whether the claim of another secured creditor over the properties of private individuals who are directors of company mortgaged as security is maintainable ? = M/s. SBI Global Factors Limited, being another secured creditor, filed company petition being C.P.No.215 of 2010 for winding up, and the said petition was allowed on 18.7.2011. Consequently, the Official Liquidator was appointed to take possession of the assets of the said company. - the appellant Bank, being secured creditor, as per the provisions of SARFAESI Act, 2002, has invoked the provisions of the said Act after following due process of law as contemplated under the said Act and the Security Interest (Enforcement) Rules, 2002 has taken possession of the said properties and sold the secured assets i.e., the above said hypothecated and mortgaged properties.- It is settled position of law that shareholders and directors stands separate from the Company, as far as the legal status is concerned. We, therefore, clarify and hold that the Company Court has no jurisdiction in any manner whatsoever to deal with mortgaged properties even assuming the contention raised by the auction purchaser that the question of illegality and invalidity with regard to sale, is correct. This is absolutely inherent lack of jurisdiction. Therefore, we hold in exercise of jurisdiction under the Companies Act finding and decision of the learned Trial Judge with regard to mortgaged properties is without jurisdiction. The Company Court is concerned with regard to the assets and properties of the company in liquidation.= Whether the demand of the Bank for repayment of loan after adjustment of the sale consideration money is lawful or not, whether the same have been linked with the sale and whether the sale under the law is complete or not, or whether the auction purchaser can back out after bidding and offering to pay price for sale by depositing 25% of the same, all these questions are required to be decided in great detail.-Therefore, we set aside the same and dismiss the writ petitions leaving all questions open. It would be open for the auction purchaser to approach the Debts Recovery Tribunal so also Official Liquidator or any other claimant.
THE HONOURABLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HONOURABLE SRI JUSTICE SANJAY KUMAR
Writ Appeal Nos.1420 of 2013 and and batch
11-11-2014
Indian Bank Main Branch Bank Street Koti, Hyderabad Rep. by its Dy. General
Manager & Authorized Officer Appellant
The Sub Registrar Sub-Registrar Office Makundi Village Bellary District
Karnataka and others Respondents
!COUNSEL FOR APPEALLANT : Sri S. Ravi, Senior Counsel,
for Sri Ambadipudi Satyanarayana
COUNSEL FOR RESPONDENT NOs.1, 2 and 4: Government Pleader for
Revenue
COUNSEL FOR RESPONDENT NO.3 : Sri M. Anil Kumar
<GIST:
>HEAD NOTE:
? CITATIONS: 1. (2000) 4 SCC 406
2. (2005) 8 SCC 190
3. (2013) 176 Company Cases 246 (Delhi)
4. 2006 (1) Bom. CR. 362
5. (2010) 158 Company Cases 168
6. (2014) 1 SCC 479
7. (2013) 10 SCC 83
8. (2014) 5 SCC 610
9. (2013) 1 SCC 1
10. (2008) 15 SCC 1
11. (2013) 4 SCC 381
12. (2013) 2 SCC 101
THE HONBLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA
AND
THE HONBLE SRI JUSTICE SANJAY KUMAR
WRIT APPEAL NOs.1420 & 1424 of 2013
and
O.S.A NOs.34 & 35 of 2013
COMMON JUDGMENT: (Per the Honble The Chief Justice Sri Kalyan Jyoti Sengupta)
All the four appeals are taken up for hearing analogously for
the sake of convenience as they owe origin to common judgment
and order passed by the Honble trial Judge, dated 29.4.2013, in
Writ Petition Nos.19297 of 2012 & 33655 of 2011, and Company
Application Nos.1972 of 2011 & 421 of 2013 in Company Petition
No.215 of 2010.
All these appeals are preferred by the Indian Bank, a secured
creditor of a company - M/s. Laran Sponge & Minerals Private
Limited now in liquidation (hereinafter referred to as the said
Company). The facts leading to preferring the appeals are shortly
put hereunder:
The said company availed itself of various credit facilities from
the appellant Bank and in consideration thereof it hypothecated its
plant and machinery and other movables as securities therefor.
Apart from the above securities, one Smt. P. Latha and one Sri
P. Vara Prasada Raju, who are the Directors of the said company,
stood guarantors for repayment of dues of the appellant. They
mortgaged their immovable properties viz., large plot non-
agricultural land situated in the State of Karnataka and two flats in
Hyderabad. As there has been default in repayment of the loan
amount by the said company to the appellant, the loan accounts
were classified as Non Performing Asset (NPA). Accordingly, the
appellant Bank under the provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (hereinafter referred to as SARFAESI Act) took
possession of the said securities followed by notification for sale of
both mortgaged and hypothecated properties issued by the
Authorized Officer of the appellant bank on 28th August, 2011.
One M/s. United Steel Allied Industries Private Limited (hereinafter
referred to as auction purchaser) who is the 1st respondent in
W.A. No.1424 of 2013 and O.S.A. No.34 of 2013 participated in the
auction on 29.9.2010 and came to be declared as the highest
bidder. Accordingly, auction purchaser, in terms of the conditions
of sale, deposited 25% of the sale price. On 1.11.2010, one M/s.
SBI Global Factors Limited, being another secured creditor, filed
company petition being C.P.No.215 of 2010 for winding up, and the
said petition was allowed on 18.7.2011. Consequently, the Official
Liquidator was appointed to take possession of the assets of the
said company. Admittedly, appellant did not approach Company
Court either before or after winding up order seeking leave of the
Court for sale. After depositing 25% of sale price, the auction
purchaser could not pay the balance 75% of sale consideration
within the fifteenth day from the date of sale. It appears that the
auction purchaser, subsequent to the sale on 24.11.2010,
applied for grant of loan and pursuant thereto, the
appellant Bank sanctioned and granted loan to the said
auction purchaser on 7.1.2011. The balance 75% of sale
consideration was adjusted by the appellant Bank from that loan
account and thereafter sale certificate was issued on 18.01.2011.
The tender agreement and other documents connected with the
sale were sent to the Sub-Registrar, Halakundi Village, Bellary
District, Karnataka for registration. At this stage, the Official
Liquidator addressed a letter on 20.09.2011 to the said Sub-
Registrar, informing that the borrower company (the said company)
was wound up in the company petition being C.P. No.215 of 2010
and he was appointed Liquidator and requested the Sub-Registrar
not to register any document with regard to the properties of the
borrower. Because of the letter of the Official Liquidator, the Sub-
Registrar is alleged to have not taken steps, hence the appellant
Bank was constrained to file the above writ petition being W.P.
No.33655 of 2011 on 14.12.2011 for a direction to the Sub-
Registrar to register the sale certificate with regard to auction of the
said properties. Simultaneously, the appellant Bank also filed
Company Application being No.1972 of 2011 on 27.12.2011 for a
direction to the Official Receiver to clarify suitably with regard to
the mortgaged properties in his letter dated 20.09.2011 addressed
to the Sub-Registrar. While the matter stood thus, the auction
purchaser complained that the possession of the said properties
was not given and further there were dues claimed by several
authorities and that the property is not free from encumbrance. As
such, the auction purchaser avoided the sale and more so the
appellant Bank threatened the auction purchaser to treat the loan
account as Non Performing Asset. In this background, auction
purchaser filed W.P.No.19297 of 2012 on 26.6.2012 for the relief
claimed therein. Thereafter, the auction purchaser also filed
company application being C.A. No.421 of 2013 for setting aside
the sale alleging several irregularities, suppression of facts and
violation of Sections 531, 531A and 537 of the Companies Act. It
was further alleged that the properties are not properly valued and
the encumbrances were not disclosed and possession was not
delivered effectively. It was also asserted that there were several
claims of taxes etc., of a large sum of more than One crore and as
such the sale is liable to be set aside.
Thus, the aforesaid proceedings were brought in connection
with the aforesaid sale and the same were heard by the Honble
trial Judge analogously.
In these proceedings, the Official Liquidator appeared and
supported the stand taken by the auction purchaser and contended
that the entire sale is void as leave of the Company Court was not
obtained under Sections 446 and 537 and further, it was violative
of Sections 531 and 531A of the Companies Act. It is alleged that
the sale being void as it was done within six months before
commencement of the winding up of the said company under
Section 531 of the Companies Act. Effect of such sale is
fraudulent preference and accordingly invalid. It is also void under
Section 531A of the Companies Act. Therefore, the Official
Liquidator asserts he has every right to oppose the registration even
without asking for setting aside the sale, as it is void. SBI Global
contends that there was no proper and valid notification or
valuation of the property and since the winding up process has
been initiated by it, Indian Bank cannot claim any priority and the
sale should be declared void and invalid. Obviously, the appellant
denied all the allegations and claimed that after issuing
notification, sale was duly completed and auction purchaser
deposited the earnest money. Auction purchaser deposited 25% of
the consideration amount and as the auction purchaser has no
sufficient fund for payment of 75% of the balance consideration,
had applied for loan and the same was sanctioned and granted,
and out of loan amount 75% of consideration money was adjusted.
Thereafter the sale certificate was issued and possession was also
handed over to the auction purchaser. Thus the sale was
completed as registration of sale certificate or other document in
connection therewith is not mandatory requirement under law. It
is also contended that since the sale was conducted under the
SARFAESI Act, being a special and later enactment, inconsistent
provisions of the Companies Act, 1956 are overridden. In the
context of above contention and rival contention, the Honble trial
Judge formulated the following points for consideration to decide
the matter.
(1) Whether a valid sale has been conducted on behalf of the
Indian Bank by the Authorized Officer under SARFAESI Act?
(2) Whether the sale is void and fraudulent as contended by the
Official Liquidator (wrongly typed in the copy of the judgment
as Receiver)?
(3) Whether the sale is vitiated for several of the irregularities
raised by the auction purchaser and if so it is liable to be
set aside?
The Honble trial Judge held that the sale conducted by the
authorized officer is hit by the provisions of Sections 531, 531A &
537 of the Companies Act. It was held that since no leave of the
Court was obtained, as required under sub-section (b) of Section
537 of the Companies Act, the sale is void. It was also held that it
is an invalid sale as it was held within six months from the date of
presentation of winding up petition, and also under Section 531A
as the sale was held within a period of one year from the date of
presentation of winding up petition. That apart, the learned Trial
Judge held that the mandatory requirement for holding the sale as
provided under Rule 9 (1) (2) (3) (4) & (5) of the Rules framed under
the SARFAESI Act, having not been adhered to, the sale is also
invalid. Therefore, His Lordship set aside the same and the writ
petition (W.P.No.19297 of 2012) and company application (C.A.
No.421 of 2013) filed by the auction purchaser were allowed, and
the writ petition (W.P.No.33655 of 2011) and company application
(C.A. No.1972 of 2011) filed by the appellant were dismissed.
Sri S. Ravi, learned Senior Advocate, submits that the
provisions of the Companies Act, 1956, in particular Sections 442,
446 and 537 thereof, have no manner of application as the said
provisions have been ousted by virtue of the provisions of Section
35 of the SARFAESI Act, which is a later and special enactment as
the same are inconsistent with Section 13 of SARFAESI Act. Even
the provisions of Section 37 of this Act, saves amongst others, the
Companies Act, 1956, but not entirely but to the extent of
compatibility. He says provision of Section 13 of SARFAESI Act is
incompatible with above provision. While examining identical
provision being Section 34 of Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (hereinafter referred to as RDB
Act), the Supreme Court in the case of Allahabad Bank v.
Canara Bank and Rajasthan State Financial Corporation v.
Official Liquidator has ruled that in case of Special Legislation
like this, the provisions of Sections 442, 446 and 537 of Act 1956
stood ousted and that a person aggrieved by sale under the RDB
Act has to approach the Debts Recovery Tribunal and not the
Company Court.
Following the principle laid down by the Supreme Court, the
Delhi High Court in Kotak Mahindra Bank Ltd. v. Megnostar
Telecommunications Pvt. Ltd. and the Bombay High Court in
The Akola Oil Industries v. State Bank of India , while
examining the scope of SARFAESI Act, held that the provisions of
the SARFAESI Act will have overriding effect over the Companies
Act. It is candid to say, the Punjab and Haryana High Court has
taken a contrary view in Haryana State Industrial and
Infrastructure Development Corporation v. Haryana Concast
Ltd. . He also contends that provisos to Section 13(9) of the
SARFAESI Act provide internal evidence as to the extent to which
the provisions of the Companies Act are applicable to the
proceedings under the SARFAESI Act stands. The reference to the
Companies Act in Section 37 of the SARFAESI Act will not make
any difference. The right of a bank to sell without the intervention
of Court in terms of the provisions of Section 13(1) of the SARFAESI
Act would prevail over the provisions of Sections 446 and 537 of
Act 1956 in view of overriding effect of the SARFAESI Act as stated
in Section 35 therein. He contends with the support of judgment of
the Supreme Court in case of Jagdish Singh v. Heeralal &
others that sale held under SARFAESI Act can only be questioned
before Tribunal under DRT alone, Company Court has no
jurisdiction.
He also submits that Company Application No.421 of 2013 in
Company Petition No.215 of 2010 and Writ Petition No.19297 of
2012 filed by the auction purchaser are mala fide. The auction
purchaser after having accepted the conclusion of the sale and
having paid consideration money is estopped from setting up such
plea. He argues that the immovable property admittedly belonged
to the guarantors, who are private individuals, and the said
company has nothing to do with it. The movable properties
belonged to the company and were hypothecated to the appellant
bank and the subsequent hypothecation to SBI Global Factors
Limited does not invalidate the sale by the appellant.
Learned counsel for the Official Liquidator, while opposing
this appeal, contends that the contention of the appellant is un-
acceptable as the principle laid down by the Apex Court in
Allahabad Bank case (1 supra) does not apply as the Apex Court
in the said Case, looking into the provisions of the RDB and FI Act,
wherein the said Act was stated to be overriding Act 1956.
Therefore, the principle laid down therein has no manner of
application as the appellant bank has proceeded under the
SARFAESI Act and unlike in the DRT the consequential
proceedings of notice for default, attachment and sale are
conducted by an Authorized Officer appointed by Bank/Financial
Institution and not by a Tribunal as in DRT. An Authorized Officer
under the SARFAESI Act, being subordinate to a Presiding Officer
does not have equal rights and the act of Indian Bank is prone to
investigation or enquiry by the Honble Company Court. He
contends thus, Indian Banks right to proceed against the
companys assets does not subsist as it does not have a charge over
the same as per the provisions of Act 1956. He informs the Court
that till date the appellant Indian Bank has not filed any document
to prove their charge either before the Company Court or before
this Honble High Court and thus violated the provisions of Act
1956. He argues hypothetically that in case the land on which the
borrowers unit exists is the personal property of the borrower and
the relation and the title of the lands in question were mortgaged to
the bank by way of deposit of title deed, the other assets standing
on the land, such as buildings, plant & machinery, current assets,
furniture etc., are the exclusive properties of the company in
liquidation and as such the Indian Bank has no right under any
statute to proceed against the borrower company independently.
His further contention is that the appellant bank has violated
the provisions of Sections 441, 446, 531, 531(a) and 537 of Act
1956 and Section 37 and Rules 5, 6 and 8(6)(a) of SARFAESI Act.
He further contends, with the support of the judgment of the
Supreme Court in Sri Siddeswara Cooperative Bank Limited v.
Ikbal the appellant has also violated the provisions of Section
13(9) of the SARFAESI Act, inasmuch as there is no consent
between the parties - the purchaser, borrower and the secured
creditor. The sale is violative of the above provision because SBI
Global Factors Ltd., the other secured creditor, was not associated
by them while conducting the sale. That apart, the Official
Liquidator, who is also a secured creditor, since he represents the
workers, was also not associated with the sale conducted by the
Indian Bank. The balance amount of purchase price shall be paid
by the purchaser to the Authorized Officer on or before the fifteenth
day of confirmation of sale of the immovable property or within
such extended period as may be agreed upon in writing between
the parties. This would be clear from the provisions of Rule 9(4) of
the SARFAESI Act as the purchaser has remitted the sale
consideration or arranged to adjust the sale consideration after the
stipulated period. He complains that the appellant bank has also
grossly violated the provisions of Sections 531 and 537 of Act 1956
that clearly mandates that sales as affected by the parties
concerning the assets of the company in liquidation, as was done
by the Indian Bank, are hit by the provisions of Act 1956. Apart
from the judgment cited by him as above, he has placed reliance on
the following decisions.
(i) Rajasthan State Financial Corporation and another v.
Official Liquidator (2 supra)
(ii) Sri Siddeswara Cooperative Bank Ltd. v. Ikbal (7 supra)
(iii) Haryana State Industrial and Infrastructure Development
Corporation v. Haryana Concast Ltd. (5 supra)
Learned counsel for respondent No.1, namely the auction
purchaser, submits that the provisions of Act 1956 have full
application in view of the provisions of Section 37 of the SARFAESI
Act, which carves out, amongst others, the Companies Act found
mischief the provision of overriding in Section 35 of the SARFAESI
Act. According to him, if Sections 35 and 37 of the SARFAESI Act
are read together, it postulates that in the event any of the
provisions of Act 1956 not being inconsistent with the provisions of
the SARFAESI Act, the application of both the Acts should be
complementary to each other and both are in tandem. He says that
the Supreme Court decisions in Allahabad Bank case (1 supra)
and Rajasthan State Financial Corporation v. Official
Liquidator (2 supra) were rendered in the context of the provisions
of Section 34 of the RDB Act and the said Act overrides Act 1956 to
the extent there is anything inconsistent between the two Acts, and
the Company Courts jurisdiction is ousted.
(On close scrutiny of the two judgments of the Apex Court,
the point for consideration before this Honble Court is whether the
said judgment is applicable to the SARFAESI Act, or not?)
He contends that it is distinguishable for the reason, in the
RDB Act there is no protective coverage to the Companies Act
which could be found in Section 37 of the SARFAESI Act which
clearly mentioned the provisions of the SARFAESI Act are framed in
addition to the provisions of the Companies Act and not in
derogation thereof. In that context, the Honble Apex Court held
that the jurisdiction of the Company Court is ousted. He contends
that the provisions of the SARFAESI Act will not in any way nullify
or annul or impair the effect of the provisions of the Companies Act.
In this case, admittedly auction took place and bid was confirmed
on 29.09.2010 and the petition for winding up was presented
before the Company Court on 01.11.2011 and thus it is clear that
by the date of presentation of the said petition, sale was not even
concluded. Hence, as per Section 441 of the Companies Act,
winding up of a company by the Tribunal shall be deemed to
commence at the time of presentation of the petition for winding
up. Thus, the sale is subject to the provisions of Act 1956 from the
date of commencement of the winding up proceedings, i.e.,
1.11.2011 and as per Section 446(d) of Act 1956 any question
whatsoever, whether on law or fact, which may relate to or arise in
the course of the winding up of the company, the Company Court
has jurisdiction to entertain and dispose of the same and hence the
claim petition filed by the respondent auction purchaser is not
maintainable and the Company Court was right in declaring that
the said is void. He says that Section 537 of Act 1956 is mandatory
and not directory. The word used in the provision is shall, which
necessarily indicate mandatory character. Further, the very object
of the provisions relating to winding up are to protect and balance
the interest of various secured creditors, public dues and workmen
etc. If without leave of the Court, the assets of the company are
sold, the same will jeopardize the very object. On his part of legal
submissions, he has placed reliance on the following decisions:
(i) Mathew Varghese v. M. Amritha Kumar and others
(paragraphs 45 and 46 of the judgment)
(ii) Saharas case (para 66 of the judgment)
(iii) Bakemens Industries case (paras 40 & 76 of the
judgment)
Learned counsel for the SBI Global Factors Limited argues on
the same lines as has been argued by the learned counsel for the
Official Liquidator and opposes these appeals.
After hearing the learned counsel for the parties appearing
before us and taking note of the submissions and going through
the material, which have been produced before us, the following
questions have fallen for our consideration:
(1) Whether the sale of the mortgaged property owned by private
individuals can be brought before the learned Company
Judge or in Writ Court for scrutiny?
(2) Whether the Company Court can decide the question raised
with regard to the invalidity of sale in view of provisions of
the SARFAESI Act read with Recovery of Debts due to Banks
and Financial Institutions Act, 1993?
(3) Whether the provisions of Sections 531, 531A & 537 of the
Companies Act, 1956 have any manner of application with
regard to sale of securities conducted under the SARFAESI
Act?
(4) Whether the learned trial Judge was justified in entertaining
and deciding the writ petitions with regard to the alleged
irregularity and illegality in conducting sale on the basis of
material supplied under the provisions of SARFAESI Act and
the Rules framed thereunder?
While deciding the first issue, we need to examine what is the
factual aspect of the matter namely who is the owner and
mortgagor of the properties mortgaged.
In paragraph-12 (clauses A & B) of the counter-affidavit filed
by the appellant Bank in W.P. No.19297 of 2012 specifically stated
amongst others as follows:
Smt. P. Vara Prasada Raju and Smt P. Latha are the
guarantors to the loan facility availed by the said borrower. The
said loan facilities are secured by the following securities.
Sl.
No.
Description of the property
Nature of
Security
Name of the Mortgagor
1.
Ac.18-65 of Non Agricultural
lands situated at Halakundi of
Bellary Taluk and District,
Karantaka together with
structures constructed thereon
Mortgage
P. Latha
(Guarantor)
2.
Flat No.301, 3rd Floor, Bhawani
Towers, Plot Nos.1 & 2, Vengal
Rao Nagar, Hyderabad
Mortgage
P. Vara Prasada Raju
(Guarantor)
3.
Flat No.403, Vayuputhra
Towers, Premises bearing
No.482 of MIG-1, Premises
No.483 of MIG-1 of KPHB
Colony, Balanagar Mandal,
Hyderabad.
Mortgage
Smt. P. Latha
It was stated that the aforesaid mortgage as part of the
securities. The said couple who are the Directors of the said
company stood guarantors. It is further stated that the said
company failed to repay the loan amount as per the terms of
sanction and also loan documents and thus committed default in
repayment of dues to the Bank. Because of failure as above, the
said loan accounts were classified as Non Performing Asset
accounts and the appellant Bank, being secured creditor, as per
the provisions of SARFAESI Act, 2002, has invoked the provisions
of the said Act after following due process of law as contemplated
under the said Act and the Security Interest (Enforcement) Rules,
2002 has taken possession of the said properties and sold the
secured assets i.e., the above said hypothecated and mortgaged
properties.
In the affidavit in reply of the auction purchaser, while
dealing with the above statement of the appellant Bank, in
paragraph-7 made the following statement.
. the averments in paragraph 11 and 12 (A) to (E) of
counter-affidavit the facts borne out of record and hence
they do not need any reply. The 2nd respondent Bank in
these paragraphs narrated all the facts that led to filing of
various cases against the borrower, filing of writ petition
against the Sub-Registrar when he refused to register the
Sale Certificate issued in favour of petitioner Company
(auction purchaser) and various proceedings taken place
in Company Petition filed against M/s. Laran Sponge &
Minerals (P) Limited, and they are all matter of record.
Thus, there is no denial of fact that the two individual
persons may be Directors, are the owners of the immovable
properties mortgaged. However in reply affidavit itself and also in
the above writ petition has vaguely stated that the said land was
given to the company on lease till January, 2015. However, there is
no document to support the statement, as under the law lease is
required to be created by written registered document, in the
absence thereof we think that by virtue of the provisions of Section
17 read with Section 49 of the Registration Act, 1908 such
transaction is not admissible in evidence and need not be taken
into consideration.
Moreover, going by the provisions of Section 92 of the
Evidence Act, the fact which is required to be established by
document no oral evidence is admissible. It is also settled provision
of law under Section 102 of Evidence Act the burden of proof of any
fact rest on him who will fail if no evidence is brought. Under
these circumstances, here, we are unable to accept that the
company has got any interest in any of immovable properties which
have been mortgaged. These immovable properties exclusively
belong to two private individuals. This is pointed out in the
company application filed by the appellant and it will be clear from
the prayer portion thereof, which is stated hereunder:
this Honble Court may be pleased to direct the
Official Liquidator to clarify his communication dated
20.09.2011 to the Sub-Registrar, Halkundi Village, Bellary
District, Karnataka that the instructions given in the said
letter not to transfer, alienate, create any third party
charge over the property standing in the companys name
without the leave of the Honble High Court or until further
orders from his office are not applicable to the personal
immovable properties sold by the petitioner Bank relating
to the guarantors of the company namely Sri P. Varaprasad
Raju and Smt. P. Latha together with the plant and
machinery existing on the said properties
The impugned judgment was delivered dealing with not only
company applications but also the writ petitions. But whether
mortgaged securities can be brought for scrutiny before the
Company Judge or not is the question. On careful reading of the
entire judgment of His Lordship, we do not find that this issue was
at all addressed. It appears that His Lordship proceeded on the
basis that all the securities belonged to the company. It is settled
position of law that shareholders and directors stands separate
from the Company, as far as the legal status is concerned. We,
therefore, clarify and hold that the Company Court has no
jurisdiction in any manner whatsoever to deal with mortgaged
properties even assuming the contention raised by the auction
purchaser that the question of illegality and invalidity with regard
to sale, is correct. This is absolutely inherent lack of jurisdiction.
Therefore, we hold in exercise of jurisdiction under the Companies
Act finding and decision of the learned Trial Judge with regard to
mortgaged properties is without jurisdiction. The Company Court
is concerned with regard to the assets and properties of the
company in liquidation.
But this does not solve the problem as it appears that His
Lordship rendered the judgment not only entertaining above
company applications but also the writ petitions as well. On proper
scanning of the two proceedings brought by the auction purchaser,
it appears to us in the writ petition the auction purchaser
questions the right of the appellant Bank demanding the alleged
outstanding dues in connection with the loan transaction, granted
to the auction purchaser. It seems to us that the auction
purchaser has tried to correlate the loan transaction with
completion of sale of the secured properties. It is asserted that
since the sale is not valid and proper in view of the various
provisions under SARFAESI Act and the Rules framed thereunder,
there is no transfer of ownership and as such subsequent loan
transaction become redundant and illegal and adjustment of
consideration money from the loan account is consequently illegal
and invalid. In the company application filed by the auction
purchaser, it is asserted that in view of Sections 531, 531A & 537
of the Companies Act sale held become void and invalid. So, the
Honble trial judge by combining two questions decided the matter
with the reasoning given therein.
We deal with the jurisdiction of the company court in view of
the provisions of SARFAESI Act at the first instance. The
provisions of Sections 531, 531A & 537 are required to be
reproduced hereunder:
531. Fraudulent preference. (1) Any transfer of property,
movable or immovable, delivery of goods, payment, execution or
other act relating to property made, taken or done by or against a
company within six months before the commencement of its
winding up which, had it been made, taken or done by or against
an individual within three months before the presentation of an
insolvency petition on which he is adjudged insolvent, would be
deemed in his insolvency a fraudulent preference, shall in the
event of the company being wound up, be deemed a fraudulent
preference of its creditors and be invalid accordingly:
Provided that, in relation to things made, taken or done
before the commencement of this Act, this sub-section shall have
effect with the substitution, for the reference to six months, of a
reference to three months.
(2) For the purposes of sub-section (1), the presentation of a
petition for winding up by the Tribunal and the passing of a
resolution for winding up in the case of a voluntary winding up,
shall be deemed to correspond to the act of insolvency in the case
of an individual.
531A. Avoidance of voluntary transfer.- Any transfer of
property, movable or immovable, or any delivery of goods, made by
a company, not being a transfer or delivery made in the ordinary
course of its business or in favour of a purchaser or
encumbrancer in good faith and for valuable consideration, if
made within a period of one year before the presentation of a
petition for winding up by the tribunal or the passing of a
resolution for voluntary winding up of the company, shall be void
against the liquidator.
537. Avoidance of certain attachments, executions, etc., in
winding up by Tribunal.- (1) Where any company is being wound
up by the Tribunal--
(a) any attachment, distress or execution put in force,
without leave of the Tribunal against the estate or effects of
the company, after the commencement of the winding up;
or
(b) any sale held, without leave of the Tribunal, of any of the
properties or effects of the company after such
commencement, shall be void.
(2) Nothing in this section applies to any proceedings for the
recovery of any tax or impost or any dues payable to the
Government.
On reading of the aforesaid three Sections, it appears that
any transfer of assets of the company is effected in violation of
Sections 531 & 531A is void altogether incurably, but it is void
under Section 537 if it is done without leave of the Company Court.
Here, admittedly, no leave of the Company Court was obtained. In
this context, we examine the contentions of the learned Senior
Counsel Mr. S. Ravi that no leave is required, as jurisdiction of
Company Court is ousted in view of the provisions of Sections 13,
37 & 35 of the SARFAESI Act. We, therefore, set out the Sections
13 and 35 of the SARFAESI Act in connection with the said
submission.
13. Enforcement of security interest.-- (1) Notwithstanding
anything contained in section 69 or section 69A of the Transfer
of Property Act, 1882 (4 of 1882), any security interest created in
favour of any secured creditor any be enforced, without the
intervention of court or tribunal, by such creditor in accordance
with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured
creditor under a security agreement, makes any default in
repayment of secured debt or any instalment thereof, and his
account in respect of such debt is classified by the secured
creditor as non-performing asset, then, the secured creditor may
require, the borrower by notice in writing to discharge in full his
liabilities to the secured creditor within sixty days from the date
of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of
the amount payable by the borrower and the secured assets
intended to be enforced by the secured creditor in the event of
non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the
borrower makes any representation or raises any objection, the
secured creditor shall consider such representation or objection
and if the secured creditor comes to the conclusion that such
representation or objection is not acceptable or tenable, he shall
communicate within fifteen days of receipt of such
representation or objection the reasons for non-acceptance of the
representation or objection to the borrower:
Provided that the reasons so communicated or the likely
action of the secured creditor at the stage of communication of
reasons shall not confer any right upon the borrower to prefer an
application to the Debts Recovery Tribunal under section 17 or
the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured
creditor may take recourse to one or more of the following
measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment
or sale for realising the secured asset;
(b) take over the management of the secured assets of the
borrower including the right to transfer by way of lease,
assignment or sale and realise the secured asset:
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where the
substantial part of the business of the borrower is held as
security for the debt:
Provided further that where the management of whole of
the business or part of the business is severable, the
secured creditor shall take over the management of such
business of the borrower which is relatable to the security
for the debt.
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the possession of
which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who
has acquired any of the secured assets from the borrower
and from whom any money is due or may become due to
the borrower, to pay the secured creditor, so much of the
money as is sufficient to pay the secured debt.
(5) Any payment made by any person referred to in clause (d)
of sub-section (4) to the secured creditor shall give such person
a valid discharge as if he has made payment to the borrower.
(5-A) Where the sale of an immovable property, for which a
reserve price has been specified, has been postponed for want of
a bid of an amount not less than such reserve price, it shall be
lawful for any officer of the secured creditor, if so authorised by
the secured creditor in this behalf, to bid for the immovable
property on behalf of the secured creditor at any subsequent
sale.
(5B) Where the secured creditor, referred to in sub-section (5A),
is declared to be the purchaser of the immovable property at any
subsequent sale, the amount of the purchase price shall be
adjusted towards the amount of the claim of the secured creditor
for which the auction of enforcement of security interest is taken
by the secured creditor, under sub-section (4) of Section 13.
(5C) The provisions of section 9 of the Banking Regulation
Act, 1949 (10 of 1949) shall, as far as may be, apply to the
immovable property.
(6) Any transfer of secured asset after taking possession
thereof or take over of management under sub-section (4), by the
secured creditor or by the manager on behalf of the secured
creditors shall vest in the transferee all rights in, or in relation
to, the secured asset transferred as if the transfer had been
made by the owner of such secured asset.
(7) Where any action has been taken against a borrower under
the provisions of sub-section (4), all costs, charges and expenses
which, in the opinion of the secured creditor, have been properly
incurred by him or any expenses incidental thereto, shall be
recoverable from the borrower and the money which is received
by the secured creditor shall, in the absence of any contract to
the contrary, be held by him in trust, to be applied, firstly, in
payment of such costs, charges and expenses and secondly, in
discharge of the dues of the secured creditor and the residue of
the money so received shall be paid to the person entitled
thereto in accordance with his rights and interests.
(8) If the dues of the secured creditor together with all costs,
charges and expenses incurred by him are tendered to the
secured creditor at any time before the date fixed for sale or
transfer, the secured asset shall not be sold or transferred by the
secured creditor, and no further step shall be taken by him for
transfer or sale of that secured asset.
(9) In the case of financing of a financial asset by more than
one secured creditors or joint financing of a financial asset by
secured creditors, no secured creditor shall be entitled to
exercise any or all of the rights conferred on him under or
pursuant to sub-section (4) unless exercise of such right is
agreed upon by the secured creditors representing not less than
sixty per cent in value of the amount outstanding as on a record
date and such action shall be binding on all the secured
creditors.
Provided that in the case of a company in liquidation, the
amount realised from the sale of secured assets shall be
distributed in accordance with the provisions of section 529A of
the Companies Act, 1956 (1 of 1956):
Provided further that in the case of a company being
wound up on or after the commencement of this Act, the secured
creditor of such company, who opts to realise his security
instead of relinquishing his security and proving his debt under
proviso to sub-section (1) of section 529 of the Companies Act,
1956 (1 of 1956), may retain the sale proceeds of his secured
assets after depositing the workmen's dues with the liquidator in
accordance with the provisions of Section 529A of that Act:
Provided also that the liquidator referred to in the second
proviso shall intimate the secured creditors the workmen's dues
in accordance with the provisions of section 529A of the
Companies Act, 1956 (1 of 1956) and in case such workmen's
dues cannot be ascertained, the liquidator shall intimate the
estimated amount of workmen's dues under that section to the
secured creditors and in such case the secured creditor may
retain the sale proceeds of the secured assets after depositing
the amount of such estimated dues with the liquidator:
Provided also that in case the secured creditor deposits
the estimated amount of workmen's dues, such creditor shall be
liable to pay the balance of the workmen's dues or entitled to
receive the excess amount, if any, deposited by the secured
creditor with the liquidator:
Provided also that the secured creditor shall furnish an
undertaking to the liquidator to pay the balance of the
workmen's dues, if any.
Explanation:- For the purposes of this sub-section,-
(a) "record date" means the date agreed upon by the secured
creditors representing not less than sixty per cent in value of the
amount outstanding on such date;
(b) "amount outstanding" shall include principal, interest and
any other dues payable by the borrower to the secured creditor
in respect of secured asset as per the books of account of the
secured creditor.
(10) Where dues of the secured creditor are not fully satisfied
with the sale proceeds of the secured assets, the secured creditor
may file an application in the form and manner as may be
prescribed to the Debts Recovery Tribunal having jurisdiction or
a competent court, as the case may be, for recovery of the
balance amount from the borrower.
(11) Without prejudice to the rights conferred on the secured
creditor under or by this section, the secured creditor shall be
entitled to proceed against the guarantors or sell the pledged
assets without first taking any of the measures specified in
clauses (a) to (d) of sub-section (4) in relation to the secured
assets under this Act.
(12) The rights of a secured creditor under this Act may be
exercised by one or more of his officers authorised in this behalf
in such manner as may be prescribed.
(13) No borrower shall, after receipt of notice referred to in sub-
section (2), transfer by way of sale, lease or otherwise (other than
in the ordinary course of his business) any of his secured assets
referred to in the notice, without prior written consent of the
secured creditor.
35. The provisions of this Act to override other laws.-- The
provisions of this Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force or any instrument having effect by virtue of any
such law.
Section 35 of the SARFAESI Act, no doubt, provides for
overriding effect over other Acts which were in force on the date of
commencement of the Act to the extent of inconsistency. We think
that it would be unjust if we do not read and take into
consideration of Section 37 of the SARFAESI Act, which is set out
hereunder.
37. Application of other laws not barred.- The provisions of
this Act or the rules made thereunder shall be in addition to,
and not in derogation of, the Companies Act, 1956 (1 of 1956),
the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the
Securities and Exchange Board of India Act, 1992 (15 of 1992),
the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 (51 of 1993) or any other law for the time being in
force.
A reading of Section 37 of the Act above makes apparently
clear that the provisions of the Companies Act also are saved. We
think in this context reading both the Sections 35 and 37 of
SARFAESI Act harmonized interpretation to get true import and
effect, is to be given. According to us, the provisions of the
Companies Act under Section 37 above are saved to the extent of
consistency with the provisions of the SARFAESI Act. In other
words, any of the provisions of the SARFAESI Act expressly run
counter to the provisions of the Companies Act, the provisions of
SARFAESI Act will prevail over the Companies Act because it is
special and later legislation. It is settled position of law by the
Honble Supreme Court that subsequent special legislation
overrides general legislation in the same field or in case of
inconsistency.
In the case of Allahabad Bank case (1 supra) the Supreme
Court while examining the scope of the provisions of Recovery of
Debts due to Banks and Financial Institutions Act, 1993 held that
it being subsequent legislation and being a special law which would
prevail over the general law namely the Companies Act, 1956. The
language of Section 34 of the RDB Act is almost similar to that of
the SARFAESI Act. The only distinguishing feature is that the
provisions of Companies Act was not saved at all therein as it will
appear from sub-section (2) of Section 34 of the RDB Act.
It will appear from Section 34 of the SARFAESI Act the
jurisdiction of the civil court has been ousted absolutely in respect
of any matter which a Debts Recovery Tribunal or the Appellate
Tribunal is empowered by or under this Act to determine. It will
appear from Section 17 of the SARFAESI Act that any person
(including borrower), aggrieved by any of the measures referred to
in sub-section (4) of Section 13 taken by this secured creditor or
his authorized officer under this Chapter may make application to
the Debts Recovery Tribunal having jurisdiction in the matter
within forty-five days from the date on which such measures had
been taken. If aforesaid provision of sub-section (1) of Section 17
is read with Section 34, it would be clear that the Civil Court
has no jurisdiction to entertain any move to challenge the action
of secured creditor under this Act. A fairly recent decision of the
Supreme Court in the case of Official Liquidator, U.P. and
Uttarakhand v. Allahabad Bank and others ruled in
paragraph-35 of the report as follows.
35. It has been submitted by Mr Banerji, learned Senior
Counsel, that if the Company Court as well as DRT can exercise
jurisdiction in respect of the same auction or sale after
adjudication by DRT, there would be duality of exercise of
jurisdiction which the RDB Act does not envisage. By way of an
example, the learned Senior Counsel has submitted that there
are some categories of persons who can go before DRT
challenging the sale and if the Official Liquidator approaches the
Company Court, then such a situation would only bring anarchy
in the realm of adjudication. The aforesaid submission of the
learned Senior Counsel commends acceptance as the
intendment of the legislature is that the dues of the banks
and financial institutions are realised in promptitude. It is
to be noted that when there is inflation in the economy, the
value of the mortgaged property/assets depreciates with
the efflux of time. If more time is consumed, it would be
really difficult on the part of the banks and financial
institutions to realise their dues. Therefore, this Court in
Allahabad Bank case has opined that it is DRT which
would have the exclusive jurisdiction when a matter is
agitated before DRT. The dictum in the said case has been
approved by the three-Judge Bench in Rajasthan State
Financial Corpn. It is not a situation where the Official
Liquidator can have a choice either to approach DRT or the
Company Court. The language of the RDB Act, being clear,
provides that any person aggrieved can prefer an appeal.
The Official Liquidator whose association is mandatorily
required can indubitably be regarded as a person aggrieved
relating to the action taken by the Recovery Officer which
would include the manner in which the auction is
conducted or the sale is confirmed. Under these
circumstances, the Official Liquidator cannot even take
recourse to the doctrine of election. It is difficult to
conceive that there are two remedies. It is well settled in
law that if there is only one remedy, the doctrine of
election does not apply and we are disposed to think that
the Official Liquidator has only one remedy i.e. to
challenge the order passed by the Recovery Officer before
DRT. Be it noted, an order passed under Section 30 of the
RDB Act by DRT is appealable. Thus, we are inclined to
conclude and hold that the Official Liquidator can only
take recourse to the mode of appeal and further appeal
under the RDB Act and not approach the Company Court to
set aside the auction or confirmation of sale when a sale
has been confirmed by the Recovery Officer under the RDB
Act.
(emphasis supplied)
Again the Apex Court in case of Jagdish Singh v. Heeralal
(6 supra) observed in paragraph 24 of the report as proposition of
law as follows:
Any person aggrieved by any of the
measures referred to in sub-section (4) of Section 13 has got a
statutory right of appeal to the DRT under Section 17. The
opening portion of Section 34 clearly states that no civil court
shall have the jurisdiction to entertain any suit or proceeding in
respect of any matter which a DRT or an Appellate Tribunal is
empowered by or under the Securitisation Act to determine. The
expression in respect of any matter referred to in Section 34
would take in the measures provided under sub-section (4) of
Section 13 of the Securitisation Act. Consequently, if any
aggrieved person has got any grievance against any measures
taken by the borrower under sub-section (4) of Section 13, the
remedy open to him is to approach the DRT or the Appellate
Tribunal and not the civil court. The civil court in such
circumstances has no jurisdiction to entertain any suit or
proceedings in respect of those matters which fall under sub-
section (4) of Section 13 of the Securitisation Act because those
matters fell within the jurisdiction of the DRT and the Appellate
Tribunal. Further, Section 35 says, the Securitisation Act
overrides other laws, if they are inconsistent with the provisions of
that Act, which takes in Section 9 CPC as well.
Noting above pronouncement, we are of considered opinion
when the legislature intends legality and validity of sale under the
provisions of Section 13 of SARFAESI Act has to be brought for
scrutiny before the Debts Recovery Tribunal, by virtue of Section 17
of SARFAESI Act the jurisdiction of the company court cannot be
inferred to have been conferred rather by necessary implication, the
same is held to be ousted. It is true that Section 34 mentioned the
words Civil Court (not apparently company court), but in our view
after winding up order is passed by virtue of the provisions of
Section 446 (2) of the Companies Act, the Company Court
exercises jurisdiction of the civil court. So, essentially, the
company court becomes civil court. What is important is not the
nomenclature of the Court, but power and functions exercised by
that Court. In view of discussions above, accepting argument of
Mr. S.Ravi and rejecting contention of the learned counsel for the
respondent and Official Liquidator, we hold that the company court
has no jurisdiction to deal with the issues arising out of action of
secured creditor under Section 13 of SARFAESI Act.
But, in this case, the learned trial Judge has not only
exercised jurisdiction of the company court but also that of writ
court. No one can debate now that writ court has jurisdiction
within its own power as enshrined in Articles 226 & 227 of the
Constitution of India to entertain any dispute and it cannot be
taken away by way of simple legislation.
Now, we examine the third question. We have already
discussed that to the extent of inconsistency provision of SARFAESI
Act will prevail over Companies Act. We examine whether there has
been apparently inconsistent provision for taking action by the
secured creditor in this Act vis--vis Companies Act. It will appear
from Section 13 (1), as quoted above, it clearly provides that
without intervention of the Court or Tribunal action can be taken
for sale of securities, whereas the provisions of Section 537 of
Companies Act requires leave of Company Court. We, accordingly,
hold this is apparent inconsistency in two competing provisions in
two different Acts on the same subject. Similar view is expressed
by the Division Bench of the Bombay High Court in case of The
Akola Oil Industries (under liquidation) through Official
Liquidator v. State Bank of India (4 supra). Therefore, the
provisions of SARFAESI Act will prevail over the provisions of
Section 537 of the Companies Act to the extent of inconsistency.
We, accepting contention of Mr. S. Ravi, hold that no leave is
required under Section 537 of the Companies Act, moreover
jurisdiction of the Company Court is also ousted as discussed
above.
Next, the question appears to us whether the provisions of
Section 531 & 531A of the Companies Act will be applied or not in
this case.
We have already held to the extent of inconsistency provision
of the Companies Act are to be overlooked. For this, we have to
examine the provisions of sub-sections (4) & (6) of Section 13 of the
SARFAESI Act to find element of inconsistency on this issue. These
provisions are set out hereunder:
13. Enforcement of security interest.
(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured
creditor may take recourse to one or more of the following
measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment
or sale for realising the secured asset;
(b) take over the management of the secured assets of the
borrower including the right to transfer by way of lease,
assignment or sale and realise the secured asset;
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where the
substantial part of the business of the borrower is held as
security for the debt:
Provided further that where the management of whole of
the business or part of the business is severable, the
secured creditor shall take over the management of such
business of the borrower which is relatable to the security
for the debt.
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the possession of
which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who
has acquired any of the secured assets from the borrower
and from whom any money is due or may become due to
the borrower, to pay the secured creditor, so much of the
money as is sufficient to pay the secured debt.
(emphasis supplied)
(6) Any transfer of secured asset after taking possession
thereof or take over of management under sub-section (4), by the
secured creditor or by the manager on behalf of the secured
creditors shall vest in the transferee all rights in, or in relation
to, the secured asset transferred as if the transfer had been
made by the owner of such secured asset.
(emphasis supplied)
It is clear from sub-section (6) the moment action taken
under sub-section (4) by the secured creditor or any manager on
his behalf of the secured creditor for transfer all rights shall vest in
the transferee in relation to the secured assets. In other words, if
action taken under Section 13 (4) is found to be lawful and valid
in accordance with SARFAESI Act, no other legal provision can
invalidate it. Whereas Sections 531 & 531A provide otherwise if
any transfer including sale is effected in violation thereof the same
is invalid and void. Thus it appears that there has been glaring
inconsistency naturally, we are constrained to hold that the
provisions of Sections 531 & 531A have no manner of application
and the same do not apply in case of valid sale undertaken under
the SARFAESI Act and the Rules framed thereunder. Besides we
fail to comprehend how Section 531A is applicable carefully reading
the same on fact in this case. In order to apply this section, three
factual conditions must be satisfied viz., (i) transfer must be by the
company (ii) it must be voluntary (iii) such transfer must be within
one year before presentation of winding up petition. In this case
admittedly transfer is not made by company not even on behalf of
the company, but by secured creditor, appellant herein, by virtue of
power coupled with right under sub-section (4) of Section 13 of the
SARFAESI Act. This could have been decided by the Debts
Recovery Tribunal itself since writ court has decided on the
admitted fact. Thus the decision of the Honble trial judge while
applying the aforesaid provisions in the instant sale without
examining the implications of sub-sections (1), (4) & (6) of Section
13 of SARFAESI Act at all, is unacceptable legally. We accordingly
overrule these findings and decisions in this regard.
Other decisions cited by various learned counsel in our view
are of no help. These decisions are rendered on different issues as
discussed hereunder.
In the case of Pravin Gada v. Central Bank of India the
Supreme Court accepting earlier decisions of the Supreme Court
held in paragraph 18 of the report.
A Debts 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.
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 creditor
concerned is to approach the Company Court for
appropriate directions regarding the realisation of its
securities consistent with the relevant provisions of the
Companies Act regarding distribution of the assets of the
company-in-liquidation.
In case of Kotak Mahindra Bank Limited v. Megnostar
Telecommunications Private Limited (3 supra) Delhi High Court
did not deal with applicability of Sections 531, 531A and 537 of
the Companies Act in view of provisions of SARFAESI Act, however
dwelt upon applicability of Sections 529 and 529A of Companies
Act. While doing so it was held amongst others that sale proceeds
fetched by sale under this Act are subject to the claims, if any,
under Sections 529 and 529A of the Companies Act.
Punjab and Haryana High Court in case of Haryana State
Industrial and Infrastructure Development Company v.
Haryana Concast Limited & another (5 supra) while examining
legal implication of provision of Sections 13 (4), 9, 35 of SARFAESI
Act vis--vis Section 529A of Companies Act held that there is no
inconsistency of the provision of Section 13 of SARFAESI Act with
Sections 529 and 529A of the Companies Act, 1956 as by the
proviso in sub-section (9) of Section 13 above two sections of the
Companies Act are saved.
In an unreported decision of the learned Single Judge of this
Court in the matter of M/s. Pioneer Alloy Casting Limited (in
liquidation) on C.A. No.525 of 2012, no legal ratio is to be found.
His Lordship following judgment of the Supreme Court and those of
other High Courts granted relief.
Now, the fourth question is whether the sale can be held
invalid because of the alleged non-compliance of the mandatory
provisions of the Rules framed under the SARFAESI Act.
The learned trial Judge himself has noted that there is not
enough material to examine the allegations made by the writ
petitioners and countered by the appellant. In spite of noting this
fact, the learned trial Judge thought that it should be decided and
so decided. We are of the view that all materials namely
advertisement, conditions of sale and other things are not produced
before us also. Therefore we do not like to decide this issue
conclusively nor do we accept such decision of the learned Trial
Judge in absence of such materials and also for the reasons stated
hereunder.
The learned trial Judge has not rendered any findings as to
whether the loan granted to the auction purchaser subsequent to
the auction being held are correlated to sale of the securities. In
other words, whether repayment of the loan is dependent upon
lawful and valid completion of sale held by the appellant under the
SARFAESI Act. It is the contention of the auction purchaser that
since sale was not valid nor complete, so also sale certificate issued
in the context of the provisions of the Companies Act as well as the
provisions of the Rules 7, 8 & 9 framed under the SARFAESI Act
adjustment of balance consideration amount against loan amount
is illegal. His Lordship with respect without deciding this issue
granted relief as prayed for to the auction purchaser in the writ
petition. Whether the demand of the Bank for repayment of loan
after adjustment of the sale consideration money is lawful or not,
whether the same have been linked with the sale and whether the
sale under the law is complete or not, or whether the auction
purchaser can back out after bidding and offering to pay price for
sale by depositing 25% of the same, all these questions are required
to be decided in great detail.
The learned trial Judge by necessary implication proceeded
assuming that the loan transaction between the appellant and the
auction purchaser are having correlation with the completion of
sale namely handing over possession of the property and payment
of balance sale consideration money. We think that this approach
in exercise of writ jurisdiction is absolutely unwarranted and the
writ petitions should not have been entertained at all. It is not a
pure question of law on admitted fact. All the questions and
controversy are disputed questions of fact and law and could not be
decided in writ jurisdiction. Hence we hold that granting relief to
the auction purchaser as prayed for in the writ petition is not
sustainable under the law. Therefore, we set aside the same and
dismiss the writ petitions leaving all questions open. It would be
open for the auction purchaser to approach the Debts Recovery
Tribunal so also Official Liquidator or any other claimant.
These Appeals are accordingly allowed. There will be no order
as to costs.
Consequently, pending miscellaneous petitions, if any, shall
also stand closed.
_______________________
Kalyan Jyoti Sengupta, CJ
_______________
Sanjay Kumar, J
Dt. 11.11.2014
Writ Appeal Nos.1420 of 2013 and and batch
11-11-2014
Indian Bank Main Branch Bank Street Koti, Hyderabad Rep. by its Dy. General
Manager & Authorized Officer Appellant
The Sub Registrar Sub-Registrar Office Makundi Village Bellary District
Karnataka and others Respondents
!COUNSEL FOR APPEALLANT : Sri S. Ravi, Senior Counsel,
for Sri Ambadipudi Satyanarayana
COUNSEL FOR RESPONDENT NOs.1, 2 and 4: Government Pleader for
Revenue
COUNSEL FOR RESPONDENT NO.3 : Sri M. Anil Kumar
<GIST:
>HEAD NOTE:
? CITATIONS: 1. (2000) 4 SCC 406
2. (2005) 8 SCC 190
3. (2013) 176 Company Cases 246 (Delhi)
4. 2006 (1) Bom. CR. 362
5. (2010) 158 Company Cases 168
6. (2014) 1 SCC 479
7. (2013) 10 SCC 83
8. (2014) 5 SCC 610
9. (2013) 1 SCC 1
10. (2008) 15 SCC 1
11. (2013) 4 SCC 381
12. (2013) 2 SCC 101
THE HONBLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA
AND
THE HONBLE SRI JUSTICE SANJAY KUMAR
WRIT APPEAL NOs.1420 & 1424 of 2013
and
O.S.A NOs.34 & 35 of 2013
COMMON JUDGMENT: (Per the Honble The Chief Justice Sri Kalyan Jyoti Sengupta)
All the four appeals are taken up for hearing analogously for
the sake of convenience as they owe origin to common judgment
and order passed by the Honble trial Judge, dated 29.4.2013, in
Writ Petition Nos.19297 of 2012 & 33655 of 2011, and Company
Application Nos.1972 of 2011 & 421 of 2013 in Company Petition
No.215 of 2010.
All these appeals are preferred by the Indian Bank, a secured
creditor of a company - M/s. Laran Sponge & Minerals Private
Limited now in liquidation (hereinafter referred to as the said
Company). The facts leading to preferring the appeals are shortly
put hereunder:
The said company availed itself of various credit facilities from
the appellant Bank and in consideration thereof it hypothecated its
plant and machinery and other movables as securities therefor.
Apart from the above securities, one Smt. P. Latha and one Sri
P. Vara Prasada Raju, who are the Directors of the said company,
stood guarantors for repayment of dues of the appellant. They
mortgaged their immovable properties viz., large plot non-
agricultural land situated in the State of Karnataka and two flats in
Hyderabad. As there has been default in repayment of the loan
amount by the said company to the appellant, the loan accounts
were classified as Non Performing Asset (NPA). Accordingly, the
appellant Bank under the provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (hereinafter referred to as SARFAESI Act) took
possession of the said securities followed by notification for sale of
both mortgaged and hypothecated properties issued by the
Authorized Officer of the appellant bank on 28th August, 2011.
One M/s. United Steel Allied Industries Private Limited (hereinafter
referred to as auction purchaser) who is the 1st respondent in
W.A. No.1424 of 2013 and O.S.A. No.34 of 2013 participated in the
auction on 29.9.2010 and came to be declared as the highest
bidder. Accordingly, auction purchaser, in terms of the conditions
of sale, deposited 25% of the sale price. On 1.11.2010, one M/s.
SBI Global Factors Limited, being another secured creditor, filed
company petition being C.P.No.215 of 2010 for winding up, and the
said petition was allowed on 18.7.2011. Consequently, the Official
Liquidator was appointed to take possession of the assets of the
said company. Admittedly, appellant did not approach Company
Court either before or after winding up order seeking leave of the
Court for sale. After depositing 25% of sale price, the auction
purchaser could not pay the balance 75% of sale consideration
within the fifteenth day from the date of sale. It appears that the
auction purchaser, subsequent to the sale on 24.11.2010,
applied for grant of loan and pursuant thereto, the
appellant Bank sanctioned and granted loan to the said
auction purchaser on 7.1.2011. The balance 75% of sale
consideration was adjusted by the appellant Bank from that loan
account and thereafter sale certificate was issued on 18.01.2011.
The tender agreement and other documents connected with the
sale were sent to the Sub-Registrar, Halakundi Village, Bellary
District, Karnataka for registration. At this stage, the Official
Liquidator addressed a letter on 20.09.2011 to the said Sub-
Registrar, informing that the borrower company (the said company)
was wound up in the company petition being C.P. No.215 of 2010
and he was appointed Liquidator and requested the Sub-Registrar
not to register any document with regard to the properties of the
borrower. Because of the letter of the Official Liquidator, the Sub-
Registrar is alleged to have not taken steps, hence the appellant
Bank was constrained to file the above writ petition being W.P.
No.33655 of 2011 on 14.12.2011 for a direction to the Sub-
Registrar to register the sale certificate with regard to auction of the
said properties. Simultaneously, the appellant Bank also filed
Company Application being No.1972 of 2011 on 27.12.2011 for a
direction to the Official Receiver to clarify suitably with regard to
the mortgaged properties in his letter dated 20.09.2011 addressed
to the Sub-Registrar. While the matter stood thus, the auction
purchaser complained that the possession of the said properties
was not given and further there were dues claimed by several
authorities and that the property is not free from encumbrance. As
such, the auction purchaser avoided the sale and more so the
appellant Bank threatened the auction purchaser to treat the loan
account as Non Performing Asset. In this background, auction
purchaser filed W.P.No.19297 of 2012 on 26.6.2012 for the relief
claimed therein. Thereafter, the auction purchaser also filed
company application being C.A. No.421 of 2013 for setting aside
the sale alleging several irregularities, suppression of facts and
violation of Sections 531, 531A and 537 of the Companies Act. It
was further alleged that the properties are not properly valued and
the encumbrances were not disclosed and possession was not
delivered effectively. It was also asserted that there were several
claims of taxes etc., of a large sum of more than One crore and as
such the sale is liable to be set aside.
Thus, the aforesaid proceedings were brought in connection
with the aforesaid sale and the same were heard by the Honble
trial Judge analogously.
In these proceedings, the Official Liquidator appeared and
supported the stand taken by the auction purchaser and contended
that the entire sale is void as leave of the Company Court was not
obtained under Sections 446 and 537 and further, it was violative
of Sections 531 and 531A of the Companies Act. It is alleged that
the sale being void as it was done within six months before
commencement of the winding up of the said company under
Section 531 of the Companies Act. Effect of such sale is
fraudulent preference and accordingly invalid. It is also void under
Section 531A of the Companies Act. Therefore, the Official
Liquidator asserts he has every right to oppose the registration even
without asking for setting aside the sale, as it is void. SBI Global
contends that there was no proper and valid notification or
valuation of the property and since the winding up process has
been initiated by it, Indian Bank cannot claim any priority and the
sale should be declared void and invalid. Obviously, the appellant
denied all the allegations and claimed that after issuing
notification, sale was duly completed and auction purchaser
deposited the earnest money. Auction purchaser deposited 25% of
the consideration amount and as the auction purchaser has no
sufficient fund for payment of 75% of the balance consideration,
had applied for loan and the same was sanctioned and granted,
and out of loan amount 75% of consideration money was adjusted.
Thereafter the sale certificate was issued and possession was also
handed over to the auction purchaser. Thus the sale was
completed as registration of sale certificate or other document in
connection therewith is not mandatory requirement under law. It
is also contended that since the sale was conducted under the
SARFAESI Act, being a special and later enactment, inconsistent
provisions of the Companies Act, 1956 are overridden. In the
context of above contention and rival contention, the Honble trial
Judge formulated the following points for consideration to decide
the matter.
(1) Whether a valid sale has been conducted on behalf of the
Indian Bank by the Authorized Officer under SARFAESI Act?
(2) Whether the sale is void and fraudulent as contended by the
Official Liquidator (wrongly typed in the copy of the judgment
as Receiver)?
(3) Whether the sale is vitiated for several of the irregularities
raised by the auction purchaser and if so it is liable to be
set aside?
The Honble trial Judge held that the sale conducted by the
authorized officer is hit by the provisions of Sections 531, 531A &
537 of the Companies Act. It was held that since no leave of the
Court was obtained, as required under sub-section (b) of Section
537 of the Companies Act, the sale is void. It was also held that it
is an invalid sale as it was held within six months from the date of
presentation of winding up petition, and also under Section 531A
as the sale was held within a period of one year from the date of
presentation of winding up petition. That apart, the learned Trial
Judge held that the mandatory requirement for holding the sale as
provided under Rule 9 (1) (2) (3) (4) & (5) of the Rules framed under
the SARFAESI Act, having not been adhered to, the sale is also
invalid. Therefore, His Lordship set aside the same and the writ
petition (W.P.No.19297 of 2012) and company application (C.A.
No.421 of 2013) filed by the auction purchaser were allowed, and
the writ petition (W.P.No.33655 of 2011) and company application
(C.A. No.1972 of 2011) filed by the appellant were dismissed.
Sri S. Ravi, learned Senior Advocate, submits that the
provisions of the Companies Act, 1956, in particular Sections 442,
446 and 537 thereof, have no manner of application as the said
provisions have been ousted by virtue of the provisions of Section
35 of the SARFAESI Act, which is a later and special enactment as
the same are inconsistent with Section 13 of SARFAESI Act. Even
the provisions of Section 37 of this Act, saves amongst others, the
Companies Act, 1956, but not entirely but to the extent of
compatibility. He says provision of Section 13 of SARFAESI Act is
incompatible with above provision. While examining identical
provision being Section 34 of Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (hereinafter referred to as RDB
Act), the Supreme Court in the case of Allahabad Bank v.
Canara Bank and Rajasthan State Financial Corporation v.
Official Liquidator has ruled that in case of Special Legislation
like this, the provisions of Sections 442, 446 and 537 of Act 1956
stood ousted and that a person aggrieved by sale under the RDB
Act has to approach the Debts Recovery Tribunal and not the
Company Court.
Following the principle laid down by the Supreme Court, the
Delhi High Court in Kotak Mahindra Bank Ltd. v. Megnostar
Telecommunications Pvt. Ltd. and the Bombay High Court in
The Akola Oil Industries v. State Bank of India , while
examining the scope of SARFAESI Act, held that the provisions of
the SARFAESI Act will have overriding effect over the Companies
Act. It is candid to say, the Punjab and Haryana High Court has
taken a contrary view in Haryana State Industrial and
Infrastructure Development Corporation v. Haryana Concast
Ltd. . He also contends that provisos to Section 13(9) of the
SARFAESI Act provide internal evidence as to the extent to which
the provisions of the Companies Act are applicable to the
proceedings under the SARFAESI Act stands. The reference to the
Companies Act in Section 37 of the SARFAESI Act will not make
any difference. The right of a bank to sell without the intervention
of Court in terms of the provisions of Section 13(1) of the SARFAESI
Act would prevail over the provisions of Sections 446 and 537 of
Act 1956 in view of overriding effect of the SARFAESI Act as stated
in Section 35 therein. He contends with the support of judgment of
the Supreme Court in case of Jagdish Singh v. Heeralal &
others that sale held under SARFAESI Act can only be questioned
before Tribunal under DRT alone, Company Court has no
jurisdiction.
He also submits that Company Application No.421 of 2013 in
Company Petition No.215 of 2010 and Writ Petition No.19297 of
2012 filed by the auction purchaser are mala fide. The auction
purchaser after having accepted the conclusion of the sale and
having paid consideration money is estopped from setting up such
plea. He argues that the immovable property admittedly belonged
to the guarantors, who are private individuals, and the said
company has nothing to do with it. The movable properties
belonged to the company and were hypothecated to the appellant
bank and the subsequent hypothecation to SBI Global Factors
Limited does not invalidate the sale by the appellant.
Learned counsel for the Official Liquidator, while opposing
this appeal, contends that the contention of the appellant is un-
acceptable as the principle laid down by the Apex Court in
Allahabad Bank case (1 supra) does not apply as the Apex Court
in the said Case, looking into the provisions of the RDB and FI Act,
wherein the said Act was stated to be overriding Act 1956.
Therefore, the principle laid down therein has no manner of
application as the appellant bank has proceeded under the
SARFAESI Act and unlike in the DRT the consequential
proceedings of notice for default, attachment and sale are
conducted by an Authorized Officer appointed by Bank/Financial
Institution and not by a Tribunal as in DRT. An Authorized Officer
under the SARFAESI Act, being subordinate to a Presiding Officer
does not have equal rights and the act of Indian Bank is prone to
investigation or enquiry by the Honble Company Court. He
contends thus, Indian Banks right to proceed against the
companys assets does not subsist as it does not have a charge over
the same as per the provisions of Act 1956. He informs the Court
that till date the appellant Indian Bank has not filed any document
to prove their charge either before the Company Court or before
this Honble High Court and thus violated the provisions of Act
1956. He argues hypothetically that in case the land on which the
borrowers unit exists is the personal property of the borrower and
the relation and the title of the lands in question were mortgaged to
the bank by way of deposit of title deed, the other assets standing
on the land, such as buildings, plant & machinery, current assets,
furniture etc., are the exclusive properties of the company in
liquidation and as such the Indian Bank has no right under any
statute to proceed against the borrower company independently.
His further contention is that the appellant bank has violated
the provisions of Sections 441, 446, 531, 531(a) and 537 of Act
1956 and Section 37 and Rules 5, 6 and 8(6)(a) of SARFAESI Act.
He further contends, with the support of the judgment of the
Supreme Court in Sri Siddeswara Cooperative Bank Limited v.
Ikbal the appellant has also violated the provisions of Section
13(9) of the SARFAESI Act, inasmuch as there is no consent
between the parties - the purchaser, borrower and the secured
creditor. The sale is violative of the above provision because SBI
Global Factors Ltd., the other secured creditor, was not associated
by them while conducting the sale. That apart, the Official
Liquidator, who is also a secured creditor, since he represents the
workers, was also not associated with the sale conducted by the
Indian Bank. The balance amount of purchase price shall be paid
by the purchaser to the Authorized Officer on or before the fifteenth
day of confirmation of sale of the immovable property or within
such extended period as may be agreed upon in writing between
the parties. This would be clear from the provisions of Rule 9(4) of
the SARFAESI Act as the purchaser has remitted the sale
consideration or arranged to adjust the sale consideration after the
stipulated period. He complains that the appellant bank has also
grossly violated the provisions of Sections 531 and 537 of Act 1956
that clearly mandates that sales as affected by the parties
concerning the assets of the company in liquidation, as was done
by the Indian Bank, are hit by the provisions of Act 1956. Apart
from the judgment cited by him as above, he has placed reliance on
the following decisions.
(i) Rajasthan State Financial Corporation and another v.
Official Liquidator (2 supra)
(ii) Sri Siddeswara Cooperative Bank Ltd. v. Ikbal (7 supra)
(iii) Haryana State Industrial and Infrastructure Development
Corporation v. Haryana Concast Ltd. (5 supra)
Learned counsel for respondent No.1, namely the auction
purchaser, submits that the provisions of Act 1956 have full
application in view of the provisions of Section 37 of the SARFAESI
Act, which carves out, amongst others, the Companies Act found
mischief the provision of overriding in Section 35 of the SARFAESI
Act. According to him, if Sections 35 and 37 of the SARFAESI Act
are read together, it postulates that in the event any of the
provisions of Act 1956 not being inconsistent with the provisions of
the SARFAESI Act, the application of both the Acts should be
complementary to each other and both are in tandem. He says that
the Supreme Court decisions in Allahabad Bank case (1 supra)
and Rajasthan State Financial Corporation v. Official
Liquidator (2 supra) were rendered in the context of the provisions
of Section 34 of the RDB Act and the said Act overrides Act 1956 to
the extent there is anything inconsistent between the two Acts, and
the Company Courts jurisdiction is ousted.
(On close scrutiny of the two judgments of the Apex Court,
the point for consideration before this Honble Court is whether the
said judgment is applicable to the SARFAESI Act, or not?)
He contends that it is distinguishable for the reason, in the
RDB Act there is no protective coverage to the Companies Act
which could be found in Section 37 of the SARFAESI Act which
clearly mentioned the provisions of the SARFAESI Act are framed in
addition to the provisions of the Companies Act and not in
derogation thereof. In that context, the Honble Apex Court held
that the jurisdiction of the Company Court is ousted. He contends
that the provisions of the SARFAESI Act will not in any way nullify
or annul or impair the effect of the provisions of the Companies Act.
In this case, admittedly auction took place and bid was confirmed
on 29.09.2010 and the petition for winding up was presented
before the Company Court on 01.11.2011 and thus it is clear that
by the date of presentation of the said petition, sale was not even
concluded. Hence, as per Section 441 of the Companies Act,
winding up of a company by the Tribunal shall be deemed to
commence at the time of presentation of the petition for winding
up. Thus, the sale is subject to the provisions of Act 1956 from the
date of commencement of the winding up proceedings, i.e.,
1.11.2011 and as per Section 446(d) of Act 1956 any question
whatsoever, whether on law or fact, which may relate to or arise in
the course of the winding up of the company, the Company Court
has jurisdiction to entertain and dispose of the same and hence the
claim petition filed by the respondent auction purchaser is not
maintainable and the Company Court was right in declaring that
the said is void. He says that Section 537 of Act 1956 is mandatory
and not directory. The word used in the provision is shall, which
necessarily indicate mandatory character. Further, the very object
of the provisions relating to winding up are to protect and balance
the interest of various secured creditors, public dues and workmen
etc. If without leave of the Court, the assets of the company are
sold, the same will jeopardize the very object. On his part of legal
submissions, he has placed reliance on the following decisions:
(i) Mathew Varghese v. M. Amritha Kumar and others
(paragraphs 45 and 46 of the judgment)
(ii) Saharas case (para 66 of the judgment)
(iii) Bakemens Industries case (paras 40 & 76 of the
judgment)
Learned counsel for the SBI Global Factors Limited argues on
the same lines as has been argued by the learned counsel for the
Official Liquidator and opposes these appeals.
After hearing the learned counsel for the parties appearing
before us and taking note of the submissions and going through
the material, which have been produced before us, the following
questions have fallen for our consideration:
(1) Whether the sale of the mortgaged property owned by private
individuals can be brought before the learned Company
Judge or in Writ Court for scrutiny?
(2) Whether the Company Court can decide the question raised
with regard to the invalidity of sale in view of provisions of
the SARFAESI Act read with Recovery of Debts due to Banks
and Financial Institutions Act, 1993?
(3) Whether the provisions of Sections 531, 531A & 537 of the
Companies Act, 1956 have any manner of application with
regard to sale of securities conducted under the SARFAESI
Act?
(4) Whether the learned trial Judge was justified in entertaining
and deciding the writ petitions with regard to the alleged
irregularity and illegality in conducting sale on the basis of
material supplied under the provisions of SARFAESI Act and
the Rules framed thereunder?
While deciding the first issue, we need to examine what is the
factual aspect of the matter namely who is the owner and
mortgagor of the properties mortgaged.
In paragraph-12 (clauses A & B) of the counter-affidavit filed
by the appellant Bank in W.P. No.19297 of 2012 specifically stated
amongst others as follows:
Smt. P. Vara Prasada Raju and Smt P. Latha are the
guarantors to the loan facility availed by the said borrower. The
said loan facilities are secured by the following securities.
Sl.
No.
Description of the property
Nature of
Security
Name of the Mortgagor
1.
Ac.18-65 of Non Agricultural
lands situated at Halakundi of
Bellary Taluk and District,
Karantaka together with
structures constructed thereon
Mortgage
P. Latha
(Guarantor)
2.
Flat No.301, 3rd Floor, Bhawani
Towers, Plot Nos.1 & 2, Vengal
Rao Nagar, Hyderabad
Mortgage
P. Vara Prasada Raju
(Guarantor)
3.
Flat No.403, Vayuputhra
Towers, Premises bearing
No.482 of MIG-1, Premises
No.483 of MIG-1 of KPHB
Colony, Balanagar Mandal,
Hyderabad.
Mortgage
Smt. P. Latha
It was stated that the aforesaid mortgage as part of the
securities. The said couple who are the Directors of the said
company stood guarantors. It is further stated that the said
company failed to repay the loan amount as per the terms of
sanction and also loan documents and thus committed default in
repayment of dues to the Bank. Because of failure as above, the
said loan accounts were classified as Non Performing Asset
accounts and the appellant Bank, being secured creditor, as per
the provisions of SARFAESI Act, 2002, has invoked the provisions
of the said Act after following due process of law as contemplated
under the said Act and the Security Interest (Enforcement) Rules,
2002 has taken possession of the said properties and sold the
secured assets i.e., the above said hypothecated and mortgaged
properties.
In the affidavit in reply of the auction purchaser, while
dealing with the above statement of the appellant Bank, in
paragraph-7 made the following statement.
. the averments in paragraph 11 and 12 (A) to (E) of
counter-affidavit the facts borne out of record and hence
they do not need any reply. The 2nd respondent Bank in
these paragraphs narrated all the facts that led to filing of
various cases against the borrower, filing of writ petition
against the Sub-Registrar when he refused to register the
Sale Certificate issued in favour of petitioner Company
(auction purchaser) and various proceedings taken place
in Company Petition filed against M/s. Laran Sponge &
Minerals (P) Limited, and they are all matter of record.
Thus, there is no denial of fact that the two individual
persons may be Directors, are the owners of the immovable
properties mortgaged. However in reply affidavit itself and also in
the above writ petition has vaguely stated that the said land was
given to the company on lease till January, 2015. However, there is
no document to support the statement, as under the law lease is
required to be created by written registered document, in the
absence thereof we think that by virtue of the provisions of Section
17 read with Section 49 of the Registration Act, 1908 such
transaction is not admissible in evidence and need not be taken
into consideration.
Moreover, going by the provisions of Section 92 of the
Evidence Act, the fact which is required to be established by
document no oral evidence is admissible. It is also settled provision
of law under Section 102 of Evidence Act the burden of proof of any
fact rest on him who will fail if no evidence is brought. Under
these circumstances, here, we are unable to accept that the
company has got any interest in any of immovable properties which
have been mortgaged. These immovable properties exclusively
belong to two private individuals. This is pointed out in the
company application filed by the appellant and it will be clear from
the prayer portion thereof, which is stated hereunder:
this Honble Court may be pleased to direct the
Official Liquidator to clarify his communication dated
20.09.2011 to the Sub-Registrar, Halkundi Village, Bellary
District, Karnataka that the instructions given in the said
letter not to transfer, alienate, create any third party
charge over the property standing in the companys name
without the leave of the Honble High Court or until further
orders from his office are not applicable to the personal
immovable properties sold by the petitioner Bank relating
to the guarantors of the company namely Sri P. Varaprasad
Raju and Smt. P. Latha together with the plant and
machinery existing on the said properties
The impugned judgment was delivered dealing with not only
company applications but also the writ petitions. But whether
mortgaged securities can be brought for scrutiny before the
Company Judge or not is the question. On careful reading of the
entire judgment of His Lordship, we do not find that this issue was
at all addressed. It appears that His Lordship proceeded on the
basis that all the securities belonged to the company. It is settled
position of law that shareholders and directors stands separate
from the Company, as far as the legal status is concerned. We,
therefore, clarify and hold that the Company Court has no
jurisdiction in any manner whatsoever to deal with mortgaged
properties even assuming the contention raised by the auction
purchaser that the question of illegality and invalidity with regard
to sale, is correct. This is absolutely inherent lack of jurisdiction.
Therefore, we hold in exercise of jurisdiction under the Companies
Act finding and decision of the learned Trial Judge with regard to
mortgaged properties is without jurisdiction. The Company Court
is concerned with regard to the assets and properties of the
company in liquidation.
But this does not solve the problem as it appears that His
Lordship rendered the judgment not only entertaining above
company applications but also the writ petitions as well. On proper
scanning of the two proceedings brought by the auction purchaser,
it appears to us in the writ petition the auction purchaser
questions the right of the appellant Bank demanding the alleged
outstanding dues in connection with the loan transaction, granted
to the auction purchaser. It seems to us that the auction
purchaser has tried to correlate the loan transaction with
completion of sale of the secured properties. It is asserted that
since the sale is not valid and proper in view of the various
provisions under SARFAESI Act and the Rules framed thereunder,
there is no transfer of ownership and as such subsequent loan
transaction become redundant and illegal and adjustment of
consideration money from the loan account is consequently illegal
and invalid. In the company application filed by the auction
purchaser, it is asserted that in view of Sections 531, 531A & 537
of the Companies Act sale held become void and invalid. So, the
Honble trial judge by combining two questions decided the matter
with the reasoning given therein.
We deal with the jurisdiction of the company court in view of
the provisions of SARFAESI Act at the first instance. The
provisions of Sections 531, 531A & 537 are required to be
reproduced hereunder:
531. Fraudulent preference. (1) Any transfer of property,
movable or immovable, delivery of goods, payment, execution or
other act relating to property made, taken or done by or against a
company within six months before the commencement of its
winding up which, had it been made, taken or done by or against
an individual within three months before the presentation of an
insolvency petition on which he is adjudged insolvent, would be
deemed in his insolvency a fraudulent preference, shall in the
event of the company being wound up, be deemed a fraudulent
preference of its creditors and be invalid accordingly:
Provided that, in relation to things made, taken or done
before the commencement of this Act, this sub-section shall have
effect with the substitution, for the reference to six months, of a
reference to three months.
(2) For the purposes of sub-section (1), the presentation of a
petition for winding up by the Tribunal and the passing of a
resolution for winding up in the case of a voluntary winding up,
shall be deemed to correspond to the act of insolvency in the case
of an individual.
531A. Avoidance of voluntary transfer.- Any transfer of
property, movable or immovable, or any delivery of goods, made by
a company, not being a transfer or delivery made in the ordinary
course of its business or in favour of a purchaser or
encumbrancer in good faith and for valuable consideration, if
made within a period of one year before the presentation of a
petition for winding up by the tribunal or the passing of a
resolution for voluntary winding up of the company, shall be void
against the liquidator.
537. Avoidance of certain attachments, executions, etc., in
winding up by Tribunal.- (1) Where any company is being wound
up by the Tribunal--
(a) any attachment, distress or execution put in force,
without leave of the Tribunal against the estate or effects of
the company, after the commencement of the winding up;
or
(b) any sale held, without leave of the Tribunal, of any of the
properties or effects of the company after such
commencement, shall be void.
(2) Nothing in this section applies to any proceedings for the
recovery of any tax or impost or any dues payable to the
Government.
On reading of the aforesaid three Sections, it appears that
any transfer of assets of the company is effected in violation of
Sections 531 & 531A is void altogether incurably, but it is void
under Section 537 if it is done without leave of the Company Court.
Here, admittedly, no leave of the Company Court was obtained. In
this context, we examine the contentions of the learned Senior
Counsel Mr. S. Ravi that no leave is required, as jurisdiction of
Company Court is ousted in view of the provisions of Sections 13,
37 & 35 of the SARFAESI Act. We, therefore, set out the Sections
13 and 35 of the SARFAESI Act in connection with the said
submission.
13. Enforcement of security interest.-- (1) Notwithstanding
anything contained in section 69 or section 69A of the Transfer
of Property Act, 1882 (4 of 1882), any security interest created in
favour of any secured creditor any be enforced, without the
intervention of court or tribunal, by such creditor in accordance
with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured
creditor under a security agreement, makes any default in
repayment of secured debt or any instalment thereof, and his
account in respect of such debt is classified by the secured
creditor as non-performing asset, then, the secured creditor may
require, the borrower by notice in writing to discharge in full his
liabilities to the secured creditor within sixty days from the date
of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of
the amount payable by the borrower and the secured assets
intended to be enforced by the secured creditor in the event of
non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the
borrower makes any representation or raises any objection, the
secured creditor shall consider such representation or objection
and if the secured creditor comes to the conclusion that such
representation or objection is not acceptable or tenable, he shall
communicate within fifteen days of receipt of such
representation or objection the reasons for non-acceptance of the
representation or objection to the borrower:
Provided that the reasons so communicated or the likely
action of the secured creditor at the stage of communication of
reasons shall not confer any right upon the borrower to prefer an
application to the Debts Recovery Tribunal under section 17 or
the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured
creditor may take recourse to one or more of the following
measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment
or sale for realising the secured asset;
(b) take over the management of the secured assets of the
borrower including the right to transfer by way of lease,
assignment or sale and realise the secured asset:
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where the
substantial part of the business of the borrower is held as
security for the debt:
Provided further that where the management of whole of
the business or part of the business is severable, the
secured creditor shall take over the management of such
business of the borrower which is relatable to the security
for the debt.
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the possession of
which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who
has acquired any of the secured assets from the borrower
and from whom any money is due or may become due to
the borrower, to pay the secured creditor, so much of the
money as is sufficient to pay the secured debt.
(5) Any payment made by any person referred to in clause (d)
of sub-section (4) to the secured creditor shall give such person
a valid discharge as if he has made payment to the borrower.
(5-A) Where the sale of an immovable property, for which a
reserve price has been specified, has been postponed for want of
a bid of an amount not less than such reserve price, it shall be
lawful for any officer of the secured creditor, if so authorised by
the secured creditor in this behalf, to bid for the immovable
property on behalf of the secured creditor at any subsequent
sale.
(5B) Where the secured creditor, referred to in sub-section (5A),
is declared to be the purchaser of the immovable property at any
subsequent sale, the amount of the purchase price shall be
adjusted towards the amount of the claim of the secured creditor
for which the auction of enforcement of security interest is taken
by the secured creditor, under sub-section (4) of Section 13.
(5C) The provisions of section 9 of the Banking Regulation
Act, 1949 (10 of 1949) shall, as far as may be, apply to the
immovable property.
(6) Any transfer of secured asset after taking possession
thereof or take over of management under sub-section (4), by the
secured creditor or by the manager on behalf of the secured
creditors shall vest in the transferee all rights in, or in relation
to, the secured asset transferred as if the transfer had been
made by the owner of such secured asset.
(7) Where any action has been taken against a borrower under
the provisions of sub-section (4), all costs, charges and expenses
which, in the opinion of the secured creditor, have been properly
incurred by him or any expenses incidental thereto, shall be
recoverable from the borrower and the money which is received
by the secured creditor shall, in the absence of any contract to
the contrary, be held by him in trust, to be applied, firstly, in
payment of such costs, charges and expenses and secondly, in
discharge of the dues of the secured creditor and the residue of
the money so received shall be paid to the person entitled
thereto in accordance with his rights and interests.
(8) If the dues of the secured creditor together with all costs,
charges and expenses incurred by him are tendered to the
secured creditor at any time before the date fixed for sale or
transfer, the secured asset shall not be sold or transferred by the
secured creditor, and no further step shall be taken by him for
transfer or sale of that secured asset.
(9) In the case of financing of a financial asset by more than
one secured creditors or joint financing of a financial asset by
secured creditors, no secured creditor shall be entitled to
exercise any or all of the rights conferred on him under or
pursuant to sub-section (4) unless exercise of such right is
agreed upon by the secured creditors representing not less than
sixty per cent in value of the amount outstanding as on a record
date and such action shall be binding on all the secured
creditors.
Provided that in the case of a company in liquidation, the
amount realised from the sale of secured assets shall be
distributed in accordance with the provisions of section 529A of
the Companies Act, 1956 (1 of 1956):
Provided further that in the case of a company being
wound up on or after the commencement of this Act, the secured
creditor of such company, who opts to realise his security
instead of relinquishing his security and proving his debt under
proviso to sub-section (1) of section 529 of the Companies Act,
1956 (1 of 1956), may retain the sale proceeds of his secured
assets after depositing the workmen's dues with the liquidator in
accordance with the provisions of Section 529A of that Act:
Provided also that the liquidator referred to in the second
proviso shall intimate the secured creditors the workmen's dues
in accordance with the provisions of section 529A of the
Companies Act, 1956 (1 of 1956) and in case such workmen's
dues cannot be ascertained, the liquidator shall intimate the
estimated amount of workmen's dues under that section to the
secured creditors and in such case the secured creditor may
retain the sale proceeds of the secured assets after depositing
the amount of such estimated dues with the liquidator:
Provided also that in case the secured creditor deposits
the estimated amount of workmen's dues, such creditor shall be
liable to pay the balance of the workmen's dues or entitled to
receive the excess amount, if any, deposited by the secured
creditor with the liquidator:
Provided also that the secured creditor shall furnish an
undertaking to the liquidator to pay the balance of the
workmen's dues, if any.
Explanation:- For the purposes of this sub-section,-
(a) "record date" means the date agreed upon by the secured
creditors representing not less than sixty per cent in value of the
amount outstanding on such date;
(b) "amount outstanding" shall include principal, interest and
any other dues payable by the borrower to the secured creditor
in respect of secured asset as per the books of account of the
secured creditor.
(10) Where dues of the secured creditor are not fully satisfied
with the sale proceeds of the secured assets, the secured creditor
may file an application in the form and manner as may be
prescribed to the Debts Recovery Tribunal having jurisdiction or
a competent court, as the case may be, for recovery of the
balance amount from the borrower.
(11) Without prejudice to the rights conferred on the secured
creditor under or by this section, the secured creditor shall be
entitled to proceed against the guarantors or sell the pledged
assets without first taking any of the measures specified in
clauses (a) to (d) of sub-section (4) in relation to the secured
assets under this Act.
(12) The rights of a secured creditor under this Act may be
exercised by one or more of his officers authorised in this behalf
in such manner as may be prescribed.
(13) No borrower shall, after receipt of notice referred to in sub-
section (2), transfer by way of sale, lease or otherwise (other than
in the ordinary course of his business) any of his secured assets
referred to in the notice, without prior written consent of the
secured creditor.
35. The provisions of this Act to override other laws.-- The
provisions of this Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force or any instrument having effect by virtue of any
such law.
Section 35 of the SARFAESI Act, no doubt, provides for
overriding effect over other Acts which were in force on the date of
commencement of the Act to the extent of inconsistency. We think
that it would be unjust if we do not read and take into
consideration of Section 37 of the SARFAESI Act, which is set out
hereunder.
37. Application of other laws not barred.- The provisions of
this Act or the rules made thereunder shall be in addition to,
and not in derogation of, the Companies Act, 1956 (1 of 1956),
the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the
Securities and Exchange Board of India Act, 1992 (15 of 1992),
the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 (51 of 1993) or any other law for the time being in
force.
A reading of Section 37 of the Act above makes apparently
clear that the provisions of the Companies Act also are saved. We
think in this context reading both the Sections 35 and 37 of
SARFAESI Act harmonized interpretation to get true import and
effect, is to be given. According to us, the provisions of the
Companies Act under Section 37 above are saved to the extent of
consistency with the provisions of the SARFAESI Act. In other
words, any of the provisions of the SARFAESI Act expressly run
counter to the provisions of the Companies Act, the provisions of
SARFAESI Act will prevail over the Companies Act because it is
special and later legislation. It is settled position of law by the
Honble Supreme Court that subsequent special legislation
overrides general legislation in the same field or in case of
inconsistency.
In the case of Allahabad Bank case (1 supra) the Supreme
Court while examining the scope of the provisions of Recovery of
Debts due to Banks and Financial Institutions Act, 1993 held that
it being subsequent legislation and being a special law which would
prevail over the general law namely the Companies Act, 1956. The
language of Section 34 of the RDB Act is almost similar to that of
the SARFAESI Act. The only distinguishing feature is that the
provisions of Companies Act was not saved at all therein as it will
appear from sub-section (2) of Section 34 of the RDB Act.
It will appear from Section 34 of the SARFAESI Act the
jurisdiction of the civil court has been ousted absolutely in respect
of any matter which a Debts Recovery Tribunal or the Appellate
Tribunal is empowered by or under this Act to determine. It will
appear from Section 17 of the SARFAESI Act that any person
(including borrower), aggrieved by any of the measures referred to
in sub-section (4) of Section 13 taken by this secured creditor or
his authorized officer under this Chapter may make application to
the Debts Recovery Tribunal having jurisdiction in the matter
within forty-five days from the date on which such measures had
been taken. If aforesaid provision of sub-section (1) of Section 17
is read with Section 34, it would be clear that the Civil Court
has no jurisdiction to entertain any move to challenge the action
of secured creditor under this Act. A fairly recent decision of the
Supreme Court in the case of Official Liquidator, U.P. and
Uttarakhand v. Allahabad Bank and others ruled in
paragraph-35 of the report as follows.
35. It has been submitted by Mr Banerji, learned Senior
Counsel, that if the Company Court as well as DRT can exercise
jurisdiction in respect of the same auction or sale after
adjudication by DRT, there would be duality of exercise of
jurisdiction which the RDB Act does not envisage. By way of an
example, the learned Senior Counsel has submitted that there
are some categories of persons who can go before DRT
challenging the sale and if the Official Liquidator approaches the
Company Court, then such a situation would only bring anarchy
in the realm of adjudication. The aforesaid submission of the
learned Senior Counsel commends acceptance as the
intendment of the legislature is that the dues of the banks
and financial institutions are realised in promptitude. It is
to be noted that when there is inflation in the economy, the
value of the mortgaged property/assets depreciates with
the efflux of time. If more time is consumed, it would be
really difficult on the part of the banks and financial
institutions to realise their dues. Therefore, this Court in
Allahabad Bank case has opined that it is DRT which
would have the exclusive jurisdiction when a matter is
agitated before DRT. The dictum in the said case has been
approved by the three-Judge Bench in Rajasthan State
Financial Corpn. It is not a situation where the Official
Liquidator can have a choice either to approach DRT or the
Company Court. The language of the RDB Act, being clear,
provides that any person aggrieved can prefer an appeal.
The Official Liquidator whose association is mandatorily
required can indubitably be regarded as a person aggrieved
relating to the action taken by the Recovery Officer which
would include the manner in which the auction is
conducted or the sale is confirmed. Under these
circumstances, the Official Liquidator cannot even take
recourse to the doctrine of election. It is difficult to
conceive that there are two remedies. It is well settled in
law that if there is only one remedy, the doctrine of
election does not apply and we are disposed to think that
the Official Liquidator has only one remedy i.e. to
challenge the order passed by the Recovery Officer before
DRT. Be it noted, an order passed under Section 30 of the
RDB Act by DRT is appealable. Thus, we are inclined to
conclude and hold that the Official Liquidator can only
take recourse to the mode of appeal and further appeal
under the RDB Act and not approach the Company Court to
set aside the auction or confirmation of sale when a sale
has been confirmed by the Recovery Officer under the RDB
Act.
(emphasis supplied)
Again the Apex Court in case of Jagdish Singh v. Heeralal
(6 supra) observed in paragraph 24 of the report as proposition of
law as follows:
Any person aggrieved by any of the
measures referred to in sub-section (4) of Section 13 has got a
statutory right of appeal to the DRT under Section 17. The
opening portion of Section 34 clearly states that no civil court
shall have the jurisdiction to entertain any suit or proceeding in
respect of any matter which a DRT or an Appellate Tribunal is
empowered by or under the Securitisation Act to determine. The
expression in respect of any matter referred to in Section 34
would take in the measures provided under sub-section (4) of
Section 13 of the Securitisation Act. Consequently, if any
aggrieved person has got any grievance against any measures
taken by the borrower under sub-section (4) of Section 13, the
remedy open to him is to approach the DRT or the Appellate
Tribunal and not the civil court. The civil court in such
circumstances has no jurisdiction to entertain any suit or
proceedings in respect of those matters which fall under sub-
section (4) of Section 13 of the Securitisation Act because those
matters fell within the jurisdiction of the DRT and the Appellate
Tribunal. Further, Section 35 says, the Securitisation Act
overrides other laws, if they are inconsistent with the provisions of
that Act, which takes in Section 9 CPC as well.
Noting above pronouncement, we are of considered opinion
when the legislature intends legality and validity of sale under the
provisions of Section 13 of SARFAESI Act has to be brought for
scrutiny before the Debts Recovery Tribunal, by virtue of Section 17
of SARFAESI Act the jurisdiction of the company court cannot be
inferred to have been conferred rather by necessary implication, the
same is held to be ousted. It is true that Section 34 mentioned the
words Civil Court (not apparently company court), but in our view
after winding up order is passed by virtue of the provisions of
Section 446 (2) of the Companies Act, the Company Court
exercises jurisdiction of the civil court. So, essentially, the
company court becomes civil court. What is important is not the
nomenclature of the Court, but power and functions exercised by
that Court. In view of discussions above, accepting argument of
Mr. S.Ravi and rejecting contention of the learned counsel for the
respondent and Official Liquidator, we hold that the company court
has no jurisdiction to deal with the issues arising out of action of
secured creditor under Section 13 of SARFAESI Act.
But, in this case, the learned trial Judge has not only
exercised jurisdiction of the company court but also that of writ
court. No one can debate now that writ court has jurisdiction
within its own power as enshrined in Articles 226 & 227 of the
Constitution of India to entertain any dispute and it cannot be
taken away by way of simple legislation.
Now, we examine the third question. We have already
discussed that to the extent of inconsistency provision of SARFAESI
Act will prevail over Companies Act. We examine whether there has
been apparently inconsistent provision for taking action by the
secured creditor in this Act vis--vis Companies Act. It will appear
from Section 13 (1), as quoted above, it clearly provides that
without intervention of the Court or Tribunal action can be taken
for sale of securities, whereas the provisions of Section 537 of
Companies Act requires leave of Company Court. We, accordingly,
hold this is apparent inconsistency in two competing provisions in
two different Acts on the same subject. Similar view is expressed
by the Division Bench of the Bombay High Court in case of The
Akola Oil Industries (under liquidation) through Official
Liquidator v. State Bank of India (4 supra). Therefore, the
provisions of SARFAESI Act will prevail over the provisions of
Section 537 of the Companies Act to the extent of inconsistency.
We, accepting contention of Mr. S. Ravi, hold that no leave is
required under Section 537 of the Companies Act, moreover
jurisdiction of the Company Court is also ousted as discussed
above.
Next, the question appears to us whether the provisions of
Section 531 & 531A of the Companies Act will be applied or not in
this case.
We have already held to the extent of inconsistency provision
of the Companies Act are to be overlooked. For this, we have to
examine the provisions of sub-sections (4) & (6) of Section 13 of the
SARFAESI Act to find element of inconsistency on this issue. These
provisions are set out hereunder:
13. Enforcement of security interest.
(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured
creditor may take recourse to one or more of the following
measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment
or sale for realising the secured asset;
(b) take over the management of the secured assets of the
borrower including the right to transfer by way of lease,
assignment or sale and realise the secured asset;
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where the
substantial part of the business of the borrower is held as
security for the debt:
Provided further that where the management of whole of
the business or part of the business is severable, the
secured creditor shall take over the management of such
business of the borrower which is relatable to the security
for the debt.
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the possession of
which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who
has acquired any of the secured assets from the borrower
and from whom any money is due or may become due to
the borrower, to pay the secured creditor, so much of the
money as is sufficient to pay the secured debt.
(emphasis supplied)
(6) Any transfer of secured asset after taking possession
thereof or take over of management under sub-section (4), by the
secured creditor or by the manager on behalf of the secured
creditors shall vest in the transferee all rights in, or in relation
to, the secured asset transferred as if the transfer had been
made by the owner of such secured asset.
(emphasis supplied)
It is clear from sub-section (6) the moment action taken
under sub-section (4) by the secured creditor or any manager on
his behalf of the secured creditor for transfer all rights shall vest in
the transferee in relation to the secured assets. In other words, if
action taken under Section 13 (4) is found to be lawful and valid
in accordance with SARFAESI Act, no other legal provision can
invalidate it. Whereas Sections 531 & 531A provide otherwise if
any transfer including sale is effected in violation thereof the same
is invalid and void. Thus it appears that there has been glaring
inconsistency naturally, we are constrained to hold that the
provisions of Sections 531 & 531A have no manner of application
and the same do not apply in case of valid sale undertaken under
the SARFAESI Act and the Rules framed thereunder. Besides we
fail to comprehend how Section 531A is applicable carefully reading
the same on fact in this case. In order to apply this section, three
factual conditions must be satisfied viz., (i) transfer must be by the
company (ii) it must be voluntary (iii) such transfer must be within
one year before presentation of winding up petition. In this case
admittedly transfer is not made by company not even on behalf of
the company, but by secured creditor, appellant herein, by virtue of
power coupled with right under sub-section (4) of Section 13 of the
SARFAESI Act. This could have been decided by the Debts
Recovery Tribunal itself since writ court has decided on the
admitted fact. Thus the decision of the Honble trial judge while
applying the aforesaid provisions in the instant sale without
examining the implications of sub-sections (1), (4) & (6) of Section
13 of SARFAESI Act at all, is unacceptable legally. We accordingly
overrule these findings and decisions in this regard.
Other decisions cited by various learned counsel in our view
are of no help. These decisions are rendered on different issues as
discussed hereunder.
In the case of Pravin Gada v. Central Bank of India the
Supreme Court accepting earlier decisions of the Supreme Court
held in paragraph 18 of the report.
A Debts 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.
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 creditor
concerned is to approach the Company Court for
appropriate directions regarding the realisation of its
securities consistent with the relevant provisions of the
Companies Act regarding distribution of the assets of the
company-in-liquidation.
In case of Kotak Mahindra Bank Limited v. Megnostar
Telecommunications Private Limited (3 supra) Delhi High Court
did not deal with applicability of Sections 531, 531A and 537 of
the Companies Act in view of provisions of SARFAESI Act, however
dwelt upon applicability of Sections 529 and 529A of Companies
Act. While doing so it was held amongst others that sale proceeds
fetched by sale under this Act are subject to the claims, if any,
under Sections 529 and 529A of the Companies Act.
Punjab and Haryana High Court in case of Haryana State
Industrial and Infrastructure Development Company v.
Haryana Concast Limited & another (5 supra) while examining
legal implication of provision of Sections 13 (4), 9, 35 of SARFAESI
Act vis--vis Section 529A of Companies Act held that there is no
inconsistency of the provision of Section 13 of SARFAESI Act with
Sections 529 and 529A of the Companies Act, 1956 as by the
proviso in sub-section (9) of Section 13 above two sections of the
Companies Act are saved.
In an unreported decision of the learned Single Judge of this
Court in the matter of M/s. Pioneer Alloy Casting Limited (in
liquidation) on C.A. No.525 of 2012, no legal ratio is to be found.
His Lordship following judgment of the Supreme Court and those of
other High Courts granted relief.
Now, the fourth question is whether the sale can be held
invalid because of the alleged non-compliance of the mandatory
provisions of the Rules framed under the SARFAESI Act.
The learned trial Judge himself has noted that there is not
enough material to examine the allegations made by the writ
petitioners and countered by the appellant. In spite of noting this
fact, the learned trial Judge thought that it should be decided and
so decided. We are of the view that all materials namely
advertisement, conditions of sale and other things are not produced
before us also. Therefore we do not like to decide this issue
conclusively nor do we accept such decision of the learned Trial
Judge in absence of such materials and also for the reasons stated
hereunder.
The learned trial Judge has not rendered any findings as to
whether the loan granted to the auction purchaser subsequent to
the auction being held are correlated to sale of the securities. In
other words, whether repayment of the loan is dependent upon
lawful and valid completion of sale held by the appellant under the
SARFAESI Act. It is the contention of the auction purchaser that
since sale was not valid nor complete, so also sale certificate issued
in the context of the provisions of the Companies Act as well as the
provisions of the Rules 7, 8 & 9 framed under the SARFAESI Act
adjustment of balance consideration amount against loan amount
is illegal. His Lordship with respect without deciding this issue
granted relief as prayed for to the auction purchaser in the writ
petition. Whether the demand of the Bank for repayment of loan
after adjustment of the sale consideration money is lawful or not,
whether the same have been linked with the sale and whether the
sale under the law is complete or not, or whether the auction
purchaser can back out after bidding and offering to pay price for
sale by depositing 25% of the same, all these questions are required
to be decided in great detail.
The learned trial Judge by necessary implication proceeded
assuming that the loan transaction between the appellant and the
auction purchaser are having correlation with the completion of
sale namely handing over possession of the property and payment
of balance sale consideration money. We think that this approach
in exercise of writ jurisdiction is absolutely unwarranted and the
writ petitions should not have been entertained at all. It is not a
pure question of law on admitted fact. All the questions and
controversy are disputed questions of fact and law and could not be
decided in writ jurisdiction. Hence we hold that granting relief to
the auction purchaser as prayed for in the writ petition is not
sustainable under the law. Therefore, we set aside the same and
dismiss the writ petitions leaving all questions open. It would be
open for the auction purchaser to approach the Debts Recovery
Tribunal so also Official Liquidator or any other claimant.
These Appeals are accordingly allowed. There will be no order
as to costs.
Consequently, pending miscellaneous petitions, if any, shall
also stand closed.
_______________________
Kalyan Jyoti Sengupta, CJ
_______________
Sanjay Kumar, J
Dt. 11.11.2014
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