Rajasthan High Court
Khurana Textile Mills Pvt Ltd vs Rathi Syntex Ltd on 14 February, 2024
Author: Sameer Jain
Bench: Sameer Jain
[2023:RJ-JP:38294] (1 of 12) [COP-16/2014]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
S.B. Company Petition No. 16/2014
Khurana Textile Mills Pvt Ltd
----Petitioner
Versus
Rathi Syntex Ltd
----Respondent
Connected With
S.B. Company Petition No. 2/2015
Pidilite Industries Ltd
----Petitioner
Versus
Rathi Syntex Ltd
----Respondent
S.B. Company Application No. 3/2020
Khurana Textile Mills Pvt Ltd, Registered Office At 6A/81,
Barodawala Mansion, Ist Floor, Dr. A.b. Road, Worli Mumbai-
400018 And Branch Office At Roop Industries Compound,
Andheri Kurla Road, Sakinaka, Mumbai-400072, Through Its
Authorised Person Mr. Rajinder Singh Khurana
----Petitioner
Versus
Rathi Syntex Limited, Registered Office At Rathi House, Bhawani
Mandi, Jhalawar, Rajasthan-326502.
----Respondent
S.B. Company Application No. 7/2020
Khurana Textile Mills Pvt Ltd, Registered Office At 6A/81,
Barodawala Mansion, First Floor Dr. A B Road, Worli Mumbai-
400018 And Branch Office At Roop Industries Compound,
Andheri Kurla Road Sakinaka, Mumni 72, Through Authorised
Person Mr Rajinder Singh Khurana
----Petitioner
Versus
Rathi Syntex Ltd, Registered Office At Rathi House, Bhawani
[2023:RJ-JP:38294] (2 of 12) [COP-16/2014]
Mandi Jhalawar, Rajasthan-326502
----Respondent
For Petitioner(s) : Mr. Shivanshu Naval with
Ms. Akanksha Naval
Mr. Ayush Sharma
For Respondent(s) : Mr. Rahul Lodha for
Mr. Ruvit Kumar, OL
HON'BLE MR. JUSTICE SAMEER JAIN
Order
Reserved On: 01/12/2023
Pronounced On: 14/02/2023
1. Matter comes up on Report No. 12988/2021, filed by the
Official Liquidator (for short "OL"), seeking the following reliefs:
"(i) The report may kindly be taken on record.
(ii) The Hon'ble Court may direct Bank of Baroda (for
short "BoB") being Secured Creditor who has sold all
the assets of the Company in liquidation to deposit a
sum of Rs. 5 lakhs with the Official Liquidator as stated
in para 6 of this report
(iii) Any other order/orders as may be deemed fit and
proper in the circumstances of the case may also kindly
be passed."
2. The details of the expenses sought to be recovered by the OL
from the secured creditor are as under:
S. No. Particulars (Payment) Amount in Rupees
1 Advertisement expenses 370772
2 TDS 7908
3 GST 7710
4 Misc. legal expenses and T.A 4010
expenses
5 Professional valuation fees 1800
expenses
TOTAL 392200
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The details of the future expenses which are to be incurred are as
under:
S. No Particulars (Payment) Amount in Rupees
1 H.Y. statement audit 15000
2 ROC fees (8x500) and other 2000
government fees and expenses
3 Office misc. expenses 15000
TOTAL 32000
3. Learned counsel for the OL submits that to meet the
aforesaid expenses, the OL took a loan of Rs. 3,93,070/- from the
common pool, out of which till date Rs. 3,92,200/- is the amount
of expense incurred till date, which has not been paid by the
secured creditor/BoB despite due intimations vide letters dated
03.03.2020, 09.07.2020 and 03.11.2020, i.e. immediately after
receiving the intimation of sale from secured creditor/BoB vide
letter dated 26.02.2020. Thereafter, since no payment was made
by secured creditor/BoB, the present report was filed.
4. Learned counsel for the OL contends that the aforesaid
amount is payable in view of Section 529 of Companies Act, 1956
(for short "Companies Act") read with Rule 292 of the Companies
(Court) Rules, 1959 (for short "Companies Rules"). It is further
contended that it is misconceived to state that since the secured
creditor stayed outside the winding up proceedings and proceeded
to sell the secured assets under the provisions of Securitization
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (for short "SARFAESI Act"), no
expenses has incurred towards the security of the assets since it is
undisputed that the secured creditor/BoB has filed an application
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for condonation of delay in filing claim before this Court. In
support of his contentions, learned counsel for the OL has placed
reliance on judgment of Bombay High Court in the case of
Sterling Trade v. Trimbak Ispat (P) Ltd.: 2018 SCC OnLine
Bom 12339 wherein it was held that each party contributes to
the expenses in proportion to the benefit each party deprives.
5. Per contra, learned counsel for the secured creditor/BoB
submits that the BoB had given certain credit facilities to the
company under liquidation as secured creditor in the year 2010.
The company under liquidation had mortgaged a total of seven
immovable properties in favour of BoB. Subsequently, the loan
account of the company under liquidation were classified as Non-
performing Assets (for short "NPA") on 28.03.2014 and the BoB
invoked the mortgage, took physical possession of the mortgaged
properties and put the same to auction on 11.09.2015,
04.11.2015, 07.04.2016, 26.10.2017, 31.07.2019 and 05.02.2020
in exercise of powers under the SARFAESI Act. The auction notice
dated 16.01.2020 was also issued to the company under
liquidation and only thereafter did the BoB issued sale certificate
with respect to the auctioned mortgaged properties in favour of
auction purchaser. It is contended that the entire case of OL is
primarily based on the purported liquidation expenses incurred by
the OL in the liquidation process of Rathi Syntex Limited (company
in liquidation). The same are false, baseless, unspecific and
meritless as the OL has failed to substantiate its claim of Rs.
5,00,000/- as liquidation expenses. It is also highlighted that the
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BoB had, from time to time, intimated the developments in the
recovery proceedings initiated under the SARFAESI Act.
6. Learned counsel for the secured creditor/BoB further
contends that the OL has failed to mention under which provision
of law is the secured creditor liable to pay the expenses so raised.
Section 529 of the Companies Act clearly states that if a secured
creditor, instead of relinquishing his security and providing his
debts, proceeds to realize his security as in this case, it shall be
liable to pay only such portion of the expense incurred by the
liquidator for the preservation of the security before its realization
by the secured creditor. In the case in hand, since the assets of
the company under liquidation have always been in the possession
of the secured creditor, the same was preserved and kept safe by
the BoB at its own expense. Therefore, the OL is not entitled to
claim any amount from the secured creditor under Section 529 of
the Companies Act.
7. Learned counsel for the secured creditor/BoB further
contends that the as per Rule 113 of the Companies Rules, the
petitioner, i.e. Khurana Textile Mills Private Limited has to borne
the expense for advertising and the OL cannot claim the same
from secured creditor. Reliance in this regard is placed on
judgment of Division Bench of Andhra Pradesh High Court in the
case of CMD, APSFC, Hyd. vs. CMD, Southern Transformers
and Electricals Ltd., Renigunta & Ors: 2000 (2) ALT 737.
8. Learned counsel for the secured creditor/BoB has also relied
on Hon'ble Supreme Court judgment of Pegasus Assets
Reconstruction (P) Ltd. v. Haryana Concast Ltd.: (2016) 4
[2023:RJ-JP:38294] (6 of 12) [COP-16/2014]
SCC 47 to submit that OL cannot interfere in the SARFAESI
proceedings and the powers under the Companies Act cannot be
wielded by the Company Judge or the liquidator to interfere with
proceedings by a secured creditor to realize its secured interest as
per provisions of SARFAESI Act.
9. Heard the rival submissions, scanned the record and
considered the judgments cited at Bar.
10. The winding up order of the company in liquidation was
passed on 09.12.2017 and the charge of the company in
liquidation was handed over to the Official Liquidator. Since the
possession of the assets of the company in liquidation was with
the secured creditor/BoB under SARFAESI Act, the OL was
directed to co-ordinate with the BoB for the purpose of further
proceedings. Vide order dated 21.05.2019, permission was
granted to the OL to publish an advertisement in terms of Rule
148 of the Companies Rules inviting claims of secured
creditors/workmen/contributories. It is with regard to the
publication of these advertisements that the OL is seeking
reimbursement from secured creditor/BoB.
11. The relevant provisions of the Companies Act and the
Companies Rules, relevant for adjudication of the present report,
are reproduced as under:
"Section 529 - Application of insolvency rules in winding up
of insolvent companies
(1) In the winding up of an insolvent company, the same rules
shall prevail and be observed with regard to-
(a) debts provable;
(b) the valuation of annuities and future and contingent
liabilities; and
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(c) the respective rights of secured and unsecured creditors;
as are in force for the time being under the law of insolvency
with respect to the estates of persons adjudged insolvent
Provided that the security of every secured creditor shall
be deemed to be subject to a pari passu charge in favour
of the workmen to the extent of the workmen's portion
therein, and, where a secured creditor, instead of
relinquishing his security and proving his debt, opts to
realise his security,
(a) the liquidator shall be entitled to represent the
workmen and enforce such charge;
(b) any amount realised by the liquidator by way of
enforcement of such charge shall be applied rateably
for the discharge of workmen's dues; and
(c) so much of the debt due to such secured creditor
as could not be realised by him by virtue of the
foregoing provisions of this proviso or the amount of
the workmen's portion in his security, whichever is
less, shall rank pari passu with the workmen's dues
for the purposes of section 529A.
(2) All persons who in any such case would be entitled to prove
for and receive dividends out of the assets of the company, may
come in under the winding up, and make such claims against the
company as they respectively are entitled to make by virtue of
this section:
Provided that if a secured creditor instead of
relinquishing his security and proving for his debt
proceeds to realise his security, he shall be liable to pay
his portion of the expenses incurred by the liquidator
(including a provisional liquidator, if any) for the
preservation of the security before its realization by the
secured creditor.
Explanation.-For the purposes of this proviso, the
portion of expenses incurred by the liquidator for the
preservation of a security which the secured creditor
shall be liable to pay shall be the whole of the expenses
less an amount which bears to such expenses the same
proportion as the workmen's portion in relation to the
security bears to the value of the security.
(3) For the purposes of this section, section 529A and section
530-
(a) "workmen", in relation to a company, means the
employees of the company, being workmen within the
meaning of the Industrial Disputes Act, 1947 (14 of 1947);
(b) "workmen's dues", in relation to a company, means the
aggregate of the following sums due from the company to its
workmen, namely:-
(i) all wages or salary including wages payable for time or
piece work and salary earned wholly or in part by way of
commission of any workman, in respect of services
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rendered to the company and any compensation payable to
any workman under any of the provisions of the Industrial
Disputes Act, 1947 (14 of 1947);
(ii) all accrued holiday remuneration becoming payable to
any workman, or in the case of his death to any other
person in his right, on the termination of his employment
before, or by the effect of, the winding up order or
resolution;
(iii) unless the company is being wound up voluntarily
merely for the purposes of reconstruction or of
amalgamation with another company, or unless the
company has, at the commencement of the winding up,
under such a contract with insurers as is mentioned in
section 14 of the Workmen's Compensation Act, 1923 (8 of
1923) rights capable of being transferred to and vested in
the workman, all amounts due in respect of any
compensation or liability for compensation under the said
Act in respect of the death or disablement of any workman
of the company;
(iv) all sums due to any workman from a provident fund, a
pension fund, a gratuity fund or any other fund for the
welfare of the workmen, maintained by the company;
(c) "workmen's portion", in relation to the security of any
secured creditor of a company, means the amount which
bears to the value of the security the same proportion as the
amount of the workmen's dues bears to the aggregate of-
(i) the amount of workmen's dues; and
(ii) the amounts of the debts due to the secured creditors.
Section 529A - Overriding preferential payment
(1) Notwithstanding anything contained in any other provision
of this Act or any other law for the time being in force, in the
winding up of a company-
(a) workmen's dues; and
(b) debts due to secured creditors to the extent such debts
rank under clause (c) of the proviso to sub-section (1) of
section 529 pari passu with such dues,
shall be paid in priority to all other debts.
(2) The debts payable under clause (a) and clause (b) of sub-
section (1) shall be paid in full, unless the assets are
insufficient to meet them, in which case they shall abate in
equal proportions.
Rule 113 - Advertisement of the order
Save as otherwise ordered by the Court, every order for the
winding-up of a company by the Court, shall within 14 days of the
date of making the order, be advertised by the petitioner in one
issue each of a newspaper in the English language and a
newspaper in the p; regional language circulating in the State or
the Union Territory concerned and shall be served by the
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petitioner upon such person, if any, and in such manner as the
Judge may direct. The advertisement shall be in Form No. 53.
Rule 148 - Notice to creditors
(1) The liquidator shall give not less than 14 days' notice of the
date so fixed by advertisement in one issue of a daily newspaper
in the English language and one issue of a daily newspaper in the
regional language circulating in the State or Union Territory
concerned, as he shall consider suitable. Such advertisements
shall be in Form No. 63.
(2) The Liquidator shall also give not less than 14 days' notice of
the date fixed, in a winding-up by the Court, to every person
mentioned in the statement of affairs, as a creditor, who has not
proved his debt and to every person mentioned in the statement
of affairs as a preferential creditor, whose claim to be a
preferential creditor has not been established or is not admitted,
or where there is no statement of affairs, to the creditors as
ascertained from the books of the company and, in any other
winding-up, to each person who, to the knowledge of the
Liquidator, claims to be a creditor or preferential creditor of the
company and whose claim has not been admitted, to the last
known address or place of abode of such person. Such notice
shall be in Form No. 64 or 65 as the case may be, and shall be
sent to each creditor by pre-paid, letter post under certificate of
posting.
(3) All the rules hereinafter set out as to the admission or
rejection of proofs shall apply with necessary variations to any
claim to priority as a preferential creditor.
Rule 292 - Where the company has no available assets
Where a company against which a winding-up order has been
made has no available assets, the Official Liquidator may, with
the leave of the Court, incur any necessary expenses in
connection with the winding-up out of any permanent advance or
other fund provided by the Central Government, and the
expenses so incurred shall be recouped out of the assets of the
company in priority to the debts of the company:
Provided that where any money has been advanced to the Official
Liquidator by the petitioning or other creditor or contributory for
meeting any preliminary expenses in connection with the winding-
up, the Official Liquidator may incur any necessary expenses out
of such amount, and the money so advanced shall be paid out of
the assets of the company in priority to the debts of the
company."
12. As per Rule 148 of Companies Rules, it was incumbent upon
the OL to publish the advertisement inviting claims from creditors
of the company in liquidation. The same was a statutory
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obligation, and therefore the OL, in the facts of the case, had no
option but to take funds out of the common pool to fulfill the said
statutory obligation. The OL is thus entitled to seek refund of the
expenses incurred in discharge of his statutory obligations. The
question that remains to be answered is whether the secured
creditor be made liable to refund the same out of the realized
assets of the company in liquidation, as the OL had no available
assets of the company in liquidation?
13. As per Section 529A of the Companies Act, workman's dues
and dues of secured creditor stand on equal footing and have to
be paid in priority to all other debts of the company. As per
proviso to clause (c) of Section 529(1) of the Companies Act, even
if the secured creditor realizes its security, the OL can enforce the
charge of workman. In the case in hand, the company in
liquidation had no available assets and the impugned
advertisements were published with the leave of this Court. When
the company in liquidation does not have available assets, the OL
can incur necessary expenses and the said expenses can be
recouped out of the assets of the company in priority to the debts
of the company. Therefore, as per Rule 292 of the Companies
Rules, the expenses incurred by the OL would have preferential
charge over all other debts of the company. Only after adjusting
these expenses, can the other dues of the company in liquidation
be paid/settled.
14. The position that emerges now is that the statutory
advertisements in questions, under Rule 148 of the Companies
Rules, was issued to invite claims form secured creditors and
workmen, whose dues stand on equal foorting. This Court is not in
[2023:RJ-JP:38294] (11 of 12) [COP-16/2014]
agreement with the contention of secured-creditor/BoB that since
the assets were realized under the provisions of SARFESI Act, the
OL cannot claim any right over the same. The realization of the
assets under SARFAESI Act satisfied the debts owed to the
secured-creditor by the company in liquidation. However, before
the debts of the company could be paid, as per Rule 292 of the
Companies Rules, the expenses incurred by the OL in discharge of
his statutory obligations had to be repaid out of the assets of the
company.
15. On a joint reading of the above quoted provisions, this Court
has no hesitation in holding that the secured creditor/BoB, who
has auctioned the assets of the company in liquidation and
realized the same to settle the dues of the company, could not
have done so prior to settling the expenses incurred by the OL in
discharge of his staturoy obligation under Rule 148 of Companies
Rules, as workman dues and dues to secured creditors stand on
equal footing.
16. The judgment of CMD, APSFC, Hyd. (supra), relied upon
by learned counsel for the secured creditor/BoB, is also on
different facts and the issue therein pertained to deposit of
preliminary expenses with the OL to meet advertisement to put
into effect the winding up order. Whereas the present case relates
to manner in which expenses incurred in connection with winding
up of the companr are to be paid, shared, recouped or recovered.
17. In view of the above, the claim of the OL seeking payment to
the tune of Rs. 3,92,200/- from the secured-creditor/BoB is found
tenable. However, the future expenses so claimed, does not
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appear to have any statutory backing whatsoever, and is hereby
held to be untenable.
18. Consequently, the secured-creditor/BoB is directed to release
the payment of Rs. 3,92,200/- along with 6% simple interest from
date of report to the date of payment.
19. Report No. 12988/2021, accordingly, stands disposed of.
20. Matters be listed in appropriate category on 01.03.2024.
(SAMEER JAIN),J
Pooja /231-233
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