Gujarat High Court
State Bank Of India vs Pro. O.L. Of Volvo Steel Ltd. ... on 15 October, 2003
Equivalent citations: [2004]53SCL139(GUJ)
Author: K.A. Puj
Bench: K.A. Puj
JUDGMENT K.A. Puj, J.
1. The present Company Application is filed by the applicant Banks and judges summons is taken out seeking permission of this Court to allow the applicant Banks, being secured creditors, to initiate proceedings under the Provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Securitisation Act). In support of the judges summons, an affidavit was filed by one Mr. Girishbhai Ambalal Barot, Deputy Manager (Advances) of State Bank of India, RARB Branch, Ahmedabad, the applicant No.1 herein.
2. It is the case of the applicant Banks that the four applicant Banks are the secured creditors of M/s.Volvo Steel Limited (presently known as Stanrose Steel Limited) and the properties and assets were charged with the applicant Banks and the applicant Banks are therefore considered to be the secured creditors of the said Company. It is further stated that the applicant Banks have initiated recovery proceedings against the said Company and others by Application being Original Application No. 137/2002 before the Debts Recovery Tribunal, Ahmedabad under the Provisions of Recovery of Debts due to Bank and Financial Institutions Act, 1993(hereinafter referred to as the Recovery of Debts Act).The said application is pending before the Debts Recovery Tribunal at Ahmedabad and in the said proceedings, the DRT passed an order on 12.04.2002 appointing the Court Commissioner to carry out Commissioner work/inventorywork . Accordingly, the Court Commissioner visited thepremises of the said Company and it was found by theCourt Commissioner that the premises are in possession of Gujarat Industrial Investment Corporation Limited (GIIC)and there were five security men watching the said factory appointed by GIIC and the applicant Banks. It is further stated that all the properties are in possession of GIIC including the plant and machineries and other movable assets.
3. It is further stated that the applicant Banks are incurring substantial amount of expenses of aboutRs.25,000/- per month for security staff. It is further stated that after the enactment of the Securitisation Act, the applicant Banks were contemplating to initiateaction under the Provisions of the Securitisation Act and they came to know about an advertisement published in the Economic Times edition of 30.01.2003 by the Official Liquidator working as the Provisional Liquidator of the said company. The said notice was published by the Official Liquidator in pursuance of the order passed by this Court on 24.12.2002. In response to the said notice, the applicant Bank wrote a letter dtd.04.02.2003 to the Official Liquidator working as Provisional Liquidator indicating the full facts therein as well as contending that the applicants are considering to take action under the Securitisation Act.
4. It is further stated that one of the applicant Banks received a notice from the office of the Official Liquidator working as Provisional Liquidator, indicating therein that the Official Liquidator intended to take possession of the properties and assets of the Company in provisional liquidation on 21.02.2003. The applicant Banks, therefore, moved the present application before this Court seeking the above referred relief.
5. At the time of admission hearing of this application on 20.02.2003, this Court has passed an order directing the Official Liquidator to take only the symbolic possession of the property of the Company and to make inventories of the assets. However, it was made clear that the security arrangement and the physical possession of the properties would not be taken by him till the next date of hearing. The said ad-interim relief was extended from time to time.
6. The Official Liquidator appointed as Provisional Liquidator to the said Company filed his report on24.04.2003 wherein it was stated that pursuant to the order passed by this Court on 24.12.2002 in Company Petition no. 76/2002, he was appointed as Provisional Liquidator with a direction to take charge of the assets of the said Company. Consequent upon the said order, the Official Liquidator has deputed his representative to the office of the Registrar of Companies, Gujarat, Ahmedabad for taking inspection of the records of the said Company to find out assets and properties, liabilities, addresses of registered office of Company and secured creditors. While taking inspection of the said Company, it was observed that the subject Company was having Registered office and works at near G.I.D.C. Industrial Estate, Mahuva, Dist. Bhavnagar. The Official Liquidator has, therefore, deputed his representative on 21.02.2003 fortaking possession of the assets of the said Company. At that time, it was found that the assets and properties are under the possession of GIIC and they deputed their security guards for safeguarding the properties of the said Company. In pursuant to the order passed by this Court, the representative of the Official Liquidator has done only the inventory work of the assets and properties of the Company and did not take possession of the said Company.
7. It is further stated in the said report that incase of a Company where winding-up order has been made or Provisional Liquidator has been appointed, the assets rein the custody of the Official Liquidator as provided under Section 456(1) of the Companies Act, 1956 and the said assets are deemed to be in the custody of the Company Court from the date of winding-up order as per the Provisions contained in Section 456(2) of the Act. He has further submitted that Section 13(a) of Securitisation Act does not make any such Provisions. As per Section 37 of the Securitisation Act, the Provisions of the said Act are in addition to provision of Companies Act, Securities (Contracts Regulations) Act, Securities Act and Exchange Board of India Act and Recovery of Debts Act, SEBI Act, RDDIA Act and other laws. He has further submitted that Section 20(1) of the Securitisation Act states that 'Creation of Security interest' shall be registered with the 'Central Registrar'. He has further submitted that as per Section 2(ZF) of the Securitisation Act, 'Security Interest' includes mortgage, charge, hypothecation, assignment excluding those specified under Section 31 of the Act. On the basis of this statutory provisions, the Official Liquidator has contended that all these transactions are not only to be registered for securitisation and assets Reconstruction, but even the very 'Central Registry' as well as the 'Central Registrar' are yet to be constituted and appointed by way of a separate Notification to be issued in this regard by the Government. He has further submitted that the procedure prescribed under Section 13 of the Securitisation Act, for the enforcement of the security interest is at the infant stage and since time bound procedure is prescribed, in absence of any machinery, the object cannot be achieved by resorting to the said Provision. He has, therefore, submitted that the application moved by the applicant Banks should not be entertained and the Official Liquidator may be permitted to take over the charge of the assets of the said Company.
8. The applicant Bank has filed Affidavit-in-Reply and objected to the averments and contentions made by the Official Liquidator in his Report. It is stated that the Official Liquidator has merely referred to one of the Provisions of the Securitisation Act. However, provisions contained in Section 13(4), 13(9) as well as Proviso to Section 13 of the Securitisation Act, providing procedure for taking possession and sale by the Banks and Financial Institutions are equally important. It is further stated that Rule 4 to 8 also provides the Provisions concerning taking possession and sale of the properties. As per the said Provisions contained in the Act as well as the Rules, any amount that may be realized from the sale of the securities, will be distributed in accordance with the Provisions of Section 529A of the Companies Act, 1956 and, therefore, the Official Liquidator should not have any grievance against the same. It is further stated that the permission as prayed for by the applicant Banks in the application should be granted looking to the Provisions of the Act as well as considering the interest of all Secured Creditors. It is also stated that Section 36 of the Securitisation Act provides for overriding provisions of other laws. Section 13 of the Act provides for realisation of the securities of the Secured Creditors without intervention of the Court by the Creditors in accordance with the Provisions of the said Act. It is further stated that the remedies available to the applicant Bank under Section 13 of the Securitisation Act are faster and quicker remedies keeping interest of all the parties intact. It is also stated that the Official Liquidatoris overwhelmed and overburdened with several companies already went into liquidation and the properties of the companies in liquidation have not yet been sold nor the amount has been realised from the securities for number of years. It is, therefore, submitted that in the interest of justice as well as in public interest, the Secured Creditors are required to be granted permission to take appropriate action under the Provisions of Section 13 of the Securitisation Act.
9. The Official Liquidator thereafter filed another report on 10.09.2003 wherein it is stated that the O.L. has exercised his powers under Section 448 and 451 of the Companies Act, 1956 and is a custodian of the assets and properties of the Company (in liquidation). It is further stated that on a reference made by the BIFR, the Company is ordered to be wound up by order dtd.09.04.2002 appointing the Official Liquidator as Provisional Liquidator. An objection was also raised byte Official Liquidator that the applicant Bank has nowhere stated either in the application or in the reply that the Bank has obtained consent of other Secured Creditors having 3/4th in value of the amount outstanding as on particular date and that particular date being the record date is also not given by the applicant Bank. Moreover, the necessary infrastructure and central registry is also not established.
10. In response to the Official Liquidator's said report, another affidavit is filed by the applicant Bank along with which consent letters of all the four Secured Creditors were filed. With regard to other contentions raised by the Official Liquidator in his report, the applicant Bank has stated that there is no much substance therein as the applicant Bank is empowered to take action for possession under Section 13 of the Securitisation Act and since the Provisions of Section 13(9) of the said Act are complied with, the permission cannot be denied on that ground. So far as the reference made regarding infrastructure and central registry is concerned, it isstated that it is absolutely misconceived as the said Provisions are applicable with regard to formation of Assets Reconstruction Company whereas in the applicant's case, there is no such situation. It is also stated that the public interest will better be served if the permission as prayed for is granted to the applicant Bank.
11. On careful consideration of the submissions made by Mr. Pranav G. Desai, learned advocate appearing forthe applicant Banks and the Official Liquidator and on examination of their respective pleadings, I am of the view that permission to initiate proceedings under the Provisions of Securitisation Act cannot be denied to the applicant Banks simply because by virtue of the order passed by this Court on 24.12.2002, appointing the Official Liquidator as Provisional Liquidator of the Company. Looking to the scheme of the Securitisation Act, it is clear that the said Act has an overriding effect in view of the Provisions contained in Section 36 of the said Act. The applicant Banks being the Secured Creditors and after having complied with the Provisions of Section 13(9) of the said Act, is empowered to initiate such proceedings. However, since the matter ispending before the Company Court, a prior permission of the Company Court under Section 446 of the Act is required to be taken and when such an application is moved to this Court, there is no reason for this Court not to grant such permission. Reliance placed by the Official Liquidator on the decision of Andhra Pradesh High Court in the case of PENNER PATERSON LIMITED V/S.STATE BANK OF HAYDERABAD AND OTHERS, 106 COMPANY CASES(2001) 338 does not take the case of the Official Liquidator any further as in that case, the Court hashed that the Commissioner appointed by the Debt Recovery Tribunal for taking inventory of assets of the Company in liquidation is under an obligation to take prior permission of the Company Court. The applicant Banks have done precisely the same thing and moved the present application seeking permission of this Court to initiate proceedings against the Company by invoking the Provisions contained in Section 13 of the Securitisation Act. As far as issuance of Notice under Section 13(2) as well as taking possession under Section 13(4) of the Securitisation Act is concerned, there would not be any difficulty. However, so far as the question of sale of the said securities is concerned, in view of the decision of the Hon'ble Supreme Court in the case of MARDIACHEMICALS LIMITED V/S. UNION BANK OF INDIA, 2002 (39)SCL 897, the applicant Bank cannot part with the assets of the Company by way of lease, assignment or sale. Even otherwise, before the sale is finalised, it is to be confirmed by the Company Court and at the time of confirmation of the sale, the Court would certainly look into the claim of workers and statutory dues of Government.
12. In the above view of the matter, the present Company Application is allowed. Since the possession is with GIIC, one of the Secured Creditors, the Official Liquidator is directed not to take possession of the assets and properties of M/s. Volvo Steel Ltd.(Presently known as Stanrose Steel Limited) till the proceedings under Section 13 of the Securitisation Act are initiated and completed and the applicant Bank is permitted to initiate proceedings under the Provisions of the Securitisation Act and further directed to place on record the outcome of the said proceedings. It is however made clear that before putting the assets of the Company on sale, a prior permission of this Court is required to be obtained.
13. With the above direction, present application is accordingly allowed and disposed of.