{"id":211362,"date":"2006-04-18T00:00:00","date_gmt":"2006-04-17T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/asset-reconstruction-vs-the-official-liquidator-on-18-april-2006"},"modified":"2018-07-02T11:36:20","modified_gmt":"2018-07-02T06:06:20","slug":"asset-reconstruction-vs-the-official-liquidator-on-18-april-2006","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/asset-reconstruction-vs-the-official-liquidator-on-18-april-2006","title":{"rendered":"Asset Reconstruction vs The Official Liquidator on 18 April, 2006"},"content":{"rendered":"
Madras High Court<\/div>\n
Asset Reconstruction vs The Official Liquidator on 18 April, 2006<\/div>\n
       \n\n  \n\n  \n\n \n \n IN THE HIGH COURT OF JUDICATURE AT MADRAS           \n\nDATED: 18\/04\/2006  \n\nCORAM   \n\nTHE HON'BLE MR.A.P.SHAH, CHIEF JUSTICE        \nand \nTHE HON'BLE MR. JUSTICE M.JAICHANDREN         \n\nO.S.A.No. 214 of 2005 \nand O.S.A.No.215 of 2005 \nand \nC.M.P.Nos.15340 to 15343 of 2005  \n\nAsset Reconstruction \nCompany (India) Limited,\nRep. by its Vice President,\n17th Floor, Express Towers,\nNariman Point,\nMumbai  400 021.                ..Appellant in both the appeals.\n\n-Vs-\n\nThe Official Liquidator,\nHigh Court, Madras \nas the liquidator of SIV Industries Ltd.\n(in liquidation)        ..Respondent in both the appeals.\n\n\n        PRAYER:   Original  Side  Appeals filed under Order 36 Rule II of O.S.\nRules read with Clause 15 of the Letters  Patent  against  the  order  of  the\nlearned  single Judge dated 05.07.2005 made in Company Application Nos.712 and  \n713 of 2005 in C.P.No.17 of 2004.\n\n!For Appellant                  ::  Mr.A.L.Somayaji, Senior Counsel\n                                For M\/s.Rangarajan & Prabhakaran\n\n^For Respondent         ::  Mr.Arvind P.Datar, Senior Counsel\n                        For Official Liquidator, High Court, Madras\n\n:J U D G M E N T \n<\/pre>\n
THE HONBLE THE CHIEF JUSTICE      <\/p>\n
        Whether   an   Asset   Reconstruction   company   formed   under   the
\nSecuritisation  and  Re-construction  of  Financial  Assets and Enforcement of
\nSecurity Interest Act, 2002, hereinafter referred to  for  brevitys  sake  as
\nSecuritisation  Act, is entitled to be associated in the process of the sale
\nof assets of a company under liquidation along with the Official Liquidator is
\nthe question which falls for our consideration in these appeals.\n<\/p>\n
        2.  The facts leading to this appeal are that SIV  Industries  Limited
\n(formerly South India Viscose Limited) run into financial difficulties and was
\ndeclared as a sick industrial company within the meaning of Section 3(1)(o) of
\nthe  Sick  Industrial  Companies  (Special  Provisions) Act, 1985 (hereinafter
\ncalled SICA) by order dated 09.07.2002.    Attempts  at  re-habilitate  proved
\nunsuccessful.   BIFR ultimately recommended that SIV Industries Limited should
\nbe wound up under Section 20(1) of SICA vide order dated 25.09.2003.    Before
\nBIFR,  ICICI  requested  permission  to  take  possession  of the assets under
\nSection 20(4) of the SICA.  Accordingly, BIFR appointed ICICI as selling agent
\nto dispose of the properties of SIV Industries Limited under Section 20(4)  of
\nthe  Act  and  to  deposit  the  sale proceeds to the concerned High Court for
\ndistribution under Section 529-A and other provisions of  the  Companies  Act,
\n1956.   However,  it  appears  that  ICICI  did not take any steps to sell the
\nproperty.  Meanwhile, by order dated 28.04.2004  SIV  Industries  Limited  was
\nordered  to  be  wound up by the Company Court and the Official Liquidator was
\nappointed as Liquidator.  The Official Liquidator has taken possession of  the
\nassets and  has  sold  certain  movables  on  21.02.2005  and 11.05.2005.  The
\nOfficial Liquidator has also got the valuation done of certain properties  and
\nan  application  for sale has been filed for the sale of two residential flats
\nbelonging to the company under liquidation.\n<\/p>\n
3.  The appellant  Asset Reconstruction Company (India) Limited is a  company
\nformed  under  the  Securitisation  Act  and  has  been  registered  under the
\nCompanies Act as required under Section  3 of the Securitisation Act  and  in
\nterms  of Section 5 of the said Act, the appellantcompany steps into the shoes
\nof the banks or financial institutions empowered to  take  possession  of  the
\nassets  of  the  borrower  including  the  right  of transfer by way of lease,
\nassignment, sale and realize the sale proceeds of the secured  assets  and  to
\ntake over the management of the business of the borrower.  The majority of the
\ncreditors  have  given  consent  for  the  appellant-company  to formulate the
\nmodalities of the sale and also to appoint the appellant as  Chairman  of  the
\nAssets  Sale  Committee  along  with the Official Liquidator to dispose of the
\nassets of the company  in  liquidation.    The  appellant  has  moved  Company
\nApplication  Nos.712  and  713  of  2005  before  the Company Court seeking to
\nappoint the appellant as agent of the  Official  Liquidator  to  complete  the
\nmodalities of  the  sale  along with the Official Liquidator.  By the impugned
\norder, both the applications were rejected by the Company Court  holding  that
\nonce  the  winding  up of the company is ordered the assets and effects of the
\ncompany shall be deemed to be in the custody of the High Court from  the  date
\nof the  order  of winding up.  The Official Liquidator on whom the assets rest
\ncould only act as per the directions of  the  Company  Court  and  cannot  act
\nindependently.   In  such  event  when  the power to deal with the property is
\nentrusted to the Official Liquidator by the Company Court  in  its  discretion
\nthe  power  of  the  appellant company by its incorporation for the purpose of
\nreconstruction under the Securitisation Act, cannot override the power of  the
\nOfficial Liquidator under the Companies Act.\n<\/p>\n
        4.    Mr.A.L.Somayaji,   learned  Senior  Counsel  appearing  for  the
\nappellant  submitted  that  the  appellant  has  special  rights   under   the
\nSecuritisation Act and since there was no notice to them of the proceedings in
\nliquidation  and  they  were  no parties to the order of winding up, they were
\nentitled to proceed with the sale  of  the  assets  along  with  the  Official
\nLiquidator   and  the  Company  Court  was  not  justified  in  rejecting  the
\napplications of the appellant.  The learned Senior Counsel submitted that  the
\ndecision in  Allahabad  Bank  Vs.    Canara  Bank,  2000  (4  ) SCC 406 was an
\nauthority in support of the proposition that the provisions of  Securitisation
\nAct  would  prevail over the provisions of Companies Act, since Securitisation
\nAct being a special enactment made for protecting the interests of  banks  and
\nfinancial institutions.  Learned Senior Counsel submitted that the decision of
\nthe  Supreme  Court  in  Rajasthan State Financial Corporation and Another Vs.
\nOfficial Liquidator and Another, (2005) 8 SCC 190 also support  the  stand  of
\nthe appellant that the appellant-company which is a securitisation company and
\nhaving purchased the security interest from ICICI Bank Limited and also having
\nobtained consent from other secured creditors of the company under liquidation
\nis  entitled  to  be  associated in the sale of assets along with the Official
\nLiquidator.  The  learned  Senior  Counsel  submitted  that  in  the  vent  of
\ninconsistency  between  Section 457 of the Companies Act and second proviso to
\nSection 13(9) of the Securitisation Act, the Securitisation Act shall  prevail
\nand  the  secured creditor\/securitisation company is entitled to take over the
\nassets and sell the same.  He submitted that the Securitisation Act being  the
\nlater  enactment  overrides the provisions of Companies Act in respect of sale
\nof assets and the provisions of the Securitisation Act are meant to  safeguard
\nthe interests of the secured creditors and the securitisation companies formed
\nunder the Securitisation Act.\n<\/p>\n
        5.   In  reply,  Mr.Arvind  P.Datar,  learned  Senior  Counsel for the
\nrespondent submitted that the power under Section 9 of the Securitisation  Act
\nis without  prejudice  to the provisions contained in any other law.  In other
\nwords, such power does not override  the  provisions  of  the  Companies  Act.
\nSection  37  of  the Securitisation Act states that the provisions of the said
\nAct are in addition to and not in derogation, inter  alia,  of  the  companies
\nAct.   Therefore,  according  to  Mr.Datar the power of the liquidator to take
\ncharge of the assets and sell the same is not in any way affected  or  diluted
\nby the  formation  of an Assets Reconstruction Company.  According to Mr.Datar
\nonce the company is wound up, all the assets are to be taken into  custody  of
\nthe Official Liquidator under Section 456 of the Companies Act.  Under Section
\n457 (1)(c) of the Companies Act only Official Liquidator has the power to sell
\nmovable and  immovable  properties  of  the  company.  He submitted that under
\nSection 457(2)(v) of the Companies Act  Official  Liquidator  can  appoint  an
\nagent to  do  any  business  which  he is unable to do himself .  Therefore,
\nwhere the Official Liquidator is capable  of  completing  a  particular  task,
\nthere is no question of appointing an agent.  He further submitted that in the
\ninstant  case  the  Official  Liquidator  has  taken custody of the assets and
\ncompleted valuation, and there is no reason or justification for appointing  a
\nSale Committee with the appellant herein.  He submitted that the appellant has
\nfailed  to  sell the assets despite an order by the BIFR on 24.09.2003, and it
\nhas now approached the Company Court only to claim commission  from  the  sale
\nproceeds.    According   to   Mr.Datar   there  is  no  conflict  between  the
\nSecuritisation Act and the Companies Act.  If the  financial  institution  has
\nnot  taken  steps  before  the  DRT its only remedy is to approach the Company
\nCourt for proper directions for realizing its securities.  In such a case, the
\nAssets Reconstruction Company has no locus standi  even  to  apply  for  being
\nappointed as an agent to sell the property.\n<\/p>\n
        6.  In order to appreciate the contentions raised at the bar, it would
\nbe necessary to note the relevant provisions of the Securitisation Act.  It is
\nseen from the preamble of the said Act that it has been enacted with a view to
\nregulate  the  securitisation  and  reconstruction  of  financial  assets  and
\nenforcement of security interest and for matters connected there to.  The  Act
\nenables  the  banks  and  financial  institutions to realize long term assets,
\nmanage problems of liquidity to the assets liability, and to improve  recovery
\nby  exercising  powers  to  take  possession of security, sell them and reduce
\nnon-performing assets by adopting measures  for  recovery  or  reconstruction.
\nThe  Act  further  enables  for  setting up of Assets Reconstruction Companies
\nwhich are empowered to take possession of the secured assets of  the  borrower
\nincluding  the  right  to  transfer  by  way  of lease, assignment or sale and
\nrealize the secured assets and take over the management of the business of the
\nborrower.  The validity of the provisions of the said Act was  upheld  by  the
\nSupreme Court  in  Mardia  Chemicals  Limited Vs.  Union of India, AIR 2004 SC
\n2371 except that of sub section 2 of Section 17 which provides deposit of  75%
\nbefore entertaining  an  appeal  by  the  DRT under Section 17 of the Act.  In
\nMardia Chemicals (supra) the Supreme Court observed as follows:\n<\/p>\n
        Para-35:   As  referred  to  above,  the  Narasimham  Committee   was
\nconstituted  in  1991  relating  to  the  Financial  System  prevailing in the
\ncountry.  It considered wide ranging issues relevant to the  economy,  banking
\nand financing  etc.   Under Chapter V of the Report under the heading Capital
\nAdequacy, Accounting Policies and other Related Matters it was opined that  a
\nproper  system  of  income  recognition and provisioning is fundamental to the
\npreservation of the strength and stability of banking system.    It  was  also
\nobserved  that the assets are required to be classified, it also takes note of
\nthe fact that the Reserve Bank of India had classified the advances of a bank,
\none category of which was bad debts\/doubtful debts.   It  then  mentions  that
\naccording to the international practice, an asset is treated as non-performing
\nwhen the interest is overdue for at least two quarters.  Income of interest is
\nconsidered  as  such,  only  when it is received and not on the accrual basis.
\nThe Committee suggested that the same should be  followed  by  the  banks  and
\nfinancial   institutions   in   India  and  an  advance  is  to  be  shown  as
\nnon-performing assets where the interest remains due for more than  180  days.
\nIt was further suggested that the Reserve Bank of India should prescribe clear
\nand  objective definitions in respect of advances which may have to be treated
\nas doubtful, standard or substandard,  depending  upon  different  situations.
\nApart  from  recommending  to  set  up  of  Special Tribunals to deal with the
\nrecovery of dues of the advances made by the  Banks,  the  Committee  observed
\nthat  impact  of  such  steps would be felt by the banks only over a period of
\ntime, in the meanwhile, the Committee also suggested  for  re-construction  of
\nassets  saying  Committee  has looked at the mechanism employed under similar
\ncircumstances in certain other countries and recommends the setting up of,  if
\nnecessary  by special legislation, a separate institution by the Government of
\nIndia to be known as Assets Reconstruction Fund (ARF) with the express purpose
\nof  taking  over  such  assets  from  banks  and  financial  institutions  and
\nsubsequently  following  up  on  the  recovery  of  dues owed to them from the
\nprimary borrowers.  While recommending for setting up of  Special  Tribunals,
\nthe Committee observed:\n<\/p>\n
        Banks   and  financial  institutions  at  present  face  considerable
\ndifficulties in recovery of dues from the clients and enforcement of  security
\ncharged to  them  due  to  the  delay  in  the legal processes.  A significant
\nportion of the funds of banks and financial institutions is  thus  blocked  in
\nunproductive  assets,  the values of which keep deteriorating with the passage
\nof time.  Banks also incur substantial amounts of expenditure by way of  legal
\ncharges which add to their overheads.  The question of speeding up the process
\nof  recovery  was  examined  in  great  detail  by  a  Committee set up by the
\nGovernment under the Chairmanship  of  the  late  Shri  Tiwari.    The  Tiwari
\nCommittee  recommended,  inter alia, the setting up of Special Tribunals which
\ncould expedite the recovery process.
\n        The Committee also suggested some legislative  measures  to  meet  the
\nsituation.\n<\/p>\n
        Para   36:    In its Second Report, the Narasimham Committee observed
\nthat the NPAs in 1992 were uncomfortably high for most of  the  public  sector
\nbanks.   In  Chapter  VIII  of the Second Report of Narasimham Committee deals
\nabout legal and legislative framework and observed:\n<\/p>\n
        8.1:   A  legal  framework  that  clearly  defines  the  rights   and
\nliabilities  of  parties  to  contracts  and provides for speedy resolution of
\ndisputes is a sine qua non for efficient trade and  commerce,  especially  for
\nfinancial intermediation.  In our system, the evolution of the legal framework
\nhas  not  kept  pace  with changing commercial practice and with the financial
\nsector reforms.  As a result, the economy has not been able to reap  the  full
\nbenefits of  the  reforms  process.   As an illustration, we could look at the
\nscheme of mortgage in the Transfer of Property Act, which is critical  to  the
\nwork of financial intermediaries..
\n        One  of  the measures recommended in the circumstances was to vest the
\nfinancial institutions through special statutes, the  power  of  sale  of  the
\nasset  without intervention of the Court and for reconstruction of the assets.
\nIt is thus to be seen that the question of nonrecoverable or delayed  recovery
\nof  debts  advanced by the banks or financial institutions has been attracting
\nthe attention and the  matter  was  considered  in  depth  by  the  Committees
\nspecially constituted  consisting  of  the  experts  in  the  field.    In the
\nprevalent situation where the amount of  dues  are  huge  and  hope  of  early
\nrecovery  is less, it cannot be said that a more effective legislation for the
\npurpose was uncalled for or that it could not be resorted to.  It is again  to
\nbe  noted  that  after  the  report  of  the Narasimham Committee, yet another
\nCommittee was constituted headed by Mr.Andhyarujina  for  bringing  about  the
\nneeded steps  without  the legal framework.  We are, therefore, unable to find
\nmuch substance in the submission made on behalf of the petitioners that  while
\nthe  Recovery  of  Debts  Due  to  Banks and Financial Institutions Act was in
\noperation it was uncalled for to have yet another legislation for the recovery
\nof the mounting dues.  Considering the totality of circumstances the financial
\nclimate world over, if it was thought as a  matter  of  policy,  to  have  yet
\nspeedier  legal  method  to recover the dues, such a policy-decision cannot be
\nfaulted with nor it is a matter to be gone into by  the  Courts  to  test  the
\nlegitimacy of such a measure relating to financial policy.<\/p>\n
7.  Sections 34 and 35 of the Securitisation Act read as under:-\n<\/p>\n
                Section  34:  Civil Court not to have jurisdiction:-\n<\/p>\n
No  Civil Court shall have jurisdiction to entertain any suit or proceeding in
\nrespect of any matter  which  a  Debts  Recovery  Tribunal  or  the  Appellate
\nTribunal  is  empowered  by  or  under this Act to determine and no injunction
\nshall be granted by any Court or other authority  in  respect  of  any  action
\ntaken or to the taken in pursuance of any power conferred by or under this Act
\nor  under  the  Recovery of Debts Due to Banks and Financial Institutions Act,
\n1993.\n<\/p>\n
Section  35:  The provisions of this Act to override other laws:-\n<\/p>\n
        The provisions of this Act shall have effect, notwithstanding anything
\ninconsistent therewith contained in any other law for the time being in  force
\nor any instrument having effect by virtue of any such law.<\/p>\n
        8.   The relevant provision of the Securitisation Act about the rights
\nof secured creditor in Section 13 is as under:-\n<\/p>\n
                Section  13:  Enforcement of Security Interest:-\n<\/p>\n
(1) Notwithstanding anything contained in Section 69 or Section  69-A  of  the
\nTransfer of Property Act, 1882, any security interest created in favour of any
\nsecured  creditor  my  be  enforced,  without the intervention of the Court or
\ntribunal, by such creditor in accordance with the provisions of this Act.
\n(2) Where any borrower, who is under a liability to a secured creditor under a
\nsecurity agreement, makes any default in repayment  of  secured  debt  or  any
\ninstalment therefore, and his account in respect of such debt is classified by
\nthe  secured  creditor as non-performing asset, then, the secured creditor may
\nrequire the borrower by notice in writing to discharge in full his liabilities
\nto the secured creditor within sixty days from  the  date  of  notice  failing
\nwhich  the  secured  creditor  shall be entitled to exercise all or any of the
\nrights under sub-section (4).\n<\/p>\n
(3) The notice referred to in sub-section (2) shall give details of the amount
\npayable by the borrower and the secured assets intended to be enforced by  the
\nsecured creditor in the event of non-payment of secured debts by the borrower.
\n(3-A)  If,  on receipt of the notice under sub-section (2), the borrower makes
\nany representation  or  raises  any  objection,  the  secured  creditor  shall
\nconsider such representation or objection and if the secured creditor comes to
\nthe  conclusion  that  such  representation  or objection is not acceptable or
\ntenable,  he  shall  communicate  within  one  week   of   receipt   of   such
\nrepresentation   or   objection   the   reasons   for  non-acceptance  of  the
\nrepresentation or objection to the borrower:\n<\/p>\n
Provided that the reasons so communicated or the likely action of the  secured
\ncreditor  at  the stage of communication of reasons shall not confer any right
\nupon the borrower to prefer an application  to  the  Debts  Recovery  Tribunal
\nunder Section 17 or the Court of District Judge under Section 17-A.
\n(4)  In  case the borrower fails to discharge his liability in full within the
\nperiod specified in sub-section (2), the secured creditor may take recourse to
\none or more of the following measures to recover his secured debt, namely:-\n<\/p>\n
(a) take possession of the secured assets of the borrower including the  right
\nto  transfer  by  way  of  lease, assignment or sale for realizing the secured
\nasset;\n<\/p>\n
(b) take over the management of the business of  the  borrower  including  the
\nright  to  transfer  by  way  of  lease,  assignment or sale for realizing the
\nsecured asset:\n<\/p>\n
Provided that the right to transfer by way of lease, assignment or sale  shall
\nbe  exercised  only where the substantial part of the business of the borrower
\nis held as security for the debt:\n<\/p>\n
Provided further that where the management of whole of the business or part of
\nthe business is severable, the secured creditor shall take over the management
\nof such business of the borrower which is relatable to the  security  for  the
\ndebt.\n<\/p>\n
(c)  appoint  any person (hereafter referred to as the manager), to manage the
\nsecured assets the possession of which has been  taken  over  by  the  secured
\ncreditor;\n<\/p>\n
(d)  require at any time by notice in writing, any person who has acquired any
\nof the secured assets from the borrower and from whom any money is due or  may
\nbecome  due to the borrower, to pay the secured creditor, so much of the money
\nas is sufficient to pay the secured debt.\n<\/p>\n
(5) Any payment made by any person referred to in clause (d) of subsection (4)
\nto the secured creditor shall give such person a valid discharge as if he  has
\nmade payment to the borrower.\n<\/p>\n
(6) Any transfer of secured asset after taking possession thereof or take over
\nof management under sub-section (4), by the secured creditor or by the manager
\non  behalf  of the secured creditor shall vest in the transferee al rights in,
\nor in relation to, the secured asset transferred as if the transfer  had  been
\nmade by the owner of such secured asset.\n<\/p>\n
(7) Where any action has been taken against a borrower under the provisions of
\nsub-section  (4), all costs, charges and expenses which, in the opinion of the
\nsecured  creditor,  have  been  properly  incurred  by  him  or  any  expenses
\nincidental thereto, shall be recoverable from the borrower and the money which
\nis  received  by the secured creditor shall, in the absence of any contract to
\nthe contrary, be held by him in trust, to be applied, firstly, in  payment  of
\nsuch costs, charges and expenses and secondly, in discharge of the dues of the
\nsecured creditor and the residue of the money so received shall be paid to the
\nperson entitled thereto in accordance with his rights and interests.
\n(8)  If  the dues of the secured creditor together with all costs, charges and
\nexpenses incurred by him are tendered to the  secured  creditor  at  any  time
\nbefore  the  date  fixed  for sale or transfer, the secured asset shall not be
\nsold or transferred by the secured creditor, and  no  further  step  shall  be
\ntaken by him for transfer or sale of that secured asset.\n<\/p>\n
(9)  In  the  case  of financing of a financial asset by more than one secured
\ncreditors or joint financing of a financial asset  by  secured  creditors,  no
\nsecured  creditor  shall  be  entitled  to  exercise  any or all of the rights
\nconferred on him under or pursuant to sub-section (4) unless exercise of  such
\nright  is  agreed  upon  by  the  secured creditors representing not less than
\nthree-fourth in value of the amount outstanding as on a record date  and  such
\naction shall be binding on all the secured creditors:\n<\/p>\n
Provided  that  in  the case of a company in liquidation, the amount, realized
\nfrom the sale of secured assets shall be distributed in  accordance  with  the
\nprovisions of Section 529-A of the Companies Act, 1956:
\nProvided  further that in the case of a company being wound up on or after the
\ncommencement of this Act, the secured creditor of such company,  who  opts  to
\nrealize  his  security  instead  of relinquishing his security and proving his
\ndebt under proviso to sub-section (1) of Section 529  of  the  Companies  Act,
\n1956,  may retain the sale proceeds of his secured assets after depositing the
\nworkmens dues with the  liquidator  in  accordance  with  the  provisions  of
\nSection 529-A of that Act:\n<\/p>\n
Provided  also  that  the  liquidator  referred to in the second proviso shall
\nintimate the secured creditor  the  workmens  dues  in  accordance  with  the
\nprovisions  of  Section  529-A  of  the  Companies  Act, 1956 and in case such
\nworkmens dues cannot  be  ascertained,  the  liquidator  shall  intimate  the
\nestimated  amount of workmens dues under that section to the secured creditor
\nand in such case the secured creditor may retain  the  sale  proceeds  of  the
\nsecured  assets  after  depositing  the amount of such estimated dues with the
\nliquidator:\n<\/p>\n
Provided also that in case the secured creditor deposits the estimated  amount
\nof  workmens  dues,  such  creditor shall be liable to pay the balance of the
\nworkmens dues or entitled to receive the excess amount, if any, deposited  by
\nthe secured creditor with the liquidator:\n<\/p>\n
Provided  also  that  the secured creditor shall furnish an undertaking to the
\nliquidator to pay the balance of the workmens dues, if any.
\nExplanation:- For the purposes of this sub-section, –\n<\/p>\n
(a) record date  means  the  date  agreed  upon  by  the  secured  creditors
\nrepresenting  not less than three-fourth in value of the amount outstanding on
\nsuch date;\n<\/p>\n
(b) amount outstanding shall include principal, interest and any other  dues
\npayable by the borrower to the secured creditor in respect of secured asset as
\nper the books of account of the secured creditor.\n<\/p>\n
(10)  Where dues of the secured creditor are not fully satisfied with the sale
\nproceeds of the secured assets, the secured creditor may file  an  application
\nin  the  form  and  manner as may be prescribed to the Debts Recovery Tribunal
\nhaving jurisdiction or a competent Court, as the case may be, for recovery  of
\nthe balance amount from the borrower.\n<\/p>\n
(11)  Without  prejudice to the rights conferred on the secured creditor under
\nor by this section, the secured creditor shall be entitled to proceed  against
\nthe  guarantors  or  sell  the  pledged assets without first taking any of the
\nmeasures specified in clauses (a) to (d) of sub-section (4) in relation to the
\nsecured assets under this Act.\n<\/p>\n
(12) The rights of a secured creditor under this Act may be exercised  by  one
\nor  more  of  his  officers authorized in this behalf in such manner as may be
\nprescribed.\n<\/p>\n
(13) No borrower shall, after receipt of notice referred to in subsection (2),<\/p>\n
transfer by way of sale, lease or otherwise (other than in the ordinary course
\nof his business) any of his secured assets referred to in the notice,  without
\nprior written consent of the secured creditor.\n<\/p>\n
        9.   It may be mentioned here that after Securitisation Act, amendment
\nhas been made to Section 15 of the SICA as under:\n<\/p>\n
                Section  15:  Reference to Board:-\n<\/p><\/blockquote>\n
                        (1) Where an industrial  company  has  become  a  sick
\nindustrial company, the Board of Directors of the company, shall, within sixty
\ndays from the date of finalisation of the duty audited accounts of the company
\nfor  the  financial  year as at the end of which the company has become a sick
\nindustrial company, make a reference to the Board  for  determination  of  the
\nmeasures which shall be adopted with respect to the company. <\/p><\/blockquote>\n
                Provided that if the Board of Directors has sufficient reasons
\neven  before such finalisation to form the opinion that the company had become
\na sick industrial company, the Board of Directors  shall,  within  sixty  days
\nafter  tit  has  formed  such  opinion,  make a reference to the Board for the
\ndetermination of the measures which shall  be  adopted  with  respect  to  the
\ncompany.\n<\/p>\n
                Provided  further that no reference shall be made to the Board
\nof Industrial and the Financial Reconstruction after the commencement  of  the
\nSecuritisation  and  Reconstruction  of  Financial  Assets  and Enforcement of
\nSecurity Interest Act, 2002.  Where a financial assets have been  acquired  by
\nany  securitisation company or reconstruction company under sub-section (1) of
\nSection 5 of that Act.\n<\/p>\n
                Provided  also  that  on  or   after   the   commencement   of
\nSecuritisation  and  Reconstruction  of  Financial  Assets  and Enforcement of
\nSecurity Interest Act, 2002 were a reference is pending before the  Board  for
\nIndustrial  &  Financial  Reconstruction,  such a reference shall abate if the
\nsecured creditors representing not less than three  fourth  in  value  of  the
\namount  outstanding  against financial assistance disbursed to the borrower of
\nsuch secured creditors, have taken any measures to recover their secured  debt
\nunder the sub-section (4) of Section 13 of that Act.\n<\/p>\n
10.   Amendment  on  similar  lines  has  been  made  to  Section 424-A of the
\nCompanies Act, 1956.  Amended Section is as under:-\n<\/p>\n
                424-A.  Reference to Tribunal:-\n<\/p><\/blockquote>\n
                        (1)  Where  an  industrial  company  has  become  sick
\nindustrial  company,  the  Board  of  Directors  of  such company shall make a
\nreference  to  the  Tribunal  and  prepare  a  scheme  of  its   revival   and
\nrehabilitation  and  submit the same to the Tribunal along with an application
\ncontaining such particulars a may be  prescribed,  for  determination  of  the
\nmeasures which may be adopted with respect to such company;\n<\/p><\/blockquote>\n
                Provided  that  nothing  contained  in  this sub-section shall
\napply to a Government Company;\n<\/p><\/blockquote>\n
                Provided further that a Government Company, may with the prior
\napproval of the Central Government or a State Government, as the case may  be,
\nmake  a  reference  to  the Tribunal in accordance with the provisions of this
\nsub-section and thereafter, all the provisions  of  this  Act  apply  to  such
\nGovernment Company;\n<\/p><\/blockquote>\n
                Provided  also that in case any reference had been made before
\nthe Tribunal and a scheme for revival and rehabilitation submitted before  the
\ncommencement  of  the  Enforcement  of Security Interest and Recovery of Debts
\nLaws (Amendment) Ordinance, 2004, such a reference shall abate if the  secured
\ncreditors representing three fourth in value of the amount outstanding against
\nfinancial  assistance disbursed to the borrower have taken measures to recover
\ntheir secured debt under subsection (4) of Section 13  of  the  Securitisation
\nand  Reconstruction  of  Financial Assets and Enforcement of Security Interest
\nAct, 2002;\n<\/p><\/blockquote>\n
                Provided also that  no  reference  shall  be  made  under  the
\nSection  if  the  secured  creditors representing three fourth in value of the
\namount outstanding against financial assistance disbursed to the borrower have
\ntaken measures to recover their secured debt under sub-section (4) of  Section
\n13   of   the  Securitisation  and  Reconstruction  of  Financial  Assets  and
\nEnforcement of Security Interest Act, 2002.<\/p>\n<\/blockquote>\n
                11.  At this stage we may also refer to the  judgment  of  the
\nSupreme Court in  Allahabad  Bank Vs.  Canara Bank, (2000) 4 SCC 406.  In that
\ncase, the question of jurisdiction of the Debts Recovery  Tribunal  under  the
\nRecovery of Debts Due to Banks and Financial Institutions Act, 1993, vis-`-vis
\nthe Company  Court arose for decision.  The Supreme Court held that even where
\na winding-up petition is pending,  or  a  winding-up  order  has  been  passed
\nagainst the debtor company, the adjudication of liability and execution of the
\ncertificate  in  respect of debts payable to banks and financial institutions,
\nare respectively within the  exclusive  jurisdiction  of  the  Debts  Recovery
\nTribunal  and  the  Recovery  Officer  under  that Act and in such a case, the
\nCompany Courts jurisdiction under Sections 442, 537 and 446 of the  Companies
\nAct stood  ousted.    Hence,  no  leave of the Company Court was necessary for
\ninitiating proceedings under the Recovery of Debts Act.  Even  the  priorities
\namong  various creditors, could be decided only by the Debts Recovery Tribunal
\nin accordance with Section 19(19) of the  Recovery  of  Debts  Act  read  with
\nSection 529-A  of  the  Companies  Act and in no other manner.  The Court took
\ninto account the fact that the Recovery of Debts Due to  Banks  and  Financial
\nInstitutions  Act,  1993  was a legislation subsequent in point of time to the
\nintroduction of Section 529-A of the Companies Act by Act 35 of  1985  and  it
\nhad overriding effect.  But it noticed that by virtue of Section 19(19) of the
\nRecovery  of  Debts  Act,  the  priorities  among  various creditors had to be
\ndecided by the Recovery Tribunal  only  in  terms  of  Section  529-A  of  the
\nCompanies  Act  and  Section  19(19)  did  not  give  priority  to all secured
\ncreditors.  Hence, it was necessary to identify the limited class  of  secured
\ncreditors  who have priority over all others in accordance with Section 52 9-A
\nof the Companies Act.  The Court also held that the occasion for a claim by  a
\nsecured  creditor  against  the  realization  by other creditors of the debtor
\nunder Section 529-A read with proviso (c) to Section 529(1) of  the  Companies
\nAct  could  arise  before  the  Debts  Recovery  Tribunal only if the creditor
\nconcerned had stood outside the winding up and realized amounts and if  it  is
\nshown  that out of the amounts privately realized by it, some portion had been
\nrateably taken away by the Liquidator under Clauses (a) and (b) of the proviso
\nto Section 529 (1).  The  Court  has  not  held  that  Section  529-A  of  the
\nCompanies  Act will have no application in a case where a proceeding under the
\nRecovery of Debts Act has been set in motion by a financial institution.   The
\nCourt  there  was  essentially  dealing  with  the  jurisdiction  of the Debts
\nRecovery Tribunal in the face of Sections 442, 537 and 466  of  the  Companies
\nAct.<\/p><\/blockquote>\n
                12.  In  Rajasthan  State  Financial Corporation Vs.  Official
\nLiquidator, (supra) the  question  that  fell  for  consideration  before  the
\nSupreme Court was as to the right of State Financial Corporation under Section
\n29  of  the  State  Financial Corporations Act, 1951 against debtor company to
\nsell assets of company and realize security, when the company is under winding
\nup.  The Supreme Court held that  in  such  a  case  the  said  power  can  be
\nexercised  by the State Financial Corporation only after obtaining appropriate
\npermission from Company Court and acting in  terms  of  directions  issued  by
\nCompany  Court  as  regards  conduct  of the sale and distribution of proceeds
\nthereof in terms of Sections 5 29 and 529-A of the Companies Act.   Paragraphs
\n17 and 18 of the said decision are important for the purpose deciding the case
\nof hand and read as follows:\n<\/p>\n
                Para- 17:  Thus, on the authorities what emerges is that once
\na  winding-up  proceeding has commenced and the Liquidator is put in charge of
\nthe assets of the company being wound up, the distribution of the proceeds  of
\nthe  sale  of  the  assets  held at the instance of the financial institutions
\ncoming under the Recovery of Debts Act or  of  financial  corporations  coming
\nunder the SFC Act, can only be with the association of the Official Liquidator
\nand under  the  supervision  of  the  Company Court.  The right of a financial
\ninstitution or of the Recovery Tribunal or that of a financial corporation  or
\nthe  court  which  has been approached under Section 31 of the SFC Act to sell
\nthe assets may not be taken away,  but  the  same  stands  restricted  by  the
\nrequirement  of  the  Official Liquidator being associated with it, giving the
\nCompany court the right to ensure that the distribution of the assets in terms
\nof Section 529-A of the Companies Act takes place.    In  the  case  on  hand,
\nadmittedly, the appellants have not set in motion any proceeding under the SFC
\nAct.   What  we  have is only a liquidation proceeding pending and the secured
\ncreditors, the  financial  corporations  approaching  the  Company  Court  for
\npermission  to  stand outside the winding up and to sell the properties of the
\ncompany-in-liquidation.  The Company Court has rightly directed that the  sale
\nbe  held  in association with the Official Liquidator representing the workmen
\nand that the proceeds will be held by the Official Liquidator until  they  are
\ndistributed  in  terms  of  Section  529-A  of  the  Companies  Act  under its
\nsupervision.  The directions thus,  made,  clearly  are  consistent  with  the
\nprovisions  of  the relevant Acts and the views expressed by this Court in the
\ndecisions referred to above.    In  this  situation,  we  find  no  reason  to
\ninterfere with  the  decision  of the High Court.  We clarify that there is no
\ninconsistency between the decisio ns in  Allahabad  Bank  Vs.    Canara  Bank,
\n(2000) 4 SCC  406  and  in  International  Coach Builders Ltd.  Vs.  Karnataka
\nState Financial Corporation, (2003) 10 SCC 482 in respect of the applicability
\nof Sections 529 and 529-A of the Companies Act in the matter  of  distribution
\namong the  creditors.    The  right  to  sell  under  the SFC Act or under the
\nRecovery of Debts Act by a creditor coming  within  those  Acts  and  standing
\noutside  the winding up, is different from the distribution of the proceeds of
\nthe sale of the security.  The distribution in a case where the  debtor  is  a
\ncompany  in  the  process  of  being wound up, can only be in terms of Section
\n529-A read with Section 529 of the Companies Act.  After all,  the  Liquidator
\nrepresents  the  entire  body of creditors and also holds a right on behalf of
\nthe workers to have a distribution pari passu with the secured  creditors  and
\nthe  duty  for  further  distribution  of  the  proceeds  on  the basis of the
\npreferences contained in Section 530 of the Companies Act under the directions
\nof the Company Court.  In other words, the distribution of the  sale  proceeds
\nunder the direction of the Company Court is his responsibility.  To ensure the
\nproper working out of the scheme of distribution, it is necessary to associate
\nthe Official Liquidator with the process of sale so that he can ensure, in the
\nlight  of  the directions of the Company Court, that a proper price is fetched
\nfor the assets of the company in liquidation.  It was in that context that the
\nrights of the  Official  Liquidator  were  discussed  in  International  Coach
\nBuilders Ltd.   (supra).    The Debts Recovery Tribunal and the District Court
\nentertaining an application under Section 31  of  the  SFC  Act  should  issue
\nnotice  to  the  Liquidator  and  hear  him  before  ordering  a  sale, as the
\nrepresentative of the creditors in general.\n<\/p>\n
Para- 18:  In the light of the discussion as above, we think it proper to  sum
\nup the legal position thus:\n<\/p>\n
(i)A  Debts  Recovery Tribunal acting under the Recovery of Debts Due to Banks
\nand Financial Institutions Act, 1993 would be entitled to order the  sale  and
\nto  sell  the  properties  of  the  debtor,  even if a company in liquidation,
\nthrough its Recovery Officer but only after notice to the Official  Liquidator
\nor the Liquidator appointed by the Company Court and after hearing him.\n<\/p>\n
(ii)A  District  Court entertaining an application under Section 31 of the SFC
\nAct will have the power to order sale of the assets of a borrower  company  in
\nliquidation,  but  only  after  notice  to  the  Official  Liquidator  or  the
\nLiquidator appointed by the Company Court and after hearing him\n<\/p>\n
(iii)If a financial corporation acting under Section 29 of the SFC  Act  seeks
\nto  sell  or otherwise transfer the assets of a debtor company in liquidation,
\nthe said power could be exercised by it only after obtaining  the  appropriate
\npermission from the Company Court and acting in terms of the directions issued
\nby  that  Court  as regards associating the Official Liquidator with the sale,
\nthe fixing of the upset price or the reserve price, confirmation of the  sale,
\nholding  of the sale proceeds and the distribution thereof among the creditors
\nin terms of Section 529-A and Section 529 of the Companies Act.\n<\/p>\n
(iv)In a case where proceedings under the Recovery of Debts Due to  Banks  and
\nFinancial  Institutions  Act,  1993  or the SFC Act are not set in motion, the
\ncreditor concerned is to approach the Company Court for appropriate directions
\nregarding the realization of  its  securities  consistent  with  the  relevant
\nprovisions  of  the  Companies Act regarding distribution of the assets of the
\ncompany in liquidation.\n<\/p>\n
13.  In the light of the law  laid  down  by  the  Rajasthan  State  Financial
\nCorporation  Case  (supra)  it  is  clear that where the bank or the financial
\ninstitution has initiated proceedings under the Recovery of Debts Due to Banks
\nand Financial Institutions Act, 1993, the Debts  Recovery  Tribunal  would  be
\nentitled  to  order  sale  even  if a company is under liquidation through its
\nRecovery Officer, but only after notice to  the  Official  Liquidator  or  the
\nLiquidator appointed  by  the  Company  Court  and  after hearing him.  Where,
\nhowever, no proceedings have been initiated under the Recovery of Debts Due to
\nBanks and Financial Institutions Act, 1993 the case would fall under paragraph
\n18 (iii) of the judgment of the Supreme Court  in  Rajasthan  State  Financial
\nCorporation Case, (supra).  In that event if the securitisation company acting
\nunder Section 13 of the Securitisation Act seeks to sell or otherwise transfer
\nthe  assets  of  a  debtor  company  in  liquidation,  the said power could be
\nexercised by it only after  obtaining  the  appropriate  permission  from  the
\nCompany  Court  and  acting in terms of the directions issued by that Court as
\nregards associating the Official Liquidator with the sale, the fixing  of  the
\nupset  price  or  the  reserve price, confirmation of the sale, holding of the
\nsale proceeds and distribution thereof among the creditors in terms of Section
\n529-A and 529 of the Companies Act.\n<\/p>\n
14.  In the instant case, the Official Liquidator has taken possession of  the
\nassets and  certain  movables have already been sold.  The Official Liquidator
\nhas also got valuation of some of the assets by  ITCOT  Consultancy  Services,
\nChennai.   A sum of Rs.2 lakhs has been paid as valuation fee for valuation of
\nthe assets.  In our opinion, the ends  of  justice  would  be  served  if  the
\nOfficial  Liquidator is directed to associate the appellant-company in sale of
\nthe assets in terms of paragraph  18(iii) of the  Rajasthan  State  Financial
\nCorporation Case,  (  supra).    The  appellant  through  its  counsel makes a
\nstatement that in view  of  the  facts  and  circumstances  of  the  case  the
\nappellant shall  not  claim  any  commission  on  the sale of the assets.  The
\nappeals are accordingly disposed of.    No  costs.    Consequently,  connected
\nC.M.Ps.  are closed.\n<\/p>\n
sm <\/p>\n
O.S.A.Nos.  214 & 215 of 2005 <\/p>\n
The Honble Chief Justice
\nand
\nM.Jaichandren,J\n<\/p>\n
——————————–\n<\/p>\n
(The Order of the Court was made by Honble The Chief Justice)<\/p>\n
        A further  bid  was  held  in  the Court.  Mr.M.Palanisamy residing at
\nCoimbatore, has bid for a sum of Rs.27.50  crores  for  C-1,  Viscose  Towers,
\nwhich is  accepted.    The  successful bidder agrees to pay the balance amount
\nwithin a period of three months from to-day, failing which  the  EMD  will  be
\nforfeited.\n<\/p>\n
2.   As  regards  the  property located at C-2, Mettupalayam is concerned, one
\nMr.P.Shanmugam, residing at Sankari-632 301, has bid  for  a  sum  of  Rs.1.55
\ncrores, which  is  accepted.   The successful bidder agrees to pay the balance
\namount within a period of three months from to-day, failing which the EMD will
\nbe forfeited.\n<\/p>\n
        3.  The EMDs of unsuccessful bidders shall  be  returned  to  them  by
\ntoday itself.\n<\/p>\n
        4.   M\/s.Asset Reconstruction Company (India) Limited and the Official
\nLiquidator are directed to approach the  learned  Company  Judge  for  further
\ndirections in the matter.\n<\/p>\n
pv\/<\/p>\n","protected":false},"excerpt":{"rendered":"
Madras High Court Asset Reconstruction vs The Official Liquidator on 18 April, 2006 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18\/04\/2006 CORAM THE HON’BLE MR.A.P.SHAH, CHIEF JUSTICE and THE HON’BLE MR. JUSTICE M.JAICHANDREN O.S.A.No. 214 of 2005 and O.S.A.No.215 of 2005 and C.M.P.Nos.15340 to 15343 of 2005 Asset Reconstruction Company (India) Limited, Rep. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,13],"tags":[],"class_list":["post-211362","post","type-post","status-publish","format-standard","hentry","category-high-court","category-madras-high-court"],"yoast_head":"\nAsset Reconstruction vs The Official Liquidator on 18 April, 2006 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/asset-reconstruction-vs-the-official-liquidator-on-18-april-2006\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Asset Reconstruction vs The Official Liquidator on 18 April, 2006 - 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