Calcutta High Court
Syndicate Bank vs The Official Liquidator (Shree ... on 17 April, 2015
Equivalent citations: AIR 2015 (NOC) 1055 (CAL), 2015 AIR CC 1922 (CAL) (2015) 3 CAL HN 676, (2015) 3 CAL HN 676
Author: Ashim Kumar Banerjee
Bench: Ashim Kumar Banerjee
Form No. J.(2)
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present :
The Hon'ble Mr. Justice Ashim Kumar Banerjee
And
The Hon'ble Mr. Justice Shivakant Prasad
A.P.O. No. 168 of 2014
BIFR 52 Of 1988
Syndicate Bank
Vs.
The Official Liquidator (Shree Manjusha Paper Mills Limited) & Others
For the Appellant : Mr. Rajsekhar Mantha, Senior Advocate
Ms. Gopa Chakraborty, Advocate
Ms. Paromita Purkait, Advocate
For IFCI and IDBI : Mr. Amiya Kumar Sur, Advocate
For IOB : Mr. N.K. Rakshit, Advocate
For Official Liquidator : Mr. Tilak Bose, Senior Advocate
Mr. Anupam Das Adhikari, Advocate
Heard on : April 1 and 7, 2015.
Judgment on : April 17, 2015.
ASHIM KUMAR BANERJEE, J.
INCIDENT THAT GAVE RISE TO THE PRESENT LITIGATION:
Basant Paper Mills Limited, subsequently known as Manjusa Paper Mills Limited obtained credit facilities from various financial institutions including Syndicate Bank and IDBI. The claim of the Syndicate Bank was secured by mortgage of property restricted to Rs. 20 lakhs. IDBI, IFCI, LIC and other financial institutions were also having pari-passu charge over the assets. The company became sick and was referred to the Board of Industrial and Financial Reconstruction (BIFR). BIFR formulated a scheme and asked the Syndicate Bank and Indian Overseas Bank to invest further sums to revamp the company's financial position. Syndicate Bank and Indian Overseas Bank thus invested further sums approximately Rs. 4.68 crores on condition that they would have pari-passu charge covering the further financial support that the other financial institutions should have agreed. The BIFR accordingly approved the scheme. Syndicate Bank would claim, they registered the charge covering the increased financial support that they gave to the company. The company also agreed to such proposal of the Bank, Bank accordingly registered its charge with the Registrar of Companies covering their increased financial stake. The company ultimately did not survive. This Court passed an order of winding up on July 16, 1997. The Syndicate Bank also obtained a decree from the Debt Recovery Tribunal of Delhi to the extent of Rs. 28,35,31,238/- along with the interest at the rate of 11 per cent per annum. The Official Liquidator sold the assets of company for a sum of Rs. 4.01 crores. The present dispute would start from there. Official Liquidator invited claims from the creditors. By an order dated November 30, 2007, the Official Liquidator admitted the claim of the Bank to the extent of Rs.15,46,60,497. Nobody objected to such settlement. IFCI also got their claim settled to the extent of Rs. 4.4 crores as a preferential claim. Disbursements were also made on ad hoc basis. Syndicate Bank, however, did not receive any sum, as claimed by them. IDBI subsequently filed an application being C.A. No. 392 of 2008 without any notice to the Syndicate Bank wherein the learned Company Judge set aside the earlier settlement. We find from the record, IDBI got ad hoc payment of Rs. 50 lakhs, IFCI Rs. 20 lakhs and Standard and Chattered Bank Rs. 15 lakhs. However, the Syndicate Bank was not paid a single furthering as would appear from the page 180. The Official Liquidator also could not give any plausible explanation as to how those payments were made to the exclusion of Syndicate Bank. The Official Liquidator in its report would contend, the Bank did not make any claim to the extent, it had any charge on the land and building. Surprisingly, the learned advocate appearing for the other financial institutions namely, IDBI, IFCI appeared before the learned Company Judge and pointed out that the claim of the Syndicate Bank over the security was restricted to Rs. 20 lakhs that was not brought to the notice of the Official Liquidator. His Lordship set aside the earlier settlement and directed resettlement. The order was passed in absence of the Bank, no notice was ever served upon the Syndicate Bank. The Bank came to know from the letter of the Official Liquidator and immediately they objected to the same. The Court also recorded foul play as would appear from the order dated March 19, 2010 appearing at pages 327-330. The learned Judge directed an investigation to be made. Syndicate Bank was also permitted to take appropriate steps in the matter. The matter appeared before the other Company Judge on change of determination. Vide order dated September 2, 2011, the learned Company Judge directed fresh determination after hearing all the secured creditors giving a reasoned decision. Accordingly, the Official Liquidator conducted a fresh adjudication and rejected the claim of the Bank beyond Rs. 20 lakhs. According to the Official Liquidator, there was no security for the amount beyond Rs. 20 lakhs. The Syndicate Bank challenged the same. By a subsequent order dated October 12, 2012, due to change of determination, the matter went back to the learned Company Judge who passed the order dated April 6 and 30, 2010. The learned Company Judge again set aside the order of rejection and directed reconsideration upon due notice to the parties. The matter went back to the Official Liquidator, the Official Liquidator once again rejected the claim of the Bank vide order dated April 22, 2013 appearing at page 361-363 of the paper book. The reasoning was all the more same. Significant to note, although the Official Liquidator was having a consistent view on the priority to the extent of Rs. 20 lakhs, they paid nothing to the Syndicate Bank, despite substantial payments made to the other secured creditors. The discriminatory treatment is apparent on the face of the record. We wonder, how a public authority acting under the supervision of the Court could do so.
The Bank challenged the same before the learned Judge. The learned Judge upheld the rejection vide order dated April 2, 2014 appearing at page 15-23 of the paper book that became the subject matter of the present appeal at the instance of the Bank.
THE JUDGMENT AND ORDER IMPUGNED:
Before the learned judge, according to the Bank, although they were having the pari-passu charge to the extent of Rs. 20 lakhs, pursuant to the direction of the BIFR and with the consent of the other secured creditors they extended further financial support with the understanding that they would be registering the charges pari-passu with the other secured creditors covering the enhanced financial support. They would heavily rely on the letter of the other financial institutions through the lead institution being IFCI appearing at pages 293-295 and the Certificate of Registration appearing at page 296-299. The other financial institutions would contend, they did not accord their consent and there was no proper registration of charge. Hence, the Bank was not entitled to their claim. The learned Judge very correctly recorded the entire incident and noticed the mischief done at someone's behest that would directly favour the other secured creditors particularly IFCI, IDBI group to the exclusion of the Bank. However, the learned Judge was of the view, there was no evidence of pari-passu charge in favour of the Bank or any consent given by the other institutions. The leaned Judge also considered Section 48 of the Transfer of Property Act and observed, in absence of consent from each of the first charge holders, the findings of the Official Liquidator could not be interfered with. The learned Judge imposed heavy cost on IFCI, IDBI and permitted those financial institutions to recover such sum from their counsel if they so like. Being aggrieved, Bank filed the appeal.
CONTENTIONS:
Mr. Rajsekhar Mantha, learned Senior Counsel advanced his argument on behalf of the Syndicate Bank. He would submit, once the adjudication was made by the Official Liquidator and there was no contemporaneous challenge to the same there was no occasion for the Official Liquidator to have it upset that too, at the instance of IFCI and IDBI particularly, in absence of the Syndicate Bank. According to Mr. Mantha, fraud was committed on Court when the learned Judge was misled while passing the said order dated January 15, 2010. The said order was subsequently recalled, however, in view of change of determination, the said financial institutions got the same restored in a different way that made the situation complex. He would rely upon page 307 of the paper book where the claim of the Syndicate Bank was shown. They had been settled at Rs. 15.48 crores and the Official Liquidator suggested payment to the Bank to the extent of Rs. 1.84 crores. Even then, no payment was made although the other secured creditors were duly paid on ad hoc basis. He would refer to page 318 where the Official Liquidator in the changed circumstances admitted Rs. 1.30 crores and suggested payment of Rs. 48,11,535/- that also the Official Liquidator did not pay. Pertinent to note, such suggestion was made on March 10, 2010 after the order dated January 15, 2010 was passed. He would put his emphasis on his letter dated September 24, 1991 written by IFCI according their consent in having the charge recorded pari-passu. He would contend, once they gave their consent, there was no occasion to take any further step in the matter at least, IFCI or its group members would be precluded from questioning the authority of the Bank to claim security pari-passu on the extended financial support. He would submit, pursuant to the order of the BIFR, Bank changed its status and acted upon the said order. Hence, they could not be denied the proportionate reimbursement. He would submit, he was already handicapped because of the indifferent treatment on the part of the Official Liquidator. Despite repeated requests, the Official Liquidator was not supplying records pertaining to the claim of the other secured creditors so that the Bank could examine as to whether their claims were properly adjudicated or not.
Per contra, Mr. Amya Kumar Sur learned Counsel appearing for the other secured creditors would contend, the ad hoc payments were received by the financial institutions in terms of the order of the Court and neither the Official Liquidator nor the secured creditors would have any hand in it. The parri-passu charge that the secured creditors would be having was as per the deposit of Title Deeds and compliance of the requirement in law. Section 48 of the Transfer of Property Act would not permit one of the creditors to claim better right than the others on the basis of the modified charge in absence of the consent being obtained from the other secured creditors who were ranking parri-passu with them. He would rely upon the Apex Court decision in the case of ICICI Bank Limited Vs. Sidco Leathers Limited and Others reported in 2006 Volume-X Supreme Court Cases Page-452.
Appearing for the Official Liquidator, Mr. Tilak Bose, learned Senior Counsel would also support Mr. Sur on Section 48 of the Transfer of Property Act and its interpretation thereof. He would admit differential treatment being meted out by the Official Liquidator, however, he would contend, the original settlement of claim was not having any support of law. He would draw our attention to the Certificate of Charge that would also have restriction up to Rs. 4.98 crores as would be appearing from page 297 and would lastly submit, this Court should pass an appropriate order that the Official Liquidator would comply with.
OUR VIEW The conduct of the Official Liquidator is not above Board. We still wonder, how the order dated January 15, 2010 could be passed. Even if the financial institutions would try to obtain the said order the Official Liquidator should have brought to the notice of the learned Judge, Syndicate Bank was not present and they were not notified. The matter did not rest there. Subsequently, when the order was recalled the Official Liquidator should have made appropriate submissions before the other learned Judge who restored the said order in a different form. We fully appreciate the argument of Mr. Tilak Bose, the Bank was not in a position to support their claim to the extent of Rs. 15 crores as the Certificate appearing at page 297 would ad best support his claim to the extent of Rs 4.99 crores approximately. The letter dated September 24, 1991 clearly recorded, the other financial institutions agreed to have pari-passu charge for the additional loan of Rs. 25 lakhs and working capital loan of Rs. 173.41 lakhs in favour of the Syndicate Bank. The relevant extract is quoted below:
"The mortgage and charge of IFCI, IDBI, ICICI, IRBI and LIC shall in all respects rank pari-passu with the mortgages and charges created/ to be created by the Company in favour of Syndicate Bank in respect of its term loan of Rs. 20 lakhs, additional loan of Rs. 25 lakhs and working capital tem loan of Rs. 173.41 lakhs and in favour of Indian Overseas Bank in respect of additional term loan of Rs. 17 lakhs and working capital term loan of RS. 93.16 Lakhs including any bridging loan(s)/ interim disbursement(s) interim loan(s) together with interest thereon and other monies payable by the Company to you under your Loan Agreements/Letter of Sanction etc. for all purposes and to all intents."
In the later part of the said letter, the financial institutions also agreed, undertook and confirmed that they would enter into a parri-pasu agreement with the Syndicate Bank and obtain necessary permission from the company to such arrangement. We wonder, how the financial institutions could take the plea of Section 48 of the Transfer of Property Act at this stage, that would be too much and it would be a dishonest stand on the part of the Public Sector Undertaking to defraud another Public Sector Undertaking that the Court of law cannot be a mere onlooker. It is not a case where a rival claim is being made by a secured creditor over and above the other one on the strength of the increased security without compliance of the provisions of the Section 48.
Mr. Sur relied upon in the case of ICICI Bank Limited Vs. Sidco Leathers Limited and Others reported in 2006 Volume-X Supreme Court Cases Page-452. He would rely upon paragraphs 17, 40, 41 and 49. In that case, the Punjab National Bank granted loan to the company knowing that the ICICI Bank had a first charge. In the instant case, the Syndicate Bank was having the charge over the assets to the extent of 20 lakhs. However, the extended financial support was given at the direction of BIFR a statutory authority and that too, with concurrence from all the financial institutions particularly IFCI group that would be apparent from the said order dated September 24, 1991. Hence, the said decision would be of no help to us. Section 48 would provide when a person purports to create by transfer at different times rights in or over the same immovable property and such right cannot all exists or be exercised to their full extent together, in absence of a special contract or reservation binding the earlier transferees. In the present case, the earlier transferees were aware of the change. They agreed to the change, however, formality might not have been completed that might debar the Bank to claim the money on the basis of such subsequent charge. However, the earlier transferees were not entitled to raise such issue and their consent recorded in the said letter would preclude them to do so. The Official Liquidator would thus be obliged to take into consideration the entire situation and treat the modified charge as a valid one at least, to the extent as recorded with the Registrar of Companies.
Our conscience would prick if we uphold such hyper technical objection that too, on behalf of IFCI, IDBI and the other financial institutions, to deny the claim of Syndicate Bank. We would hold, even if there was no proper compliance of Section 48 the respondents were precluded from taking such plea while denying the claim of the Bank. We would direct the Official Liquidator to consider the Certificate of Mortgage treating the same as a valid one to the extent of Rs. 4.98,79,497.03 paisa as appearing at page 298 of the paper book and determine and adjudicate the claim of the Bank and pay them forthwith.
Before parting with, we would be failing in our duty if we do not draw attention of the learned Company Judge as to the functioning of the Official Liquidator as observed hereinbefore. They were not acting in impartial manner. In course of hearing, we adjourned the matter and directed the Official Liquidator to pay, whatever according to them would be payable to the Bank. We directed so when we noticed, others were paid in ad hoc to the total exclusion of the Syndicate Bank. Official Liquidator paid only poultry a sum of Rs. 8 lakhs. When we asked Mr. Tilak Bose to explain, he would contend, in absence of appropriate papers, the Official Liquidator could not calculate the interest over the claim amount and thus they made prorata payment taking the claim of the Bank to the extent of Rs. 20 lakhs only. We are not sure as to whether they would use the same yardstick once again while making payment to the other creditors. We would humbly request the learned Company Judge to look into the affairs of the office of the Official Liquidator particularly ensuring impartiality. We observe so as we find, although the Official Liquidator was an officer appointed by the Central Government, he would enjoy his office and act strictly as per the direction of the learned Company Judge in his administrative capacity. The appeal is disposed of accordingly without any order as to costs. Shivakant Prasad, J.:
I agree.
ASHIM KUMAR BANERJEE, J.
SHIVAKANT PRASAD, J.