Delhi High Court
Industrial Development Bank Of ... vs Thapar Agro Mills Ltd. on 17 March, 2011
Author: Manmohan
#2
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CO. A. (SB) 47/2006
INDUSTRIAL DEVELOPMENT
BANK OF INDIA ..... Appellant
Through Mr. Sangram Patnaik,
Advocate with Ms. Renu
Nanda, Advocate.
Versus
THAPAR AGRO MILLS LTD. ..... Respondent
Through Mr. Mayank Goel, Advocate
for Official Liquidator.
Mr. Arvind Kumar Singh,
Advocate for IFCI.
% Date of Decision: 17th March, 2011
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be reported in the Digest? Yes.
JUDGMENT
MANMOHAN, J : (Oral)
1. Present appeal has been filed under Section 460(6) of the
Companies Act, 1956 read with Rules 6, 9, 164 and 165 of the
Companies (Court) Rules, 1959 for directing the Official Liquidator
to consider IDBI as secured creditor.
2. The relevant facts of the present case are that appellant had
advanced loan of Rs. 200 lacs to the company in liquidation vide
Subscription Agreement dated 04th August, 1992. In accordance
with the said agreement, the company in liquidation was to allot Non
Convertible Debentures (in short "NCDs") after complying with the
SEBI guidelines and other pre-requisites like appointment of
trustees, creation of security etc.
3. However, despite various reminders, the company in
liquidation neither issued NCDs to the appellant nor paid interest or
other charges in accordance with the agreement. The company also
failed to create security as required.
4. Consequently, the appellant filed an application under Section
19 of the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 for recovery of Rs.2,96,22,963.00 along with pendente lite
and future interest and costs of litigation.
5. The Debts Recovery Tribunal, Chandigarh passed a decree
dated 15th July, 2003 wherein it passed the following order:-
"The application for recovery of Rs.2,96,22,563.00
against the defendants company and it is ordered to
pay:
(i) a sum of Rs.2,96,22,563.00 along
with pendent lite and future interest
@ 15% p.a. with quarterly rests
from the date of filing of the
applicant till its realization.
(ii) The cost of litigation;
(iii) The aforesaid amount within 30
days from the date of receipt of this
order.
2. In the event of failure of the part of defendants
to pay the aforesaid amount within the stipulated
period, the applicant bank shall be entitled to
recover the amount by sale of assets of the defendant
company."
6. However, the Official Liquidator vide order dated 06 th May,
2005 rejected the appellant's claim as secured creditor on the ground
that the appellant's charge was not registered under Section 125 of
the Companies Act, 1956.
7. Mr. Sangram Patnaik, learned counsel for IDBI submitted that
in the present case a charge had been created in favour of the
appellant by virtue of the decree passed by the DRT, Chandigarh
read with Section 100 of the Transfer of Property Act, 1882. Section
100 of the Transfer of Property Act, 1882 reads as under:-
"100.Charges.--Where immoveable property of one
person is by act of parties or operation of law made
security for the payment of money to another, and the
transaction does not amount to a mortgage, the latter
person is said to have a charge on the property; and
all the provisions hereinbefore contained [which
apply to a simple mortgage shall, so far as may be,
apply to such charge].
Nothing in this section applies to the charge of a
trustee on the trust-property for expenses properly
incurred in the execution of his trust, [and, save as
otherwise expressly provided by any law for the time
being in force, no charge shall be enforced against
any property in the hands of a person to whom such
property has been transferred for consideration and
without notice of the charge]."
8. In this connection, Mr. Patnaik, learned counsel relied upon
the following judgments:-
(i) Smt. Bela Dibya Vs. Ramkisore Mohanty, AIR 1969 Orissa
114 wherein it has been held as under:-
"....The latest decision in support of Mr. Pal's
contention is AIR 1968 Pat 238, Shyam Narain V.
Khublal Mahto. In (1965) 31 Cut LT 932 Diwan
Chitra Bahnu Singh Rai Vs. Balmukund Singh Rai,
this Court held that the charge created by a decree
of Court even after contest was by operation and
would come within Section 100 of the Act [page
116].
(ii) Abdul Ghaffar Khan Vs. Ishtiaq Ali & Anr., AIR (30) 1943
Oudh 354 wherein it has been held as under:-
"The expression "operation of law" in S. 100 only
means working of the law and is not restricted in its
application to such cases as fall under S.55 or S.77
of the Act. Section 100 assumes that charges can
be created only by act of parties or by operation of
law and the second paragraph which was added in
1929 refers to charges generally. A charge created
by a decree of Court based upon an award made
upon an agreement out of Court or otherwise is a
charge created by operation of law and comes
within Section 100." [pg 354]
..... I see no reason why a charge created by a
decree should not be considered to come within the
purview of S.100. "Operation of law" only means
working of the law and I do not see why the
expression should be restricted in its application to
such case as fall under S.55 or S.73." [pg 359].
(iii) Indian Bank Vs. Official Liquidator, Chemmeens Exports
(P) Ltd. (1998) 5 SCC 401 wherein it has been held as
under:-
"Though as a consequence of non-registration of
charge under Part V of the Act, a creditor may not
be able to enforce the charge against the properties
of the company as a secured creditor in the event of
liquidation of the company as the charge becomes
void against the liquidator and the creditor, yet he
will be entitled to recover the debt due by the
company on par with other unsecured creditors. It
is also evident that Section 125 applies to every
charge created by the company on or after the 1st
day of April, 1914. But where the charge is by
operation of law or is created by an order or
decree of the Court, Section 125 has no
application"
.... Reverting to the facts of this case, on the
construction of the decree we have already held
that the charge was kept alive till 28th August, 1982
and thereafter in default of payment of decree
amount, the sale order would take effect. In this
case, admittedly the decree amount was not paid
before 28th August, 1982, as such the matter had
passed from the domain of contract to the realm of
the judgment. The Official Liquidator filed
application 21st March, 1983 seeking to declare the
decree as void. By that date what was operative in
the decree was not a mere unregistered charge but
an order for sale of mortgaged property for
realization of decree amount. The preliminary
decree cannot, therefore, be said to be void and
inoperative."
(iv) Praga Tools Ltd. Vs. Official Liquidator of Bengal Engg.
Co. (P) Ltd. 1984 (56) Comp Cases 214 wherein it has been
held as under:-
"If a charge is created by an order of the Court, it
will not require registration under Section 125 of
the Companies Act, 1956".
"That the benefit of the security was entirely the
creature of the order of the Court. It was not a
charge created by the company and did not require
registration."
9. Having heard Mr. Sangram Patnaik, learned counsel for
appellant, I am of the opinion that the submissions of the appellant
are misconceived on facts. Admittedly, no charge was ever created
in favour of the appellant by the company in liquidation as no charge
was registered with the Registrar of Companies under Section 125 of
the Companies Act, 1956.
10. In my view, a mere money decree passed by a Court of law
does not entitle an unsecured creditor to be treated as a secured
creditor. The Supreme Court in Textile Labour Association & Anr.
Vs. Official Liquidator and Anr., (2004) 9 SCC 741 has held as
under:-
"8......Under Section 529-A the dues of the workers and
debts due to the secured creditors are to be treated pari
passu and have to be treated as prior to all other dues.
9. Therefore, the law is clear on the matter as held in
UCO Bank case [(1994) 5 SCC 1] that Section 529-A will
override all other claims of other creditors even where a
decree has been passed by a court."
(emphasis supplied)
11. From the judgments cited by Mr. Patnaik, it is apparent that to
claim the status of a secured creditor, either the charge is to be
created by the parties or the charge has to be created by operation of
law or by decree of the Court.
12. In the present case, neither a charge was created by the
company in liquidation nor by operation of any law or by the decree
of the DRT.
13. The order of the DRT, Chandigarh amply proves that no NCD
was ever issued and hence no charge/security was created by the
company. The DRT did not declare petitioner to be a secured
creditor.
14. In fact, paragraph 2 of the operative portion of the order
passed by the DRT, Chandigarh, only states that in the event of
failure to pay the decretal amount, appellant would be entitled to
recover the amount from the sale of assets of the company in
liquidation.
15. But merely because appellant is in possession of a decree for
recovery, does not mean that appellant becomes a secured creditor.
In fact, every decree holder is entitled to seek sale of assets of the
defendant, in the event the decree is not satisfied. In my opinion, if
Mr. Patnaik's submissions were to be accepted, then every
sundry/unsecured creditor after obtaining a decree from the Civil
Court would have to be treated as a secured creditor - which is
untenable in law.
16. Consequently, as there is no charge in favour of the appellant,
the appellant cannot be considered as a secured creditor.
17. Accordingly, present appeal being bereft of merits, is
dismissed but with no orders as to costs.
MANMOHAN,J
MARCH 17, 2011
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