Gujarat High Court
O.L. Of Essen Computers Ltd vs Apurva J Parekh on 11 April, 2023
Bench: A.S. Supehia
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/OFFICIAL LIQUDATOR REPORT NO. 136 of 2019
In
R/OFFICIAL LIQUDATOR REPORT NO. 41 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE A.S. SUPEHIA Sd/-
================================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ? NO
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy
of the judgment ? NO
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution NO
of India or any order made thereunder ?
================================================================
O.L. OF ESSEN COMPUTERS LTD
Versus
APURVA J PAREKH
================================================================
Appearance:
MR ABHIJIT P JOSHI(1330) for the Applicant(s) No. 1
OFFICIAL LIQUIDATOR for the Applicant(s) No. 1
MR SAURABH SOPARKAR, SENIOR ADVOCATE with MR MONAAL
DAVAWALA, MR MANYA ANJARIA, for MR B S SOPARKAR(6851) for the
Respondent(s) No. 1,2
MS MAITHILI D MEHTA(3206) for the Respondent(s) No. 6
NOTICE SERVED for the Respondent(s) No. 4,5
================================================================
CORAM:HONOURABLE MR. JUSTICE A.S. SUPEHIA
Date : 11/04/2023
CAV JUDGMENT
1. The Official Liquidator has filed this report for disbursement of the
secured preferential and unsecured creation company liquidation.
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
2. The OL's report is premised on the sale of assets and properties of
the company in liquidation, i.e. Essen Computers Ltd, which has been
confirmed by this Court vide order dated 28.1.2019 for sale consideration
of Rs.13 crores in favour of Gujarat State Co-operative Marketing
Federation Ltd. The sale of another property of the company in
liquidation situated at A/10, GIDC Electronics Estate,Gandhinagar is yet
to be sold.
3. The OL had filed O.L Report No.41 of 2019 before this Court for
inviting claims of all types of creditors under Sections 529, 529-A and
530 of the Companies Act, 1956. By the orders dated 07.03.2019 and
20.03.2019, this Court permitted the O.L to invite the claims of all types
of creditors by publishing advertisement in the newspapers and also
permitted to engage Chartered Accountants to verify the claims. Initially,
the O.L appointed M/s. Rajni Shah & Associates, Chartered Accountant
to verify the claims received from the creditors, and accordingly the C.A.
submitted a report dated 07.08.2019. Thereafter, during the pendency of
the present OLR, another C.A. was appointed by the OLR being Sheth &
Shah Chartered Accountants, which has prepared a fresh report dated
11.02.2022. The Chartered Accountant has earmarked the secured and
unsecured claims in his report as per the following ratio:
SECURED CLAIM AND RATIO
Sr. No. Name of Creditors Secured Claim Ratio (%) of Total
Claim)
1 Mr.Apurva Parekh 81,45,000 53.08
2. Kotak Mahindra Bank 72,00,000 46.92
Total 1,53,45,000 100.00
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
UNSECURED CLAIM AND RATIO
Sr. Name of Creditors Interest on Unsecured Total Ratio
No. Secured Claim (%) of
Portion as per Total
"Exhibit B" of Claim
C.A. Report
1 Mr.Apurva Parekh 43,32,577 63,93,842 1,07,26,419 1.61
2. Essen Finance 0.00 54,87,82,695 54,87,82,695 82.42
and Investment
Ltd.
3 Kotak Mahindra 1,01,66,795 4,96,75,215 5,98,42,010 8.99
Bank
4 UTI 0.00 2,41,97,943 2,41,97,943 3.63
5 LIC 0.00 2,23,02,414 2,23,02,414 3.35
Total 1,44,99,372 65,13,52,109 66,58,51,481 100.00
4. A total amount, which is secured to be disbursed on ad-hoc basis is
Rs.11,50,00,000/- however an objection has been raised by the Kotak
Mahindra Bank with regard to determination of the amount as per the
Chartered Accountant's report (Assignee - ICICI Bank). As per the
Chartered Accountant's Report, a total amount of Rs.5,74,10,548/- is
required to be disbursed. Out of this amount, the amount of
Rs.5,62,75,215/- is considered as unsecured amount under Section 529A
of the Companies Act, 2013. The Kotak Mahindra Bank has also raised
objection with regard to ratio of disbursement apropos the claim of
respondent no.1-Apurva J. Parekh and respondent no.2-Essen Finance
and Investments Ltd.
5. Learned advocate Mr.Tirth Nayak appearing for the respondent
no.3-Kotak Mahindra Bank, while referring to the report of the Chartered
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
Accountant, has submitted that respondent nos.1 and 2 have not provided
the supportive documents and detailed bifurcation of outstanding
principle balance and interest amount of their claim and since they have
not provided any corroborative evidence to quantify the claim, except it
was annexed therein, the amount, which is determined towards the
secured creditor, to the extent of Rs.72,00,000/- is not proper.
6. It is submitted that so far as the claim of respondent no.1-Apurva J.
Parekh is concerned, the amounts mentioned along with his affidavit are
without any proof and it does not show that the said amount is paid to the
ICICI. It is submitted that the respondent no.1 claims to have paid
Rs.11,00,000/- as a One Time Settlement (OTS) to GSFC and
Rs.71,36,000/- as OTS and accordingly, the Chartered Accountant has
considered them as a secured claim without any proof of settlement with
GIIC. It is submitted that a guarantor like the respondent no.1, who is
claiming subrogation, has to show the payment of the aforesaid amount
and the said amount only shows that it is an amount paid towards loan is
settled.
6.1. Learned advocate Mr.Nayak has further submitted that so far as the
secured claim of Rs.11,00,000/- is concerned, the respondent no.1 is
required to show that the guarantor has paid the money. However, it is
submitted that in the present case, the third party has paid the money on
behalf of the guarantor. While placing reliance on the judgment in the
case of Sterling Trade vs. Trimbak Ispat Private Limited, 2018 S.C.C.
Online 12339 (para No.29), it is submitted that a guarantor making
payment to settle the account of the borrower will be entitled to only the
amount paid and will be treated as an unsecured creditor.
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
7. So far as the unsecured claim is concerned, learned advocate
Mr.Nayak has submitted that the judgment has concluded and the claim
of ICICI Ltd. towards the amount of Rs.46,75,000/-, wherein the same is
paid by the respondent no.1 as a guarantor and hence, such claim is
considered as an unsecured claim. It is submitted that a letter dated
19.04.1995 is being provided as proof, which cannot be considered since
no corroborative evidence is provided and hence, the said claim is
required to be rejected for want of sufficient proof.
8. Learned advocate Mr.Nayak has submitted that so far as the claim
of the respondent no.2-Essen Finance and Investments Ltd. is concerned,
the Bank of India and State Bank of India, who have claimed
Rs.52,95,11,869/- as assignee, the same does not require to be considered
as secured claims since the respondent no.2 is a sister company of the
company in liquidation and the owner and the operation is done by the set
of person. It is submitted that it has no other business activity to other
than recover this amount.
8.1. Learned advocate Mr.Nayak has further submitted that the
promoters of the said company had proposed a scheme of compromise
and made attempts to ensure that the company in liquidation comes back
to them, however, the same is withdrawn due to change of circumstances.
It is submitted that the deed of assignments is the change in
circumstances and another attempt is made to defraud the true creditors of
the company in liquidation and for the promoters to benefit out of the said
scheme and hence, this is nothing but a fraud being attempted by a person
responsible for loss of crores of public money. It is submitted that under
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
the provisions of Section 130 of the Transfer of Property Act, 1882, it is
only actionable claim, which can be assigned and hence, the claim of the
respondent no.2, as an assignee is not tenable in law. It is submitted that
the assignment in favour of the private party is invalid. It is submitted
that in an identical set of facts, the Division Bench of this Court, in the
case of Suzuki Parasrampuria Suitings Pvt. Ltd. vs. OL of Mahendra
Petrochemicals Ltd., in O.J. Appeal No.4 of 2018, has held that the
assignment between the private parties is against the public interest. It is
submitted that the aforesaid judgment is upheld by the Supreme Court in
the case of Suzuki Parasrampuria Suitings Private Limited vs. Official
Liquidator of Mahendra Petrochemicals Limited, (2018) 10 S.C.C. 707. It
is submitted that without prejudice the claim ought to be considered on
the date of liquidation i.e. 17.04.1997 as per Rule 156 of the Companies
(Court) Rules, 1959 and not as per the amounts claimed in the O.A. filed
before the DRT.
9. Learned advocate Mr.Nayak has submitted that so far as the
secured claim of the respondent no.3-Kotak Mahindra Bank is concerned,
which is assignee of ICICI Bank Ltd, it is submitted that the DRT, vide
its judgment dated 31.08.2007 passed in O.A. No.122 of 2002 has held
that the respondent no.3 is entitled to Rs.9,82,16,530/- along with simple
interest at the rate of 6% per annum. It is submitted that in the said
judgment, the respondent no.3 is shown to be the secured creditor,
however, the Chartered Accountant in its report has accepted the claim of
the respondent no.3-Kotak Mahindra Bank at the rate of Rs.5,83,75,215/-
as on the date of liquidation i.e. 17.04.1997 and the Chartered Accountant
has directly deducted a sum of Rs.15,00,000/- received by Kotak
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
Mahindra Bank from the guarantor and accordingly, the Chartered
Accountant has considered the net amount of Rs.5,68,75,215/-. It is
submitted that the Chartered Accountant has deducted the amount of
Rs.15,00,000/-, which was received in June, 2005 without taking into
consideration the date of receipt or the interest on that amount from the
date of liquidation till the date of receipt. It is submitted that the interest
on the claim as on the date of liquidation i.e. Rs.5,83,75,215/- has to be
calculated till the date of receipt of Rs.15,00,000/- i.e. received from the
guarantor.
9.1. Learned advocate Mr.Nayak has further submitted that the
Chartered Accountant has committed an error and has not calculated the
interest accrued on the secured claim as per the value of yen and dollar
for the year 1986 and 1988. It is further submitted that the respondent
no.3 is entitled to a contractual rate of interest till the date of liquidation,
which has been ignored by the Chartered Accountant. It is submitted that
the entire claim being principal, interest thereon as per the current rate of
yen/dollar is required to be considered as secured and once the court of
competent jurisdiction has held the claim to be secured, Chartered
Accountant cannot sit in appeal over it.
10. Learned Senior advocate Mr.Soparkar has submitted that the
objector is an assignee of the debt of Kotak Mahindra Bank Limited. It is
submitted that the said bank had advanced money against hypothecation
of machinery. It is submitted that as on today no machine is sold and,
therefore, the amount realised is not the amount out of security of the
objector, and hence, the objector cannot be treated as a secured creditor at
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
all. It is submitted that apart according to the valuation report the value of
the security is not more than Rs.7,00,000/- if that be so, even when in the
second lot the assets would be sold the amount to which the objector can
be treated as a secured creditor cannot exceed a sum of Rs.7,00,000/-. It
is submitted that the report of the Chartered Accountant in so far as it
seeks to treat the objector as a secured creditor to the extent of
Rs.72,00,000/- is erroneous and insofar as the present proceeds are
concerned, the claim of the objector must be treated as an "unsecured
creditor" only.
11. While placing reliance on the provisions of sections 140 and 141 of
the Indian Contract Act, learned Senior Advocate Mr.Soparkar has
contended that respondent no.1 is precisely treated as "secured creditor"
since as a guarantor he has discharged the debt of the principal debtor. He
has submitted that surely he is entitled to the benefit of every security,
which the creditor has against the principal debtor. In support of his
submission, he has placed reliance on the judgment of the Apex Court in
the case of State of Madhya Pradesh vs. Kaluram, AIR 1967 SC 1105.
12. Learned Senior advocate Mr.Soparkar has submitted that similarly,
Bank of India, State Bank of India and Bank of India Mutual Fund also
took commercial decisions at the time as per their prudence duly cleared
by both Banks' respective Board of Directors and assigned the debt to the
respondent No.2 by way of duly registered assignment deeds. Section 130
of the Transfer of Property Act, 1882 clearly provides all rights and
remedies of the transferor to the transferee upon execution of an
instrument in writing.
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
13. Learned Senior advocate Mr.Soparkar has submitted that the
respondent no.3 has neither disputed the amount that is payable to the
erstwhile banks (i.e. Bol, SBI) nor has challenged the assignment deeds
before the appropriate forum till date. It is submitted that the said deeds
continue to be valid as on date. It is submitted that the respondent no.3
has raised the issue with regard to the assignment deeds for the first time
only in these proceedings. It is submitted that this Court would not
disregard the assignment deeds in original jurisdiction that too when
disbursal of funds is being determined.
14. Learned Senior advocate Mr.Soparkar has submitted that the
objector claims that the respondent no.2 should not be given benefit of
assignment deeds because it did not continue with the recovery
proceedings before the DRT. It is submitted that as far as continuation of
the recovery proceedings after entering into the assignment agreement is
concerned, the respondent no. 2 has filed the claim with O.L. along with
all supporting documents since the company was already in liquidation,
whereby all the suits and legal proceedings by the private parties would
be stayed. It is submitted that the respondent no.2 is not a bank similar to
the respondent no.3, which can pursue the recovery suits before the DRT.
15. Learned Senior advocate Mr.Soparkar has submitted that all
submissions in the form of allegations pertaining to assignee, being an
alter-ego, defrauding creditors, arm's length transactions, etc. are
irrelevant in as much as the nationalized banks themselves have thought
fit to enter into the assignment agreement and were fully in know of the
circumstances of the collapse of the Company ECL due to paucity of
foreign exchange restrictions placed on a computer manufacturing
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
company as Indian Government itself had only 2 weeks of FOREX
available in 1991 and receive their monies there and then whilst the
respondent no.2 has been out of pocket and waited all these years with no
certainty of payment. It is submitted that no action is taken by any
authority, bank, government or official liquidator against the respondent
no.1 on the ground that he had mismanaged the company or siphoned
away the funds or is guilty of any illegality at all and hence, in the present
proceedings, by making wild and baseless allegations, the objector cannot
deny the amount payable to the present respondents.
16. Learned Senior advocate Mr.Soparkar has submitted that Section
130 of the Transfer of Property Act, 1882 does not differentiate between
the private party and public sector bank. It is submitted that if money is
payable to a rank stranger, it should be payable to the respondent no.2 as
well since it has duly made the payment under the assignment agreement.
Thus, it is submitted that the respondent no.2 should be entitled to all the
amounts as is liable to be paid to the transferor i.e. the public sector banks
in view of the assignment agreements.
17. Learned Senior advocate Mr.Soparkar has submitted that the
judgments of Suzuki Parasrampuria Suitings Pvt. Ltd. (both this Court
in O.J. Appeal and the Supreme Court) cited by the respondent no.3
would not be applicable since in that case the appellant was seeking
substitution as a secured creditor under the SARFAESI Act, which is not
the case in the present proceedings. It is submitted that the observations,
with respect to substitution as a transferee of an actionable claim, are not
entertained since the appellant realized it committed a mistake before the
Single Judge and then sought to make an entirely a new case in O.J.
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
Appeal and subsequently before the Supreme Court. It is submitted that
the objector is seeking to rely upon some observations of the Division
Bench of this Court taken out of context.
18. Learned Senior advocate Mr.Soparkar has submitted that the
judgment of the Apex Court in the case of ICICI Bank Ltd vs Official
Liquidator of APS Star Industries Ltd., 2010 (10) S.C.C. 1, clearly
recognises that under section 130 of the Transfer of Property Act a debt
by a bank can be assigned. It is submitted that merely because in that case
the Supreme Court was dealing with assignment by one bank in favour of
another bank and, therefore, the observations were made in that context,
the binding effect of the judgment cannot be taken out by claiming that
the judgment otherwise has more application.
CONCLUSION:
The following facts are established:
19. The respondent No.1-Apurva Parekh is the Director of Company in
liquidation (Essen Computers Ltd.) and respondent no.2-Essen Finance
Ltd. It is the case that Apurva Parekh stood as a guarantor of Company in
Liquidation (Essen Computers), and he is claiming amount from O.L. as
subrogation as a secured creditor.
20. The DRT vide order dated 31.08.2007 passed in O.A. No.122 of
2001 has directed the Essen Computers Limited (company in liquidation)
to pay the total amount of Rs 9,82,16,530.00 with simple interest at the
rate of 6% from 12.03.2001 until realization to Kotak Bank. Instead the
secured claim is only considered as Rs.72 lacs by Chartered Accountant.
There are Deeds of Assignment dated 02.12.2006 between BOI and Essen
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
Finance and Investments Ltd. and dated 24.02.2007 between SBI and
Essen Finance Ltd. The O.A. No. 47 and No.124 were settled on
12.01.2007 between BOI, SBI vs Essen Computers Ltd. The GIIC has
issued a communicated dated 25.02.2010 showing Essen Peripherals
Limited has settled the loan. Similar communications have been issued by
the GSFC showing Essen Peripherals and Essen Fabrication & Engg.
have settled the loan. It is pertinent to note that all the communications
referred hereinabove are addressed to the borrower and do not indicate
the name of respondent no.1-Apurva Parekh. Both - Essen Peripherals
and Essen Fabrication amalgamated with Essen Computers in 1992.
Account in both GIIC and GSFC has been settled in 2010/2011 after the
date of liquidation i.e. 17.04.1997.
21. The Bank of India has entered with the Deed of Assignments dated
02.12.2006, 9.12.2006 and SBI 14.2.2007 with SBI with respondent no.2-
Essen Finance. The Deeds of Assignment are signed by respondent no.1
on behalf of Assignee (respondent no.2). The respondent no.2, being an
assignee of company in liquidation, having settled all the dues with BOI
and SBI in OTS is claiming to be a secured creditor.
The claim of respondent no.1-Apurva J. Parekh, is incorporated as
under:-
Sr. Particulars Amount CA Report Proof
No. (In Rs.) (Pg. No.) (Pg. No.)
1. Amount paid to GIIC 70,45,000 301-303 168A
(Secured)
2. Amount paid to GSFC 11,00,000 303-305 405-407
(Secured)
3. Amount paid to GSFC 2,18,842 303-305 408-412
(Unsecured)
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
4. Amount paid to ICICI 46,75,000 305-306 168M
Bank (Unsecured)
5. Amount paid to Kotak 15,00,000 306-308 168N-P
Bank (Unsecured)
The claim of respondent no.2-Essen Finance & Investments Ltd., is
incorporated as under:-
Sr. Particulars Amount CA Report Proof
No. (In Rs.) (Pg. No.) (Pg. No.)
1. Assignment by Bank 43,13,14,937 309-321 183-193
of India
2. Assignment by State 9,81,96,932 309-321 216-228
Bank of India
3. Assignment by Bank 65,00,000 309-321 194-203
of India Mutual Fund
4. Amount paid to OL 12,52,796 321 ---
The Chartered Accountant has earmarked the secured and unsecured
claims as per the following ratio:
SECURED CLAIM AND RATIO
Sr. No. Name of Creditors Secured Claim Ratio (%) of Total
Claim)
1 Mr.Apurva Parekh 81,45,000 53.08
2. Kotak Mahindra Bank 72,00,000 46.92
Total 1,53,45,000 100.00
UNSECURED CLAIM AND RATIO
Sr. Name of Creditors Interest on Unsecured Total Ratio
No. Secured Claim (%) of
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
Portion as per Total
"Exhibit B" of Claim
C.A. Report
1 Mr.Apurva Parekh 43,32,577 63,93,842 1,07,26,419 1.61
2. Essen Finance 0.00 54,87,82,695 54,87,82,695 82.42
and Investment
Ltd.
3 Kotak Mahindra 1,01,66,795 4,96,75,215 5,98,42,010 8.99
Bank
4 UTI 0.00 2,41,97,943 2,41,97,943 3.63
5 LIC 0.00 2,23,02,414 2,23,02,414 3.35
Total 1,44,99,372 65,13,52,109 66,58,51,481 100.00
22. The Chartered Accountant has treated the amount paid to GIIC of
Rs.70,4500 and to GSFC Rs.11,00,000 and Rs.2,18,842 considering the
respondent no.1- Apporva Parekh as secured creditor as per his by
treating the debt as a secured debt on the basis of the letters of settlement
issued by GIIC and GSFC intimating settlement of loans given to Essen
Peripherals and Essen Fabrication & Engg. Co. Pvt. Limited. The said
companies were subsequently amalgamated with Essen Computers. As
per the report of Chartered Accountant no documents are produced by the
respondent no.1-Mr.Parekh, except the settlement letters dated
25.02.2010 and 05.11.2011, 08.11.2011. The settlement letters do not
indicate that the loan has been paid by respondent no.1 or the Companies
Essen Peripherals and Essen Fabrication & Engg. Co. Pvt. Limited. The
Chartered Accountant had demanded various documents as per their
communication dated 20.01.2022 (Page 270) from respondent no.1 with
regard to the payment made by him to ICICI, GSFC and GIIC as a
guarantor. The Chartered Accountant has observed thus:
"Remarks/ Observations
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"There is no evidence available on record as the amount of
Rs.70,45,000.00 actually being paid by Mr.Apurva Parekh to GIIC.
However, considering the fact that GIIC has issued the settlement letter
dated 25.02.2010 for settled accounts and subsequent withdrawn the suit
filed by it, it has been presumed that he payment ought to have been made
by Mr.Parekh in settlement of debts".
23. After making the aforesaid remarks, the debt of Rs.70,45,000.00 is
treated as secured as per section 529 of the Companies Act. Similarly for
the amount of Rs.11,00,000/- respondent no.1 has not produced any
supporting documents showing that the respondent no.1 has paid the
amount of loan obtained from GSFC by Essen Peripherals. The
Chartered Accountant has presumed that such loans are paid by the
respondent no.1 on the basis of the communications issued by GSFC and
GIIC about the satisfaction of the loan by the Company. It is interesting
to note that for the amount of Rs.70,45,000.00, the Chartered Accountant
has treated the same as secured in view of the settlement letter dated
25.02.2010 by GIIC, whereas the amount of Rs.2,18,842-00 has been
treated as unsecured despite similar letter dated 05.11.2011 issued by the
GSFC about settlement. In my considered opinion, the entire amount as
mentioned hereinabove cannot be treated as secured under the provision
of section 529 of the Companies Act, on presumption and in absence of
any cogent and reliable evidence showing that actually the aforesaid
amount of loan is paid by the respondent no.1.
24. At this stage, I may refer to the decision of the Apex Court in the
case of Jitendra Nath Singh vs. Official Liquidator, 2013 (1) S.C.C. 462
has held thus:
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"The Companies Act does not define a "creditor" and a "secured creditor"
and hence, we have to refer to the Insolvency Act for the definitions of
these two words. Section 2(1)(a) and Section 2(1)(e) of the Insolvency
Act define the words creditor and unsecured creditor and are extracted
hereinbelow:
"2(1)(a) "creditor" includes a decree-holder, "debt" includes a judgment-
debt, and "debtor" includes a judgment-debtor."
"2(1)(e) "secured creditor" means a person holding a mortgage, charge or
lien on the property of the debtor or any part thereof as a security for a
debt due to him from the debtor."
25. It will be clear from the definition of "creditor" in Section 2(1)(a)
of the Insolvency Act that it is an inclusive and not an exhaustive defini-
tion, whereas it will be clear from the definition of "secured creditor" in
Section 2(1)(e) of the Insolvency Act that it is an exhaustive definition
and that a secured creditor means a person holding a mortgage, charge or
lien on the property of the debtor or any part thereof as a security for a
debt due to him from the debtor. The result is that the expression "secured
creditor" in Section 529(1)(c) would mean a person who holds a mort-
gage, charge or lien on the property of the company or any part thereof as
a security for a debt due to him from the company. Where, therefore, a
creditor, such as the bank or the financial institution in this case, does not
hold a mortgage, charge or lien on the property of the company or any
part thereof as a security for a debt due to it from the company, it is not a
secured creditor for the purposes of Sections 529 and 529A of the Com-
panies Act.
26. Thus, in absence of any definition of "secured creditor" under the
Companies Act, 1956, the Apex Court has placed reliance on the defini-
tion of "secured creditor" as defined under section 2(1)(e) of the Insol-
vency Act. It is held that the expression "secured creditor" in Section
C/OLR/136/2019 CAV JUDGMENT DATED: 11/04/2023
529(1)(c) would mean a person who holds a mortgage, charge or lien on
the property of the company or any part thereof as a security for a debt
due to him from the company. Thus, the Respondent no.1 has to prove by
showing documentary evidence that by paying the loan amount, he has
secured the entire debt of the company in liquidation. There is no docu-
mentary evidence available which suggests that the in fact the entire debt
has been cleared by the respondent no.1. In the present case, the respon-
dent no.1, while placing reliance on section 140 of the Contract Act is
also claiming the amount as a subrogee on the premise that he has paid
the amount in the capacity of guarantor of the companies - Essen Periph-
erals and Essen Fabrication & Engg. Co. Pvt Limited to whom the GIIC
and GSFC had lend the loans. Section 140 of the Contract Act reads as
under:
"SECTION 140 : Rights of surety on payment or performance
Where a guaranteed debt has become due, or default of the principal
debtor to perform a guaranteed duty has taken place, the surety, upon
payment or performance of all that he is liable for, is invested with all
the rights which the creditor had against the principal debtor."
27. Section 140 of the Indian Contract Act deals with rights of surety
on payment or performance. Where a guaranteed debt has become due, or
default of the principal debtor to perform a guaranteed duty has taken
place, the surety, upon payment or performance of all that he is liable for,
is invested with all the rights which the creditor had against the principal
debtor. One of the essential rights available to the guarantor to make good
their loss is the right to subrogation. All rights that an undischarged
creditor held prior to settlement of his claim should, in keeping with
section 140 of the Contract Act, transfer to the guarantor under normal
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circumstances. If the payment is made by the guarantor in settlement of a
secured creditor, as per Section 140 he should be invested with all the
rights of a secured creditor and be treated as such when liquidation
commences. Section 128 of the Indian Contract Act says that, the liability
of the surety is co-extensive with that of the principal debtor, unless it is
otherwise provided by the contract. The Supreme Court in case of
Kaluram(supra) in context of provision of section 140 and 141 of the
Contract Act has observed thus:
" 11 Kaluram by executing the surety bond had undertaken to discharge the
liability arising out of any act, omission, negligence or default of the forest
contractor. The surety Kaluram contends that because the State lost or parted
with the security he stood discharged. By sec. 140 of the Indian Contract Act,
1872 , where a guaranteed debt has become due, or default of the principal
debtor to perform a guaranteed duty has taken place, the surety, upon
payment or performance of all that he is liable for, is invested with all the
rights which the creditor had against the principal debtor; and by sec. 141 it
is provided :
"A surety is entitled to the benefit of every security which the creditor
has against the principal debtor at the time when the contract of
suretyship is entered into, whether the surety knows of the existence of
such security or not; and, if the creditor loses, or, without consent of
the surety, parts with such security, the surety is discharged to the
extent of the value of the security."
The State had as already observed, a first charge over the goods. The
State was also entitled to prevent the goods from being removed without
payment of the instalments due. The expression "security" in sec. 141 is not
used in any technical sense; it includes all rights which the creditor had
against the property at the date of the contract.The surety is entitled on
payment of the debt or performance of all that he is liable for, to the benefits
of the rights of the creditors against the principal debtor which arise out of the
transaction which gives rise to the right or liability: he is therefore on
payment of the amount due by the principal debtor entitled to be put in the
same position in which the creditor stood in relation to the principal debtor. If
the creditor has lost or has parted with security without the consent of the
surety, the latter is, by the provision contained in sec. 141, discharged to the
extent of the value of the security lost or parted with."
28. Thus, as per the provisions of Section 140 read with section 128 of
the Indian Contract Act, 1872, where a guaranteed debt has become due,
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or default of the principal debtor to perform a guaranteed duty has taken
place, the surety, upon payment or performance of all that he is liable for,
is invested with all the rights which the creditor had against the principal
debtor. In such circumstances, the Respondent no.1 cannot be deprived of
remedy to recover the amount he paid as part of his obligation under the
agreement of guarantee under the Indian Contract Act, from the
Corporate Debtor. Thus, the respondent no.1 can seek repayment as a
subrogee in exercise of his right under Section 140 of the Contract Act
however, to the extent he has paid the amount as a guarantor. The
Respondent no.1 has to show the evidence of payment of the debt, and if
he shows that he has cleared the entire debt then he has to be considered
as a secured creditor. The reliance placed by the Respondent no.3 on the
judgment of High Court of Bombay in case of M/a Trimbak Ispat
Private Ltd.(supra) will not apply to the facts of the present case since
the issue raised therein is not examined in light of the provision of section
140 of the Contract Act.
29. So far the claim of respondent no.2-Essen Finance and Investments
Limited is concerned the same are as under:
Bank of India : Rs.43,13,14,937
State Bank of India: Rs.9,81,96,932
Indian Mutual Fund: Rs.65,00,000.00
OL : 12,52,796
ECL: 1,15,18,630:00
30. The respondent no.3 has primarily raised objection towards the
claim of Bank of India and State Bank of India. The claim is based on the
Deeds of Assignment dated 02.12.2006 (BOI), 09.12.2006 (BOI) and
14.02.2007 (SBI) after the order of liquidation has been passed. The
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aforesaid Deeds of Assignment are entered with the sister concern of the
company in liquidation i.e. respondent no.2. As per the Deeds of
Assignment all debts of the company in liquidation has been satisfied by
the respondent no.2. It is pertinent to note that the BOI and SBI had filed
O.A No.47 of 1997 and No.124 of 1997 for recovery of dues before the
Debt Recovery Tribunal against ECL, (Company in liquidation), which
were disposed of in view of full and final settlement in the year 2007. The
Chartered Accountant, on the basis of the Deeds of Assignment deeds has
considered an amount of Rs.54,87,82,695.00 as unsecured. The
respondent-Kotak Bank cannot question the Deeds of Assignment at this
stage of disbursal of the amounts, hence the contention in this regard is
rejected. The respondent no.3 has placed reliance on the judgment of the
Division Bench in the case of Suzuki Parasmapuria Suitings Pvt.Ltd
(supra), which is confirmed by the Apex Court in Suzuki Parasrampuria
Suitings Private Limited vs. Official Liquidator of Mahendra
Petrochemicals Limited, (2018) 10 S.C.C. 707. The Division Bench has
passed the judgment in the O.J.Appeal preferred under section 438 of the
Companies Act, 1956, wherein the appellant-Company had sought
substitution as a transfree of an actionable claim. The facts recorded by
the Apex Court in its judgment suggest that while the company petition
for winding up was pending, the company preferred for rehabilitation to
the BIFR, and during pendency of the same, the Company entered into
unregistered MoU with the sister concern of the appellant SUZUKI
Parsampuria Suitings Ltd. for leasing out its properties for repayment of
debt, and such MoU was not brought to the notice of the Company Court
till the winding up order was passed. Thus, the law enunciated by the
Division Bench and the Apex Court will not apply to the facts of the
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present proceedings. The respondent no.3 has alleged fraud being
committed by the respondent nos.1 and 2 in order to lay claim. Merely
because the respondent no.2 has not continued with the recovery
proceedings after entering in to the Deeds of Assignment before the DRT
will not ipso facto lead to the conclusion that such deeds are entered to
commit fraud. The respondent no.3 has not disputed that amount payable
to the Bank of India and SBI. The wisdom of the Banks in entering the
assignment deeds cannot be questioned at this stage since the Banks have
themselves thought it fit to enter into assignment deeds looking to the
financial health of the Company in liquidation and its capacity to recover
the money. It is also pertinent to note that no action is taken by any of the
authorities against the respondent no.1 that he has siphoned the money or
has committed any fraud or illegality in managing the Company. This
Court at the stage of deciding the disbursal of the amount as per the O.L.
report cannot delve into such aspects.
31. The ICICI bank has assigned the debt to Kotak Mahindra Bank-
Respodnent no.3 vide assignment deed dated 29.09.2004. The Chartered
Accountant has precisely considered the amount of Rs.72,00,000/- as
secured as the charged was registered before the RoC for foreign
currency loan in Japanese Yen and Dollars, hence the objections raised by
the respondent nos.1 and 2 in this regard do not merit acceptance.
However, with regard to the claim of rate of conversion by the respondent
no.3, this Court cannot delve into the said aspect and it is for the
Chartered Accountant to examine the same, since it is for the respondent
no.3 to satisfy the Chartered Accountant with documentary proof of such
rate of conversion. The Chartered Accountant has also considered the
amount of Rs.4,96,75,215 (Rs.5,11,75, 215 (-) Rs.15,00,000.00) as
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unsecured. It is also admitted by them that the Bank has received an
amount of Rs.15,00,000/- paid by the guarantor. In the affidavit of proof
dated 03.05.2019 in Company Petition No.97 of 1995, the respondent
no.3 has clarified the aforesaid order and the amount. The respondent
no.3-Kotak Mahendra Bank has alleged that the Chartered Accountant
has ignored the order dated 31.08.2007 passed by the DRT in O.A
No.122 of 2001, wherein and whereby the respondent no.1 Mr.Parekh
was directed to pay an amount of Rs.9,18,16530.00 to it, after considering
respondent no.3 as a secured creditor. The said submission runs contrary
to the report of Chartered Accountant. The Chartered Accountant though
has referred in the list of documents, has finally considered the
aforementioned amount as secured. The claim of the respondent no.3 as
on the date of liquidation i.e. 17.04.1997 is Rs.5,83,75,215.00. The DRT
has directed the respondent no.1 to pay an amount of Rs.9,82,16,530/-
together with further interest at the rate of 6% p.a from 12.03.2001 till
payment. The Chartered Accountant has absolutely ignored the effect of
the order of the DRT in his report. Thus, the same is also required to be
incorporated in the report while deciding the claim. The Respondent no.3
has also claimed interest as mentioned herein above, however, the same is
not required to be considered at this stage of ad hoc payment of the
secured debt.
32. Thus, the Official liquidator is directed to apprise the Chartered
Accountant for preparing a fresh report in light of the afore-noted
observations. Such report shall be prepared within a period of three
months. The Official Liquidator shall file a fresh report after receipt of
report from the Chartered Accountant.
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33. Accordingly, the present matter stands disposed of.
Sd/-
(A. S. SUPEHIA, J)
ABHISHEK
