Karnataka High Court
State Bank Of India vs Official Liquidator Of on 26 July, 2024
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OSA No.3/2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF JULY, 2024
PRESENT
THE HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
THE HON'BLE MR JUSTICE VIJAYKUMAR A. PATIL
ORIGINAL SIDE APPEAL No.3/2024
IN
COMPANY APPLICATION NO.340/2022
IN
COMPANY PETITION NO.57/2012
BETWEEN:
STATE BANK OF INDIA
STRESSED ASSETS MANAGEMENT BRANCH
2ND FLOOR, OFFICE COMPLEX BUILDING
LHO CAMPUS, NO.65, ST. MARKS ROAD
BENGALURU- 560 025
REP. BY ITS ASSISTANT GENERAL MANAGER
MR.RAGHAVENDRA G MUTTAGI ...APPELLANT
(BY SRI K.N.PHANINDRA, SENIOR COUNSEL FOR
SRI VEERENDRA PATIL, ADVOCATE)
Digitally
signed by K S AND:
RENUKAMBA
Location:
High Court of 1. OFFICIAL LIQUIDATOR OF
Karnataka M/S UNITED BREWERIES (HOLDINGS)
LTD., (IN LIQN) ATTACHED TO
HIGH COURT OF KARNATAKA
"CORPORATE BHAVAN" NO 26-27
12TH FLOOR, RAHEJA TOWERS
M G ROAD, BENGALURU - 560 001
2. M/S HDFC LTD.,
RAMON HOUSE
H T PAREKH MARG, NO.169
BACKBAY RECLAMATION
CHURCH GATE, MUMBAI - 400 002
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OSA No.3/2024
3. PRESTIGE ESTATE PROJECTS LTD.,
PRESTIGE FALCON TOWERS
NO.19, BRUNTON ROAD
CRAIG PARK LAYOUT, VICTORIA LAYOUT
BENGALURU - 560 025 ...RESPONDENTS
(BY SMT.KRUTIKA RAGHAVAN, ADVOCATE FOR C/R1;
SRI R.V.GOUTHAM, ADVOCATE FOR R2;
R3 SERVED)
THIS ORIGINAL SIDE APPEAL IS FILED UNDER SECTION 483
OF THE COMPANIES ACT, 1956 READ WITH SECTION 4 OF THE
KARNATAKA HIGH COURTS ACT, 1961 PRAYING TO ALLOW THIS
APPEAL AND CONSEQUENTLY SET ASIDE THE ORDER DATED
06.02.2024 PASSED BY THE LEARNED SINGLE JUDGE IN COMPANY
APPLICATION BEARING C.A.NO.340/2022 FILED IN COP
NO.57/2012.
THIS ORIGINAL SIDE APPEAL HAVING BEEN RESERVED FOR
JUDGMENT ON 15.07.2024 COMING ON FOR PRONOUNCEMENT THIS
DAY, K.S.MUDAGAL J, DELIVERED THE FOLLOWING:
CORAM: HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
HON'BLE MR JUSTICE VIJAYKUMAR A. PATIL
CAV JUDGMENT
(PER: HON'BLE MRS JUSTICE K.S.MUDAGAL)
Challenging the order of the learned Single Judge,
respondent No.2 in Company Application No.340/2022 in
Company Petition No.57/2012 has preferred the above appeal.
2. The appellant was respondent No.2, respondent
No.1/Official Liquidator was the applicant, respondent No.2 was
respondent No.1, respondent No.3 was respondent No.3 in
C.A.No.340/2022 before the learned Single Judge.
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3. The brief facts of the case are as follows:
(i) The appellant and several others filed company
petitions against United Breweries (Holdings) Limited ('UBHL'
for short) for winding up of the said company. Company
petition filed by the appellant was registered in
COP.No.162/2013 and that was tagged with the petition in
COP.No.57/2012 before this Court. This Court by order dated
07.02.2017 allowed the COP.No.162/2013 ordering the winding
up of UBHL. The said order was unsuccessfully challenged
before the Hon'ble Supreme Court. Consequently the official
liquidator has taken charge of the company affairs.
(ii) UBHL is also proceeded in Spl.C.No.5/2018 and
Spl.C.No.7/2017 before the Court of Special Judge for CBI for
Greater Bombay at Mumbai under the Prevention of Money-
Laundering Act, 2002 ('PML Act' for short). The properties of
UBHL were attached in the said cases. The appellant led the
consortium of 11 banks to recover the dues payable by the
company in liquidation and approached the Debt Recovery
Tribunal (DRT for short). The DRT passed the order allowing
the claim of the appellant. Further the Recovery Officer of DRT
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by order dated 07.02.2022 permitted the appellant to enforce
the recovery certificate subject to necessary clarification to be
obtained from the concerned Court.
(iii) The order of attachment passed by the Special
Court under PML Act was vacated and the properties were
restored in favour of the appellant-SBI led consortium, despite
resistance of the official liquidator. The said order of
restoration is challenged in W.P.No.2720/2021 and
W.P.No.2721/2021 before the High Court of Mumbai, but there
is no interim order against the official liquidator.
(iv) The appellant has recovered
Rs.10040,81,70,704.82/- (approximate Rupees Ten Thousand
Forty Crores ) by sale of shares of the company. Again that
sale is questioned and pending before the Hon'ble Supreme
Court.
4. Such being the facts, the official liquidator filed
C.A.No.340/2022 before the learned Single Judge seeking the
following reliefs:
(i) To direct the HDFC Bank (respondent No.2) to hand
over original title deeds of certain immovable properties
belonging to the company in liquidation.
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(ii) To appoint two reputed valuers for each property
mentioned in the application to value the same and to secure
the valuation report in sealed cover.
(iii) To permit the official liquidator to incur the
expenditure towards valuation from the funds available to the
credit of the company in liquidation.
(iv) To direct the Joint Developer-Prestige Estate
Projects Ltd. (respondent No.3 herein) to assist the valuer in
evaluating the properties.
5. That application was opposed by the appellant-SBI
and respondent No.2-HDFC Bank.
6. Respondent No.2-HDFC Bank contended that it is a
secured creditor and it has priority claim over the properties
and the proceedings under the PML Act are pending before the
Special Court.
7. The appellant-SBI opposed the application on the
ground that for the amount payable to it, DRT has issued
recovery certificate in its favour and the properties are restored
to it by the Special Court subject to its undertaking of returning
the same whenever required.
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8. Learned Single Judge on hearing the parties, by the
impugned order has allowed the application of the respondent
No.1/official liquidator in the following terms:
(i) The assets of the Company in liquidation viz.,
No.24, UB Towers, Vittal Mallya Road, Bengaluru-560 001,
No.87/16, Rusthumji Residency, Richmond Road, Richmond
Town, Bengaluru and at No.602, HB, Wallace Apartments,
Nasir Bharucha Marg, Grant Road Mumbai, are to be valued by
two independent valuers.
(ii) Respondent No.2-HDFC Bank shall permit the
valuers to inspect the original title deeds pertaining to the
properties referred to above belonging to the Company in
liquidation, and shall also permit the valuers to take Xerox
copies of the said title deeds.
(iii) The invoices relating to the valuation shall be
placed before this Court for appropriate orders relating to
valuers' fees.
(iv) The joint owner -Prestige Estate Projects
Ltd./respondent No.3 shall co-operate with the valuers in
valuation process.
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(v) Respondent No.1/Official Liquidator, respondent
No.2-HDFC and the appellant-SBI shall submit the list of 5
valuers, in sealed cover to enable this Court to finalise the
valuers to value the properties.
9. Respondent No.2-HDFC has not challenged the said
order. Therefore the said order has attained finality against it.
10. The appellant-SBI has challenged the said order in
the above appeal.
11. Sri K.N.Phanindra, learned Senior Counsel appearing
for Sri Veerendra Patil, learned Counsel on record for the
appellant assails the impugned order mainly on the following
grounds:
(i) The official liquidator has not adjudicated all the
claims of the creditors. Unless the same is done, the valuation
of the properties becomes wasteful exercise.
(ii) The Special Court has restored the properties in
favour of the appellant subject to the appellant's undertaking
to restore them to the said Court, if at all it is held that the
properties are proceeds of the crime. If at all the official
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liquidator wants valuation or sale of the properties, he should
approach the Special Court.
(iii) The DRT has issued recovery certificate in favour of
the appellant and the recovery officer in the order dated
07.02.2022 has directed that the official liquidator shall seek
clarification from the concerned Court which means the Special
Court. Therefore the official liquidator should have approached
the Special Court for valuation or sale of the properties.
12. In support of his submissions, he relies on the
judgment of the Hon'ble Supreme Court in Allahabad Bank v.
Canara Bank1.
13. Smt.Krutika Raghavan, learned Counsel for
respondent No.1/official liquidator justifies the impugned order
on the following grounds:
(i) The attachment order of the Special Court only bars
sale or transfer of the assets.
(ii) The affidavit undertaking of the appellant before the
Special Court is to either restore the properties or value the
same.
(2000) 4 SCC 406
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(iii) The appellant itself has sold the attached shares
worth Rs.700 crores. Therefore, it does not lie in its mouth to
say that the official liquidator is barred from seeking valuation
of the properties for the purpose of realization. Even after the
sale the official liquidator deposits the amount in escrow
account and the eligibility of the creditors can be considered by
the Court.
(iv) Under Section 457(2A) (b)(c) of the Companies Act,
1956 ('Companies Act' for short) the official liquidator is
obligated to value the properties and protect the same. By
such objection, the appellant on untenable grounds is
preventing the official liquidator from discharging his duties
under the provisions of the Companies Act.
(v) The costs of maintenance of the properties comes to
Rs.2 crores per month. The official liquidator was appointed on
07.02.2017. Challenge to his appointment was dismissed on
26.10.2020. Therefore the paper publication was taken calling
for claims of the parties and the process of adjudication is
going on. The delay in valuation of the properties and
realization of the same affects the interest of the creditors.
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(vi) Learned Single Judge by taking into consideration all
the aspects has passed the impugned order and the same does
not warrant interference of this Court.
14. In support of her submissions, she relies on the
following judgments:
(i) Allahabad Bank v. Bengal Paper Mills Co.Ltd.2
(ii) Union Bank of India v. Official Liquidator3
15. On hearing both the parties and on examining the
records, the point that arises for determination is "Whether the
learned Single Judge was justified in allowing COP
No.340/2022"?
Analysis
16. The admitted facts of the case which are also listed
by learned Single Judge are as follows:
(i) The company in liquidation was ordered to be
wound up by an order dated 07.02.2017.
(ii) The said order is confirmed as the appeal
challenging the said order is dismissed by the Division Bench of
this Court.
(1999) 4 SCC 383
(2000) 5 SCC 274
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(iii) The Special Leave Petition filed by the Company in
Liquidation is not entertained.
(iv) The DRT has passed an order for the recovery of
dues payable by the company in liquidation in favour of a
consortium led by SBI.
(v) The application properties were attached under the
PML Act, and the attachment order was vacated and the
restoration orders are passed in favour of the SBI-led
consortium.
(vi) The orders of restoration are under challenge in
W.P.No.2720/2021 and W.P.No.2721/2021 before the High
Court of Bombay and there is no interim order operating
against the Official Liquidator.
(vii) The DRT has issued a certificate of recovery in
favour of SBI-led consortium with a rider that appropriate
orders are to be obtained from the competent Court before
putting the properties for sale.
(viii) Respondent No.2-HDFC bank has recovered its
dues from sale of shares of the company and the dispute in
respect of said recovery by respondent No.2-HDFC bank is the
subject matter of a petition pending in the Supreme Court.
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17. The first objection raised by Sri K.N.Phanindra,
learned Senior Counsel is that the official liquidator has to
adjudicate all the claims before valuation of the properties,
otherwise, it would be a wasteful exercise. He submits that if
the properties are valued at huge costs and adjudication takes
some years, again the properties value will change and the
same exercise has to be done.
18. Admittedly the official liquidator was appointed on
07.02.2017 itself and that order has attained finality on
26.10.2020. Even after lapse of four years, the process of
realizing the properties has not yet begun. Section 457(2A) of
the Companies Act which prescribes duties of the official
liquidator reads as follows:
"457(2A) The Liquidator shall-
(a) appoint security guards to protect the
property of the company taken into his custody and
to make out an inventory of the assets in
consultation with secured creditors after giving
them notice;
(b) appoint, as the case may be, valuer,
chartered surveyors or chartered accountant to
assess the value of the company's assets within
fifteen days after taking into custody of property,
assets referred to in sub-clause (a) and effects or
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actionable claims subject to such terms and
conditions as may be specified by the Tribunal;
(c) give an advertisement, inviting bids for
sale of the assets of the company, within fifteen
days from the date of receiving valuation report
from the valuer, chartered surveyors or chartered
accountants referred to in clause (b), as the case
may be.
19. Since the language 'shall' is employed in the above
Section, it is mandatory for the official liquidator to commence
the process of appointing the valuers for valuation of the
properties within 15 days after taking custody of the property.
20. Para 19(g) of the order dated 07.02.2022 in
T.R.C.No.255/2017 in O.A.No.766/2013 relied on by learned
Senior Counsel reads as follows:
"19(g). Since it is brought to my notice that the
immovable properties owned by UBHL and now restored
in favour of CHBs are in the custody of Official Liquidator
and transfer of custody of such properties (including title
deeds and related documents) for the purpose of
enforcement of same may be lengthy and cumbersome
process, the official liquidator if consenting is permitted
to retain the custody of the immovable properties owned
by UBHL, and to sell the properties in a time bound
frame. Under this circumstance, a clarification is required
to be obtained from the concerned Court or any higher
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Forum either by CHB or by Official Liquidator or together,
regarding sale of immovable properties restored to CHBs
through Recovery Officer by DRT and the issue of
undertaking to be furnished by Official Liquidator. Till a
clarification is received from the concerned Court or from
any higher forum, no further action on the affidavit filed
by CHBs for sale of immovable properties shall be
entertained by this Authority due to the reasons as
mentioned above."
(Emphasis supplied)
21. Reading of the above order shows that even though
the properties were restored to the custody of the appellant-
SBI, the official liquidator was permitted to retain the custody
of immovable properties and permission was given to him to
sell the properties. Parties were directed to obtain clarification
from the concerned Court or higher forum regarding sale of
immovable properties restored to the appellant through the
Recovery Officer.
22. The order dated 24.05.2021 in Special Case
No.5/2018 and the order dated 01.06.2021 in Special Case
No.7/2017 show that the Recovery Officer of DRT was
permitted to proceed in accordance with law subject to
compliance of the order of Karnataka High Court dated
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07.02.2017 in COP.No.57/2012 in respect of official liquidator
of UBHL.
23. While considering the request of the appellant for
disbursal of sale proceeds of shares etc., the Recovery Officer
of DRT in addition to para 19 (g) of the order dated 07.02.2022
referred to above, in para 19(c) permitting the official
liquidator to proceed with the matter in terms of the order in
COP.No.57/2012 held as follows:
"c. It is clarified that in terms of Company
Petition No.57/2012 before the Hon'ble High Court of
Karnataka, the Official Liquidator remains custodian of
all assets of UBHL which were not attached by the
Enforcement Directorate and this order will not come in
the way of official liquidator disposing of the Liquidation
proceeds of such assets as per the priority prescribed in
the Companies Act.
24. The aforesaid orders and Section 457(2A) of the
Companies Act clearly show that the official liquidator is
permitted to proceed for realization of the assets. None of the
provisions of the Companies Act say that before valuation there
should be adjudication of all the claims of the creditors.
Therefore the contention that valuation of the properties shall
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be made only after adjudication of all the claims deserves no
merit.
25. The next contention of Sri K.N.Phanindra, learned
Senior Counsel is that the appellant-SBI has given undertaking
affidavit before the Special Court to restore the properties.
Therefore the said properties cannot be sold. In para 9 of their
bond undertakings dated 01.06.2021 and 03.06.2021, the
appellant has stated as follows:
Bond undertaking dated 01.06.2021:
"Now in consideration of the above stated we the
applicant Banks herein by way of this bond undertaking
do hereby unconditionally and unequivocally undertake
to restore assets or its equivalent value under the PMLA
order dated 24 May 2021 if such restoration is required
to be done as per the applicable laws."
Bond undertaking dated 03.06.2021:
"Now in consideration of the above stated we the
applicant Banks herein by way of this bond undertaking
do hereby unconditionally and unequivocally undertake
to restore assets or its equivalent value under the PMLA
order dated 1st June 2021 if such restoration is required
to be done as per the applicable laws."
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26. The above undertakings are clearly either to restore
the properties or valuation of the properties. In para 8 of the
affidavit in T.R.C.No.255/2017 (R.C.No.11395/2017) in
O.A.No.766/2013 before the Recovery Officer, DRT-1, Chennai
Raghavendra G.Muttagi, the Assistant General Manager of the
appellant-SBI himself has clearly admitted that by selling the
shares of the company under liquidation up to 16.07.2021, the
appellant-SBI has realized Rs.792,00,57,816.65/-. Despite the
said undertaking, the appellant itself has sold the shares right
under the nose of bond of undertaking. By opposing the
valuation of the properties on the ground of same undertaking,
despite the appellant itself selling the shares, the appellant is
blowing hot and cold together which is impermissible. Similarly
if at all movable/immovable properties were valued or sold, it
is always open to restore the sale proceeds to the Special
Court. The official liquidator in clear terms has stated that the
amount realized by sale of the properties will be deposited in
escrow account and that can be disbursed subject to the result
of the proceedings under the PML Act. Therefore even that
contention does not sustain.
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27. Similarly, all the orders including the order passed
by the Special Court say that for any properties, clarification
shall be sought from the higher forum or higher authority.
Respondent No.1 has filed application before this Court in
C.A.No.340/2022 in COP No.57/2012 which had passed
winding up order and appointed official liquidator. Therefore
Company Court becomes Higher authority. Therefore, there is
no merit in the contention that the official liquidator should
have approached the Special Court seeking valuation of the
properties.
28. Sri K.N.Phanindra, learned Senior Counsel relied on
the judgment of the Hon'ble Supreme Court in Allahabad
Bank's case referred to supra to claim that Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 has
overriding effect over the Companies Act. Absolutely, there is
no dispute with regard to the said legal preposition. However,
in this case, by the impugned order the learned Single Judge
has not tried to meddle with the properties before the DRT. As
against that, by above referred orders, the said Court and the
Recovery Officer themselves have directed to seek clarification
from the Company Court. Therefore the said judgment does
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not serve the appellant's challenge to the impugned order.
Moreover the impugned order, facilitates only valuation of the
assets of the company in liquidation. When such sale of
properties come, the appellant can raise all contentions open to
it under law.
29. In para 21 of the judgment in Bengal Paper Mills
Co. Ltd.'s case referred to supra, relied on by learned Counsel
for the official liquidator it is held that to ensure that the best
possible price is realized upon sale of the assets and properties
of the company under liquidation, the sale thereof by the
liquidator is required to be confirmed by the High Court.
Therefore that goes to show that liquidator has to make all
efforts to get the best price for the properties vested under
him.
30. In para 10 of the judgment in Union Bank of
India's case referred to supra, relied on by learned Counsel for
the official liquidator it was held that since the Court acts as
custodian for the interest of the company and the creditors,
before sanctioning the sale of the assets, the Court is required
to exercise its discretion to see that the properties are sold at a
reasonable price. It was further held that for deciding what
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would be a reasonable price, valuation report of an expert is
must. It is not only the duty of the Court to disclose the said
valuation report to the secured creditors and other interested
persons including the offerors, but it is also the duty of the
Court to apply its mind to the valuation report for verifying
whether the report indicates reasonable market value of the
property to be auctioned, even if objections are not raised.
31. The above judgment shows that there is sufficient
safeguard to protect the interest of the appellant, if valuation
report is submitted. The impugned order in no way has
adversely affected the interest of the appellant. Therefore there
is no merit in the appeal. Hence the following:
ORDER
The appeal is dismissed.
Sd/-
(K.S.MUDAGAL)
JUDGE
Sd/-
(VIJAYKUMAR A. PATIL)
JUDGE
KSR
