Mohan Tractors Pvt Ltd. vs Kotak Mahindra Bank Ltd. & Ors.
2012 Latest Caselaw 5554 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                        Date of decision: 17th September, 2012

+                       CO. APP. No. 58/2012

% KOTAK MAHINDRA BANK LTD                 ....Appellant
               Through: Mr. Rana Mukherjee with Mr D.
                        Verma and Ms. Neha S. Verma, M
                        Daisy Hannah, Advocates.

                                        Versus

MEGNOSTAR TELECOMMUNICATIONS
PVT. LTD. & ANR                            ..... Respondents
                Through: Mr Rajiv Bahl, and Mr. Sanjay
                         Katyal, Advocates for OL.
                         Mr. Bhupesh Narula, Advocate for
                         R-2.

                                         AND

+                                CO. APP. No. 62/2012

% MOHAN TRACTORS PVT LTD.                    ....Appellant
               Through: Mr. Bhupesh Narula, Advocate.

                                        Versus

KOTAK MAHINDRA BANK LTD. & ORS.              ..... Respondents
                  Through: Mr Rana Mukherjee with Mr D.
                           Verma and Ms. Neha S. Verma, M
                           Daisy Hannah, Advoates for R-1
                           Mr Rajiv Bahl and Mr Sanjay Katyal,
                           Advocate for OL.
CORAM :-
HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW


CO. APP. No. 58/2012 & 62/2012                                      Page 1 of 29
                                  JUDGMENT

RAJIV SAHAI ENDLAW, J.

1. Both appeals impugn the judgment dated 26th April, 2012 of the

learned Company Judge in Company Applications No. 1947/2011 and

1948/2011 in Company Petition No. 359/2009 for winding up of M/s

Megnostar Telecommunications Pvt. Ltd. (hereinafter referred to as the

Company in Liquidation). Company Appeal No. 58/2012 was admitted for

hearing and vide order dated 29.05.2012 which continues to be in force, the

operation of the impugned order stayed. Subsequently, notice was issued in

Company Appeal No. 62/2012 also. The counsel for the appellants in the

two appeals and the counsels for the official liquidator have been heard.

2. The company in liquidation was the owner of Plot No. 1297,

admeasuring 502.33 sq. yards situated at Sector MIE, Bahadurgah, Haryana

together with the super structure thereon; the same was mortgaged in the

year 2006 to the appellant M/s Kotak Mahindra Bank Ltd (hereinafter called

the bank) to secure the financial assistance granted by the bank to the

company in liquidation.

3. The bank, on 18.12.2008 issued notice under Section 13 (2) of The

Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 (SARFAESI Act) to the company in liquidation.

Upon the company in liquidation failing to comply therewith, the bank on

16.06.2010 took over possession of the mortgaged property. Thereafter, the

bank on 23.07. 2011 published notices in the newspapers for auction and

sale of the mortgaged property on 24.08.2011.

4. However, before the auction could be held, the Company Judge of

this court in the company petition aforesaid filed by one Magicon Impex

Pvt. Ltd. (respondent no.3 in Co.App. 62/2012), on 03.08.2011 appointed

the Official Liquidator attached to this Court as the Provisional Liquidator

of the company in liquidation.

5. Notwithstanding the aforesaid, the auction proceeded as scheduled on

24.08.2011 and the appellant in company appeal No. 62/2012, M/s Mohan

Tractors (P) Ltd. (hereinafter called the auction purchaser) being the highest

bidder for the sum of Rs.80,00,000/-, was agreed to be sold the mortgaged

property. The physical possession and title deeds of the mortgaged property

were also handed over to the auction purchaser on the same day.

6. The Official Liquidator attempted to take possession of the aforesaid

property on 28th and 29th August, 2011 and finally took possession on

30.08.2011.

7. It was then that Co. Applications No. 1947 and 1948, both of 2011

were filed by the auction purchaser and the bank respectively seeking de-

sealing of the property and restoration of the possession thereof to the

auction purchaser. Vide order dated 21.09.2011, the learned Company

Judge directed maintenance of status quo qua the property. The Official

Liquidator filed reply in CA No. 1948/2011 averring, (i) that though the

official liquidator had been appointed as the Provisional Liquidator on

3.8.2011, it was not associated with the auction held subsequently on

24.08.2011; (ii) that there was nothing to show whether the auction had

been conducted in a fair manner; (iii) that admittedly the sale of the

property is not complete as the sale certificate is not yet registered and thus

the auction purchaser had not become the owner of the property and the

ownership remained with company in liquidation; (iv) that no statement of

affairs of the company in liquidation had been submitted till then and thus it

was not possible for the Official Liquidator to ascertain the status of

liabilities of the company in liquidation including towards the bank; and, (v)

that the bank had also not placed on record the documents evidencing valid

registration of the loan documents in accordance with Section 125 of the

Companies Act, 1956. The bank filed a rejoinder to the said reply

highlighting the documents evidencing action under Section 13 (4) and

Section 14 (1) of the SARFAESI Act and pleading that it was not informed

about the pendency of the company petition or about the appointment of the

Provisional Liquidator; that SARFAESI Act is a special Act containing

complete mechanism for recovery of bank dues through enforcement of

security interest; that the auction was done in a fair and transparent manner

at the office of the bank at New Delhi; that the bank had obtained valuation

of the property in question prior to auction and according to which valuation

the property was valued at Rs.1,02,00,000/- and having distress value of

Rs.75,00,000/-; that the entire sale consideration of Rs.80,00,000/- was

received from the auction purchaser on 24.08.2011 itself and sale

confirmation letter issued to the auction purchaser on the same day; it was

thus denied that the Company in Liquidation remained the owner of the

property; that the bank was not required to await adjudication of its claims

before enforcing its security interest; that the sale in favour of the auction

purchaser was complete; it was clarified that the mortgage was equitable,

by way of deposit of title deeds.

8. The learned Company Judge vide order dated 12.12.2011, without

prejudice to the rights and contentions of the parties appointed a valuer from

the panel of the Official Liquidator to evaluate the aforesaid property. The

said valuer submitted a report dated 14.01.2012 valuing the property at

Rs.1,18,85,000/- out of which Rs.75,750/- is the valuation of the movable

assets viz. furniture, fittings, etc. in the property.

9. The learned Company Judge in the impugned judgment, relying on

the judgment of the Division Bench of the Punjab & Haryana High Court in

Haryana State Industrial & Infrastructure Development Corporation

(HSIIDC) Vs. Haryana Concast Limited, Hisar (2010) ILR 2 P&H 284 has

held that "once Official Liquidator had been appointed as the Provisional

Liquidator of the company in liquidation, he should have been associated

with the auction process and having not being so associated the sale by the

bank on 24.08.2011 was bad". Consequently the bank has been directed to

prepare a fresh draft sale notice in association with the Official Liquidator,

after taking into account the valuation report obtained by the learned

Company Judge and to refund the amount received from the auction

purchaser. Axiomatically the applications of the bank as well as the auction

purchaser have been dismissed.

10. The contention of the counsels for the bank and the auction purchaser

before us is that the learned Company Judge has merely followed the

judgment (supra) of the Division Bench of the Punjab & Haryana High

Court without even discussing the arguments in differentiation thereof urged

by them. It is contented that:-

i) the SARFASESI Act in Section 13 (1) thereof provides for

enforcement by a secured creditor of the security interest

"without the intervention of the Court or Tribunal" and "in

accordance with the provisions of this Act" i.e. the SARFAESI

Act only;

ii) Section 13 (8) enables the borrower to, even after measures

under Section 13 (4) have been taken, pay up the dues of the

secured creditor;

iii) that such payment, being under the Statute, will not be treated

as having been made by way of fraudulent preference;

iv) that the first proviso to Section 13 (9) provides for the amount

realized from the sale of the secured assets to be distributed in

accordance with the provisions of Section 529A of the

Companies Act;

v) the same is indicative of provisions of the Companies Act

coming into play only post-sale;

vi) thus there is no requirement for association of the Official

Liquidator in the sale by the secured creditor under Section 13

of the Act and the only requirement is to pay the workmen‟s

dues to the Official Liquidator;

vii) the last proviso to Section 13(9) also provides only for an

undertaking from the secured creditor to the Official Liquidator

to pay the balance of the workmen‟s dues;

viii) it is thus argued that the Legislature, wherever desired to

protect the interests of the workmen of the company in

liquidation, has provided so and having expressly omitted to

provide for the association of the Official Liquidator in the

sale, this court by its judgment ought not to do so. Reference is

also made to Rules 4, 6 & 8 of the Security Interest

(Enforcement) Rules, 2002 (SIE Rules) to demonstrate that no

provision is made therein also for involvement/association of

the Official Liquidator. Attention is next invited to Sections 35

and 37 of the SARFAESI Act to contend that the provisions

thereof have an over riding effect. It is contended that if the

literal interpretation of a Statute is clear, the occasion for

applying the rule of purposive interpretation does not arise.

Attention is next invited to the Statement of Objects and

Reasons of the SARFAESI Act particularly to the part where

the intent of the said Act has been described as to enable the

Secured Creditors to sell their secured interests without the

intervention of the court.

       ix)     Reliance is placed on :-

               a)       Allahabad Bank vs. Canara Bank (2000) 4 SCC 406

                       Paras 36 to 39 in support of the proposition that the

provisions of SARFAESI Act override the provisions of

the Companies Act;

b) Bank of India v. O.L. of Phar East Laboratories Ltd.

MANU/GJ/0741/2006 where a Single Judge of the

Gujarat High Court held that subject to the compliance

of the post-sale conditions specified in the second to the

fifth proviso to Section 13 (9) of the Act, the secured

creditor is entitled to retain the sale proceeds of the

secured assets;

               c)      Delhi Financial Corporation V. Rajiv Anand (2004) 11



                        SCC 625; and

               d)      Unique Butyle Tube Industries (Pvt.) Ltd. v U.P.

                       Financial Corporation (2003) 2 SCC 455

both in support of the contention that despite clear and

specific scheme prescribed by the Parliament by

providing for the interplay between the rights of secured

creditor and the workmen, the impugned order seeks to

create a casus omissus where none exists.

11. It is additionally argued by the counsel for the Bank that the Division

Bench of the Punjab & Haryana High Court in Haryana Concast Limited

(Supra) in turn relied on Rajasthan Financial Corporation Vs. Official

Liquidator (2005) 8 SCC 190. It is contended that the said reliance is

misconceived since Rajasthan Financial Corporation (supra) was

concerned with Section 29 of the State Financial Corporations, Act 1951

(SFC Act) which does not have a provision similar to the fifth proviso to

Section 13 (9) of the SARFAESI Act.

12. The counsels for the Official Liquidator have, highlighted the

differences in the valuation obtained by the bank and submitted by the

valuer of the Official Liquidator; referred to Asset Reconstruction

Company (India) Ltd. Vs. The Official Liquidator, High Court as the

Liquidator of Siv Industries Ltd. (2006) 134 Company Cases 267 (Madras)

where also, relying on Rajasthan Financial Corporation (Supra), the asset

reconstruction company to which the bank/secured creditor had transferred

the security interest was held to be entitled to be associated in the sale of the

security interest by the official liquidator. With reference to S. 37 of

SARFAESI Act it is argued that the same is in addition to the Companies

Act and there is no inconsistency between the two.

13. The counsel for the auction purchaser in rejoinder has argued that

there is not much difference between the two valuations and for this reason

alone, the learned Company Judge ought not to have directed fresh sale of

the property.

14. We will start with Allahabad Bank (supra). The question therein for

consideration was of jurisdiction of Debt Recovery Tribunal (DRT)

constituted under the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993 (DRT Act) vis-à-vis the Company Court. The

Supreme Court in this judgment held that even where a winding up petition

is pending or a winding up order has been passed against the debtor

company, the adjudication of liability and execution of the certificate in

respect of debts payable to banks and financial institutions are within

exclusive jurisdiction of the DRT and the Recovery Officer under the DRT

Act and in such a case the Company Court‟s Jurisdiction under Section 442,

446 and 537 of the Companies Act stood ousted and hence no leave of the

Company Court is necessary for initiating proceedings under the DRT Act.

It was further held that even the priorities amongst various creditors could

be decided only by the DRT in accordance with Section 19 (19) of the DRT

Act r/w S. 529A of the Companies Act and in no other manner. The

Supreme Court took into account the fact that DRT Act, 1993 was a

legislation subsequent in point of time to the introduction of Section 529 A

in the Companies Act by Act 35 of 1985 and thus DRT Act had over-riding

effect. It was further noticed that Section 19 (19) of the DRT Act provides

for the sale proceeds to be distributed "in accordance with the provisions of

Section 529A of the Companies Act". It was thus held that though Section

529A empowered the Company Court to distribute the sale proceeds in

accordance therewith but by subsequent legislation i.e. the DRT Act, in

relation to the banks and Financial Institutions, it was the DRT which was

entrusted with the distribution in accordance with Section 529A of the

Companies Act.

15. The three Judges Bench of the Supreme Court in Rajasthan

Financial Corporation (Supra) was constituted owing to a prima facie

conflict having been found by the two Judges Bench, before which the

matter came first, between Allahabad Bank (supra) and International

Coach Builders Ltd. vs. Karnataka State Corporation (2003) 10 SCC 482,

both of two Judges Benches.

16. In International Coach Builders Ltd. (supra), Supreme Court held

that a right under Section 29 of the SFC Act against a debtor, if a company,

is available to a financial corporation only so long as there is no order of

winding up and that when the debtor is a company in winding up, the rights

of financial corporations are affected by the provisions of Section 529 and

529A of the Companies Act. It was also held that the proviso to Section 529

creates a pari passu charge in favour of workmen to the extent of their dues

and makes the Liquidator the representative of the workmen to enforce the

charge. The earlier decision in Allahabad Bank was not noticed.

17. The two Judges Bench of the Supreme Court before which Rajasthan

Financial Corporation came up first was of the opinion that while

Allahabad Bank was an authority in support of the proposition that SFC

Act would prevail over the Companies Act, it being a general law as against

the special law i.e. the SFC Act, International Coach Builders Ltd.

suggested otherwise. This led to the reference before the three Judges

Bench. The Three Judges Bench however, in their judgment (Supra):-

(i) noticed that in the facts of that case, the Rajasthan Financial

Corporation, though could have, had not invoked Section 29 or

Section 31 of the SFC Act till the order of winding up and

appointment of Official Liquidator - that in this situation Section

32(10) of the SFC Act (anti any preference to the Financial

Corporation over other creditors) would apply. The principle „a mere

right to take advantage of an enactment without any act done towards

availing of that right cannot be deemed a right accrued‟ was held to

apply.

(ii) found that the Rajasthan Financial Corporation, standing outside the

winding up, was claiming rights under the SFC Act, by approaching

the Company Court.

(iii) held that rights so claimed have to be considered in the light of

Section 529A read with Section 529 of the Companies Act providing

for preferential payment of workmen‟s dues and debts due to secured

creditors in equal proportion.

(iv) noticed the judgments of the various High Courts holding that a)

rights under Section 29 of the SFC Act are available to the SFC only

when the debtor company is in charge and control of its assets and not

when the debtor company has lost control over its assets by the

intervention of the Company Court and the Official Liquidator and, b)

Section 529A of the Companies Act prevailed over Section 29 of the

SFC Act.

(v) held that there was no inconsistency between the decisions in

Allahabad Bank and in International Coach Builders Ltd.

(vi) that there is no conflict on the question of applicability of Section

529A read with Section 529 of the Companies Act to cases where

debtor is a company in liquidation.

(vii) the conflict is in Allahabad Bank holding that DRT could sell the

properties of company in terms of DRT Act and International Coach

Builders Ltd. holding that since Sections 529 and 529A create pari

passu charge in favour of workmen to the extent of their dues and

makes the liquidator the representative of the workmen to enforce the

charge, sale by the SFC in exercise of powers under Section 29 could

only be with the concurrence of the Company Court.

viii) held that the view taken in Allahabad Bank was in the light of the

DRT Act being a subsequent legislation and a special law, which

prevails over the general law i.e. the Companies Act; however, this

argument is not available as far as the SFC Act is concerned -

Section 529A was introduced in the year 1985 and the over-riding

provision therein would prevail over the SFC Act of the year 1951 as

amended in the year 1956 and notwithstanding Section 46B of the

SFC Act.

ix) held that as regards distribution of assets, there is no conflict -

whether the assets are realized by a secured creditor proceeding under

the DRT Act or the SFC Act, the distribution could only be in terms

of Section 529A of the Companies Act and by recognizing the right

of the Liquidator to calculate the workmen‟s dues and collect it for

distribution among them pari passu with the secured creditors.

x) held that the right to sell under the SFC Act or under the DRT Act by

a creditor is different from the distribution of the proceeds of the sale

of the security and the distribution in a case where the debtor is a

company in the process of being wound up, can only be in terms of

Section 529A read with Section 529 of the Companies Act.

xi) held that to ensure proper working out of the scheme of distribution,

it is necessary to associate the Official Liquidator with the process of

sale so that he can ensure that a proper price is fetched for the assets

of the company in liquidation.

xii) held that the DRT and the District Court entertaining an application

under Section 31 of the SFC Act should issue notice to the liquidator

and hear him, as a representative of the creditors in general, before

ordering a sale.

18. Though we have already dissected as aforesaid the dicta in Rajasthan

Financial Corporation but we still feel the need to cull out the ratio thereof

as understood by us, as under:-

A. The right of a secured creditor under the DRT Act or the SFC Act

to sell is distinct from distribution of sale proceeds of such sale.

B. The provisions of Section 529A of the Companies Act do not

apply to a sale under the DRT Act owing to the DRT Act being a

subsequent legislation. However, the same are made applicable to

a sale under the DRT Act also by virtue of Section 19(19) of the

DRT Act itself.

C. That since the proceeds of sale under the DRT Act also are to be

distributed in accordance with the provisions of Section 529A of

the Companies Act, the Official Liquidator should be associated

with the sale itself to ensure that a proper price is fetched.

19. When we apply the aforesaid ratio to the SARFAESI Act, we find

that the SARFAESI Act being a legislation even subsequent to the DRT

Act, the provisions of Section 529A of the Companies Act would not apply

to the SARFAESI Act also. The SARFAESI Act however also in the first

proviso to Section 13(9), in the case of a company in liquidation requires

"the amount realized from the sale of secured assets" to "be distributed in

accordance with the provisions of Section 529A of the Companies Act".

The language of the said proviso clearly makes applicable Section 529A

after "the amount" has been "realized from the sale". The question that falls

for consideration is whether just like in the case of a sale under the DRT Act

and the SFC Act the Supreme Court has directed the Official Liquidator to

be associated with the process of sale, he should be so held to be required to

be associated with sale under the SARFAESI Act also. This has to be

determined in the light of the ratio aforesaid of Rajasthan Financial

Corporation that right to sell and distribution of sale proceeds are two

different things.

20. Associating the Official Liquidator in sale is not to be a mere

formality and such association cannot be an empty exercise. If such

association is to be given a meaningful interpretation it would necessarily

entail adjudication by the Company Court of all issues arising, relating to

such sale, including of valuation, modality, publication etc. The sale, will

then become „with the intervention‟ of the Company Court.

21. However, the very genesis of the SARFAESI Act is to enable sale of

financial assets by the secured creditor without the intervention of the Court

(see Mardia Chemicals Ltd. Vs. Union of India (2004) 4 SCC 311). What

we have wondered is whether an exception can be carved out in the case of

a company in liquidation.

22. Even though the DRT Act also does not provide for associating the

Official Liquidator with sale and Section 19(19) thereof requires the DRT to

only order the sale proceeds to be distributed in accordance with the

provisions of Section 529A but the Supreme Court still directed association

of the Official Liquidator in the sale. According to us the said ratio of the

Supreme Court in the context of DRT Act and SFC Act, would not apply to a

sale under the SARFAESI Act because while the sale under the DRT Act or

the SFC Act is with the intervention of the Court i.e. the DRT or the District

Judge, the sale under the SARFAESI Act is to be by the secured creditor i.e.

the Bank/Financial Institution itself, without the intervention of the Court.

We also find express pointers in the SARFAESI Act against associating the

Official Liquidator in such sale. The second proviso to Section 13(9)

permits a secured creditor, who opts to realize his security interest instead of

relinquishing his security and proving his debt under proviso to sub-section

(1) of Section 529 of the Companies Act, to retain the sale proceeds after

depositing the workmen‟s dues with the Official Liquidator in accordance

with the provisions of Section 529A. The third proviso to Section 13(9)

requires the Official Liquidator to intimate to the secured creditor the

workmen‟s dues or an estimate thereof in accordance with Section 529A of

the Companies Act. The fourth proviso to Section 13(9) makes the secured

creditor liable to pay the balance if any of the workmen‟s dues if the deposit

earlier with Official Liquidator is on an estimate. The sixth proviso to

Section 13(9) also requires the secured creditor to furnish an undertaking to

the liquidator to pay the balance of the workmen‟s dues if any. We are of

the opinion that were the Official Liquidator intended to be associated with

the sale (making the same possible only with the intervention of the

Company Court and which would be contra to the purpose of the

SARFAESI Act) the sale proceeds would have been received by the Official

Liquidator and the need for the provisos aforesaid would not have arisen.

The provisos aforesaid are indicative of the secured creditor, while on the

one hand being entitled to exercise the right to sell without intervention

even of the Official Liquidator/Company Court and on the other hand being

made liable for the dues of the workmen. The language of Section 13(9) and

provisos thereto is thus clearly suggestive of the role of the Official

Liquidator being confined only to determination of workmen‟s dues and

receiving payment thereof and undertaking from the secured creditor. The

Supreme Court in Rajasthan Financial Corporation as aforesaid, has

already carved out a difference between the „right to sell‟ and the

„distribution of sale proceeds‟. The SARFAESI Act does not even vest the

power of such distribution in the Official Liquidator. Significantly, Section

13(9) permits sale only under agreement between the secured creditors

representing not less than three-fourth in value of the amount outstanding

and makes the said agreement binding on all the secured creditors. The

question thus of distribution by the Official Liquidator to other secured

creditors also does not arise.

23. As far as the reason behind associating the Official Liquidator in sale,

of ensuring that a proper price is fetched for the assets, is concerned, we

find the SARFAESI Act and the Rules framed thereunder to be a complete

code in that respect. Rules 5 & 8 of the SIE Rules require the Authorized

Officer of the Bank/Financial Institution to obtain the estimated value of the

asset from an approved valuer and in consultation with the secured creditor

fix the reserve price of the property. The mode of sale has similarly been

prescribed exhaustively particularly in Rule 8 relating to sale of immovable

assets. We are of the view that requiring the Official Liquidator to be

associated in sale will lead only to conflict.

24. Though sale of the secured asset by the secured creditor under the

SARFAESI Act is without the intervention of the Court but a safety valve

preserving the rights of the debtor/borrower/mortgagor or for that matter

any other person (see United Bank of India v. Satyawati Tondon (2010) 8

SCC 110) aggrieved from the measures taken by the Bank/Financial

Institution under Section 13(4) of the Act is provided in Section 17 of the

Act. The legislature in making the sale under the SARFAESI Act without

the intervention of the Court, constituted DRT only as the forum for redressal

of grievances. We are of the view that if the debtor/borrower/mortgagor

himself/herself/itself has not been given any right of participation in the sale

except in the manner provided in Section 17 of the Act, the question of our

interpreting the provisions in a manner vesting such right in the Official

Liquidator who is but a successor-in-interest of the debtor/borrower/

mortgagor and also representing the interest of the workmen and other

creditors of such debtor/borrower/mortgagor, does not arise. Significantly,

the legislature in enumerating in Section 31 the cases/situations in which the

provisions of the SARFAESI Act are not to apply, did not choose to list the

case/situation where the debtor/borrower/mortgagor is a company in

liquidation.

25. Though the language of Section 17 of the SARFAESI Act suggests

that the right to appeal thereunder is only against the measures under

Section 13(4) of the Act but the Supreme Court in Authorized Officer,

Indian Overseas Bank Vs. Ashok Saw Mill (2009) 8 SCC 366 has held that

the remedy under Section 17 is not confined to the stage contemplated under

Section 13 (4) but is available qua action taken by the secured creditor after

the stage contemplated under Section 13 (4) also. The scrutiny by the DRT

under Section 17 is thus not confined only to whether the measures under

Section 13 (4) are in accordance with the SARFAESI Act and the Rules

framed thereunder but also extends to the actions of the secured creditor

under Sections 13 (5) to (13). It is thus not as if the debtor/borrower/

mortgagor or for that matter, in the case of such a

debtor/borrower/mortgagor being in liquidation, the liquidator is without

any remedy or that the sale is merely at the whim and fancy of the secured

creditor and his Authorized Officer. Not only are the modalities of sale

prescribed but a forum for redressal of grievances with respect thereto is

also provided in the form of DRT. The Official Liquidator, thus if of the

view that appropriate price is not being or has not been fetched or relating to

issues of distribution, has the remedy before the DRT.

26. If it were to be held that the Official Liquidator (who acts under the

dictates of the Company Court) is to be also associated with the sale, it will

naturally open up the fora of the Company Court also for entertaining

matters relating to such sale and which as aforesaid is not only likely to lead

to conflicts but is also contrary to the spirit of the SARFAESI Act of sale

being without the intervention of the Court.

27. Reference in this regard can be made to Allahabad Bank where the

Supreme Court in para 25 held that "the adjudication of liability and the

recovery of the amount by execution of the certificate are respectively

within the exclusive jurisdiction of the Tribunal and the Recovery Officer

and no other Court or authority much less the Civil Court or the Company

Court can go into the said questions relating to the liability and the recovery

except as provided in the Act". To the same effect are paras 31 and 51 of the

judgment. Similarly in para 50 of the judgment it was held that the DRT Act

to the extent inconsistent with the provisions of the Companies Act, the

Companies Act has to yield to the provisions of the DRT and this position

holds good during the pendency of the winding up petition against the

debtor company and also after a winding up order is passed. We are of the

view that what has been held in the said judgment qua the DRT Act applies

with equal, if not more, force to the SARFAESI Act.

28. We may notice that the Division Bench of the High Court of Madras

also in Asset Reconstruction Company (India) Ltd. supra, following

Rajasthan Financial Corporation held that a securitization company if

seeks to sell the assets of a debtor company in liquidation, in exercise of

powers under Section 13 of the SARFAESI Act, the said power could be

exercised only after obtaining appropriate permission from the Company

Court and acting in terms of the directions issued by that Court as regards

associating the Official Liquidator with the sale, the fixing of the upset price

or the reserve price, confirmation of the sale, holding of the sale proceeds

and distribution thereof among the creditors in terms of Section 529-A and

529 of the Companies Act. We are however, for the reasons stated above

unable to agree with the said view. It was not considered therein that the

SARFAESI Act and the Rules framed thereunder contain a complete code

for sale including as to valuation, holding and distribution of sale proceeds

and any objections with respect whereto lie before the DRT under Section

17 of the Act and if it were to be held that the Company Court also has

jurisdiction, conflict is a foregone conclusion.

29. We are therefore of the view that, (even where the

debtor/borrower/mortgagor is a company in liquidation) there is no

necessity of associating the Official Liquidator in the sale in exercise of

powers by a secured creditor under Section 13(4) of the SARFAESI Act.

The sale, without associating the Official Liquidator cannot thus held to be

bad or illegal. The dicta in Rajasthan Financial Corporation of associating

the Official Liquidator in sale, in the context of the SFC Act and the DRT

Act in both of which sale is through the intervention of the District Judge or

the DRT, is not applicable to a sale under the SARFAESI Act, sale

whereunder is without the intervention of the Court. As far back as in

Herrington Vs. British Railways Board 1972 (2) WLR 537 it was observed

that there is always a peril in treating the words of a judgment as though

they are words in a legislative enactment and it is to be remembered that

judicial utterances are made in the setting of facts in a particular case.

Circumstantial flexibility, one additional or different fact may make a world

of difference between conclusions in two cases and disposal of cases by

blindly placing reliance on a decision is not proper. The Apex Court in

Bharat Petroleum Corporation Ltd. Vs. N.R. Vairamani (2004) 8 SCC 579

cited Lord Denning with approval opining that each case depends on its own

facts and a close similarity between one case and another is not enough

because even a single significant detail may alter the entire aspect. It was

further held that the temptation to decide cases by matching the colour of

one case against the colour of another is to be avoided. Similarly in Official

Liquidator Vs. Dayanand (2008) 10 SCC 1 it was held that even one

additional fact may make a lot of difference in the precedential value of a

decision. The same sentiment was reiterated in Sushil Suri Vs. CBI (2011)

5 SCC 708 as well as in U.P. State Electricity Board Vs. Pooran Chandra

Pandey (2007) 11 SCC 92.

30. The remedies of the Official Liquidator with respect to such a sale are

only before the DRT in accordance with Section 17 of the SARFAESI Act

and not before the Company Court. SARFAESI Act being a latter

legislation to the incorporation of Section 529A in the Companies Act thus

prevails over the Companies Act and sale as provided for under the

SARFAESI Act holds good during the pendency of winding up petition

against the debtor/borrower/mortgagor and also after a winding up order is

made and remains unaffected therefrom.

31. We are therefore, with respect, unable to agree with the dicta of

Punjab & Haryana High Court in Haryana Concast Limited (supra) and

axiomatically allow these appeals and set aside the judgment of the Learned

Single Judge. The applications filed by the Bank and the auction purchaser

for de-sealing of the property would thus stand allowed. However, the sale

proceeds in custody of the bank are subject to the claims if any under

Sections 529 and 529A of the Companies Act. The bank to accordingly

comply, specially with the provisos to Section 13(9) of the SARFAESI Act.

We may highlight that the Supreme Court recently in Employees Provident

Fund Commissioner Vs. Financial Liquidator of Esskay Pharmaceuticals

Limited (2011) 10 SCC 727 has also held the dues under the Employees‟

Provident Fund and Miscellaneous Provisions Act, 1952 to be a first charge

on the assets of an establishment and to be paid in priority to all other debts

while distributing the sale proceeds.

32. However, since we have differed from the view taken by other High

Courts, to give time for approaching the Supreme Court, we grant eight

weeks time to the Official Liquidator to de-seal the premises and to put the

auction purchaser into possession of the property. The Official Liquidator, if

of the view that the sale by the Bank is in contravention of the SARFAESI

Act and the Rules framed thereunder, shall also have liberty to approach the

DRT under Section 17 thereof, within the said time of eight weeks.

No costs.

RAJIV SAHAI ENDLAW, J

ACTING CHIEF JUSTICE

SEPTEMBER 17, 2012 „pv‟