The Akola Oil Industries (Under ... vs State Bank Of India
2005 Latest Caselaw 583 Bom

JUDGMENT

B.P. Dharmadhikari, J.

1. Board of Industrial and Financial Restructuring recommended winding up of Akola Oil Mills & accordingly on 8/6/2001 present Company petition No. 5 of 2001 Akola Oil Mills Ltd came to be filed & it is already admitted by this court on 24th August 2001. On 6/6/2003 Official Liquidator came to be appointed as provisional Liquidator for it. The Official Liquidator states that in pursuance of this appointment, he has taken over possession of all properties and assets of the company at Akola which consist of land, Building, plant and machinery stores, vehicles, furniture and fixtures on 11/6/2003. So far as properties located at Mumbai, Poona and Nashik are concerned, possession thereof is taken by Official Liquidator between 22/7/2003 to 24/7/2003. He states that thereafter two valuers were appointed and their report in relation to valuation of above properties is also received. On 17/10/2003. This court directed its office to renew fixed deposit receipt (FDR) which had matured for another period of 90 days and directed the master to be listed after the courts reopened after the Diwali Vacation of 2003. On same day, State Bank Of India, one of the secured creditors obtained orders permitting them to proceed against the company under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. (Referred to as Securitisation Act hereafter). Grievance of Official Liquidator is that said orders have been obtained behind his back and thereafter said Bank i.e. State Bank of India also published advertisements for sale of immovable and immovable properties for recovery of its loan. Official Liquidator filed OLR No. 62 of 2003 for sale of properties as per valuation report. Winding up order in this case has been passed on 23/4/2004 and Provisional Liquidator was appointed as Official Liquidator. Ii appears that in the meanwhile Bank was prosecuting its remedy against Akola Oil Mills before Debt Recovery Tribunal (referred as DRT) and on 4/10/2004 DRT permitted recovery. In pursuance thereof Bank wanted to dispose of the property and therefore published advertisements and Invited bidders. Company Application 97/2004 is filed by Official Liquidator for recalling the order dated 17th Oct. 2003 while Company Application No. 11/2004 is filed by workmen/intervenors for same purpose. Company Application No. 83 of 2004 is filed by Official Liquidator for staying the advertisement dated 12/10/2004 while Company Application No. 91/2004 is again filed by Official Liquidator for staying subsequent advertisement dated 11/11/2004. Company Application No. 57/2001 is filed by Bank for staying outside the winding up proceedings. All these applications are being considered in this background. The Bank has been prohibited from taking any decision in pursuance of impugned advertisements by this court by appropriate interim orders.

2. Advocate Shriniwas Deshpande for the Official Liquidator contends that orders have been obtained from DRT without intimating the pendency of recovery proceedings to this court and without obtaining its leave. He contends that Section 446(1) of the Companies Act specifically requires leave of this court and while granting leave this court can impose appropriate terms and conditions in that respect. He states that even Official Liquidator was not communicated about pendency of matter before DRT. It is his argument that the decision of DRT dated 4th Oct. 2004 is therefore illegal and not binding on Official Liquidator or Company court. He states that in this court alone has got jurisdiction to decide priorities amongst creditors in view of Section 446(2) and proceedings before DRT ought to have been transferred to this court in view of requirement of Section 446(8) of companies Act. It is the contention of Official Liquidator that on this account both advertisements i.e. dated 12/10/2004 11/11/2004 therefore are ineffective and need to be quashed. It is his contention that order dated 17/10/2003 was in operation when Provisional Liquidator was functioning but the order lost its efficacy moment Provisional Liquidator was appointed as Regular Liquidator and Akola Oil Mills was finally directed to be wound up. The Liquidator has taken up charge of all properties and assets of Akola Oil Mills and that includes property allegedly mortgaged with Bank, learned Advocate argues that possession has been taken with the consent of Bank and as such Bank had no authority to issue the advertisements. He further states that when possession of property was with Liquidator, Bank could not have the taken it without the leave of the court and Bank could not have proceeded to sale that property. In support of his contention, he has placed reliance upon provisions of Companies Act and also decided cases. Reference to the same will be made at appropriate places in the body of the judgment. He further argues that. Securitisation Act has come into force the recently while the defaults committed by Akola Oil Mills are old and hence provisions of Securitisation Act cannot be made applicable retrospectively in case of such defaults. He has also contended that the Bank is acting malafide in the matter inasmuch as it has no charge over the entire area of land which it has put to auction and its charge as registered is only for 11 acres. He further states that the Bank cannot proceed to auction movables by taking recourse to Securitisation Act. He states that the Bank has tried to mislead this court and the purchasers, and therefore appropriate action for contempt must be initiated against the Bank. He has further stated that the steps taken by State Bank are also beyond period of limitation and hence, void. He further argues that the charge by way of Mortgage in favour of said Bank is not registered with Registrar of Companies as contemplated by Section 125 of companies Act and therefore is void as against Official Liquidator. He invites attention to 2 advertisements on record to contend that State Bank is trying to sale valuable movables and thus, it is acting malafide. Advocate Ghare has adopted these arguments in support of his application.

3. As against this. Advocate Anil Kumar who appears for Bank states that as on 31/12/2003, State Bank had to recover Rs. Fortyfour Crores Twelve Lakhs, Fortyfour Thousand seven hundred Eighty-six & Sixty-seven Nayapaisa only (44,12,44,786.67) from Company. He argues that leave of court was not necessary at all and the Bank had tiled application No. 57/2001 for remaining outside the winding up proceedings in accordance with law. He stales that application rendered on 17/10/2003 was in furtherance of the prayer made in application 57/2001. He makes reference to various provisions of Companies Act and also to various decided cases and submits that the Bank was not required to obtain any leave from this court to prosecute its remedy before DRT. He contends that RDB Act. (Recovery of Debts Due to Banks & Financial Institutions Act, 1993) and Securitisation Act are special enactments and they prevail over the provisions of Companies Act. He states that application moved on 17/10/2003 was formal one and as such its copy was not given to Official Liquidator, because the Official Liquidator has no role to play in the matter. He further states that Securitisation Act is applicable prospectively even in case of past liabilities if requirement thereof are fulfilled. He therefore contends that there is no question of retrospective operation of Securitisation Act. He further states that registration of charge is the internal work of the office of Registrar of companies but the Bank has intimated complete charge over 18 acres and therefore Hank is justified in proceeding against entire land. He argues that there is no scope for initiation of any contempt of court action or action of similar nature against the Bank in this respect. He further states that on 8/1/2004 the Bank issued notice under Section 13(2) of Securitisation Act and on 8/4/2004 obtained the possession under Section 13(4) thereof. He states that notice to this effect was published in newspapers on 22/4/2004 and the Akola Oil Mills was ordered to be wound up by this court on 23/4/2004. He further states that though Official Liquidator, after appointment, as a Provisional Liquidator took the possession, he handed over the possession to the Hank as caretaker. He therefore contends that Official Liquidator was not in possession at all insofar as mortgaged properly is concerned. The advertisements in dispute are published by State Bank in furtherance of notice under Section 13(4) of Securitisation Act.

4. Two bidders at auction of Hank have filed Company applications 94/2004. 2/05 and 13/05. They have participated in auction conducted ay Bank of in pursuance of the advertisements mentioned above. However none of them remained present when the matter was taken up for hearing.

5. I have reproduced in brief above, the arguments of respective sides. It is apparent that the real issue is whether Bank of is required to take leave to enforce its security for recovery of its loan by remaining out of winding up proceedings. If leave is necessary, effect, of order dated 17/10/2003 and whether it is necessary to recall it can be considered. Similarly, the area and extent of property against which Bank can proceed can also be considered thereafter.

6. The secured credit or i.e. State Bank of India has relied upon to the Judgment of Hon'ble Apex Court reported at between Chandradhar Goswami v. Gauhati Bank Ltd. The Hon'ble Apex Court has in paragraph 8 found that suit was clearly within time insofar as the liability for sale under the mortgage deed is concerned as it was filed within 1.2 years of the execution of the mortgage. Here, the mortgage in favour of State Bank of India is dated 4/5/1990 by depositing title deeds and for enhanced limits, on 21/8/1991 by depositing title deeds. The company approached BIFR vide case No. 135/1990 under Section 4 of Sick Industrial Companies (Special Provisions) Act (1985) (1 of 1986) referred to as SICA hereafter. On 17/8/2000 and 28/11/2000 BIFR came to conclusion under Section 20 that the company is not likely to make its net worth exceed accumulated losses, within reasonable time and is not viable. Said authority dismissed the proceedings on 28/11/2002 and appeal preferred by Company was dismissed by Appellate Authority on 27/3/2001. Thereafter the company approached Delhi High Court, and Hon'ble Apex Court, unsuccessfully. Thereafter the winding up proceedings started. Thus, in view of Section 22(5) of SICA, said period will have to be excluded and the claim of secured creditor Bank will be governed by Article 65 of Limitation Act and is not barred by limitation. Further, the issue whether State Bank has acted within time or not is relevant in proceedings initiated before DRT under RDB Act or in proceedings under Securitisation Act. The plea therefore can be raised and considered by competent authority functioning under those Acts. BIFR had in August, 2000 appointed State Bank as operating agency & said Bank took possession in November 2000. In AIR 1990 SUPREME COURT 1017 "Gram Panchayat v. Shree Vallabh Glass Works Ltd." while affirming , Hon'ble Apex Court has held where proceedings under Sections 16 and 17 of Sick Industrial Companies (Special Provisions) Act (1985) (1 of 1986) were pending against certain company, the proceedings to recover property tax under Section 129 of Bombay Village Panchayats Act (1958) shall not lie without consent of the Board for Industrial and Financial Reconstruction, in view of Sub-section (1) of Section 22 of the Act (1 of 1986). Section 22(1) provides that in case the enquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration by the Board or any Appeal under Section 22 is pending then certain proceedings against the sick industrial company are to be suspended or presumed to be suspended. The nature of proceedings which are automatically suspended are: (1) Winding up of the industrial company; (2) Proceedings for the execution distress or the like against the properties of sick industrial company and (3) Proceedings for the appointment of Receiver. The proceedings in respect of these matters could, however be continued against the sick industrial company with the consent or approval of the Board or of the Appellate Authority as the case may be. In the light of the steps taken by the Board under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company could lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the Company's properties. As soon as the inquiry under Section 16 is ordered by the Board, the various proceedings set out under Sub-section (1) of Section 22 would be deemed to have been suspended. The Hon'ble Apex Court has further observed that it may be against the principals of equity if the creditors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission to proceed against the Company for the recovery of their dues, outstandings, overdues or arrears by whatever name it is called. The Board at its discretion may accord its approval for proceeding against the company. If the approval is not granted, the remedy is not extinguished. It is only postponed, Sub-section (5) of Section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues. Here it is not in dispute that said Board appointed State Bank as operating agency during pendency of proceedings before it. Thus objection of Official Liquidator on this account is rejected. There is no question of retrospective operation of Securitisation Act also in as much as when the State Bank took action under Section 13(4) thereof its claim was within limitation as per Limitation Act, 1963.

7. Provisions of Section 31 of Securitisation Act are very clear and say that does not apply to a lien on any goods or security given under Indian contract Act, a pledge of movables. It is revealed that the State Bank is also proceeding against certain movables like valuable utensils, ornaments, jewelry etc. However said act is apparently without jurisdiction and therefore, cannot be permitted. Said movables have already vested in Official Liquidator and Stale Bank cannot deal with it in any manner. It is not the case of State Bank that said movables are given to it as security and it can proceed to sell them by staying out of winding up proceedings.

8 Merely because the mortgaged properly comes in possession of Official Liquidator, that does not mean that the State Bank has relinquished its claim over it. On the contrary, the Official Liquidator got possession on 11/6/2003 after he came to be appointed as Provisional Liquidator. It can not be ignored that the State Bank had already moved this court in 2001 itself for remaining out of winding up proceedings vide company application 57/2001. It was appointed as operating agency by BIFR on 17th August 2000 and 11 took possession from Messer's Akola Oil Mills on 15th November 2000. The inference which Official Liquidator wants to draw from his possession on 11/6/2003 is therefore unwarranted. The security and the right of State Bank in it is not destroyed by such possession.

9. Advocate Kumar has relied upon between Executive Engineer, Jal Nigam Central Stores v. Suresha Nanda Juyal to contend that when symbolic possession is taken, the property vests in secured creditor. The reported case considers provisions of Land Acquisition Act and holds that land stood vested in the State free from all encumbrances from the date of symbolic possession. However, I do not find any provision in Securitisation Act which vests the property with secured creditor after he takes symbolic possession. On the contrary, aggrieved person has got remedy of filing appeal under Section 17 before DRT and as such, this case law has no application here.

10. This brings me to the arguments that sale by State Hank in pursuance of Securitisation Act is not valid & does not bind Company Court. Reliance in this respect is on case law under State Financial Corporation Act.

A. Advocate Deshpande has relied upon the judgment of this court reported at 1984 (56) Company Cases 19 between Kamani Metallic Oxides Ltd v. Kamani tubes Ltd. In that case notice of motion was taken out by Kamani Tubes Ltd for permission to dispose of the assets of the company or, in the alternative, to dispose of 95,117 equity shares of Kamani Engineering Corporation Ltd. The motion was opposed on the ground that Section 536(2) of companies Act cannot be invoked unless and until a winding up order is made. The Division Bench took the view that Section 536 finds place in that portion of the Act which deals with effect of winding up on an antecedent and other transactions, and there is nothing in Sub-section (2) of the scheme of the Act to show that court cannot authorise a disposition in case where the winding up petition is pending but winding up order has not been made. It is found that disposal of property would be necessary in the interest of the company and thus in the ultimate interest of the creditors of the Company, during pendency of the application for winding up. The Division Bench has taken notice of the fact that directors would be reluctant to enter into such transaction on their own due to fear of transaction being declared invalid on the passing of the winding up order. It is held, the Company court must have jurisdiction to protect such transactions and the court must be in position to exercise jurisdiction under Section 536(2) even before the winding up order is made. The fact that the order would become otiose, if the application for winding up is ultimately rejected, does not lake away the jurisdiction. It therefore allowed the motion. Division Bench has held that object of the section is to project interest of creditors from the possibly unfortunate results which would ensue from the presentation of a petition, and to protect their interests as much during the period while the petition was pending as after an order has been made on it. This case obviously has no application because here the sale is by secured creditor for realising its security.

B. Advocate Deshpande has also relied upon judgment of this court reported at 1994 (81) Company Cases 599 between Indian Textiles and Anr. v. Gujarat State Financial Corporation and Ors. The learned single Judge of this court has held that by virtue of operation of provisions contained in Section 456 of the Companies Act, the Official Liquidator is entitled to the custody and control of all the properties, effects and claims to which company under winding up is entitled. By virtue of the operation of Section 456(2) of said that, all the properties and effects of the company are deemed to be in the custody of the Company Court as from the dale of the order for the winding up of the company. It has, therefore, held that Section 29(1) of the State Financial Corporation Act, 1951 cannot be invoked by State financial Corporation once the debtor company is directed to be wound up and the company court is deemed to be in custody of all assets of the company by virtue of the operation of Section 456(2) of the Companies Act. Section 29(1) of State Financial Corporation Act, 1951 can be invoked by State Financial Corporation in an appropriate case only before such an eventuality has taken place and not thereafter. This court has held that such a course was not open without obtaining prior leave of the company court winding up the company. It has found that powers in the Section 29(1) of State Financial Corporation Act could be exercised only when company or industrial concern itself was in charge of and in control of its assets and not when it had lost control over them and the same were in custody of Official Liquidator or the High Court This court therefore directed Gujarat state financial Corporation to handover the entire amount of sell proceeds received by it from sale of plant and machinery to the Official Liquidator as such sale was conducted without the leave of Company Court. It found that the action of Gujarat State Financial Corporation was illegal but not mala fide and therefore did not initiate contempt of court proceedings. It is the argument of learned counsel that this ruling also shows that no overriding effect can be given to provisions of other laws like RDB Act or Securitisation Act. He states that provisions of State Financial Corporation Act considered in this ruling are pari materia with provisions in RDB Act and Securitisation Act.

C. Learned counsel for Official Liquidator has also relied upon judgment of Patna High Court reported at 1998 (98) Company Cases 340 between Baijnath Prasad and Anr. v. Jaimangal Ltd. and Ors. In this case, Patna High Court has taken same view as in case of Indian Textiles (supra) and as State Financial Corporation had taken possession before passing of winding up order, it was allowed to retain possession but records were directed to be handed over to Official Liquidator for discharge of statutory obligation and sale was directed to be by State Finance Corporation, under the supervision of court.

D. However the judgment of Hon'ble Apex Court reported at A.I.R. 2000 SC 1535 between Allahabad Bank v. Canara Bank which is cited by State Bank assumes importance here. In para 30 after referring to the earlier judgment between Damji Valjl Shah v. Life Insurance Corporation of India reported at , the Hon'ble Apex Court has held :

"Just as the Company Court was held incompetent to stay or transfer and decide the claims made before the LIC Tribunal because the Company Court could not decide the claims before the LIC Tribunal, the said Court cannot, in our view, decide the claims of Banks and Financial institutions. On the same parity of reasoning as in Damji Valji Shah's case , there is no need for the appellant to seek leave of Company court to proceed with its claim before Debt Recovery Tribunal, or in respect of the execution proceedings before the Recovery Officer. Nor can they be transferred to the Company Court."

In paragraph 3.1, the Hon'ble Apex Court observes -

"31. It may also be noticed that in the LIC Act of 1956, there was no provision like Section 34 of the RDB Act, giving overriding effect to the provisions of the LIC Act. Still this court upheld the exclusive jurisdiction of the LIC Tribunal observing as follows:

"The provisions of the special Act i.e. the LIC Act will override the provisions of the general Act, the Companies Act which is an Act relating to companies in general."

We are of the view that appellant's case under RDB Act. -- with additional section like Section 34 -- is on a stronger footing for holding that leave of company, court is not necessary under Section 537 or under Section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the Company Court cannot also use its powers under Section 442 against the Tribunals/Recovery Officer. Thus, Section is 442, 446 and 537 cannot be applied against the Tribunal."

In Paragraph 34 the Hon'ble Apex Court has held that purpose of RDB Act is superior than Companies Act and thereafter observed: " In our opinion, the very same principle mentioned above equally applies to Tribunal/Recovery Officer under the RDB Act, 1993 because the purpose of the said Act is something more important than the purpose of Section 442, 446 and 537 of Companies Act. It was intended that there should be a speedy and summary remedy for recovery of thousands of Crores which were due to the Banks and to Financial Institutions, so that the delays occurring in winding up proceedings could be avoided."

The Hon'ble Apex Court has also found that priorities amongst creditors are also to be worked out only by Tribunal under RDB Act. In paragraph 39 it has been held that Companies Act is the general statute while RDB Act is special statute overriding the general statutes. It has held that RDB Act is latter Act and in view of Section 34 it overrides the Companies Act, to the extent there is anything inconsistent between the Acts.

E. In Industrial Credit and Investment Corporation of India Ltd. v. Vanjinad Leathers Ltd reported at 1998 (91) Company Cases 625, the learned single Judge of Kerala High Court has, after considering Section 34 of RDB Act held that it has overriding power and it prevails over the provisions in the Companies Act, 1956 and as such leave in terms of Section 537 of Companies Act is not necessary. When the latter special was enacted, Parliament would have certainly in mind the provisions of earlier special law, namely, the Companies Act, 1956. Thus, it was notwithstanding the special provision contained in the Companies Act, 1956, that Section 31 had been enacted in the 1993 Act. Therefore, the latter special law will prevail over the former & the Company Court will not have jurisdiction with regard to suits or applications pending on or after the "appointed day" as per the 1993 Act. Thus, exercise of power by company court under Section 446 of Companies Act, 1956 is excluded by Section 34 of RDB Act. This ruling is approved by Hon'ble Apex Court in Allahabad Bank v. Canara Bank (supra).

F. In between Mehsana District Central Cooperative Bank v. State of Gujarat and Ors., the Hon'ble Apex Court has held that provisions of Gujarat Co-operative Society's Act, particularly Section 71 thereof provide restrictive mode of investment by Cooperative Bank's and said provision is not in derogation but in addition to Banking Regulation Act. Gujarat Act is assented to by President and there is no repugnancy or inconsistency between Gujarat Act and Banking Regulation Act. The Hon'ble Apex Court therefore found that Co-operative Bank has to make investment according to norms in Gujarat Act and not in Banking Regulation Act.

G. In Maharashtra State Financial Corporation v. Swift Industries and Anr. reported at 1992 Mh.L.J. 925, this court has held that the appellant before it are not precluded from taking recourse to Section 29 though there have already invoked Section 31 of State Finance Corporation Act. However, in view of the judgment of Hon'ble Apex Court in case between Allahabad Bank v. Canara Bank, it is not necessary for this court to consider this question in more details.

H. Advocate Kumar has also relied upon judgment of Hon'ble Apex Court reported at between M.K. Ranganathan v. The Government of Madras. However, this ruling is considered by Hon'ble Apex Court in Allahabad Bank v. Canara Bank (supra) and in paragraph 42 it negated the argument that Section 171 (corresponding to Section 446(1)) was a supplementary to Section 232 and 229 (corresponding to Section 529 of the new Act) because earlier in paragraph 41 it found that proceedings before DRT under RDB Act could not be stayed under Section 537 read with Section 442 of Companies Act, 1956. The Hon'ble Apex Court held that jurisdiction of DRT under RDB Act is exclusive and Section 34 gives overriding effect to the provisions of RDB Act.

I. 1992 (2) Mh.L.J. 1239 between Vysya Bank Ltd. v. Official Liquidator has been relied upon to contend that obtaining leave is not condition precedent and it can be granted even latter one. However in view of discussion above, it is not necessary for this court to consider this ruling at length. Similarly case between Zainab bai v. Navayug Chitrapat Co. Ltd. reported at 1967 BCI (O) 2 considers totally different issue viz. whether leave is required to be obtained for taking each step i.e for every application in the progress of the suit and it has been answered in the negative. Hon'ble Apex Court has considered issue of leave in Central Bank of India v. Elmont Engineering company and has answered the same in the light of observations made by Hon'ble Apex Court in case of between M.K. Ranganathan v. The Government of Madras. The later case is considered, as stated above, in cases between Allahabad Bank v. Canada Bank (supra). In the circumstances, it is not necessary to make reference to it again.

J. In 2001 BCR 4 between Canfin v. Lloyd's Steel Industries Ltd., the question was whether petitioner therein, a secured creditor was entitled to maintain the petition for winding up without relinquishing the security with it. Respondent company there argued that unless the petitioner were to relinquish that security prior to the institution of such proceedings, such proceedings itself would not be tenable. Learned Single Judge has considered the question in the light of various judgments including the judgment at between M.K. Ranganathan v. The Government of Madras and Allahabad Bank v. Canara Bank (supra) and in paragraph 16 it is observed:

"16. In the present case, the petitioner has evinced a clear intention to enforce the security by filing the suit in this court for recovery of its dues and the enforcement of its securities. There can be no doubt about the proposition that the object of a petition for winding up is to realise the property of the company for distribution to all the creditors in accordance with the applicable rules. This has been laid down by Division Bench of this court in Harinagar Sugar Mills v. M.W. Pradhan, 12, 67 Bombay law reports 294. A secured creditor who seeks to prove whole of his debt in the course of winding up proceedings is necessarily required to relinquish the security. That however, cannot be construed to mean that when he files a petition for winding up, a secured creditor must relinquish his security. In the present case, the petitioner has filed a suit in this court and made it clear, therefore that he seeks to enforce the security. When the stage for providing of debt will arise, the petitioner would necessarily have to prove for the balance of the debt which is due and owing to it after the security in respect of which the petitioner is a secure creditor, is realised."

The learned single Judge therefore admitted the winding up petition filed by petitioner. Here also by filing Company Application No. 57/2001 to remain out of winding up & by obtaining order on 17/10/2003 from this Court, State Bank has demonstrated similar intention.

K. In 1988 (64) Company Cases between (I) State Industrial and Investment Corporation of Maharashtra v. Maharashtra State Financial Corporation and (II) Maharashtra State Financial Corporation v. Charan Investment Corporation and Ors., Division Bench of this court has followed M.K. Ranganathan v. The Government of Madras (supra) and held that Section 537 in of present Act must be interpreted in same manner. It was held that the sale by SICOM having been effected outside the winding up and without the intervention of court, it is not void. In 1999 Bombay Cases Reporter 1 between Dhake Dyes and Chemicals v. Official Liquidator, the learned Single Judge has taken similar view by placing reliance upon between M.K. Ranganathan v. the Government of Madras and has directed that the secured creditors should file undertaking that they would, on demand from official Liquidator, deposit with him the amounts due and payable to the workers in appropriate proportion/ratio. In 2004 (121) Company Cases 847 between State Bank of India v. Northland Sugar Complex Ltd., learned Single Judge of Punjab and Haryana High Court has followed same practice and has obtained undertaking from secured creditor to reimburse to the Official Liquidator workmen's claims found due and payable without any demur or objection.

L. Judgment of Hon'ble Apex Court between A.P. State Financial Corporation v. Official Liquidator reported at reports of Company Cases, Vol. 102-2000 or has been cited to assert that it will not be necessary for Financial Corporation to approach High Court for permission to stay outside winding up proceedings. This ruling is considered by Hon'ble Supreme Court In International Coach Builders Ltd., Appellants v. Karnataka State Financial Corporation, . Here the Hon'ble Court has considered this position & its findings can be stated thus. The rights of the State Financial Corporation under Section 29 of the State Financial Corporations Act (SFC Act) to sell and realise the security cannot be exercised without reference to the Company Court when a winding up order is made against the company. The moment a winding up order is made in respect of a debtor company, the provisions of Sections 529 and 529A come into play and whatever superior rights had been ensued to SFCs under the provisions of the SFC Act get subjected to and operate only in conjunction with the special rights given to the workmen, who as pari passu charge-holders are represented by the Official Liquidator. The unhindered right hitherto available to the SFCs to realise their security, without recourse to the Court, no longer holds true as the right vested in the Official Liquidator is a statutory impediment to such exercise and has to be reckoned with. And since the Official Liquidator can do nothing without the leave or concurrence of the Court, all necessary applications must, therefore, come to the Company Court. However in both these rulings the provisions of law considered are not pari material. The case (International Coach Builders supra) considered is not that of a secured creditor and not in the light of provisions of RDB Act. In view of the verdict of Hon'ble Apex Court in case between Allahabad Bank v. Canara Bank (supra), this ruling of Hon'ble Apex Court has got no bearing insofar as present controversy is concerned.

M. The Action of Parliament in enacting Securitisation Act, i.e. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (54 of 2002) has further improved the position in favour of secured creditor. Reference in this respect can be made to the judgment of Honb'le Apex Court on this enactment reported at between Mardia Chemicals v. Union of India. The important observations are:--

"34. Some facts which need be taken note of are that the Banks and the Financial Institutions have heavily financed the petitioners and other industries, it is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through Courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill-effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but as the figures show if also did not bring the desired results. Though it is submitted on behalf of the petitioners that if so happened due to inaction on the part of the Governments in creating Debt Recovery Tribunals and appointing Presiding Officers, for a long time. Even after leaving that margin, it is to be noted that things in the concerned spheres are desired to move faster. In the present day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards Securitisation of the debts and to evolve means for faster recovery of the NPAs was not called for or that it was superimposition of undesired law since one legislation was already operating in the field namely the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and Narasimham Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another Expert Committee was constituted then alone the impugned law was enacted. Liquidity of finances and flow of money is essential for any healthy and growth-oriented economy. But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieve.

35. As referred to above, the Narasimham Committee was constituted in 1991 relating to the Financial System prevailing in the country. It considered wide ranging issues relevant to the economy, Banking and Financing etc. Under Chapter V of the Report under the heading 'Capital Adequacy, Accounting Policies and other Related Matters' it was opined that a proper system of income recognition and provisioning is fundamental to the preservation of the strength and stability of banking system. It was also observed that the assets are required to be classified, if also takes note of the fact that the Reserve Bank of India had classified the advances of a Bank, one category of which was bad debts/doubtful debts. If then mentions that according to the international practice, an asset is treated as non-performing when the interest is overdue for at least two quarters. Income of interest is considered as such, only when it is received and not on the accrual basis. The Committee suggested that the same should be followed by the Banks and financial institutions in India and an advance is to be shown as non-performing assets where the interest remains due for more than 180 days. It was further suggested that the Reserve Bank of India should prescribe clear and objective definitions in respect of advances which may have to be treated as doubtful, standard or sub-standard, depending upon different situations. Apart from recommending to set up of Special Tribunals to deal with the recovery of dues of the advances made by the Banks, the Committee observed that impact of such steps would be left by the Banks only over a period of time, in the meanwhile, the Committee also suggested for reconstruction of assets saying "the Committee has looked at the mechanism employed under similar circumstances in certain other countries and recommends the setting up of, if necessary by special legislation, a separate institution by the Government of India to be known as "Assets Reconstruction Fund (ARF) with the express purpose of taking over such assets from Banks and financial institutions and subsequently following up on the recovery of dues owed to them from the primary borrowers." While recommending for setting up of Special Tribunals, the Committee observed:

"Banks and financial institutions at present face considerable difficulties in recovery of dues from the clients and enforcement of security charged to them due to the delay in the legal processes. A significant portion of the funds of Banks and financial institutions is thus blocked in unproductive assets, the values of which keep deteriorating with the passage of time. Banks also incur substantial amounts of expenditure by way of legal charges which add to their overheads. The question of speeding up the process of recovery was examined in great detail by a Committee set up by the Government under the Chairmanship of the late Shri Tiwari. The Tiwari Committee recommended, inter alia, the setting up of Special Tribunals which could expedite the recovery of process...."

The Committee also suggested some legislative measures to meet the situation.

36. In its Second Report, the Narasimham Committee observed that the NPAs in 1992 were uncomfortably high for most of the public sector Banks. In Chapter VIII of the Second Report of Narasimham Committee deals about legal and legislative framework and observed:

"8.1 A legal framework that clearly defines the rights and liabilities of parties to contracts and provides for speedy resolution of disputes is a sine qua for efficient trade and commerce, especially for financial intermediation. In our system, the evolution of the legal framework has not kept pace with changing commercial practice and with the financial sector reforms. As a result, the economy has not been able to reap the full benefits of the reforms process. As an illustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of financial intermediaries...."

One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the asset without intervention of the Court and for reconstruction of the assets. It is thus to be seen that the question of non-recoverable or delayed recovery of debts advanced by the Banks or financial institutions has been attracting the attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amount of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the report of the Narasimham Committee, yet another Committee was constituted headed by Mr. Andhyarujina for bringing about the needed steps without the legal framework. We are, therefore, unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial Institutions Act was in operation it was uncalled for to have yet another legislation for the recovery of the mounting dues. Considering the totality of circumstances the financial climate world over, if it was thought as a matter of policy, to have yet speedier legal method to recover the dues, such a policy-decision cannot be faulted with nor it is a matter to be gone into by the Courts to test the legitimacy of such a measure relating to financial policy."

Thus, from above observations of Hon'ble Apex Court it is apparent that the provisions of Securitisation Act i.e. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (54 of 2002) are in fact complementary to the provisions of RDB Act. The interpretation and effect of provisions of RDB Act as laid down in Allahabad Bank v. Canara Bank (supra) is already given above. There, it is unequivocally held that provisions of RDB Act have got overriding effect over the provisions of companies Act and as such leave of Company Court is not necessary. If said RATIO is not made applicable & extended even under Securitisation Act, it would defeat the very purpose of making/enacting a more stringent provision that RDB Act. Securitisation Act is calculated to be more stringent & severe by putting more power with Secured Creditor. In view of the observations of Hon'ble Apex Court in the matter of need of Securitisation Act mentioned above, it is clear that the provisions of Securitisation Act will have to be interpreted in similar manner and spirit.

N. Sections 34, 35 of Securitisation Act read as under:

"34. Civil Court not to have jurisdiction.- No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any Action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of debts Due to Banks and Financial Institutions Act, 1993(5) of 1993)."

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."

The relevant provisions of Securitisation Act about rights of secured creditor in Section 13 are as under:--

"Enforcement of security interest.- (1) Notwithstanding anything contained in Section 69 of 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal, by such creditor in accordance with the provisions of this Act.

(2) to (8) - Not reproduced.

(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 three-fourth 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 realized 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 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 the provisions to Sub-section (1) of Section 529 of the Companies Act, 1958, may retain the sale proceeds of his secured asset after depositing the workmen's dues with the Liquidator in accordance with provisions of Section 529A of that Act:

Provided also that Liquidator referred to in second provisions shall intimate the secured creditor the workmen's dues in accordance with provisions of Section 529A of the Companies Act, 1956, and in case such workmen's dues can not be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured asset after depositing the amount of such estimated dues with liquidator;

Provided also that in case the secured creditor deposits the estimate amount of workmen's dues, such creditor shall be liable to pay the balance of workman'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 undertaking to the Liquidator to pay the balance of workmen's dues, if any.

(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, 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.

(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."

The provisions above, particularly the provisions of Sub-section 9 (underlined portion) clearly reveal the intention of legislature to permit such secured creditor to realise his security by remaining out of winding up proceedings subject to depositing workmen's dues & furnishing an undertaking about the payment of proportionate dues of workmen from the sum realized by such secured creditor. It is thus apparent that the secured creditor while proceeding under RDB Act or Securitisation Act does not need any leave or permission of Company Court. It is also important to note that the present secured creditor i.e. State Bank of India is the only secured creditor and it has taken recourse to recovery with DRT way back in 2001 itself when this court has appointed Official Liquidator in the month of June 2003 as Provisional Liquidator. In such circumstances, the objection of Official Liquidator that DRT could not have been approached without leave of this court or proceedings under Securitisation Act could not have been initiated without such leave are misconceived and rejected.

O. It may be mentioned here that after Securitisation Act, amendment has been made to Section 15 of Sick Industrial Companies (special provisions) at 1985 as under:

"Section 15 Reference to Board.-

(1) Where an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duty audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company.

Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company.

Provided further that no reference shall be made to the Board of Industrial and the Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Where a financial assets have been acquired by any Securitisation company or reconstruction company under Sub-section (1) of Section 5 of that Act.

Provided also that on or after commencement of Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 were a reference is pending before the Board for Industrial & Financial Reconstruction, such a reference shall abate if the secured creditors representing not less than three fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under the Sub-section (4) of Section 13 of that Act.

Amendment on similar lines has been made to Section 424A of Companies Act, 1956. Amended Section is as under:--

424A. Reference to the Tribunal:--

(1) Where an industrial company has become sick industrial company, the Board of Directors of such company shall make a reference to the Tribunal and prepare a scheme of its revival and rehabilitation and submit the same to the Tribunal along with an application containing such particulars as may be prescribed, for determination of the measures which may be adopted with respect to such company;

Provided that nothing contained in this sub-section shall apply to a Government Company;

Provided further that a Government Company, may with the prior approval of the Central Government or a State Government, as the case may be, make a reference to the Tribunal in accordance with the provisions of this sub section and thereafter all the provisions of this Act apply to such Government Company.

Provided also that in case any reference had been made before the Tribunal and a scheme for revival and rehabilitation submitted before the commencement of the Enforcement of Security interest and Recovery of Debts Laws (Amendment) Ordinance, 2004, such a reference shall abate if the secured creditors representing three fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under Sub-section (4) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

Provided also that no reference shall be made under the Section if the secured creditors representing three fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under Sub-section (4) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

These consequential amendments in corresponding enactments by legislature also demonstrate the intention to give primacy to the recovery of debt of secured creditor and importance to the procedure prescribed therefor. It will therefore be unnecessary for secured creditor who wants to stay out of winding up and wishes to recover on the strength of his security, to obtain any leave of this court at any stage. He will be required to intimate his decision to Official Liquidator because in such proceedings either under RDB Act or Securitisation Act, the company in liquidation will be required to be represented by Official Liquidator only. The arguments of Official Liquidator that Section 37 of Securitisation Act is identical with Section 46B of State Finance Corporation Act is of no relevance in this background. Similarly, there is no question of holding that order dated 17/10/2003 became otiose insofar as present controversy is concerned in view of the winding up order passed subsequently.

The Official Liquidator is directed to communicate, as per Section 529 & 529A of Companies Act, the amount of workmen's dues if already fixed or estimated amount thereof, if yet not fixed to the secured creditor and the secured creditor shall deposit the same with Official Liquidator and shall also furnish necessary undertaking in this respect as per law.

11. In case of Rajasthan financial Corporation v. Official Liquidator, Jaipur Spinning and Weaving Mills Ltd. reported at 1997 (88) Company Cases 192 relied upon by Advocate Deshpande it has been held that secured creditors is to be treated as ordinary creditor if his charge is not recorded with Registrar of companies as contemplated by Section 125 of Companies Act. Similar view is also taken by Division Bench of this court in case between Official Liquidator v. Suryakant Nattvarlal Surati and Ors. reported at 1986 (59) Company Cases 147. There the charge created by mortgage by deposit of the deed was not registered and this court has held tat as charge was not so registered, it was void against Liquidator upon the company being ordered to be wound up and no steps were required to be taken by Liquidator to make or have it declared void. In case between Maharashtra State Financial Corporation v. Official Liquidator, reported at 1988 (64) Company Cases 641 learned Single Judge of this court has held that though hypothecation was not registered as charge, it is not void against M.S.F.C. which look the possession. It has been held that State Financial Corporation Act being special enactment, the effect of order passed under Section 29 of that Act would be binding on the Liquidator of the company notwithstanding what is mentioned in Section 125 of the Companies Act. The assistant Official Liquidator who had taken over the possession was directed to remove the seal and to restore the subject matter of hypothecation to the petitioner. In State Bank of India v. Haryana Rubber Industries Ltd. reported at 1986 (60) Company Cases 472 the learned Single Judge of Punjab and Haryana High Court has considered the situation in which the office of Registrar of Companies does not register the charge. It is observed that "the reason is that of registration of the charge is within jurisdiction of Registrar and in case he makes delay in doing so, the charge holder cannot be held responsible. The Registrar has also been given power to allow the charge holder to send the particulars, etc., within seven days after the expiry of the limitation period if he satisfies that he could not file the same for sufficient cause within the prescribed period. After the particulars, etc., have been filed, then the responsibility of the registration of the charge shifts on to the Registrar. It is further observed that thus a charge holder is absolved of his duty as soon as he filed particulars of the charge, etc., with the Registrar." Similar view is also taken by Division Bench of Kerala High Court in case between C.K. Siva Sankara v. Kerala Financial Corporation and Ors. In , Indian Bank v. The Official Liquidator, Chemmeens Exports, the Hon'ble Apex Court has held that if upon construction of the decree, court found that unregistered charge was kept alive, the provisions of Section 125 would apply and if, on the other hand, the decree extinguished the unregistrered charge, the section would not apply.

Here, the only dispute about charge between parties is in relation to the extent of area of land covered there under. According to secured creditor it is 18.20 acres while according to Official Liquidator it is only 11.11 acres. With his additional affidavit dated 5th April 2005, the Official Liquidator has produced certified copy of particulars of charge as recorded with registrar of companies and said document shows only 11 acres 11 Gunthas on which the charges recorded. However the Official Liquidator himself has produced on record the subsequent intimations in relation to modification of charge inform No. 8 and 13 sent by company to the Registrar and proposed modification reveals extension of area to 18 acres 20 Gunthas. Official Liquidator states that on account of certain procedural lacuna, Registrar of companies did not take cognizance of said modification. Leaned counsel for Official Liquidator states that the document of intimation of charge i.e. form No. 8 and Form No. 13 must be signed by the Bank as also the company. The Advocate for Bank states that company itself had passed resolution on 8 Jun 1991 before availing additional/enhanced facilities and extended scope of equitable mortgage to 18 acres 20 Gunthas. He states that the same was communicated to the Registrar of Companies and, as such, the responsibility of State Bank was over. Because of this and the discussion above, particularly the view in State Bank of India v. Haryana Rubber Industries Ltd., reported as 1986 (60) Company Cases 472 and of Kerala High Court in case between C.K. Siva Sankara v. Kerala Financial Corporation and Ors., I see no substance in the objection raised by the Official Liquidator. More over, the Securitisation Act is the Special Act in this respect and it will override the provisions of Section 125 of Companies Act to that extent. In any case, such security is to be used by the secured creditor within four corners of Securitisation Act & said creditor as also his security is out side the winding up proceedings.

In this view of matter, it is not necessary for this court to recall order dated 17/10/2003 permitting the secured creditors to proceed under Securitisation Act. Hence Company Application No. 97/2004 and 11/2005 stand rejected. Similarly, in view of findings reaching above, it is open to State Bank of India to proceed to sell the secured asset viz. 18 acres and 20 Gunthas of land as advertised by it after complying with and furnishing undertaking to the Official Liquidator as required by Section 529 and 529A of Companies Act. It is made clear that State Bank of India is not entitled to sell the movables mentioned by it in the advertisement or otherwise under Securitisation Act as the same is in custody of Official Liquidator. Company Application No. 83/2004 and Company Application No. 9/2004 are thus partly allowed. In view of finding given above, it is not necessary to pass any orders on Company Application No. 57/2001 filed by State Bank of India seeking leave to remain outside the winding up proceedings and said application, is also therefore rejected.

At this stage, Shri Deshpande, Advocate for Official Liquidator, makes a request for suspending the effect and operation of this judgment for a period of six weeks to enable the Official Liquidator to take further appropriate steps in the matter.