuation as also the photography and videography of the assets of the company in liquidation situated at Ratlam (M.P.) and to call for the meeting of the sale committee after receiving the inventory-cum valuation report of the assets and properties of the company in liquidation at Ratlam.
24. Then remains for consideration the prayer made in Company Application No.212 of 2015. As stated above, after the Official Liquidator took possession of the assets and properties of the company in liquidation, the Division Bench of this Court passed interim order dated 13.3.2009 in Civil Application (OJ) No.85 of 2009 in OJ Appeal No.8 of 2009, to handover the possession of the assets of the company to the ex-Directors for implementation and operation of the scheme for revival of the company. Accordingly, they were handed over the possession of the assets of the company on 20.3.2009 by the Official Liquidator, however as stated above, Hon'ble Supreme Court overtured the interim order made by the Division Bench vide its order dated 7.12.2009. By virtue of the order of Hon'ble Supreme Court, the ex-Directors were required to handover the possession of the assets of the company in liquidation back to the Official Liquidator but the ARCIL took possession in exercise of the powers under the SARFAESI Act on 8.4.2010 from the ex-Directors. Thus, from 20.3.2009 to 8.4.2010, the assets and properties of the company remained in possession of the ex- Directors and except for the above-said period, earlier the Official Liquidator was in possession and after 8.4.2010, the ARCIL remained in possession of the assets of the company till they were sold in the year 2013 except movable properties, like plants, Page 29 of 33 C/COMA/212/2015 ORDER machineries, etc. Therefore, whatever expenses incurred by Official Liquidator in connection with the properties for which the ARCIL exercised powers under the SARFAESI Act, when they were in possession of the Official Liquidator, such expenses are to be met with from the sale proceeds of the company's properties sold by ARCIL as it was to protect interest of the creditors of the company in liquidation, the Official Liquidator was required to safeguard the company's properties by incurring security expenses and other costs related to the properties of the company and the ex-Directors shall be required to be refunded the amount deposited by them as from such amount, the Official Liquidator made expenses as stated before the Court. As stated before the Court, the ARCIL is the only assignee of secured creditors of the company in liquidation and the ARCIL is the beneficiary of the sale proceeds of the properties of the company sold by it. At this stage, Mr. Maredia stated before the Court that the charge over the company's properties was also created in favour of other lenders and therefore, they could be said to be secured creditors of the company in liquidation. However, presently, it is the ARCIL which is the beneficiary of the sale proceeds of the company's properties sold by it. In such view of the matter, the ARCIL could be presently directed to deposit Rs.30 lac as against the demand raised by the Official Liquidator of more than Rs.74 lac against ARCIL towards security expenses stated to have been incurred by the Official Liquidator. If the ARCIL has shared the amount of sale proceeds with any other secured creditors, it will be for the ARCIL to seek recovery/ adjustment against other secured creditors to share the liability towards the security expenses and other costs related to the properties of the company sold by it. As per second proviso to sub-section (2) of Section 529 of the Act, if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay his portion of the expenses incurred by the liquidator (including the provisional liquidator, if any) for the preservation of the security Page 30 of 33 C/COMA/212/2015 ORDER before its realization by the secured creditor. In view of such clear statutory provision, when the ARCIL proceeded to realize its security by remaining outside the winding up proceeding, it will be presently for the ARCIL to at least deposit Rs.30 lac with the Official Liquidator to refund the amount deposited by the ex-Directors. As recorded in the order dated 7.11.2012 passed in Misc. Civil Application (OJ) No.181 of 2011, the Official Liquidator had utilized the part of the amount of Rs.25 lacs deposited by the applicants towards security expenses for preservation of the properties of the company in liquidation and the Official Liquidator was directed to separately mark and maintain the fund of Rs.12,56,040/- and after the dispute with security agency towards bill of Rs.74,64,343/- was finalized, the Official Liquidator was to make use of the said amount, if so required, and thereafter, if any surplus balance remained, it was to be refunded to the ex-Directors. Such order when was made, the ARCIL had not sold away the company's properties. Now, the ARCIL has sold the company's properties and has got the sale proceeds. As recorded by learned Company Judge as also by the Division Bench, the ex-Directors had deposited the amounts towards security expenses and costs in relation to the company's properties. Therefore, the ex-Directors shall become entitled to refund of such amount as their revival scheme was not approved and they could retain possession of the company's properties only for short period between 20.3.2009 and 8.4.2010. However, deposit of Rs.30 lac by ARCIL will not absolve the ARCIL from depositing/ paying any further amount to Official Liquidator as the Court is not finally resolving the dispute between the Official Liquidator and the ARCIL considering the claim of the Official Liquidator for recovery of more than Rs.74 lacs towards security expenses as recorded in the order dated 7.11.2012 passed in Misc. Civil Application (OJ) No.181 of 2011. The dispute concerning the claim of the Official Liquidator to recover the above security expenses and other costs relating to the properties of the company and which might have been incurred by the Official Page 31 of 33 C/COMA/212/2015 ORDER Liquidator in connection with the liquidation proceedings, shall be resolved later on but, presently since the amounts deposited by the ex-Directors are stated to have been used towards security expenses by the Official Liquidator, the ARCIL having realized its dues from secured assets by remaining outside the winding up proceedings, it is required to be directed to deposit Rs.30 lac with the Official Liquidator. On deposit of such amount by the ARCIL with the Official Liquidator, the Official Liquidator shall be required to refund the same to the ex-Directors - the applicants of Civil Application (OJ) No.212 of 2015.
25. As regards Company Application No.499 of 2016, since the Court has considered the prayers made in further report filed in OLR No.78 of 2012, there is no need to consider the prayer made in clause (a) of the application. As regards other prayers of the application, learned senior advocate Mr. Mehta states that with liberty to ask for such prayer when so required, he does not press for the same at this stage. Thus, this application is required to be disposed of accordingly.
26. For the reasons stated above, following orders are passed:-
(1) OLR No.78 of 2012 is disposed of with permission to the Official Liquidator to engage Government approved valuer to carry out the inventory-cum-valuation, photography, videography of the assets of the company in liquidation at Ratlam (M.P.) and to place such inventory-cum-valuation before the Sale committee to take further required steps for sale of the company's properties at Ratlam.
(2) OLR No.22 of 2013 is rejected.
(3) Company Application No.212 of 2015 is partly allowed with direction to the ARCIL to deposit Rs.30 lac with the Page 32 of 33 C/COMA/212/2015 ORDER Official Liquidator within a period of FOUR WEEKS from today and with further direction to the Official Liquidator to pay/ refund such amount of Rs.30 lac to the ex-
Directors- the applicants on receipt thereof from the ARCIL.
(4) Company Application No.499 of 2016 stands disposed of in view of the observations made above for its disposal.
(C.L.SONI, J.) Omkar Page 33 of 33