Gujarat High Court
Sicom Limited vs Kemrock Agritech Pvt. Ltd. on 14 June, 2018
Author: C.L. Soni
Bench: C.L. Soni
C/COMA/314/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/COMPANY APPLICATION NO. 314 of 2015
In
COMPANY PETITION NO. 338 of 2013
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SICOM LIMITED
Versus
KEMROCK AGRITECH PVT. LTD.
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Appearance:
MR JAY KANSARA FOR M/S WADIAGHANDY AND CO(5679) for the
PETITIONER(s) No. 1
APPEARANCE DELETED(23) for the RESPONDENT(s) No. 1
MR PAVAN S GODIAWALA(2936) for the RESPONDENT(s) No. 2
MS PJ DAVAWALA(240) for the RESPONDENT(s) No. 3
NOTICE SERVED BY DS(5) for the RESPONDENT(s) No. 2
NOTICE SERVED(4) for the RESPONDENT(s) No. 1
OFFICIAL LIQUIDATOR(16) for the RESPONDENT(s) No. 3
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CORAM: HONOURABLE MR.JUSTICE C.L. SONI
Date : 14/06/2018
ORAL ORDER
1. The applicant has taken out the Judge's Summons for the following prayer.
(A) This Hon'ble Court be pleased to grant leave to the Applicant under Section 446 r/w. Section 537 of the Companies Act, 1956 to auction and sell the immovable property described at Annexure "B" hereto and appropriate the proceeds towards discharge of the Respondent Company's liability owned to the Applicant under the Deed of Further Mortgage dated 13th December, 2012 and Indenture of Mortgage dated 10th June 2010.
Page 1 of 11 C/COMA/314/2015 ORDER2. In the affidavit in support of the Judge's Summons, it is stated that the applicant seeks to enforce its powers under Section 29 of the State Financial Corporations Act, 1951 (the Act) vis-a-vis the properties of the company in liquidation mortgaged with it to recover the dues outstanding against the company. It is further stated that in exercise of power under Section 29 of the Act, the applicant has taken over the possession of the mortgaged properties and when it was in the process of getting valuation of the properties and taking steps for sale of the properties by advertisement, it received a letter dated 04.08.2015 from the Official Liquidator - opponent no.3 informing that the company was ordered to be wound up on 01.07.2014 and that since the winding up proceedings are pending against opponent no.1 - company, the leave of this Court is required to sell the mortgaged properties. With the affidavit, the applicant has also annexed the copy of the notification issued by the Central Government in exercise of power under Section 46 of the Act whereby it directed that the provisions of Section 29 and other Sections mentioned therein of the Act shall apply to the applicant Corporation.
3. As per Section 46 of the Act, when the Central Government by notification directs that all or any of the provisions of the Act shall, subject to such exceptions and restrictions as may be specified, apply to any institution established by a State Government which has for its object the financing of industrial concerns, on the issue of such notification, the institution shall be deemed to be a Financial Corporation established by the State Government for the State within the meaning of this Act, and the provisions of the Act shall become applicable thereto in accordance with the notification issued by the Central Government. Thus, the applicant is deemed to be a Financial Corporation as defined in Section 2 of the Act and as per the notification, it has become entitled to exercise the powers Page 2 of 11 C/COMA/314/2015 ORDER under Section 29 of the Act. In fact, no dispute as regards the entitlement of the applicant to exercise the power under Section 29 of the Act is raised by and on behalf of the opponents.
4. Learned advocate Mr. Kansara for the applicant submitted that the applicant is entitled to exercise of the power under Section 29 of the Act in connection with the properties of the company mortgaged with it though the company is ordered to be wound up. He submitted that the applicant has exclusive charge over the mortgaged properties described in schedule at Anneurer-A. He submitted that as per the law laid down by the Hon'ble Supreme Court in different decisions, the only right with the Official Liquidator is to ask for the share of the workers' dues from the sale proceeds of the mortgaged properties. He, however, fairly states that to protect the interest of the workers and all other secured creditors, the applicant could be ordered to associate the Official Liquidator in the auction proceedings for sale of the mortgaged properties and the applicant is even agreeable to deposit the sale proceeds with the Official Liquidator on completion of the sale proceedings.
5. Learned advocate Ms. Dawavala appearing for the Official Liquidator submitted that earlier attempts were made for sale of the company's properties and since, there are other secured creditors of the company in liquidation, the Court may not permit the applicant alone to conduct auction proceedings for sale of the mortgaged properties but may order to form the sale committee comprising of the applicant, Official Liquidator and the representatives of the secured creditors, so as to ensure that the mortgaged properties may fetch adequate sale price.
6. Learned advocate Mr. Godiawala appearing for the opponent Page 3 of 11 C/COMA/314/2015 ORDER no.2 - one of the creditors of opponent no.1 - company in liquidation submitted that the only interest which the opponent no.2 has, is to see that the auction proceedings may be conducted in such a way that the properties of the company in liquidation may fetch higher price and for such purpose, the Court may order to form the sale committee as submitted by learned advocate for the Official Liquidator.
7. The Court having heard learned advocates finds that the applicant wants to sell the the properties described in schedule at Annexure - A by auction by claiming that it has exclusive charge over the properties. However, since the properties are of the company in liquidation, the applicant has come before this Court seeking permission to hold auction for sale of the properties. As regards the submission of learned advocate for the applicant that the applicant has exclusive charge over the properties described in the schedule at Annexure - A, no dispute could be taken either by the learned advocate for the Official Liquidator or learned advocate for opponent no.2. However, learned advocate Ms. Dawavala for the Official Liquidator submitted that there are other secured creditors and one of the secured creditors is the State Bank of India. But, such secured creditor is not stated to have taken any independent action under any statute in connection with the properties of the company in liquidation. Be that as it may, being a secured creditor of the company, if the State Bank of India or any other financial institution is entitled to take any action, it is always open to them to take appropriate action, as available in law in connection with the properties of the company in liquidation.
8. As stated above, being Financial Corporation, the applicant is entitled to exercise the power under Section 29 of the Act in Page 4 of 11 C/COMA/314/2015 ORDER connection with the properties described in schedule at Annexure - A. However, when the company is in liquidation, the applicant Corporation could be asked to comply with certain conditions while dealing with the properties in exercise of power under Section 29 of the Act to safeguard the dues of the workers, if any.
9. In the case of Rajasthan State Finance Corporation Vs. Official Liquidator reported in (2005) 8 SCC 190, the Hon'ble Supreme Court has summed up legal position as regards the powers of the State Financial Corporation (SFC) under the Act vis-a-vis the powers of the company court in para-18 as under:
18. In the light of the discussion as above, we think it proper to sum up the legal position thus:-
i) A Debt Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company-in- liquidation, through its Recovery Officer but only after notice to the Official Liquidator or the liquidator appointed by the Company Court and after hearing him.
ii) A District Court entertaining an application under section 31 of the SFC Act will have the power to order sale of the assets of a borrower company-in- liquidation, but only after notice to the Official Liquidator or the liquidator appointed by the Company Court and after hearing him.
iii) If a financial corporation acting under Section 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by Page 5 of 11 C/COMA/314/2015 ORDER it only after obtaining the appropriate permission from the company court and acting in terms of the directions issued by that court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of Section 529A and Section 529 of the Companies Act.
iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the concerned creditor is to approach the company court for appropriate directions regarding the realization of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation.
10. In the year 2015 in Civil Appeal No.5805 of 2005, the Hon'ble Supreme Court considered the decision in the case of Rajasthan State Financial Corporation (Supra) and also considered the decision in the case of A. P. State Financial Corporation Vs. Official Liquidator reported in (2000) 7 SCC 291 and has held and observed as under.
"In A. P. State Financial Corporation this Court had the occasion to examine the extent of powers available to a Financial Corporation under Section 29 and 46 of the SFC Act in the light of later amendments to the Companies Act incorporating proviso to Section 529(1) and Section 529A of the Companies Act through Amendment Act 35 of 1985. The object of the amendment was to protect the dues of the workmen. This Court held that the power available to a corporation under Section 29 to sell the property of a debtor Page 6 of 11 C/COMA/314/2015 ORDER company under liquidation is not absolute but is subject to the proviso to Section 529(1) and non obstante clause in Section 529A of the Companies Act providing for pari passu charge of the workmen.
In International coach Builders Ltd., this Court not only followed the view taken in A. P. State Financial Corporation case but went on to explain in paragraph 31 as to how the view adopted would not obliterate the difference between a creditor opting to stay outside winding up and one who opts to prove his debt in winding up. Para 31 of the judgment provides thus:
"31. Finally, counsel for SFCs urge that the view we are to take would obliterate the difference between a creditor opting to stay outside winding-up and one who opts to prove his debts in winding-up. We are unable to accept. As a result of the amendments made by the Act of 1985 in the Companies Act, 1956, SFCs as secured creditors, must seek leave of the Company Court for the limited purpose of ensuring that the pari passu charge in favour of the workmen is safeguarded by imposition of suitable conditions under the supervision of the Company Court. If this amounts to impeding their hitherto unimpeded rights, so be it. Such is the parliamentary intendment, according to us. This impediment is of a limited nature for the specific purpose of protecting the pari passu charge of the workmen's dues and subject thereto, SFCs can continue to exercise their statutory rights as secured creditors without being reduced to the status of unsecured creditors required to prove their debts in insolvency and stand in line with other unsecured creditors. Neither is the apprehension expressed justified, nor the Page 7 of 11 C/COMA/314/2015 ORDER contention sound."
It is clear from the aforesaid judgment that no doubt the changes brought about in the companies Act through amendments of 1985 impede even the statutory powers available to a secured creditor like SFCs under Section 29 and the other relevant sections of the SFC Act but the impediment is indeed of a limited nature; its specific purpose being to protect the pari passu charge of the workmen's dues. After ensuring that this purpose is achieved or ensured, the State Financial Corporations can continue to enjoy their statutory rights as secured creditors. They will not be reduced to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors.
A three Judges' bench in the case of Rajasthan State Financial Corporation (supra) approved and followed the earlier views in A. P. State Financial Corporation and in International Coach Builders Ltd. In paragraph 17 of this judgment it was again clarified that the "right of a financial institution or of the Recovering Tribunal or that of a financial corporation or the court which has been approached under Section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the Official Liquidator being associated with it, giving the Company court the right to ensure that the distribution of the assets in terms of Section 529A of the Companies Act takes place."
(emphasis added) In our considered view, the rights of a financial corporation Page 8 of 11 C/COMA/314/2015 ORDER available under the provisions of the SFC Act have been compromised or impeded by the amendment of 1985 in the Companies Act, particularly the proviso added to Section 529(1) and Section 529A, only to a limited extent and for the limited purpose of securing the right of the workers for distribution of their wages a pari passu charge. But such limited impediment to their rights under the SFC Act will not alter the status of State financial corporations as secured creditors and they will not be required to prove their debt which they are entitled to realize under the provisions of the SFC Act subject to right of the workers to receive their wages also as secured creditors on pari passu basis. The control of the Company Judge and the Official Liquidator if authorized, can extent only to ensure that the aforesaid purpose of Section 529A is effectively achieved. Like any other affected person, if the Company represented by the Official Liquidator has reasons to be aggrieved by claims made by a financial corporation under the SFC Act, its remedy would be to initiate appropriate civil proceedings to challenge such claim or debt of a State financial corporation before an appropriate forum and not to assume jurisdiction to sit in adjudication and decide entitlement of the financial corporation when it has opted to stand outside the liquidation proceeding as a secured creditor. As noted earlier, the statutory powers of SFCs have suffered only a limited impediment only to serve the purpose of protecting workers' dues."
11. Thus, as held by the Hon'ble Supreme Court, the control of the Company Judge and the Official Liquidator, if authorized, can be only to ensure that the purpose of Section 529A is effectively achieved i.e. only to a limited extent and for the limited purpose of securing Page 9 of 11 C/COMA/314/2015 ORDER the right of the workers for distribution of their wages as pari passu charge. Learned advocate for the applicant has fairly stated before the Court that the Official Liquidator could be associated with the applicant in sale of the properties and that the applicant has no objection or reluctance in depositing the sale proceeds on completion of the sale of the mortgaged properties with the official liquidator reserving its right to claim that except the pari passu charge of the works for recovery of their dues from the sale proceeds, the applicant shall have the exclusive right to the sale proceeds. The Court, therefore, finds that the applicant being Financial Corporation and entitled to exercise the power under Section 29 of the Act could be granted permission to auction and sale the properties mentioned in schedule at Annexure A, however, with certain directions to safeguard the interest of the workers of the company, if any.
12. In view of the above, the application stands disposed of with the following orders.
(a) The applicant is permitted to auction and sell the properties mentioned in the schedule at Annexure A in exercise of the power under Section 29 of the Act.
(b) For such purpose, the applicant shall get the properties valued by the approved valuer and keep the Official Liquidator informed about the valuation done.
(c) The applicant shall associate the official liquidator while fixing the upset price, conducting auction and sale of the properties and shall seek the approval of this court for acceptance of the bid and confirmation of the sale in favour of the highest Page 10 of 11 C/COMA/314/2015 ORDER bidder.
(e) As agreed by the learned advocate for the applicant, the applicant shall deposit the entire amount of sale proceeds with the Official Liquidator within a period of two weeks after receipt thereof.
(f) On depositing the sale proceeds by the applicant with the Official Liquidator, the Official Liquidator shall immediately invite the claims of the workmen, and if the Official Liquidator receives any claim from any worker, the same shall be intimated to the applicant. The sale proceeds shall be then applied for payments on final adjudication of the claims received against the sale proceeds.
(g) It is clarified that the applicant`s agreeing to deposit the sale proceeds with the Official Liquidator shall not be construed as if the applicant has participated in the winding up proceedings but rather it has made it clear that it while remaining outside the winding up proceedings is enforcing its security to recover its dues outstanding against the company in liquidation.
(C.L. SONI, J) Vijay Page 11 of 11