DATED
: 12.04.2011
CORAM
:
THE
HONOURABLE Mrs.JUSTICE R.BANUMATHI
and
THE
HONOURABLE Mr.JUSTICE V.PERIYA KARUPPIAH
O.S.A.NOS.58,
59, 63, 64 and 81 of 2011
O.S.A.Nos.58
and 59 of 2011:
O.S.A.Nos.63
and 64 of 2011 arise out of the order of learned single Judge dated 19.1.2011
in C.A.No.1038 of 2006 in C.P.No.229 of 2004, whereby the learned single Judge
directed sale of assets of both immovable, land and building and plant and
machinery and other movable assets of Arunachalam Sugar Mills Limited
(hereinafter referred to as "ASM") by fixing the upset price
at Rs.86.44 Crores. ASM's sister concern - New Horizon Sugar Mills Limited
(hereinafter referred to as "NHSM") is the appellant in
O.S.A.No.63 of 2011. The promoters/directors and their wives are the appellants
in O.S.A.No.64 of 2011. Being aggrieved by the dismissal of the applications O.A.Nos.253 and 254 of 2005 filed under
Section 9 of Arbitration and Conciliation Act and directing Bharat Heavy
Electricals Limited (in short, "BHEL") to lodge its claim
with the Official Liquidator, BHEL has preferred the appeals O.S.A.Nos.58 and 59 of 2011. O.S.A.No.81 of
2011 is filed by Walchandnagar Industries Limited, one of the unsecured
creditor against the order dated 19.01.2011 made in C.A.No.2486 of 2006 in
C.P.No.229 of 2004.
2.
FACTUAL BACKGROUND OF THE MATTER:-
Indian
Renewable Energy Development Agency Limited (in short,
"IREDA") granted financial assistance to the tune of
Rs.49,35,28,000/- to ASM under loan agreements dated 10.9.1998, 21.7.1999,
29.10.1999 and 3.12.1999; (i) for setting up a 14 MW Bagasse based
Co-generation Captive Power Plant; (ii) for enhancing the capacity of
Co-generation Captive Power Plant from 14 MW to 19MW; and (iii) for financing
expenditure in setting up energy efficient conservation equipment. IREDA has
got a first charge over the assets of ASM. IREDA has also granted financial
assistance to the NHSM to the tune of Rs.15,54,10,000/- for the purchase of
energy efficient equipment to be leased and installed in ASM in juice
extraction and juice concentration unit of ASM under loan agreements dated
29.10.1999 and 6.12.1999 and IREDA gets a first charge over the energy
efficient equipment financed to NHSM and a second charge over all the assets of
NHSM. Within few months of the commencement of production, ASM started losing
altitude and both ASM and NHSM committed default in respect of the credit
facilities availed by them from IREDA and other creditors.
3.
O.A.Nos.112, 113 and 114 of 2004:- IREDA has filed applications O.A.Nos.113 and 114 of 2004 for recovery of
Rs.62.83 Crores and Rs.9.17 Crores respectively from ASM. IREDA has also filed
O.A.No.112 of 2004 before Debt Recovery Tribunal-I, New Delhi for recovery of
Rs.20.03 Crores from NHSM. IREDA issued notice under Section 13(2) of SARFAESI
Act to both ASM and NHSM to discharge in full the above liability. When notice
under Section 13(2) was issued to both Sugar Mills, the provisional liquidator
of ASM had not then been appointed.
4.
C.P.No.229 of 2004:- On 12.7.2004, one of the creditors of ASM M/s.Alstom Project India Limited filed
C.P.No.229 of 2004 for winding up of ASM. In C.A.No.1393 of 2004 filed in
C.P.No.229 of 2004, by an order dated 22.7.2005, D.Murugesan,J. appointed
Official Liquidator as provisional liquidator to take charge of the properties
and effects of the Company.
5.
Claims of other creditors, who sold/leased machinery to Arunachalam Sugar Mills
Limited:- Sundaram Finance Limited filed application in A.No.4401 of 2004 under
Section 9 of the Arbitration and Conciliation Act seeking appointment of an
Advocate Commissioner to seize and deliver the machinery available in the
premises of ASM. By orders dated 8.12.2004 and 19.3.2005, the Commissioner was
appointed to seize and sell the machineries. Thereafter, Sundaram Finance
Limited, who let out the machineries to ASM, entered into a Memorandum of
understanding on 27.9.2005 with IREDA in and by which it was agreed that IREDA
would sell all the properties on or before 31.3.2006 and pay the amount due to
Sundaram Finance Limited. It was also agreed that if IREDA was not able to sell
the properties before 31.3.2006, Sundaram Finance Limited would be at liberty
to approach the Court. BHEL, which supplied and commissioned (i) A 8400 KW Capacity
Extraction cum Back Pressure Turbo generator and (ii) A 4280 KW Capacity Low
Pressure Condensing Turbo generator with all its auxillaries in the factory of
ASM and to whom also payment was defaulted, initiated proceedings by invoking
arbitration clause contained in the agreement by filing applications O.A.Nos.253 and 254 of 2005 restraining ASM
from selling, transferring or alienating its properties. On 19.3.2005, interim
injunction was granted in both the applications.
6.
Sale of assets of New Horizon Sugar Mills Limited by secured creditor Indian Bank:- NHSM at Pondicherry availed
credit facilities from Indian Bank and Indian Bank initiated proceedings under
SARFAESI Act, 2002 by issuing notice under Section 13(2) on 25.9.2004 demanding
a sum of Rs.27,19,15,465/-. In pursuance to the said notice, Indian Bank took
possession of the assets of NHSM located at Ariyur, Pondicherry on 1.1.2005
under Section 13(4) of the Act. The assets of NHSM were sold for Rs.52 Crores
and M/s.EID Parry Limited became the highest bidder in the auction and the sale
in their favour was got confirmed.
7.
IREDA, which had already filed O.A.Nos.112 to 114 of 2004 on the file of Debt
Recovery Tribunal, New Delhi filed applications before the Debt Recovery
Tribunal-I, New Delhi seeking permission of DRT to initiate steps under
SARFAESI Act. By the order dated 4.10.2005, those applications were allowed by
DRT permitting IREDA to initiate steps under SARFAESI Act. IREDA also filed
applications I.A.Nos.872 and 874 of 2005 for withdrawal of O.A.Nos.113 and 114
of 2004. On 5.10.2005, IREDA initiated action under SARFAESI Act and under
Section 13(4) took possession of the assets of ASM for which it has financed.
IREDA issued public notice on 20.1.2006 fixing the upset price at Rs.96.80
Crores.
8.
Challenging the measures taken by IREDA under Section 13(4) of the Act, the
promotes/directors of the Company ASM
filed application in S.A.No.3 of 2006 on the file of DRT-I, Chennai under
Section 17 of the Act. By order dated 16.2.2006, DRT stayed opening of the
tenders, but permitted IREDA to receive tenders and keep them in a sealed
cover. IREDA filed I.A.No.31 of 2006 before the Tribunal for vacating the stay.
By order dated 24.3.2006, Tribunal permitted IREDA to open the tenders and retain
only the highest bid and return the E.M.D. to the other bidders. In the
tender-cum-auction held on 20.2.2006, IREDA received highest bid from Ambika
Sugars for Rs.135.50 Crores.
9.
C.A.No.1786 of 2005:- The Official Liquidator, who was appointed as the provisional
liquidator by order dated 22.7.2005, filed application in C.A.No.1786 of 2005
seeking various directions including direction to IREDA to hand over possession
of the properties. By order dated 24.4.2006, the application C.A.No.1786 of 2005 was allowed and IREDA was
directed to hand over possession of the properties on or before 28.4.2006 to
the Provisional Liquidator. However, the Court directed that the security
posted by IREDA in the premises shall continue. In the said order, the Company
Court directed the Provisional Liquidator to file a report regarding the
valuation of the properties for further steps to be taken. In pursuance of the
said order in C.A.No.1786 of 2005, IREDA handed over possession of the assets
of ASM to the Official Liquidator on 27.4.2006.
10.
C.A.No.1038 of 2006:- After handing over possession, IREDA filed the
application in C.A.No.1038 of 2006 seeking an order for fresh publication for
the sale of assets of the company in liquidation (ASM) and also the machineries
of NHSM by IREDA installed in ASM by joining (i) official liquidator; (ii)
IREDA, and (iii) Sundaram Finance Limited. Along with C.A.No.1038 of 2006,
IREDA also filed C.A.No.1039 of 2006 praying for confirmation of sale in favour
of the highest bidder, who offered Rs.135.50 Crores in the bid cum auction held
on 20.2.2006.
11.
C.A.No.1033 of 2006:- At the same time, the promoters/directors of the Company ASM and their respective wives (appellants in
O.S.A.No.64 of 2011) took out an application in C.A.No.1033 of 2006 praying to
transfer SARFAESI Appeal -S.A.No.3 of 2006 on the file of DRT-I, Chennai to the
High Court to be heard along with C.P.No.229 of 2004.
12.
All the three applications viz., C.A.Nos.1033, 1038 and 1039 of 2006 were taken
up together for hearing and disposed of by the order dated 3.7.2006, wherein
Chitra Venkataraman, J, (i) directed fresh publication for sale in C.A.No.1038
of 2006; (ii) dismissed C.A.No.1039 of 2006, as a consequence thereof; and
(iii) dismissed C.A.No.1033 of 2006 on the sole ground that by the order passed
on 24.4.2006 in C.A.No.1786 of 2005, the possession taken under the SARFAESI
Act was already directed to be handed over to the Official Liquidator and that
therefore, nothing survived in the SARFAESI appeal, requiring the same to be
transferred to this Court.
13.
The respondents 5 to 8 herein (promoters-Directors and their wives) did not
challenge the orders passed in C.A.No.1033 & 1039 of 2006, but filed an
appeal in O.S.A.No.226 of 2006, only as against the order passed in C.A.No.1038
of 2006, directing fresh paper publication to be made for the sale of the
properties. The said appeal was disposed of by a Division Bench, by order dated
25.7.2006, inter alia issuing directions and requested the Company Court to
dispose of the matter within a period of three weeks. The Division Bench has
permitted the interested parties to intervene and file their objections and
also observed that the interveners/banks and finance companies are entitled to
be heard on their objections to the auction sale and remitted the matter back
to the Company Court for fresh consideration. Thereafter C.A.No.1038 of 2006
was taken up for hearing. By the order in C.A.No.1471 of 2006, the promoters
and their wives were impleaded as respondents No.5 to 8 in C.A.No.1038 of 2006.
Mr.V.Kannan, who is also the Chairman of ASM filed a separate application C.A.No.1472 of 2006 for impleading NHSM and
the said application was allowed impleading NHSM (appellant in O.S.A.No.63 of
2011). BHEL, who obtained interim order of injunction in O.A.Nos.253 and 254 of
2005 under Section 9 of the Arbitration Act were also impleaded as the 10th
respondent in C.A.No.1038 of 2006. Walchandnagar Industries Limited filed an
application in C.A.No.2486 of 2006 seeking to exclude a boiler sold and
supplied to ASM from the list of properties, whose sale was sought by the IREDA
in C.A.No.1038 of 2006. According to Walchandnagar Industries Limited, they
have obtained a decree from the Civil Court and that they have a lien over the
boiler and for the balance due they have obtained a decree from the Civil Court
and execution proceedings are pending.
14.
After the matter was remitted back to the Company Court in C.A.No.1038 of 2006,
V.Kannan, Chairman of ASM started sending letters to the creditors offering one
time settlement. Simultaneously, V.Kannan and other directors and their wives
have also filed counter affidavits to the application in C.A.No.1038 of 2006.
V.Kannan also filed an affidavit of one M.R.Ramchender claiming to be the Chairman
and Managing Director of a Company incorporated in Singapore offering USD 30
million equivalent to Rs.120 Crores for the rehabilitation of ASM. In
C.P.No.229 of 2004, V.Kannan has also filed an affidavit in March 2008 agreeing
and confirming to make payment to the secured and unsecured creditors in the
manner indicated in the affidavit. The promise to settle the dues borne out to
be an empty promise and about two years was lost in this process from the date
of order of the Division Bench remanding the application to the Company Court.
Thereafter, by an order dated 2.9.2008, Chitra Venktataraman,J. directed the
Official Liquidator to bring the properties for sale viz., land of an extent of
125 acres, building, plant and machinery and other movables. The learned Judge
fixed the upset price of the land at Rs.11.44 crores, the buildings at Rs.9.00
crores and the plant and machinery and other movable assets at Rs.66.00 crores
(totalling to Rs.86.44 crores) on the basis of the valuation done by ITCOT
Consultancy Services Private Ltd. Thereafter, IREDA filed an application
listing out the machineries financed to NHSM, which in turn were leased and
installed in ASM to sell all those machineries. An Order was passed on 8.9.2008
in C.A.No.1038 of 2008 directing the Official Liquidator to indicate separately
the value of the assets financed, both the Companies separately and also
permitting the sale of the machineries of NHSM (financed by IREDA and leased
out and installed in ASM).
15.
By another order passed on the same day viz., 2.9.2008, the applications O.A.Nos.253 and 254 of 2005 filed by BHEL came
to be dismissed on the ground that they are only unsecured creditors and
therefore sale of the properties alone would bring relief to all the parties.
The injunction order passed on 19.3.2005 in O.A.Nos.253 and 254 of 2005 got
vacated and BHEL was directed to lodge their claim with the Official
Liquidator.
16.
As against the order passed on 2.9.2008, NHSM and the directors of ASM and
their wives filed appeals in O.S.A.Nos.321 and 345 of 2008. As against the
order of dismissal of the applications in O.A.Nos.253 and 254 of 2005, BHEL has
preferred two appeals O.S.A.Nos.341 and
342 of 2008. All the four appeals O.S.A.Nos.321, 341, 342 and 345 of 2008 were
heard together by the Division Bench and by the order dated 27.10.2009 the
Division Bench allowed all the four appeals and remitted the matter back to the
Company Court for hearing the matter afresh after considering all the
objections of all the parties.
17.
In the light of the emphasis laid to consider all the objections of all the
parties, the learned single Judge heard the matter at length including the
objections relating to the maintainability of the application in C.A.No.1038 of
2006. After elaborately referring to the objections raised by all the parties,
by a detailed order, the learned single Judge allowed the application C.A.No.1038 of 2006 by order dated 19.1.2011
directing the sale of movable and immovable assets of ASM by fixing the upset
of price of the properties as 86.44 crores. The learned single judge in the
order inter alia held as under: Under Section 450(3) of Companies Act, the
provisional liquidator would have the same power as that of a liquidator to
perform such duties as directed by the Court. Primarily the question would be
whether the Court can order sale or not. The expression "Company which
is being wound up" appearing in Rule 72 would indicate a stage even
prior to the passing an order for winding up the company under section 443(1)(d)
of the Companies Act. A secured creditor is entitled to stand outside the
winding up proceedings and can proceed to realise the security without the
leave of the winding up Court if by the time he initiated the action the
Company had not been wound up. In the instant case, secured creditor IREDA has come up before the Company Court on
account of decision of the Division Bench in Asset Reconstruction Company (I)
Ltd. Vs. The Official Liquidator, High Court, Madras, (2006(3) CTC 529) and
also in view of the order passed by the Court directing IREDA to surrender
possession to the Official Liquidator. C.A.No.1038 of 2006 has been filed by
IREDA not at the instance of Sundaram Finance Limited nor in pursuance of
Memorandum of Understanding dated 27.9.2005. But C.A.No.1038 of 2006 was filed
only as a result of the order passed by this Court directing IREDA to hand over
possession to the Official liquidator. NHSM cannot raise serious objection
about the application in C.A.No.1038 of 2006. NHSM has no bonafide in raising
objection that the claim of IREDA on NHSM could be very well settled out of
surplus funds available with the Indian Bank.
18.
In so far as the claim of BHEL, in respect of Turbo generators, the learned
single Judge held that the title in the goods equipment had already been passed onto the
buyer and BHEL has no right to claim any lien over the goods and that BHEL has
to wait in the queue along with the other unsecured creditors. O.A.Nos.253 and
254 of 2005 of BHEL were dismissed with liberty to BHEL to lodge its claim with
the Official Liquidator. In so far as the claim of Walchandnagar Industries
Limited also, the learned single Judge held that the title in the goods
"boiler" had already been passed to the Company in liquidation
and held that the prayer of Walchandnagar Industries Limited to exclude the
boiler sold by it to ASM cannot be maintained.
19.
Being aggrieved by the order of learned single judge directing sale of land,
building, plant and machinery, the NHSM has preferred O.S.A.No.63 of 2011. The
Directors of ASM and their wives have filed O.S.A.No.64 of 2001. Being
aggrieved by the dismissal of their applications, BHEL has preferred
O.S.A.Nos.58 and 59 of 2011. Aggrieved by the non-exclusion of the boiler
supplied by them from the list of properties sought to be sold by the secured
creditor, Walchandnagar Industries Limited filed O.S.A.No.81 of 2011.
20.
Mr.G.Rajagopal, learned Senior Counsel along with Mr.Ravi appearing for the
promoters/directors of ASM and their wives (appellants in O.S.A.No.63 of 2011)
contended that ordering of sale of entire assets of ASM is contrary to law and
the learned Senior Counsel interalia raised the following submissions:- (i) The
provisional liquidator appointed under Section 450 of the Companies Act will
have the same powers as liquidator only if the Court has not limited or
restricted its powers by order appointing him. The order dated 22.7.2005
appointing provisional liquidator shows that the provisional liquidator was
only empowered to take charge of the assets of the Company and consequently the
conclusion of the learned single judge that while appointing provisional
liquidator the Court has not limited or restricted its powers is erroneous.
(ii)
The learned single judge failed to see that the process of winding up is passed
under Section 453(1)(b) of the Act and mere pendency of a petition for winding
up presented to the Company Court cannot be construed as a proceedings for
winding up of the Company. The conclusion of the learned Judge that the
expression "Company, which is being wound up", appearing in
Rule 272 would indicate a stage even prior to the passing of an order for
winding up of the Company under Section 443(1)(d) of the Act is erroneous.
(iii)
The entire functions of liquidating Company are to be performed only by the
Official Liquidator and consequently the distinction sought to be made by the
learned single Judge with regard to the power of the Court and the power of the
liquidator is completely non-existent as far as the Companies Act is concerned.
The finding of learned judge that there is no restriction or limitation on the
power of the Court to order sale of the properties through Official Liquidtor
even before the Company is wound up is contrary to law.
(iv)
An institution seeking to invoke the powers under the SARFAESI Act and
intending to stand outside the winding up proceedings will have to file an
application under Section 446 of the Companies Act to obtain appropriate
permission from the Company Court. While granting the said permission, Company
Court is not exercising any powers under SARFAESI Act, but on the other hand it
is only exercising its powers under the Companies Act. (v) Application filed by
IREDA is only to direct the Official Liquidator to direct the property for sale
in terms of Section 457 of the Companies Act and IREDA has not chosen to come
before the Company Court seeking leave of the Court to stand outside the
winding up proceedings and continue the proceedings under SARFAESI Act.
(vi)
As per the decision of AIR 2008 SC 2699 [M/s.Bakemans
Industries Pvt. Ltd. v. New Cawnpore Flour Mills], IREDA is deemed
to have relinquished its security over the assets of ASM and will have to rank
only as an unsecured creditor.
21.
Learned Senior Counsel Mr.G.Rajagopal in support of his contentions placed
reliance upon the decisions of M.K.RANGANATHAN VS. GOVERNMENT OF MADRAS (AIR
1955 SC 604); ICICI VS. SRINVIAS AGENCIES AND OTHERS, ((1996) 4 SCC 165); ALLAHABAD
BANK VS. CANARA BANK AND ANOTHER, ((2000) 4 SCC 406); PENNAR PATERSON LTD. VS.
STATE BANK OF HYDERABAD AND OTHERS, (106 COMPANY CASES 338); (REMANIKA SILKS
(P) LTD. IN LIQUIDATION, (2002) 1 COMP.L.J.191 (KERALA); unreported judgment of
P.SATHASIVAM,J. In C.A.Nos.10, 116 OF 2002 etc., in C.P.No.39 of 1994;
INTERNATIONAL COACH BUILDERS LTD. VS. KARNATAKA STATE FINANCIAL CORPORATION
(2003) 10 SCC 482; DIVYA CHEMICALS LTD. IN RE., (2005) 64 SCL 429 (BOMBAY);
ANDHRA BANK VS. OFFICIAL LIQUIDATOR AND ANOTHER, (2005) 5 SCC 75;
V.K.SEHSASAYEE AND OTHERS VS. OFFICIAL LIQUIDATOR, (2005) 6 COMP.L.J.463 (MAD);
RAJASTAN STATE FINANCIAL CORPN. VS. OFFICIAL LIQUIDATOR, ((2005) 8 SCC 190);
ASSET RECONSTRUCTION CO.(INDIA) LTD. VS. THE OFFICIAL LIQUIDATOR, HIGH COURT, MADRAS,
(2006(3) CTC 529); Unreported Judgment of Chitra Venkataraman,J., in
C.A.Nos.461 OF 2006 ETC., in C.P.No.122 of 1997; unreported Division Bench
Judgment of this Court in W.A.Nos.145 and 146 of 2007 dated 10.08.2007 and
TUNGABADRA SUGAR WORKS MAZDOOR SANGH VS. SUBHASH KATHURIA AND OTHERS,
2009-5-LAW WEEKLY 173.
22.
Onbehalf of NHSM, (appellant in O.S.A.No.63 of 2011), Mr.T.K.Seshadri, learned
Senior Counsel also placed reliance on the above decisions and interalia made
the following submissions:
(i)
The ASM is yet to be wound up and in so far as NHSM has not filed any winding
up petition. Even in respect of ASM, as an interim measure, sale cannot be
ordered and if the property is sold nothing remains for winding up petition. In
all the proceedings initiated by NHSM challenging the SARFAESI action initiated
by the Indian Bank, NHSM has always pointed out that the entire balance amount
realised by the Indian Bank after satisfying their dues should be paid to
IREDA.
(ii)
The Indian Bank was arbitrarily disbursing the amounts to various unsecured
creditors overlooking the claims of IREDA and inspite of several letters to
IREDA pointing out the conduct of India Bank in depriving IREDA their rights to
get the money, IREDA chosen to remain silent and avoided taking any steps to
recover the balance amount lying with Indian Bank.
(iii)
IREDA having invoked the proceedings under Debt Recovery Act and SARFAESI Act
as against NHSM cannot seek the assistance of the Company Court to sell the
property of NHSM since no provisional liquidator has been appointed as far as
NHSM is concerned. The Company Court will have no jurisdiction to exercise the
powers of an authorised officer under SARFAESI Act when the affairs of the said
Company (NHSM) are not pending before the Court.
(iv)
The observations of the Company Court that the rights of the secured creditor
under SARFAESI Act could also be exercised through proceedings in Company Court
is clearly contrary to law.
(v)
Merely because ASM owes certain amounts to be paid to IREDA, it does not mean
that IREDA can also enforce proceedings against NHSM, which is not subjected to
any winding up or subjected to the jurisdiction of the Company Court.
(vi)
The liabilities of NHSM arose in respect of a loan agreement dated 29.10.1999
and 6.12.1999 in terms of which NHSM purchased energy efficiency equipment and
the liabilities of the appellant were totally distinct and separate and the
properties are clearly identifiable and while so there was no justification for
single Judge to brush aside the objections of the appellant and findings of
single Judge in respect of NHSM are liable to be set aside.
23.
Mr.S.R.Sundar, learned counsel appearing for the Official Liquidator has
submitted that in the order dated 22.7.2005 appointing the Official Liquidator
as provisional liquidator, the powers of provisional liquidator have not been
limited or restricted. The learned counsel would further contend that as per
Section 450(3), when a provisional liquidator is appointed by the Court, unless
his powers have been limited or restricted, the Official Liquidator shall have
the same powers as that of a liquidator. The learned counsel would further
contend that as per Section 37 of SARFAESI Act, the provisions of SARFAESI Act
and Rules made thereunder shall be in addition and not in derogation of the
Companies Act, 1956. The learned counsel would further contend that the
complementary nature of the provisions of SARFAESI Act makes it clear that the
provisions of the Company Court under Section 446 of the Companies Act are not
excluded, but when the Official Liquidator has been appointed as provisional
liquidator, no other legal proceedings shall be commenced or proceeded with
against the Company except by leave of the Court and subject to such terms as
the Court may impose. It was further submitted that after the appointment of
the provisional liquidator since IREDA proceeded under SARFAESI Act and taken
possession of the property, following the decision in Asset Reconstruction
Company (I) Ltd. Vs. The Official Liquidator, High Court, Madras, (2006(3) CTC
529), the official liquidator has to necessarily file an application to take
possession of the properties.
24.
Drawing Court's attention to various proceedings, Mr.G.Masilamani, the learned
Senior Counsel submitted that the borrowers are adopting dilatory tactics.
Learned Senior Counsel would further submit that IREDA, being a secured
creditor, has taken possession under SARFAESI Act and surrendered possession to
the Official Liquidator only in pursuance of the order of the Court and nowhere
has relinquished its rights as the secured creditor. The learned Senior Counsel
inter alia made the following submissions:- (i) The powers of provisional
liquidator would be restricted only if the Court imposes any restriction while
appointing him. When the Order dated 22.7.2005 has not restricted the powers of
the provisional liquidator, there can be no distinction between the power of
official liquidator and provisional liquidator in respect of the sale of assets
of the Company.
(ii)
The handing over of possession by IREDA by the Order of the Court shall not
prejudice IREDA's rights as the secured creditor. Handing over possession on
the orders of the Company Court does not result in relinquishment of security
for the benefit of general body of creditors.
(iii)
IREDA has categorically stated that it retained possession over NHSM secured
asset installed within ASM premises and in view of the integrated and
homogeneous nature of the machineries and co-generation power plant, IREDA
applies for sale of the assets of ASM along with the energy efficiency
conservation equipment of NHSM installed in ASM.
25.
The learned Senior Counsel Mr.G.Masilamani in support of his contentions placed
reliance upon the decisions of M/s.Bakemans
Industries Pvt. Ltd. v. New Cawnpore Flour Mills (AIR 2008 SC
2699); REINZ TALBROS LIMITED VS. KOSTUB INVESTMENTS LTD., (2009(96) SCL 108
(DELHI) (DB); Altos India Ltd. v. Bharti Telecom Ltd [2001 (103) Company Cases
6 (P&H)]; ANDHRA BANK VS. OFFICIAL LIQUIDATOR AND ANOTHER, (2005) 5 SCC
75; ICICI BANK VS. SIDCO LEATHERS LIMITED, (AIR 2006 SC 2088); Transcore VS.
Union of India, ((2008) 1 SCC 125); ALLAHABAD BANK VS. CANARA BANK AND ANOTHER,
((2000) 4 SCC 406); RAJASTAN STATE FINANCIAL CORPN. VS. OFFICIAL LIQUIDATOR,
((2005) 8 SCC 190); M.V.JANARDHAN REDDY VS. VIJAYA BANK (2008) 7 SCC 738;
SUBHASH KATHURIA VS. DEVE SUGARS LIMITED (IN LIQUIDATION) (2010) 158 COMP.CASES
78 (MADRAS); HARYANA INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CORPORATION VS.
HARYANA CONCAST LTD., (2010) 158 COMP. CASES 168 (p&h) and NEW HORIZON
SUGAR MILLS LTD. VS. COMMISSIONER OF LABOUR, (2011(1) LLJ 291 (MADRAS)(Db).
26.
On behalf of Sundaram Finance Limited, learned counsel Mr.Vasudevan would
submit that Sundaram Finance Limited had given its consent to sell the
machinery of which it is the owner without relinquishing their status as an
absolute owner. It was further submitted that consent has been given in order
to obtain a good rate for the entire plant and machinery of ASM and the entire
ASM along with machineries is one composite unit and if the machinery is
separated the entire machinery will become junk and it can be sold only as
scrap. In such facts and circumstances, the Company requires to be sold as one
unit and not as a running concern.
27.
Mr.Vasudevan, learned counsel appearing for Sundaram Finance Limited placed
reliance upon decisions of SRI CHAMUNDI THEATRE, MYSORE TALKIES LTD. VS.
S.CHANDRASEKHARA RAO, (1974 (II) MLJ 155)(MADRAS); PANCHMAHALS STEEL LIMITED
VS. UNIVERSAL STEEL TRADERS, (1976) 46 COMP.CASES 706; SUDARSAN CHITS (I) LTD.
VS. G.SUKUMARAN PILLAI AND OTHERS, (AIR 1984 SC 1579); M.C.C.FINANCE LTD. VS.
R.BI., (2004) 119 COMP. CASES 355; M/s.Bakemans
Industries Pvt. Ltd. v. New Cawnpore Flour Mills (AIR 2008 SC
2699); RAJASTAN STATE FINANCIAL CORPN. VS. OFFICIAL LIQUIDATOR, ((2005) 8 SCC
190); ASSET RECONSTRUCTION CO.(INDIA) LTD. VS. THE OFFICIAL LIQUIDATOR, HIGH
COURT, MADRAS, (2006(3) CTC 529); SMT.USHA R.SHETTY AND OTHERS VS. RADEESH
SUBBER PVT.LTD., (1995) 84 COMP.CASES 602 (KARNATAKA); unreported judgment of
punjab & haryana high court dated 15.12.2008 in co.appeal no.18 of 2003
(marigold leasing (india) ltd. vs. Shashi bhushan and others; ICICI BANK VS.
SIDCO LEATHERS LIMITED, (AIR 2006 SC 2088); Transcore VS. Union of India,
((2008) 1 SCC 125) and indian bank vs. Chief judicial magistrate, pondicherry
and others ((2007) 138 comp.cases 631 (madras))
28.
Onbehalf of Vijaya Bank, the learned counsel Mr.R.Umasuthan has submitted that
Vijaya Bank is the second charge holder and in the event of attempting to sell
the machinery separately the same will fetch only lesser value. According to
Vijaya Bank, NHSM has given a corporate guarantee for the discharge of the
liability by the Company in liquidation to Vijaya Bank.
29.
The Mr.R.S.Varadarajan, learned counsel appearing for the City Union Bank has
reiterated the contention of Vijaya Bank.
30.
We have heard Ms.Dr.Anita Sumanth and Mr.N.Muthukumar, learned counsel
appearing for BHEL and we have also heard Mr.Krishna Srinivas, learned counsel
appearing for Walchandnagar Industries Limited and we have referred to their
submissions while we deal with their appeals.
31.
Upon consideration of the order of learned single Judge, materials on record
and the above submissions, the following points arise for consideration:-
1.Whether
the Provisional Liquidator is empowered to sell whole of the ASM Unit along
with machineries thereon as a going concern under Sec.457(1)(c) of Companies
Act?
2.When
the Official Liquidator has not filed any application for sale of the assets of
the company in liquidation, can the Court order sale of the assets of the
company in liquidation on the application filed by the secured creditor?
3.Whether
Court's finding that it was concerned with the power of the Court to order sale
and not the power of the Liquidator to order sale is a non-existent
distinction?
4.Whether
filing of application by IREDA in the Company Court seeking to sell the assets
of the company in liquidation is not in accordance with the procedure
prescribed as laid down in 2005(8) SC 190 [Rajasthan State Financial
Corporation case] ?
5.Whether
surrender of possession to the Official Liquidator by IRDA amounts to waiver of
IREDA's right as secured creditor?
6.Whether
Appellants are right in contending that IREDA cannot file application for sale
of the assets of ASM in the Company Court and simultaneously say it stands
outside the winding up proceedings?
7.In
the winding up proceedings of ASM, can IREDA bring the machineries of NHSM for
sale?
8.Whether
IREDA was inactive in claiming the remaining amount from Indian Bank after the
assets of NHSM were sold by the Indian Bank under SARFAESI Act?
9.Position
of Sundaram Finance Limited and its right to recover the value - co-generation
plant, machineries on lease by Sundaram Finance Limited?
10.Whether
the learned single Judge erred in drawing the conclusions based on the
materials which came to his knowledge in other proceedings?
11.Whether
the order of learned single Judge is vitiated on account of reference to the
other facts and circumstances like conduct of the Directors, etc?
12.What
is the relief to which Walchandnagar Industries Limited entitled towards the
machineries sold by it to ASM?
13.What
is the relief to be granted to BHEL which sold two turbo generators for the
co-generation plant of ASM?
14.Whether
the Order of sale of assets of ASM passed by single Judge is to be confirmed?
If so, what is the value and how the sale has to be ordered?
15.Whether
the valuation of the assets at Rs.86.80 crores is an under valuation?
32.
The entire immovable properties of ASM measuring 120 acres and 70 cents is
situated in Malappambadi village, Tiruvannamalai District and land measuring
4.96 acres is situated in Annamalai Nagar Village and Post, Malappambadi and
the movable assets of ASM and NHSM are sought to be sold. The machineries of
ASM sought to be sold could be classified into four categories:- Co-generation
plant of ASM for which IREDA financed and IREDA holds first charge.
Energy
Efficiency Conservation Equipment of NHSM and installed in ASM in juice
extraction and juice concentration Section for which IREDA holds first charge.
Co-generation
plant and machineries given on lease to ASM by Sundaram Finance Limited.
8400
KW Capacity Extraction cum Back pressure Turbogenerator & A 4280 KW
Capacity Low pressure Condensing Turbogenerator with all its accessories sold
to ASM by BHEL.
Boiler
sold to ASM by Walchandnagar Industries (Unsecured
creditors)
33.
Apart from the claims of workmen, the following are the amounts claimed by the
secured/unsecured creditors from ASM:
Outstanding
Dues
Creditor/
Company Name
Debtor
Company Name
Amount
due
IREDA
(Secured
Creditor)
(i)
Arunachalam Sugar Mills
&
(ii)New
Horizon Sugar Mills
Additional
Loan
Rs.118
Crores
Rs.18,46,82,523/
Rs.
1,56,27,266/-
(as
on 14.10.2004)
Total:138,03,09,789
with
subsequent interest.
SUNDARAM
FINANCE
Arunachalam
Sugar Mills
Rs.16.00
Crores
(as
on 08.2.2006)
with
subsequent interest.
WALCHANDNAGAR
INDUSTRIES LIMITED
Arunachalam
Sugar Mills
Rs.1,05,81,632/-
(till
February, 2003)
with
subsequent interest.
BHEL
Arunachalam
Sugar Mills
Rs.4,84,21,603/-
with
subsequent interest.
Vijaya
Bank
Arunachalam
Sugar Mills
Rs.12
Crores
with
subsequent interest
City
Union Bank
Arunachalam
Sugar Mills
Rs.7,08,44,043/-
with
subsequent interest.
34.
ASM and NHSM defaulted in the payment of dues to IREDA and IREDA filed
O.A.No.113 of 2004 before the DRT-I, New Delhi for recovery of Rs.62.83 Crores
from ASM and O.A.No.114 of 2004 for recovery of another sum of Rs.9.17 Crores
from ASM. IREDA also filed O.A.No.112 of 2004 before DRT-I, New Delhi for
recovery of Rs.20.03 Crores from NHSM. After obtaining permission of DRT, IREDA
initiated steps under SARFAESI Act and issued notice of payment under Section
13(2) of SARFAESI Act to NHSM and ASM. In the meanwhile, Alstom Project India
Limited filed C.P.No.229 of 2004 for winding up of ASM. By the order dated
22.7.2005, Company Court appointed the Official Liquidator as the provisional
liquidator of ASM and provisional liquidator was directed to forthwith take
charge of all the properties and effects of ASM. On 27.9.2005, IREDA entered
into MOU with Sundaram Finance Limited to effectively sell their respective
assets to get better price in the interest of all creditors. On 28.9.2005, the
Official Liquidator has held meeting of the secured creditors. As per the
minutes of the meeting, IREDA is the major secured creditor, who is having
first charge over the entire assets of the Company and City Union Bank is
having first charge on stocks (sugar) and also in the form of guarantor, has
paid amount to IREDA on behalf of the Company. Vijaya Bank has also given loan
on hypothecation of stocks/book debts. The secured creditors were impressed
upon the importance of taking possession of the Company immediately and
providing security to the factory premises. In the said meeting, IREDA stated
that it could bear the entire security charges.
35.
After issuing Section 13(2) and Section 13(4) notices, on 5.10.2005, IREDA has
taken possession of the secured creditors under SARFAESI Act. The Official
Liquidator has sent a notice dated 17.1.2006 to IREDA taking strong objection for
taking of possession under SARFAESI Act. In the said notice, the Official
Liquidator informed IREDA that "invoking the provisions of Section
13(4) of SARFAESI Act, 2002 and Rules framed thereunder is violative of the
provisions of Sections 446, 456 and 537 of the Companies Act". It was
reiterated that Section 37 of the SARFAESI Act, 2002 is in addition to and not
in derogation of the Companies Act, 1956 and other Acts for the time being in
force. On 20.1.2006, IREDA issued public notice for sale of movable assets and
immovable properties of ASM. In response to the notice, IREDA has also received
a bid for Rs.135.50 Crores. In these circumstances, after the judgment of the
first Bench of this Court in Asset Reconstruction Company (I) Ltd. Vs. The
Official Liquidator, High Court, Madras, (2006(3) CTC 529), Official Liquidator
filed C.A.No.1786 of 2005. By the order dated 24.4.2006, Chitra Venkataraman,J.
directed IREDA to hand over possession of the properties to the Official
Liquidator. It was further ordered that the security appointed by IREDA shall
continue as before. In pursuance to the order of the Court, IREDA has handed
over possession to the Official Liquidator. Stating that IREDA continues to
exercise its rights under SARFAESI Act of assets of both ASM as well as the
machinery of NHSM installed/erected at the factory premises of ASM, IREDA filed
the applications A.Nos.1038 and 1039 of 2006 to proceed further with the fresh
advertisement for sale of movable and immovable assets of ASM by fixing the
upset price of Rs.135.50 Crores and in case no fresh bid is received, to
confirm the sale in favour of existing bidder for Rs.135.50 Crores.
36.
Points No.1 to 3:-
By
the order dated 22.07.2005, Provisional Liquidator was appointed. The relevant
portion of the order reads as follows:-
1.That,
the official Liquidator, High Court, Madras attached to the Court be and is
hereby appointed as Provisional Liquidator of the above named Respondent
Company.
2.That,
the Provisional Liquidator, do forthwith take charge of all the properties and
effects of the Respondent Company.
37.
Position and powers of Provisional Liquidator:-
Under
Section 450(3) of Companies Act, while appointing the Provisional Liquidator,
Court may limit or restrict his powers by the order appointing him or by a
subsequent order; but otherwise he shall have the same powers as a Liquidator.
Contention of IREDA is that as per Section 450(3) of Companies Act, powers of
the Provisional Liquidator are the same as that of the Official Liquidator and
powers of Provisional Liquidator would be restricted only if the Court imposes
any restriction while appointing him. Further contention of IREDA is that in
the order dated 22.07.2005, there is no restriction on the powers of the
Provisional Liquidator and the Official Liquidator was entitled to exercise his
powers including power to sell movable and immovable properties under Section
457(1)(c) of Companies Act.
38.
Contention of Promotors/Directors of ASM is that in the order dated 22.07.2005,
the powers of Provisional Liquidator is restricted only to take charge of the
assets and while so, on the application by one of the secured creditor/IREDA,
the learned single Judge erred in passing the order for sale of the movable and
immovable properties.
39.
Onbehalf of Appellant, Mr.G.Rajagopalan, learned Senior Counsel submitted that
the Provisional Liquidator appointed under Section 450 of Companies Act will
have the same powers as Liquidator only if the Court has not limited or
restricted his powers by the order appointing him. The contention of the
Appellant is that as per the order of the Court, Provisional Liquidator is only
to take charge of all the properties and effects of ASM and the Official
Liquidator has no power for effecting sale of movable and immovable properties.
But the order dated 22.07.2005 appointing the Provisional Liquidator clearly
shows that he was only empowered to take charge of the assets of the company
and consequently, the finding of the learned single Judge that while appointing
the Provisional Liquidator, Court has not limited or restricted its power is
completely erroneous.
40.
In order to consider the merits of the above submission, it is necessary to
refer to the provisions of Section 450 of Companies Act.
"450.
Appointment and powers of provisional liquidator.- (1) At any time after the
presentation of a winding up petition and before the making of a winding up
order, the [Tribunal] may appoint the Official Liquidator to be liquidator
provisionally. (2) Before appointing a provisional liquidator, the [Tribunal]
shall give notice to the company and give a reasonable opportunity to it to
make its representations, if any, unless, for special reasons to be recorded in
writing, the [Tribunal] thinks fit to dispense with such notice. (3) Where a
provisional liquidator is appointed by the [Tribunal], the [Tribunal] may limit
and restrict his powers by the order appointing him or by a subsequent order;
but otherwise he shall have the same powers as a liquidator."
41.
As per Sub-section (3) of Section 450 of Companies Act, powers of the
Provisional Liquidator are the same as that of the Official Liquidator unless
limited by the order of the Court. Section 457 of Companies Act set out the
powers of the Liquidator in winding up of the company. Sub-section (1) of
Section 457 of Companies Act enumerates power which can be exercised by the
Liquidator with sanction of the Company Court. Sub-section (2) of Section 457
of Companies Act enumerates power which can be exercised without sanction of
the Company Court.
42.
Rule 107 of Companies (Court) Rules states that rules relating to Official
Liquidators shall apply to the Provisional Liquidators so far as applicable
subject to such a direction as the Court may give in each case. The powers of
the provisional liuqidator are the same as that of the Official Liquidator
unless High Court limits or restricts them by the same order by which he was
appointed or by a subsequent order. Form 49 of the Companies (Court) Rules
would show that the provisional liquidator was authorised to take charge of all
the properties and effects of the Company. The Order dated 22.07.2005 is well
in accordance with Form- 49. When the powers of the provisional liquidator were
not restricted by the Court, the impugned order of the Company Court
authorising the Official Liquidator to sell the property cannot be challenged
as the same is with the specific authority and the sanction of the Court.
43.
Section 456 envisages that when a winding up order has been made or where a
provisional liquidator has been appointed in terms of clause (c) and (ca) of
Section 457(1) of the Companies Act, the liquidator or the provisional
liquidator, as the case may be, shall take into custody the control of the
properties, assets of the company. In a winding up of the Company, the
liquidator is entitled to sell the movable and immovable assets of the Company.
In pursuance of the order of the Court dated 22.07.2005 the Official
Liquidator, having taken over the assets of ASM, exercise of powers to sell
under Section 457(1)(c) and (ca) and cannot be denied. As held by the Supreme
Court in M/s.Bakemans Industries Pvt.Ltd. Vs. New Cawnpore Flour Mills (AIR
2008 SC 2699), in a situation of this nature, the role of the official
liquidator assumes great importance.
44. In
M/s.Bakemans Industries Pvt. Ltd. v. New Cawnpore Flour Mills [AIR
2008 SC 2699], the Supreme Court held that "powers and functions of
the Provisional Liquidator is subject to the limitation imposed by the Court or
the same as that of the Official Liquidator". In Paragraph-58 of
Bakeman's case, [AIR 2008 SC 2699] the Supreme Court expressly rejected the
contention that the Provisional Liquidators have no statutory powers in
relation to effecting the sale of the movable or immovable property. All that
is required of this Court, while ordering the sale, is to involve the
Provisional Liquidator in the sale.
45.
Referring to Bakemans case [AIR 2008 SC 2699] and Reinz case((2009(96) SCL 108
(DELHI) (DB)), the learned single Judge rightly rejected the contention of the
Appellant that powers of Provisional Liquidator was restricted by the order of
the Court dated 22.5.2005 to take charge of the assets of the company.
46.
Whether Single Judge's finding that it was only concerned with the power of the
Court to order sale and not power of the Liquidator to order sale is a
non-existent distinction The learned
single Judge held that in terms of Section 450(3), the Provisional Liquidator
has the same powers as that of the Liquidator and that the same cannot be
belittled. The learned single Judge has said that in any event there is nothing
in the Companies Act which restricts or limits the power of the Court to order
sale of the properties through the Official Liquidator. Finding of the learned
single Judge in Paragraph-39 reads as under:- "39. ..... Therefore,
the Provisional Liquidator has the same powers as that of the Liquidator and
the same cannot be belittled. In any case, the Provisional Liquidator has not
sold the properties of the company in liquidation. He has not even come up with
any application for the sale of the properties. It is not the Provisional
Liquidator, but one of the secured creditors (the applicant herein) who has
come up with the application for the issue of a fresh advertisement for the
sale of the properties of the company in liquidation. There is nothing in the
Companies Act, 1956, which restricts or limits the power of this Court to order
the sale of the properties through the Official Liquidator and hence, the
objection based upon the power of the Official Liquidator is of no relevance to
the situation of hand. In the application on hand filed by one of the secured
creditors, we are concerned only with the power of this Court and not the power
of the Provisional Liquidator to order the sale. Under Section 451(1), the
Liquidator is obliged to perform such duties as the Court may impose.
Therefore, we are primarily concerned with the question whether the Court can
order the sale or not."
47.
Assailing the above findings, Mr.Ravi, learned counsel for ASM vehemently
contended that the entire function of the liquidating company is performed only
by the Official Liquidator and consequently, the distinction sought to be made
by the learned single Judge with regard to the power of the Court and power of
the Liquidator is completely non-existent as far as Companies Act is concerned.
It was further submitted that when the exercise of powers by the Liquidator under
Section 457 of Companies Act is only with the sanction of the Court, the
observation of the learned single Judge to draw the distinction between power
of the Liquidator and the power of the Court is non-existent and consequently,
the entire conclusion of the learned single Judge is erroneous and liable to be
set aside.
48.
Learned Senior Counsel Mr.T.K.Seshadri appearing for NHSM contended that under
Section 433, jurisdiction of the Company Court extends only to those matters
which are specified in the Act and there is no separate power of the Court to
order sale and while so, the learned single Judge erred in trying to make the
distinction between the power of the Official Liquidator and the power of the
Court. Contention of learned Senior Counsel is that apart from the powers under
Sec.433 of Companies Act, IREDA cannot ask the Company Court to sell the assets
of ASM to realise IREDA's dues for which it has already proceeded under
SARFAESI Act and learned single Judge erred in saying that "we are
concerned only with the power of the Court and not the power of Official
liquidator."
49.
The Official Liquidator has the power to sell the properties of the Company
subject to the over all superintendence of the Company Court. The general
principle is that the Official Liquidator must act in the interest of the
general body of creditors to realise the assets of the Company to their best
advantage. In winding up, the liquidator acts not merely for creditors but for
contributories and for the company also. His principal duties are to take
possession of assets, to make out the requisite lists of contributories and of
creditors, to have disputed cases adjudicated upon, to realise the assets
subject to the control of the court in certain matters and to apply the
proceeds in payment of the company's debt and liabilities in due course of
administration, and having done that, to divide the surplus amongst the
contributories and to adjust their rights.
50.
After filing of the Company Petition and making IREDA to surrender possession,
the Official Liquidator has not taken any further steps to sell the assets of
ASM nor moved the Court for appropriate direction. As pointed out by the
learned single Judge, the Official Liquidator has not even come up with any
application for the sale of the properties. It is in these circumstances, IREDA
has filed applications in A.No.1038 and 1039 of 2006 seeking to sell the
movable and immovable assets of ASM by joining all the three parties viz.,
Official Liquidator; IREDA and Sundaram Finance Limited by fixing the upset
price at Rs.135.50 crores or to confirm the sale infavour of the existing
bidder for Rs.135.50 crores in case no fresh bid is received.
51.
The object of winding up of a Company by the Court is to facilitate the protection
and realisation of its assets with a view to ensure an equitable distribution
thereof among those entitled. The object of Section 446 is to see that the
assets of the Company are brought under the control of the winding up of Court
to avoid, wherever possible expensive litigation and to see that all the
matters in dispute which are capable of being expeditiously disposed of by the
winding up Court are taken up by that Court. Section 446 makes it a duty of the
Court to entertain all mattes falling within the scope of sub-section (2). The
historical evolution of Section 446 was traced by the Supreme Court in SUDARSAN
CHITS (I) LTD. VS. G.SUKUMARAN PILLAI AND OTHERS, (AIR 1984 SC 1579).
52.
Under Section 457(3) of the Companies Act, any creditor or contributories can
apply to the Court with respect to the exercise or the proposed exercise of the
powers of the Official Liquidator. In the liquidation proceedings, IREDA, the
secured creditor who has taken possession of the secured assets has handed over
the possession to the provisional/official liquidator under orders of the
Court. IREDA being unable to effect sale on its own under SARFAESI Act has has
filed the application to pass an order to effect sale of the property for IREDA
and by joining the Provisional Liquidator and Sundaram Finance Limited. Taking
note of the fact that the Official Liquidator has not even come up with any
application for sale of the properties, the learned single Judge rightly
observed that the Court has; power to order sale of the properties on the
application filed by the secured creditor.
53.
In Bakemans case [AIR 2008 SC 2699], the Supreme Court held as follows:-
"45.
There cannot be any doubt whatsoever that in the matter of control over the
assets of a company in liquidation, the Courts exercise a wide jurisdiction. It
may not only take recourse to the sale of the assets of the company whether
before or after it is wound up, but also would be entitled to, nay obligated
to, if the situation so warrants, to attempt to rehabilitate the company
itself."
54.
In Paragraph-58 of its decision in Bakemans case, the Supreme Court expressly
rejected the contention that the Provisional Liquidators have no statutory
powers in relation to effecting the sale of the movable or immovable property.
While ordering the sale, all that is required of the Court was to involve the
Provisional Liquidator in the sale. Therefore, the learned single Judge was
right in saying that we are concerned with the power of the Company Court and
whether Court can order sale.
55.
Whether Court has power to order sale of the properties even before the Company
is wound up Contention of ASM is that
under Section 456(2) of the Companies Act, the property and effects of the
company shall be deemed to be in the custody of the Court only as from the date
of the order of the winding up of the company. Consequently, the property of
the company would come in the custody of the Court only from the date of making
the order for winding up and while so, the conclusion of the learned single
Judge that there is no restriction or limitation on the power of the Court to
order sale of the properties even before the company is wound up is contrary to
law and therefore, liable to be set aside. On behalf of ASM, it was further contended
that in exercise of its powers, the Court must work out the workmen's dues and
debts due to the secured creditors before allowing the secured creditors/IREDA
to sell the property in enforcement of their security and without making the
order winding up, the Court cannot order sale of secured assets by IREDA.
56.
As per Section 450(3) of Companies Act, the Provisional Liquidator has the same
power as Liquidator unless limited or restricted by the order of the Court
appointing him or by a subsequent order. Section 457 of Companies Act details
the powers of the Official Liquidator. Therefore, powers of the Official
Liquidator to sell the movable and immovable properties under Section 457(1)(c)
of the Act will also be available to the Provisional Liquidator, which of
course is with the sanction of the Court. Rule 107 of Companies (Court) Rules
states that the rule relating to the Official Liquidators shall apply to the
Provisional Liquidators so far as applicable subject to such directions as the
Court may give in each case. Rule 272 of Companies (Court) Rules prescribes
that unless the Court otherwise orders, no property belonging to a
"company which is being wound up by the court" shall be sold
by the Official Liquidator without previous sanction of the Court and every
sale shall be subject to the confirmation of the Court. The expression
"company which is being wound up by the court" appearing in
Rule 272 clearly empowers the Court to order sale of the properties during the
course of hearing of the Petition for winding up. As rightly contended by the
learned Senior Counsel Mr.Masilamani appearing for IREDA, inspite of the time
given to revive the company, the Promoters of ASM have not availed the
opportunities either in repaying the amount or reviving the Unit.
57.
Holding that the Company Court can exercise its powers under Section 446(2) by
appointing Official Liquidator as provisional liquidator, in SUDARSAN CHITS (I)
LTD. VS. G.SUKUMARAN PILLAI AND OTHERS, (AIR 1984 SC 1579), the Supreme Court
has held as under: "If a winding up petition is pending meaning
thereby that an Official Liquidator is appointed as provisional liquidator
which is a stage in the process of winding up, the court before which such
proceeding is pending can be stayed as a court winding up the company and ipso
facto it would have jurisdiction to entertain the proceeding enumerated in
clauses (a) to (d) of sub-section (2) of Section 446." Applying the
ratio of the above decision, in exercise of the powers of the Company Court, on
the application filed by the secured creditor/IREDA, the learned single Judge
was right in ordering sale of the assets of ASM.
58.
Learned single Judge referred to the decision reported in 2009 (96) SCL 108
(Del.) [Reinz Talbros Ltd v. Kostub Investments Ltd], where the order passed by
the Company Judge for an auction sale of the properties of the company involved
in winding up proceedings, came to be challenged before the Division Bench of
the Delhi High Court on two grounds. The first ground related to the validity
of the valuation report. The second ground of challenge was that the
Provisional Liquidator had no authority to sell the property. But the said
contention was rejected by the Division Bench on the basis of Section 450(3) of
the Companies Act, 1956. A similar view was expressed much earlier by a
Division Bench of the High Court of Punjab and Haryana in Altos India Ltd. v.
Bharti Telecom Ltd [2001 (103) Company Cases 6 (P&H)].
59.
Since in the order dated 22.07.2005 appointing the Provisional Liquidator, no
limitation under Section 450(3) of Companies Act was imposed, the learned
single Judge rightly held that Provisional Liquidator can exercise all the
powers of Official Liquidator as stipulated in the Companies Act. Pointing out
that the Provisional Liquidator has not come out with any application for sale
of the properties, the learned single Judge was right in holding that in any
event on the application filed by IREDA, the Court has got power to order sale
of the properties of the company in liquidation.
60.
Points No.4 to 6:- As pointed out earlier, since ASM and NHSM committed default
in the payment of dues to IREDA, IREDA classified the accounts of ASM and NHSM
as Non-Performing Assets and filed O.A.Nos.113 and 114 of 2004 before DRT-I,
New Delhi for recovery of Rs.62.83 Crores and Rs.9.17 Crores respectively.
IREDA also filed O.A.No.112 of 2004 against NHSM for recovery of Rs.20.03
Crores. After obtaining necessary permission from DRT, IREDA proceeded under
SARFAESI Act. On 27.9.2005, IREDA has entered into MOU with Sundaram Finance
Limited to effectively sell the respective assets to get better price in the
interest of all creditors. On 28.9.2005, the Official Liquidator has held
meeting of all secured creditors. After issuing notices under Section 13(2) and
13(4) of SARFAESI Act, IREDA has taken possession of the assets of ASM along
with the machineries of NHSM on 5.10.2005. In pursuance of the direction of the
Court in C.A.No.1786 of 2005, IREDA handed over possession of assets to the
Official Liquidator on 27.4.2006. The Order in C.A.No.1786 of 2005 directing
IREDA to hand over possession reads as under:- "In the light of the
Division Bench order, the respondent No.1 shall hand over possession of the
properties on or before 28.04.2006. The security arranged by the first
respondent shall continue as before. It is made clear that the first respondent
shall hand over the valuation report and all other details pertaining to the
company including land and building and immovable properties thereon. After
going through the valuation report, the Official Liquidator shall file a report
before this Court as regards the valuation fixed in respect of each one of the
property so that further steps may be taken to auction the properties for sale.
It is open to all, who had submitted a bid before the DRT to participate in the
auction as and when it is held. This application is closed on the above
terms."
61.
Contention of the Appellant/ASM is that the conduct on the part of IREDA in
abandoning the remedies under RDBI Act and SARFAESI Act and approaching the
Company Court seeking a direction to the liquidator to sell the properties has
to be clearly construed as an act of relinquishment of security as contemplated
under Section 47 of the Provincial Insolvency Act, 1920. It was further
submitted that having approached the DRT under the RDBI Act, IREDA has also
chosen to invoke SARFAESI Act and after abandoning the same approached the
Company Court for sale of the properties of the Company and having chosen to
join the winding up proceedings clearly amounts to relinquishing of IREDA's
rights over the security and consequently IREDA will not be entitled to any
preferential right over the security.
62.
Mr.Ravi, learned counsel for ASM would further contend that only in view of the
Contempt Petition filed by the Official Liquidator as the provisional
liquidator, IREDA handed over back the custody of the properties of the Company
to the Official Liquidator, whereas the Official Liquidator has also taken
custody of the Company as early as 22.7.2005 and completely ignoring the above
said facts, the learned single Judge has proceeded as if IREDA has surrendered
possession to the Official Liquidator only for the purpose of associating the Official
Liquidator in the process of sale under SARFAESI Act is clearly contrary to the
material on record and is liable to be set aside.
63.
The learned Senior Counsel Mr.G.Masilamani has submitted that IREDA has handed
over possession of the property to the provisional liquidator only under threat
of contempt proceedings and mere handing over of possession would not amount to
relinquishment of IREDA's security.
64.
As per Section 37 of SARFAESI Act, the provisions of the SARFAESI Act or Rules
made thereunder are in addition to and not in derogation of the provisions of
the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act,
1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of
1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(51 of 1993) or any other law for the time being in force.
65.
The objection that there cannot be parallel proceedings when the applications
in O.A.Nos.113 and 114 of 2004 filed by IREDA under Section 19 of RDBI Act are
still pending cannot be countenanced. In Transcore VS. Union of India, ((2008)
1 SCC 125), the Supreme Court held that the SARFAESI Act was inspired by the
provisions of Sections 29 and 31 of State Financial Corporations Act and that
the secured creditors are provided cumulative remedies with an option to choose
one or more. As held by the Supreme Court in ANDHRA BANK VS. OFFICIAL
LIQUIDATOR AND ANOTHER, (2005) 5 SCC 75, the secured creditors have two
options:- (i) they may desire to go before the Company Judge or (ii) they may
stand outside the winding up proceedings. The secured creditors of the second
category, however, would come within the purview of Section 529-A (1)(b) read
with proviso (c) appended to section 529(1). When IREDA has got two options, it
cannot be said that by coming before the Company Court, IREDA has recourse to
two parallel proceedings. Nowhere IREDA has stated that they have handed over
possession of the assets giving up their security. As pointed out earlier, in
pursuance to the Order of the Court in C.A.No.1786 of 2005 (dated 24.4.2006),
IREDA has handed over the possession to the Official Liquidator, who is the
provisional liquidator. In all its correspondence, IREDA has reiterated its
rights as secured creditor and as a secured creditor, it will have priority
over the interest of the other unsecured creditors. In its letter dated
6.1.2006 addressed to the Official Liquidator, IREDA has reiterated its stand
that "the interest of secured creditors will take priority over the
interest of unsecured creditors in any circumstances and in taking possession
IREDA is realising its dues which are secured against the said
assets."
66.
The fact that there was no voluntary handing over of possession is well
established by the various documents and materials. In the meeting of all the
secured creditors held on 28.9.2005, IREDA, as the major secured creditor, who
is having first charge over the entire assets of ASM, has volunteered to bear
the whole expenses of appointing security. IREDA has obtained leave before DRT,
Delhi to proceed under SARFAESI Act to exercise its rights as secured creditor.
On 6.10.2005, IREDA addressed a letter to the Official Liquidator giving
details of inventories and Panchanama pointing out that the minutes of meeting
was signed without prejudice to IREDA's rights. In its reply to the Official
Liquidator dated 6.1.2006, IREDA has replied hat it has no intention to defy
the orders of the Court and that IREDA has undertaken to distribute the dues to
the workers under Section 529-A of the Companies Act read with Section 13(9) of
the SARFAESI Act. It is thus clear that possession was handed over to the
Official Liquidator by the Order of the Court. It is explicit that there is no
relinquishment of security and IREDA stands outside the winding up proceedings,
however subject to Section 529-A(1)(b) read with proviso (c) appended to
Section 529(1) and there is no surrender of its rights as a secured creditor.
In fact, in its application C.A.No.1038
of 2006, IREDA has clearly stated that they continue to exercise their rights
under the SARFAESI Act in respect of the assets of ASM and the machineries of
NHSM installed/erected at the factory premises of ASM. There is no force in the
contention of the appellants that IREDA's handing over of possession of the
property amounted to voluntary surrender of security.
67.
It is seen from the preamble of the SARFAESI Act that it has been enacted with
a view to regulate the securitisation and reconstruction of financial assets
and enforcement of security interest and for matters connected there to. The
Act enables the banks and financial institutions to realize long term assets,
manage problems of liquidity to the assets liability, and to improve recovery
by exercising powers to take possession of security, sell them and reduce
non-performing assets by adopting measures for recovery or reconstruction. The
object of the NPA Act is to enforce the security interest belonging to the
Bank/financial institutions by virtue of the contract between the parties or by
operation of any law. Under SARFAESI Act, a secured creditor will be allowed to
enforce security interest i.e., sell the secured assets or if required for the
purpose of the same, to take possession of the secured assets without the
intervention of the Courts by following the procedure of Section 13.
68.
As pointed out by the learned single Judge, neither the Transfer of Property
Act, 1882 nor the Contract Act, 1872 nor even SARFAESI Act, 2002 suggest even
remotely that mere surrender of possession by a secured creditor would be
deemed to have given up his possession. When a secured creditor stays outside
the winding up proceedings and seeks permission of the Court to sell the
assets, it does not amount to relinquishment of security. Relinquishment
requires a positive act. A secured creditor can be stated to have relinquished
his security only if he voluntarily and by a positive act surrenders his
security. Relinquishment of security has to be in accordance with the provisions
of law. As discussed earlier, there is nothing on record to show that the
handing over of possession of the property to the official liquidator amounted
to voluntary surrender of security. 69 Considering the scope of the expression
"relinquishment" in ICICI BANK LTD. VS. SIDCO LEATHER LIMITED
(2006) 10 SCC 452 = AIR 2006 SC 2088), the Supreme Court held thus:
"the
expression relinquish has a different connotation. In P.Ramanatha
Aiyar s Advanced Law Lexicon at p. 4047, it is stated:
Relinquish.
To give over possession or control of; to leave off.
It
envisages a conscious act i.e. an act where a person was aware of his right and
then relinquishes the same. The same must be for the general benefit of the
creditors. His action must lead to a conclusion that he, for one reason or the
other, intended to stand in the queue for receiving money owed to him. It,
however, does not stand obliterated only by the filing of an affidavit or proof
of claim with the Official Liquidator. Such a claim had been filed pursuant to
a notice issued by the Official Liquidator. If the creditor does not respond to
the said notice, he would not be in a position to bring to the notice of the
Official Liquidator, the existence of his right."
70.
The ratio of the above decision makes it clear that the Companies Act cannot
take away the rights of a mortgagee, which is created under the Transfer of
Property Act. The Companies Act does not override the Transfer of Property Act.
Any relinquishment of security or mortgage will have to be express and not
implied. The Supreme Court in the said judgment approved the views of the
Division Bench of Gujarat High Court that participation in sale proceedings
will not amount to relinquishment at all, which reads under: "58. A
Division Bench of the Gujarat High Court in Gujarat Steel Tube
Employees Union v. O.L. of Gujarat Steel Tubes Ltd.9 (disposed
of on 9-1-2006) held:
The Court is also of the view that simply because the secured creditors
participate in the sale proceedings undertaken by the Court and they also
became the members of the Sale Committee constituted pursuant to the directions
issued by the Court does not mean that they have exercised their option of remaining
outside the winding up and they have relinquished their security. As a matter
of fact, relinquishment of security by the secured creditors require a positive
action on the part of the secured creditors. They have never stated in any of
the proceedings that they are relinquishing their securities. On the contrary,
they have made it clear that they remain outside the winding up and they
participate in the sale proceeds only with a view to facilitate the sale
proceeds so as to get the auction proceedings completed as expeditiously as
possible. There is also substance in the say of the secured creditors that as
soon as the assets of the companies are sold and realisation has taken place,
their securities are converted from the specified assets into cash and they
have equal right in cash which is realised on sale of the assets of the company
in liquidation. (underlining added)
Therefore,
applying the ratio of the above decision, we are of the view that handing over
of possession by IREDA by an order of the Court shall not in any way prejudice
IREDA's rights as a secured creditor. Handing over of possession on the orders
of the Company Court does not result in relinquishment of security.
71.
Mr.Ravi, learned counsel for the appellant ASM would further contend that IREDA having
abandoned its rights under SARFAESI Act and consequently participated in the
winding up proceeding cannot claim any preferential treatment as secured
creditor. Placing reliance uponRajasthan State Financial Corpn. v. Official Liquidator,(2005)
8 SCC 190, and Asset Reconstruction Company (I) Ltd. Vs. The Official
Liquidator, High Court, Madras, (2006(3) CTC 529), the learned counsel for ASM
contended that an institution like IREDA seeking to invoke the powers under
SARFAESI Act and intending to stand outside the winding up proceedings will
have to obtain appropriate permission from the Company Court. It was submitted
that the net result is that the creditor will have to file an application under
Section 446 of the Companies Act to initiate proceedings or continue the
proceedings under the said enactment for realising their security and while
granting the said permission, the Company Court is not exercising any powers
under the SARFAESI Act, but only exercising its powers under the Companies Act
in the light of Sections 529 and 529-A of the Companies Act.
72.
Mr.Ravi, learned counsel for ASM contended that it would be appropriate for the
ASM to exercise its right under SARFAESI Act to go before DRT after taking
permission from the Company Court and by involving the Official Liquidator who
has stepped into the shoes of the company. Contention of ASM is that having
come before the Company Court, IREDA cannot say that it exercises its statutory
power to cause sale of the assets of ASM through the agency of the
Court/Company Court and at the same time would contend that it stands outside
the winding up proceedings. Relying upon certain observations in Bakemans case,
it was contended that in one hand, IREDA cannot urge that the Court sale be
effected through Company Court and at the same time take a stand that it stands
outside the jurisdiction of the Court and it is impermissible for IREDA to take
such a contradictory stand.
73.
In support of his contention, learned counsel placed reliance upon a decision
of DIVYA CHEMICALS LTD., IN RE. (2005) 64 SCL 429 (Bom) wherein the Bombay High
Court held as under:-
"
.... In so far as the assets which are held by the official liquidator are concerned
during the pendency of the proceedings before the DRT, the official liquidator
shall hold the said assets till appropriate directions are given by the DRT and
in an event if the DRT directs the assets to be handed over to the private
receiver appointed by the DRT then in such event the liquidator is bound to
hand over the possession thereof to such private receiver subject to recovery
of his cost, charges and expenses as well as the payment to the security
agencies which is appointed by him"
74.
Same effect is the unreported decision of P.Sathasivam,J., dated 27.9.2002 in
Company Application No.10, 116, 701, 193 and 194 of 2002 in Company Petition
No.39 of 1994 wherein it was held as under:-
"20.
It is clear from the above discussion, particularly para 53, which I have
already extracted show that in respect of monies realized under the RDB Act,
the question of financial institutions and other creditors can only be decided
by the Debts Recovery Tribunal under the RDB Act and in accordance with Section
19 (19) read with Section 529 A the Companies Act and the said position applies
not only during pendency of the winding up petition of the debtor company, but
also after winding up order is passed" .....
25.
In the light of what is stated above, I am of the view that the decision of the
Supreme Court in the case Allahabad Bank Vs Canara Bank reported in 2000 (2)
Company Law Journal 170, the sale proceedings with regard to the assets of the
Company in Liquidation will have to be continued only by the Debts Recovery
Tribunal and not by the Official Liquidator and the applicant Official Liquidator will be consulted by the
Recovery Officer while finalizing the secured assets and distribution of the
sale proceeds. I also accept the claim that the second respondent ICICI's case under Section 529 of the
Companies Act in order to stand out side the winding up to realise its
security. Apart from this, Section 19 (19) of RDB Act, permits distribution of
sale proceeds to secured creditors in accordance with Section 529-A who stand
outside the winding up proceedings.
26.
It is not disputed that the applicant Official Liquidator is representing the
company in the Debts Recovery Tribunal proceedings, hence the Official
Liquidator can very well participate in the sale proceedings before the Debts
Recovery Tribunal. However, it is made clear that when the property is in the
custody of the Official Liquidator, leave of the Company Court having
jurisdiction has to be obtained....."
75.
Placing reliance upon the decision of the Supreme Court in M.K.RANGANATHAN VS.
GOVT. OF MADRAS AND OTHERS, (AIR 1955 SC 604), Mr.Ravi, learned counsel for ASM
contended that from the above decision it is clear that the terminology
"standing outside the winding up proceedings" would mean that
the secured creditor invokes the remedies available to him outside the purview
of the Company Court and the secured creditor intending to stand outside the
winding up proceedings has to invoke the remedies available to him for realisation
of its security without coming before the Company Court or without intervention
from the Company Court.
76.
In sum and substance, the contention of ASM are as under:
After
handing of possession to the Official Liquidator pursuant to the order of the
Company Court dated 27.4.2006, IREDA did not file any application under Section
446 of the Companies Act to continue to exercise its rights under the
Securitisation Act. IREDA has not chosen to come before the Company Court
seeking leave of the Court to stand outside the winding up proceedings and
continue the proceedings under SARFAESI Act.
On
the contrary, IREDA surrendered its possession of secured assets to the
Official Liquidator and filed C.A.No.1038 of 2006 for directions to the
provisional liquidator to exercise powers under section 456 of the Companies
Act by filing the said application and participating in the winding up
proceedings, for all intent and purport, IREDA has waived its right as a
secured creditor.
77.
In the light of consistent principles laid down by the Supreme Court in International
Coach Builders Ltd. v. Karnataka State Financial Corpn.,(2003) 10
SCC 482, the above contentions cannot be countenanced. The Supreme Court held
that prior to 1985, it might have been possible for secured creditor under
Section 529 of the Companies Act, 1956 or Section 232 of Companies Act, 1913 as
interpreted in Ranganathan (AIR 1955 SC 604) to opt to stand outside winding up
and realise the security by bringing it to sale. This was possible because
prior to amending Act 35 of 1985, the secured creditor had unrestricted right
of standing outside the winding up and proceeding against the property
mortgaged to him.
78. In
International Coach Builders Ltd. v. Karnataka State Financial Corpn.,(2003)
10 SCC 482, the Supreme Court considered the impact of the amending Act 35 of
1985 by which the amendments were carried out in Section 529 and new Section
529-A was enacted and observed that "the decision in Ranganathan (AIR
1955 SC 604) held the field for a considerable period, both under the Companies
Act, 1913 and the Companies Act, 1956. However, by amending Act 35 of 1985,
amendments were carried out in Section 529 and a new Section 529-A was enacted.
These developments, in our view, brought about a qualitative change in the
legal situation. It is important to notice that was decided under the Companies
Act, 1913 which did not have any provision corresponding to the proviso to
Section 529 or Section 529-A of the Companies Act, 1956. Obviously, therefore,
Ranganathan (AIR 1955 SC 604) could not have considered the impact of these
amendments on the provisions of Section 232 of the Companies Act, 1913
(corresponding to Section 537 of the Companies Act, 1956).
79.
In terms of Section 529(1) and 529-A(1)(b), the secured creditors have two
options (i) they may desire to go before the Company Judge; or (ii) they may
stand outside the winding-up proceedings. The secured creditors of the second
category, however, would come within the purview of Section 529-A(1)(b) read
with proviso (c) appended to Section 529(1). The workmen s
portion as contained in proviso (c) of sub-section (3) of Section 529 in relation
to the security of any secured creditor 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 (a) workmen s due, and (b) the amount of the
debts due to all the secured creditors. The Illustration appended to clause (c)
of sub-section (3) of Section 529 is a clear pointer to the effect that the
amount of debts due to the secured creditors should be taken into consideration
for the purpose of ascertaining the workmen s portion of security. Vide
Andhra Bank v. Official Liquidator,(2005) 5 SCC 75.
80.
At this stage we may also refer to the judgment of the Supreme Court in
Allahabad Bank Vs. Canara Bank, (2000) 4 SCC 406. In that case, the question of
jurisdiction of the Debts Recovery Tribunal under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993, vis-a-vis the Company Court arose
for decision. The Supreme Court 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 respectively within the
exclusive jurisdiction of the Debts Recovery Tribunal and the Recovery Officer
under that Act and in such a case, the Company Court's jurisdiction under
Sections 442, 537 and 446 of the Companies Act stood ousted. Hence, no leave of
the Company Court was necessary for initiating proceedings under the Recovery
of Debts Act. Even the priorities among various creditors, could be decided
only by the Debts Recovery Tribunal in accordance with Section 19(19) of the
Recovery of Debts Act read with Section 529-A of the Companies Act and in no
other manner. The Court took into account the fact that the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 was a legislation subsequent
in point of time to the introduction of Section 529-A of the Companies Act by Act
35 of 1985 and it had overriding effect. But the Supreme Court held that by
virtue of Section 19(19) of the RDB Act, the priorities among various creditors
had to be decided by the Recovery Tribunal only in terms of Section 529-A of
the Companies Act and Section 19(19) did not give priority to all secured
creditors.
81.
In Allahabad Bank's case, (2000) 4 SCC 406, in Para No.61 of the Judgment, the
Supreme Court held as under:
"61.
The respondent s contention that Section 19(19) gives priority to all
secured creditors to share in the sale proceeds before the Tribunal/
Recovery Officer cannot, in our opinion, be accepted. The said words are
qualified by the words in accordance with the provision of Section
529-A . Hence, it is necessary to identify the above limited class of
secured creditors who have priority over all others in accordance with Section
529-A."
Further,
the Supreme Court held in Para No.71 as under:
"71.
But the point here is that the occasion for such a claim by a secured creditor
(here Canara Bank) against realisations by other creditors (like Allahabad
Bank) under Section 529-A read with proviso (c) to Section 529(1) can arise
before the Tribunal only if Canara Bank has stood outside winding-up and
realised amounts and if it shows that out of the amounts privately realised by
it, some portion has been rateably taken away by the liquidator under clauses
(a) and (b) of the proviso to Section 529(1). It is only then that it can claim
that it is to be reimbursed at the same level as a secured creditor with
priority over the realisations of other creditors lying in the Tribunal. None
of these conditions is satisfied by Canara Bank. Thus, Canara Bank does not
belong to the class of secured creditors covered by Section 529-A(1)(b)."
82.
In Rajasthan State Financial Corporation Vs. Official Liquidator, (2005 (8) SCC
190), the question that fell for consideration before the Supreme Court was as
to the right of State Financial Corporation under Section 29 of the State
Financial Corporations Act, 1951 against debtor company to sell assets of
company and realize security, when the company is under winding up. The Supreme
Court held that in such a case the said power can be exercised by the State
Financial Corporation only after obtaining appropriate permission from Company
Court and acting in terms of directions issued by Company Court as regards
conduct of the sale and distribution of proceeds thereof in terms of Sections
529 and 529-A of the Companies Act. In Paragraphs 17 and 18, the Supreme Court
held as follows: "17. Thus, on the authorities what emerges is that
once a winding-up proceeding has commenced and the Liquidator is put in charge
of the assets of the company being wound up, the distribution of the proceeds
of the sale of the assets held at the instance of the financial institutions
coming under the Recovery of Debts Act or of financial corporations coming
under the SFC Act, can only be with the association of the Official Liquidator
and under the supervision of the Company Court. The right of a financial
institution or of the Recovery Tribunal or that of a financial corporation or
the court which has been approached under Section 31 of the SFC Act to sell the
assets may not be taken away, but the same stands restricted by the requirement
of the Official Liquidator being associated with it, giving the Company court
the right to ensure that the distribution of the assets in terms of Section
529-A of the Companies Act takes place. In the case on hand, admittedly, the appellants
have not set in motion any proceeding under the SFC Act. What we have is only a
liquidation proceeding pending and the secured creditors, the financial
corporations approaching the Company Court for permission to stand outside the
winding up and to sell the properties of the company-in-liquidation. The
Company Court has rightly directed that the sale be held in association with
the Official Liquidator representing the workmen and that the proceeds will be
held by the Official Liquidator until they are distributed in terms of Section
529-A of the Companies Act under its supervision. The directions thus, made,
clearly are consistent with the provisions of the relevant Acts and the views
expressed by this Court in the decisions referred to above. In this situation,
we find no reason to interfere with the decision of the High Court. We clarify
that there is no inconsistency between the decisions in Allahabad Bank Vs.
Canara Bank, (2000) 4 SCC 406 and in International Coach Builders Ltd. Vs.
Karnataka State Financial Corporation, (2003) 10 SCC 482 in respect of the
applicability of Sections 529 and 529-A of the Companies Act in the matter of
distribution among the creditors. The right to sell under the SFC Act or under
the Recovery of Debts Act by a creditor coming within those Acts and standing
outside the winding up, is different from the distribution of the proceeds of
the sale of the security. 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 529-A
read with Section 529 of the Companies Act. After all, the Liquidator
represents the entire body of creditors and also holds a right on behalf of the
workers to have a distribution pari passu with the secured creditors and the
duty for further distribution of the proceeds on the basis of the preferences
contained in Section 530 of the Companies Act under the directions of the
Company Court. In other words, the distribution of the sale proceeds under the
direction of the Company Court is his responsibility. To ensure the 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, in the
light of the directions of the Company Court, that a proper price is fetched
for the assets of the company in liquidation. It was in that context that the
rights of the Official Liquidator were discussed in International Coach
Builders Ltd. (2003(10) SCC 482) The Debts Recovery Tribunal and the District
Court entertaining an application under Section 31 of the SFC Act should issue
notice to the Liquidator and hear him before ordering a sale, as the
representative of the creditors in general.
18.
In the light of the discussion as above, we think it proper to sum up the legal
position thus:
(i)
A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 would be entitled to order the sale and to
sell the properties of the debtor, even if a company in liquidation, through
its Recovery Officer but only after notice to the Official Liquidator or the
Liquidator appointed by the Company Court and after hearing him.
(ii)
A District Court entertaining an application under Section 31 of the SFC Act
will have the power to order sale of the assets of a borrower company in
liquidation, but only after notice to the Official Liquidator or the Liquidator
appointed by the Company Court and after hearing him (iii) If a financial
corporation acting under Section 29 of the SFC Act seeks to sell or otherwise
transfer the assets of a debtor company in liquidation, the said power could be
exercised by it only after obtaining the 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 the distribution thereof among the creditors in terms of Section
529-A and Section 529 of the Companies Act. (iv) In a case where proceedings
under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
or the SFC Act are not set in motion, the creditor concerned is to approach the
Company Court for appropriate directions regarding the realization of its
securities consistent with the relevant provisions of the Companies Act
regarding distribution of the assets of the company in liquidation.
83.
In Asset Reconstruction Company (I) Ltd. Vs. The Official Liquidator, High
Court, Madras, (2006(3) CTC 529), In the above case, South India Viscose
Limited was ordered to be wound up by the Company Court and the Official
Liquidator was appointed as a liquidator and the Official Liquidator has taken
possession of the assets and sold certain movables. The Official Liquidator has
also got the valuation done of certain properties and application for sale has
been filed for the sale of two residential flats belonging to the Company under
liquidation. In the said decision, the First Bench of this Court considered the
question whether the Asset Reconstruction Company incorporated under the
SARFAESI Act is entitled to be associated in the process of sale of assets of
the Company under liquidation along with the Official Liquidator. After
extensive reference to Rajasthan State Financial Corporation case,(2005) 8 SCC
190, the First Bench of this Court has held that the power under SARFAESI Act
could be exercised by the secured creditor only after obtaining appropriate
permission from the Company Court and acting in terms of the directions issued
by that Company Court.
84.
As regards associating the Official Liquidator with the sale, the Court has
held as under:
"13.
In the light of the law laid down by the Rajasthan State Financial Corporation
Case (supra) ((2005) 8 SCC 190) it is clear that where the bank or the
financial institution has initiated proceedings under the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993, the Debts Recovery Tribunal
would be entitled to order sale even if a company is under liquidation through
its Recovery Officer, but only after notice to the Official Liquidator or the
Liquidator appointed by the Company Court and after hearing him. Where,
however, no proceedings have been initiated under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 the case would fall under paragraph
18 (iii) of the judgment of the Supreme Court in Rajasthan State Financial
Corporation Case. In that event if the securitisation company acting under
Section 13 of the Securitisation Act seeks to sell or otherwise transfer the
assets of a debtor company in liquidation, the said power could be exercised by
it only after obtaining the 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."
85.
In the instant case, though in pursuance to the order of the Court, IREDA has
handed over possession of the assets to the Official Liquidator, IREDA has also
got valuation of the assets by ITCOT Consultancy Services, Chennai. Now what we
have is:- (i) a liquidation proceeding is pending and the Official Liquidator
and the secured creditors are before the Company Court; (ii) IREDA approached
the Company Court for permission to sell the property of the Company in liquidation
and at the same time standing outside the winding up proceedings. In such
factual matrix of the case, ratio of the above decision in Para 17 of Rajasthan
State Financial Corporation case ((2005) 8 SCC 190) squarely applies to the
instant case. On application filed by IREDA, Company Court has rightly directed
that the sale be held in association with the Official Liquidator and that the
sale notice is to be issued by the Official Liquidator both on his behalf and
on behalf of the applicant (IREDA) as well as Sundaram Finance Limited in
respect of the assets of the Company in liquidation (ASM) as well as that of
NHSM. The directions thus made by the learned single Judge are clearly
consistent with the provisions of the relevant Acts and the views expressed by
the Supreme Court in the decisions referred to supra. In this situation, we
find no reason to interfere with the order of the learned single Judge.
86.
Under Section 529(1) of the Companies Act, 1956, the Rules, which are in force
under the Law of Insolvency with respect to the estates of persons adjudged
insolvents shall apply even to the winding up of an insolvent company, in so
far as 3 aspects are concerned viz., (i) debts provable; (ii) valuation of
annuities and future and contingent liabilities; and (iii) the respective
rights of secured and unsecured creditors. The Proviso to Section 529 makes it
clear 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. It is further stipulated by the Proviso that if the secured
creditor opts to realise his security, instead of relinquishing his security
and proving his debt, there must be rateable distribution and that the
Liquidator would be entitled to represent the workmen. After making a
comparison of the provisions of the Companies Act with the provisions of the
Provincial Insolvency Act, 1920, in paragraphs 102 to 117, the learned single
Judge held that the right of the applicant/IREDA as secured creditor cannot be
lightly obliterated. We fully concur with the views of the learned single
judge.
87.
At this juncture, we may also refer to Section 13(9) of the SARFAESI Act.
Section 13(9) provides that in the case of financing of financial asset by more
than one secured creditors or joint financing of a financial asset by secured
creditors, no secured creditor shall be entitled to exercise any or all of the
rights conferred on him pursuant to sub-section 4 unless exercise of such right
is agreed upon by the secured creditors representing not less than three-fourth
in value of the amount outstanding and such action shall be binding on all the
secured creditors. Proviso to Section 13(9) stipulates that in the case of a
Company in liquidation, the amount realised from the sale of secured assets
shall be distributed in accordance with the provisions of Section 529-A of the
Companies Act.
88.
As pointed out earlier, on 28.9.2005, the Official Liquidator held the meeting
of the secured creditors IREDA, Sundaram
Finance Limited, City Union Bank and Vijaya Bank, wherein it was agreed that
IREDA is a major secured creditor, who is having the first charge over the
entire assets of the Company. The secured creditors were impressed upon the
importance of taking possession of the Company immediately and providing
security to the factory premises. On 5.10.2005, IREDA has taken possession of
all the assets of ASM along with the machineries of NHSM installed in the ASM.
From the panchanama proceedings dated 5.10.2005, all the lender banks/financial
institutions viz., Sundaram Finance Limited, City Union Bank, Vijaya Bank have
signed the minutes. That apart, the representative of ITCOT Consultancy
Services, who has done the valuation and the representatives of the security
agencies have also signed in the minutes of the meeting. Referring to the
minutes dated 28.9.2005, in its letter dated 6.1.2006, IREDA has clearly stated
that "action has been taken by IREDA in the interest of all the lender
Banks dated 5.10.2005 and that all the lender banks have agreed to the action
taken by IREDA". In terms of Section 13(9), IREDA has acted in the
interest of all the lender Banks, though it has later handed over the
possession to the Official Liquidator in pursuance of the orders of the Court.
89.
Where a Company is wound up, secured creditor has the right to file the
application seeking to sell the assets. IREDA has rightly filed the petition to
seek the leave of the Company Court to sell the assets through Official Liquidator
and at the same time standing outside the winding up proceedings.
90.
To sum up our conclusions,
In
pursuance to the orders of the Court, handing over possession of the assets by
IREDA to the Official Liquidator would not amount to relinquishing of rights of
secured creditor.
By
mere participation in the proceedings of Company Court and the winding up
proceedings, right of secured creditor remains unaffected except to the extent
of Section 529-A.
IREDA
seeking permission of the Court to sell the properties of the Company in
liquidation is inconsistent with and the directions of the learned single Judge
are clearly consistent with the provisions of the relevant Acts and the views
expressed by the Supreme Court. IREDA is well within its right approaching the
Company Court to sell the properties of the Company in liquidation and also for
permission to stand outside the winding up.
91.
Points No.7, 8 and 10:- During 1998-99, IREDA advanced a total sum of
Rs.15,54,10,000/- to NHSM for purchase of energy efficient conservation
equipment for being installed in juice extraction and juice concentration
Section of ASM. IREDA has a first charge over energy efficient equipment
financed to NHSM and second charge over all the assets of NHSM. NHSM had
obtained loan from Indian Bank, Pondicherry. Since NHSM defaulted in payment of
the amount, Indian Bank, Pondicherry initiated proceedings under the provisions
of SARFAESI Act and a notice under Section 13(2) of the Act was issued on
25.9.2004 demanding a sum of Rs.27,19,15,465/-. Indian Bank, Pondicherry took
possession on 1.1.2005 of all the assets - movables and immovables, over which
it allegedly claims security interest. This was done by the Indian Bank,
Pondicherry in exercise of its powers under section 13(4)(a) of the
Securitisation Act. The Indian Bank after issuing a tender notice dated
16.2.2005 for sale of land with plant, machinery, consumables, etc., of NHSM at
Ariyaloor, Pondicherry, the properties of NHSM were sold in public auction.
E.I.D Parry Limited, Chennai became the highest bidder . As NHSM defaulted in
repaying the amount to IREDA, IREDA filed O.A.No.112 of 2004 before DRT-I, New
Delhi for recovery of Rs.20.03 Crores from NHSM. After obtaining permission
from DRT-I, New Delhi, IREDA invoked the provisions of SARFAESI Act. On
18.1.2005 notice under Section 13(2) of SARFAESI Act was issued to NHSM. On
5.10.2005, IREDA has taken possession of secured assets of ASM and also energy
efficiency conservation equipment of NHSM installed in ASM. As discussed earlier,
on 8.12.2005, IREDA issued notice for sale of secured assets of ASM as well as
the machineries of NHSM installed in ASM.
92.
Challenging the SARFAESI proceedings issued by Indian Bank and alleging that
Indian Bank did not return the documents of title of other movable and
immovable properties belonging to NHSM, which were not sold, NHSM filed
W.P.No.1897 of 2006, which was disposed of with a direction to NHSM to approach
the Debts Recovery Tribunal for the reliefs. The Writ Appeal W.A.No.1142 of 2006 preferred by NHSM was also
disposed of by the order dated 27.3.2007 with a direction to NHSM to approach
the Debts Recovery Tribunal to adjudicate their grievance. It is stated that
NHSM has moved DRT and DRT has now seized of the matter.
93.
The Energy Efficiency Equipment financed by IREDA is installed in the juice
extraction section of ASM, which is now sought to be brought for sale along
with movable and immovable assets of ASM. Onbehalf of NHSM, learned Senior
Counsel Mr.T.K.Seshadri submitted that NHSM is a public limited Company. Merely
because the promoters held majority of the shares, NHSM as well as the ASM
cannot be considered as one and the same as both companies are separate and
distinct legal entities in the eye of law. The learned Senior Counsel would
further contend that the amount due and payable by NHSM arose in respect of a
loan agreement dated 29.10.1999 in terms of which NHSM purchased energy
efficiency equipment and when the liabilities of the appellant were totally
distinct and separate, there was no justification for the learned single Judge
to brush aside the objections of NHSM on the ground that it does not appeal to
the conscience of the Court.
94.
The learned single Judge held that if the equipment of NHSM would get
segregated it would result in damage and reduction in value of both and there
is no legal impediment for a secured creditor, who has initiated proceedings
under SARFAESI Act to sell the properties, which are the subject matter of
SARFAESI proceedings and at the same time, seek the sale of the properties of
the Company, which is in liquidation (ASM) through the Company Court. The
learned single Judge observed that "except the sadistic pleasure of
having deprived the creditors of their legitimate dues, the ninth respondent
may not gain anything out of it. If both of them issue advertisements at the
same time in the same newspapers and conduct the sale simultaneously, the
objection of the ninth respondent will become meaningless. But it would involve
unnecessary expenditure, which should be avoided. Therefore, the first and
second objections of the ninth respondent cannot hold water."
95.
Taking strong exception to the above observation of the learned single Judge,
the learned Senior Counsel Mr.T.K.Seshadri has contended that the provisional
liquidator is not entitled to take possession of the assets belonging to NHSM
and that the energy efficiency conservation equipment of NHSM has to be
segregated and handed over to NHSM.
96.
The contention of IREDA is that the Energy Conservation Efficiency Equipment,
which was purchased by NHSM from out of the loan amount sanctioned by IREDA but
installed in ASM, is a secured asset of IREDA and over the said equipment,
IREDA has the first charge and exercising its rights under under Section 13(4)
of the SARFAESI Act, IREDA has taken possession of the secured assets of NHSM.
It was further submitted that by the intervention of the Court, the factory and
premises of ASM were handed over to the provisional liquidator and while being
so, IREDA has categorically stated that it retained possession over secured
assets of NHSM within the ASM premises. It was further submitted that in view
of the integrated nature and functionality of the equipment, any segregation
would result in deprivation of the value of unit and if the equipment is to be
segregated it would not have any value, but only it has to be sold as scrap. As
pointed out earlier, IREDA is the first charge holder of the Energy Efficiency
Equipment purchased by NHSM, but installed in ASM. The energy efficiency
equipment is an integrated unit, which are sought to be exempted by NHSM are
the integrated part of ASM and if the assets as claimed by NHSM are separated
from the rest of the assets of ASM, it would be impossible to sell the unit
(ASM). In view of the integrated and homogeneous nature of the sugar mills and
co-generation power plant, IREDA applied for joining Official Liquidator and
Sundaram Finance Limited in the sale. As discussed earlier, only by
intervention of the Court, IREDA was compelled to hand over the properties of
the secured asset/energy efficiency equipment of New Horizon Sugar Mills
Limited, which are in the hands of IREDA.
97.
If the assets as claimed by NHSM are segregated and separated from the
machinery and assets of the Company in liquidation, the entire machinery would
become a scrap. If the assets as claimed by NHSM are separated and detached
from the entire set of machineries, the same would not only reduce the
machinery into a junk, but would also reduce the sale consideration of the unit
to be realised. Keeping in view the larger interest and also the interest of
the creditors, the learned single Judge rightly ordered sale of all the
properties exercising inherent powers vested with him under Rule 9 of the
Companies (Court) Rules. Separation of the various machinery in the integrated
system and selling them individually will dwindle the value. The learned single
Judge held that to issue separate advertisement for the power energy efficiency
equipment of NHSM would involve unnecessary expenditure which should be
avoided.
98.
It is pertinent to note that the Directors/promoters of NHSM and ASM are one
and the same and are aware of the fact that IREDA has brought sale of leased
assets of NHSM situated at ASM. It is also pertinent to note that NHSM has not
individually challenged the SARFAESI proceedings initiated and taking of
possession by IREDA against NHSM. Only ASM has filed S.A.No.3 of 2006 before
the DRT, Chennai. Having not challenged the SARFAESI proceedings, the NHSM is
estopped from raising any plea against the proposed sale in question of its
machinery installed in ASM.
99.
Whether New Horizon Sugar Mills Limited is deprived of right of appeal because
proceedings under SARFAESI Act are conducted through the Company Court:-
The
learned Senior Counsel Mr.T.K.Seshadri has contended that IREDA filed
O.A.No.112 of 2004 against NHSM in DRT-I, New Delhi and obtained interim order
against Indian Bank restraining them from disbursing the sale consideration
realised by them and IREDA did not enforce the said interim order, but on the
contrary with a view to bring the entire property of ASM, IREDA moved an
application before DRT to withdraw O.A.No.112 of 2004 with the liberty to
initiate action against NHSM under the SARFAESI Act. According to the learned
Senior Counsel, the conduct of the appellant pursuant to the proceedings of
SARFAESI Act before the Company Court is a totally malafide. According to NHSM,
had the proceedings been initiated under SARFAESI Act, NHSM would have had the
right of appeal under the provisions of SARFAESI Act. As pointed out earlier,
NHSM did not challenge the sale notice dated 8.12.2005 issued by IREDA and no
SARFAESI appeal was filed under Section 17 of the Act. NHSM cannot file an appeal
under Section 18 of the Act as they have to deposit 50 percent of the claim
amount. Having not initiated any action against sale notice issued under
SARFAESI Act, NHSM now cannot contend that by proceeding before Company Court,
they are deprived of the right of appal. As rightly contended by the learned
Senior Counsel Mr.G.Masilamani, the matter being heard before the High Court,
gives NHSM a better opportunity to defend their case and enlarges the ambit of
enquiry. Under SARFAESI Act, scope of appeal under Section 17 is limited viz.,
whether due procedure as laid down in the Act and Rules was followed by the
secured creditors. Evidently, in these proceedings, NHSM has raised all the
available points against taking over of possession and sale in the proceedings
before the Company Court and in our opinion, no prejudice is caused to NHSM. No
valid objection could be raised by NHSM for bringing the machineries to sale
along with assets of ASM.
100.
Whether the claim of IREDA on NHSM could have been settled out of the surplus
funds available with the Indian Bank. In the counter affidavit filed by NHSM,
it was averred that in O.A.No.112 of 2004, IREDA has sought for attachment of
excess money realised by Indian Bank from the sale of secured creditors of NHSM
and in such circumstances it is not open to NHSM to seek parallel remedies at
various forums for the same relief. On behalf of NHSM, the learned Senior
Counsel Mr.T.K.Seshadri has submitted that NHSM has always pointed out that the
entire balance amount realised from Indian Bank after satisfying their dues
should be paid to IREDA the second
charge holder and instead of doing so, Indian Bank proceeded to arbitrarily
disburse amounts to various unsecured creditors overlooking the claims of
IREDA. It was further submitted that NHSM has sent several letters to IREDA
pointing out the conduct of Indian Bank in depriving IREDA their rights and
inspite of the said communications; but IREDA has chosen to remain silent and
avoided taking any steps to recover the balance amount lying with the Indian
Bank. It was further submitted that instead of criticising the conduct of IREDA
in letting Indian Bank to fritter away the valuable rights available to them in
respect of assets of NHSM, the learned single Judge commented upon NHSM based
on the facts which were not even placed before the learned single Judge at the
time of arguments. The learned Senior Counsel took strong exception to the
observations and the learned single Judge in taking note of another writ
petition filed by NHSM in W.P.No.11881 of 2010, which was heard by the learned
single Judge while sitting in the Writ Petitions, though the Writ Petition was
heard and disposed of by the order dated 29.6.2010 long after the Company
applications were heard and reserved for orders.
101.
As pointed out by the learned single Judge, the promoters of ASM and NHSM have
also promoted two non-banking finance companies by name (i) Pondicherry Nidhi
Limited and (ii) PNL Nidhi Limited. These finance companies committed default
in payment of the deposits on maturity. Number of criminal cases were
registered against the promoters of the Company. For non-payment of dues to
Indian Bank, the Bank proceeded against NHSM under SARFAESI Act and the assets
of NHSM were sold in public auction. M/s.E.I.D.Parry Limited was the highest
bidder for a sum of Rs.50.20 Crores for the sale of assets of NHSM. After the
Indian Bank adjusted its dues, the remaining amount was lying with the Indian
Bank. For the remaining amount, a sale certificate was issued on 10.8.2005 to
the highest bidder viz., M/s.E.I.D.Parry Limited, but the sale certificate
could not be registered in view of the attachment order passed by the competent
authority under Pondicherry Protection of Interests of Depositors in Financial
Establishments Act, 2004.
102.
Regarding the non-payment of amount to the depositors and also the claims of
the workmen, Writ Petitions were filed in which an interim order was passed
appointing a retired judge of the Court to pass the claim of the workmen and directing
the Indian Bank to deposit Rs.6 Crores in a no lien account for the said
purpose and for eventual disbursement to workmen. The said order of the
Division Bench was the subject matter of appeal before the Hon'ble Supreme
Court in C.A.Nos.6381 and 6382 of 2009 and both the appeals were disposed of by
the Apex Court by order dated 31.8.2009. In paragraph No.9 of its order, the
Supreme Court directed the Indian Bank to transfer an amount of Rs.6.00 Crores
from out of the sale proceeds to a no lien account for the purpose of
disbursement to the workers. In pursuance to the aforesaid orders, the process
of computation of the claims of workmen have commenced by the Commissioner of
Labour. When the workmen and the Commissioner of Labour took 31.10.2006 as a
date upto which the workmen will be deemed to have been in service for the
purpose of computation of benefits under Section 25FF of the Industrial
Disputes Act, 1947. NHSM protested the same contending that the Bank had taken
possession even on 1.1.2005 itself under Section 13(5) of the SARFAESI Act. It
was in that context, the NHSM has filed W.P.No.11881 of 2010 which came up
before the single Judge (Justice V.Ramasubramanian). Referring to the said
proceedings, the learned single Judge rejected the contention of NHSM that
IREDA could have sought for payment from out of the surplus funds available
with the Indian Bank.
103.
Of course, the said Writ Petition- W.P.No.11881 of 2010 came to the notice of
the learned single Judge after the learned single Judge has reserved the matter
for orders in the Company Petition. Even though the matters were already argued
before the learned single Judge, NHSM has made no efforts to apprise the Court
about the pending claims by the workmen. When there were claims of workmen,
NHSM was not justified in contending that IREDA ought to have satisfied its
claim from out of the remaining sale proceeds amount available with the Indian
Bank. In fact, NHSM ought to have brought to the notice of the learned single
Judge about the claims of workmen and the claims of several depositors in
respect of Pondicherry Nidhi Limited and PNL Nidhi Limited. When those material
facts were came to the knowledge of the learned single Judge in the course of
other proceedings, it cannot be contended that the learned single Judge
committed an error in taking note of those facts which otherwise came to his
knowledge in other proceedings.
104.
Point No.9: Claim of Sundaram Finance Limited to recover the value of
co-generation plant and machinery given on lease:- Sundaram Finance Limited is
the owner of plant and machinery and the same was leased to ASM under three
lease agreements (i) first agreement is Rs.86,58,380/- repayable in sixty
months from 9.2.2001 and ending on 8.2.2006; (ii) second agreement is for
Rs.49,19,575/- repayable in sixty monthly instalments from 9.2.2001 and ending
on 8.2.2006 and (iii) third agreement is for Rs.14,02,49,505/- repayable in
sixty monthly instalments from 9.2.2001 to 8.2.2006. The total amount payable
to Sundaram Finance Limited is Rs.15,38,27,460/-.
105.
As ASM defaulted in repaying the amount, Sundaram Finance Limited filed
application A.No.4401 of 2004 under
Section 9 of Arbitration and Conciliation Act for appointment of Advocate
Commissioner to re-possess the machinery. By Order dated 19.3.2005, the High
Court appointed the Advocate Commissioner to seize and sell the machinery of
Sundaram Finance Limited available in ASM "as is where is"
basis. IREDA has invoked SARFAESI Act over the entire sugar mill of ASM of
which the machinery of Sundaram Finance Limited was also part and ownership of
the premises. IREDA impleaded itself in the proceedings filed by Sundaram
Finance Limited in A.Nos.4401 of 2004 and 1448 of 2005. On 27.9.2005, IREDA and
Sundaram Finance Limited entered into Memorandum of understanding by which
IREDA will sell the entire machinery along with Sundaram Finance Limited. The
said Memorandum of Understanding was recorded in Application No.4401 of 2004.
As per the said Memorandum of Understanding dated 27.9.2005, sale has to be
completed before 31.3.2006.
106.
In pursuance to the Order of the Court in Company Application No.1786 of 2005
(24.4.2006), IREDA handed over possession of the unit along with machineries
including the machinery of Sundaram Finance Limited to the Official Liquidator.
IREDA filed Company Application No.1038 of 2006 seeking sale of the movable and
immovable assets of ASM including the plant and machinery of Sundaram Finance
Limited and other machineries in the premises.
107.
Sundaram Finance Limited is the owner of the plant and machinery and it has
leased out the same to ASM. The stand of Sundaram Finance Limited is that it
had given its consent to sell the machinery of which it is the owner without
relinquishing its ownership in order to obtain good rate for the entire plant
and machinery of ASM. Reiterating the submissions of IREDA, the learned counsel
Mr.S.Vasudevan would submit that the entire ASM is one composite unit and if
the machinery of Sundaram Finance Limited is separated the entire machinery
would become junk and they can be sold only as a scrap. Without relinquishing
its ownership or their status as an absolute owner, Sundaram Finance Limited
permits the sale of the plant and machinery along with other machinery of ASM.
In so far as the machinery leased out by Sundaram Finance Limited, the learned
single Judge observed as under: "75. In so far as the equipment leased
out by Sundaram Finance Ltd (second respondent herein) to the company in
liquidation is concerned, the company in liquidation cannot claim ownership,
since these equipment are given on lease by Sundaram Finance Ltd to the company
in liquidation. Therefore they have the right of re-possession. As a matter of
fact, Sundaram Finance Ltd., has already obtained orders in the applications
(A.Nos.4401 of 2004 and 1448 of 2005) filed under Section 9 of the Arbitration
and Conciliation Act, 1996, for re-possession and sale. The application
A.No.4401 of 2004, was closed on 7.12.2005 after the applicant and Sundaram
Finance Ltd., entered into a Memorandum of Understanding on 27.9.2005.
Therefore, the sale of the third category of plant and machinery and equipment,
leased out by Sundaram Finance Ltd., to the company in liquidation, cannot be
objected to for two reasons viz., (i) that Sundaram Finance Ltd., is the owner
and (ii) that there are already orders for re-possession and sale."
108.
In so far as machineries of Sundaram Finance Limited, we fully concur with the
views of learned single judge. The ownership of plant and machineries is with
Sundaram Finance Limited and the same were leased out to ASM. Being the owner
of the plant and machineires, Sundaram Finance Limited has the right of
re-possession. However, keeping in view the larger interest of the unit and
that plant and machineries form integral part of ASM, Sundaram Finance Limited
has consented for the sale of its plant and machineries in ASM.
109.
Point No.11 Reference to the conduct of
the directors Whether justifiable:-
Promoters
of ASM also promoted two non-banking finance Companies by names (i) Pondicherry
Nidhi Limited and (ii) PNL Nidhi Limited. The promoters/appellants in
O.S.A.No.64 of 2011 did not honour the financial commitments towards the
depositors. The learned single Judge observed that the appellants in
O.S.A.No.64 of 2011, who promoted Arunachalam Sugar Mills Ltd., and New Horizon
Sugar Mills Ltd., and PNL Nidhi Ltd., are facing prosecution under the
Pondicherry as well as Tamil Nadu Protection of Interest of Depositors Act, on the
allegation that thousands of depositors have been cheated. They were arrested
and detained in custody from 9.8.2005 to 10.12.2005.
110.
The learned single Judge further observed that the news item published in The
Hindu in its edition dated 10.8.2005, reported that the total number of
depositors of the Nidhi were 13,295 and that it was a scam of the magnitude of
Rs.68.50 crores. As per the news item published in The Hindu, dated 21.7.2009,
several senior citizens who were retired officials, had invested their
retirement benefits in the Nidhi and the number of depositors from Pondicherry
alone were 6,000, whose deposits totalled to Rs.57 crores. The Express
newspaper also carried the sad tales of thousands of depositors.
111.
The Government of Pondicherry issued notification in G.O.Ms.No.12 dated
18.2.2006 attaching the properties in terms of the provisions of Pondicherry
Protection of Interests of Depositors in Financial Establishments Act, 2004.
The validity of the said G.O. came to be challenged both by the promoters and
also by the auction purchaser from the Indian Bank (EID Parry). The batch of
writ petitions were disposed of and the said order became subject matter before
Division Bench in W.A.Nos.1788 and 1919 of 2005 and the writ appeals came to be
disposed of by a common order dated 27.3.2007. The S.L.Ps came to be filed in
C.A.Nos.6381 and 6382 of 2007 and the issue raised in those appeals related
only to the claims of workmen and the balance amount is payable to NHSM.
112.
The learned single Judge observed that the appellants in O.S.A.No.64 of 2011
(ASM) are attempting to stall the sale with a view to protect themselves from
the depositors. If the sale is postponed, the hopes of thousands of depositors
would be kept alive and if the sale takes place, the secured creditors may take
away a major chunk of the proceeds, exposing the respondents 5 to 8 to the risk
of being proceeded against personally, by the depositors.
113.
In Paragraph Nos.119 to 123 of the order under appeal, the learned single Judge
elaborately referred to the conduct of the promoters and the plight of the
depositors. In so far as the question of payment of workmen's dues upto Supreme
Court, the learned single judge had observed as under: "They have
fought the question of payment of workmen's dues upto the Supreme Court once
and also fought the issue relating to the date upto which the workmen's dues
were to be paid. The only benefit that appears to have accrued out of this
series of litigation by the respondents 5 to 9, is a little development of the
law through contributions from the best of legal brains that they could afford
to engage, though in the process, the creditors and the depositors are left
high and dry. Therefore, all the objections raised by the respondents 5 to 8 and
9, not only lack legal tenability, but also lack bona fides."
114.
Taking strong exception to the above observation, the learned counsel for the
appellants submitted that the learned single Judge was not justified in
criticising the conduct of the promoters and taking note of the events, which
are unconnected with the ASM. It was further submitted that the learned single
judge appears to have been swayed by the other factors which are not relevant
to the issue.
115.
It is a matter of record that the promoters have not only promoted ASM and NHSM
but also two non-banking finance companies and the promoters could not honour
their financial commitments to the depositors. The prosecution and other
litigations pertaining to the depositors is a matter of record and the
judgments was also been reported in MANU/CL/0037/2008. The High Court is a
Court of Record. It cannot be said that the learned single Judge has adopted
erroneous approach in referring to the conduct of the promoters. To our mind,
the conduct of the promoters cannot be said to be insignificant. Though the
learned single Judge stretched the discussion a little far, we are unable to
countenance the submission that the learned single Judge erred in referring to
the criminal proceedings, claims of depositors and the conduct of the promoters
of ASM.
116.
Point No.12 O.S.A.No.81 of 2011:-
Walchandnagar Industries Limited is engaged in the business of manufacturing
and supplying Boilers and Auxiliaries. In pursuance to the contract,
Walchandnagar Industries Limited supplied Boiler and the contract was priced at
Rs.7,31,50,000/- payable in accordance with Clause 3.13 of the General
Conditions of the Contract. Walchandnagar Industries Limited received payment
of Rs.6,26,70,411/- till February, 2003 and an amount of Rs.1,05,81,632/-
became due and payable by ASM. Alleging that inspite of several reminders ASM
failed to pay the amount, Walchandnagar Industries Limited has filed the suit
in C.S.No.19 of 2005 on the file of Civil Judge, Senior Division at Baramati,
State of Maharashtra. The said suit was decreed exparte on 28.6.2005 and the
decree was transferred to Sub-Court, Tiruvannamalai for execution.
Walchandnagar Industries Limited filed E.P.No.15 of 2005 for execution of the
money decree by sale of immovable properties of ASM.
117.
On noticing tender-cum-sale notice issued by IREDA to sell movable and
immovable properties of ASM and also noticing the advertisement published in
'The Hindu' for selling the properties of ASM in pursuance to the order passed
in A.No.1038 of 2006, Walchandnagar Industries Limited filed C.A.No.2486 of
2006 praying that the Boilers supplied by Walchandnagar Industries Limited be
excluded from the schedule of properties. Referring to Section 49(1) of Sale of
Goods Act, learned single Judge dismissed the application on the ground that
the title in the goods (Boiler) has already passed to the company in
liquidation and therefore, Walchandnagar Industries Limited had lost its lien
on the Boiler and consequently, it had become merely an unsecured creditor and
can only stand in the long queue of unsecured creditors behind all those
secured creditors and workmen. Being aggrieved by the dismissal of application
in C.A.No.2486 of 2006, Walchandnagar Industries Limited has come forward with
this appeal in O.S.A.No.84 of 2011.
118.
Clause 3.11 of General Conditions of Contract reads as under:-
"The
title and ownership in goods shall immediately on these being handed over to
the transporter shall pass on to the PURCHASER and these will become remain the
property of the PURCHASER, provided always that the SUPPLIER shall have a
particular possessory lien on the goods to the extent of the value of the goods
remaining to be realized from the PURCHASER."
119.
Mr.Krishna Srinivas, learned counsel for Walchandnagar Industries Limited has
submitted that Clause 3.11 of the General Conditions of Contract clearly states
that Walchandnagar Industries Limited would retain the possessory lien on the
property in respect of such amount as remained unpaid by the purchaser. It was
further submitted that though Walchandnagar Industries Limited has parted with
the possession of the Boiler by virtue of the conditions of the contract, it
still retains its possessory lien on the Boiler. It was further submitted that
in view of Section 49(2) of Sale of Goods Act, mere obtaining of money decree
would not amount to waiver of the lien.
120.
Lien pre-supposes seller's possession. Consequently, when seller's possession
ceases and buyer gets lawful possession, the right of lien comes to an end.
Thus lien of unpaid seller terminates when buyer or his agent lawfully obtains
possession of the goods.
121.
Under Section 49(1) of Sale of Goods Act, 1930, an unpaid seller loses his
lien, under three circumstances viz., (i) when he delivers the goods to a
carrier or other bailee for transmission to the buyer, without reserving the
right of disposal; (ii) when the buyer of his agent lawfully obtains possession
of the goods; and (iii) by waiver. As pointed out by the learned single Judge,
the ownership of boiler has already passed to the company in liquidation and
since the seller already parted with possession of the boiler, the lien of
Walchandnagar Industries Limited is terminated and it becomes an unsecured
creditor.
122.
As pointed out earlier, Walchandnagar Industries Limited had also filed Civil
Suit in C.S.No.19 of 2005 and obtained a decree which has been transmitted to
the Sub-Court, Tiruvannamalai for execution. As laid down in Sub-section (2) of
Section 49 of Sale of Goods Act, an unpaid seller of goods having lien thereon,
does not lose his lien by a reason only that he has obtained a decree for the
price of the goods. This is because of the obvious reason that unless the
decree is successfully executed, the price remains unpaid.
123.
Ofcourse, Walchandnagar Industries Limited does not lose its lien by reason
that it has obtained a decree for the price of the goods. But in the plaint
averments in C.S.No.19 of 2005 Walchandnagar Industries Limited clearly averred
that there is an arbitration clause in the original agreement . However, since
the amount was settled in the meeting dated 20.03.2002 and ASM expressly
acknowledged their liability by their letter dated 01.03.2003, there is no
existing dispute between the parties and that present suit (C.S.No.9 of 2005)
is a simple suit for the recovery of the agreed amount.
124.
Having regard to the fact that the dispute between Walchandnagar Industries
Limited and ASM was already sorted out in the meeting, Walchandnagar Industries
Limited has chosen to file a suit in C.S.No.19 of 2005 for recovery of the
money and the averments in the plaint would clearly show that Walchandnagar
Industries Limited had lost its lien on the boiler and consequently,
Walchandnagar Industries Limited had become merely an unsecured creditor who
holds the decree in its favour. As held by the learned single Judge,
Walchandnagar Industries Limited can only stand in the long queue of the
unsecured creditors behind all the secured creditors and workmen. We do not
find any error warranting interference with the finding of the learned single
Judge and the appeal [O.S.A.No.81 of 2011] preferred by Walchandnagar
Industries Limited is liable to be dismissed.
125.
Point No.13 O.S.A.Nos.58 and 59 of 2011
:- Bharat Heavy Electricals Limited [BHEL] had entered into agreement with ASM
for supply and supervision of (i) A 8400 KW Capacity Extraction cum Back
Pressure Turbo generator and (ii) A 4280 KW Capacity Low Pressure Condensing
Turbo generator with all its auxillaries and executed the contract. The value
of the total contract for a 8400 KW Capacity Extraction cum Back Pressure
Turbogenerator is Rs.507 lakhs, out of which, Rs.72.96 lakhs has been due from
ASM. Likewise, the value of the total contract for A 4280 KW Capacity Low
Pressure Condensing Turbogenerator with all its auxillaries is Rs.411 lakhs,
out of which, ASM paid Rs.54.5 lakhs and the outstanding amount of Rs.411.251
is due. In O.A.No.253 of 2005, the amount involved is Rs.72.92 lakhs and the
amount involved in O.A.No.254 of 2005 is Rs.411.251 lakhs. For recovery of the
said outstanding amount, BHEL has filed O.A.Nos.253 and 254 of 2005 under
Section 9 of Arbitration and Conciliation Act praying for (i) interim
injunction restraining ASM, its officers, directors or agents from selling,
transferring or otherwise alienating or disposing in any manner the land and
building comprising of factory situate at Arunachalam Nagar, Malapampadi,
Tiruvannamalai Taluk and the plant and equipments installed therein and or
lying in or available at the said premises including the equipments being
A-8400 KW Extraction-cum-back Pressure Turbo Generator and 1 x 4 MW STG Low
Pressure condensing Turbo Generator (TG3) covered by the contract. Interim
injunction granted in both the applications was vacated, which was challenged
by the BHEL in O.S.A.Nos.341 and 342 of 2008. Those two appeals were heard
along with the appeals in O.S.A.No.321 of 2008 filed by NHSM and O.S.A.No.345
of 2008 filed by Kannan and others. By common Judgment dated 27.10.2009, all
the appeals were allowed and the matters were remitted back to the learned
single Judge to be heard afresh. Observing that two sets of Turbo Generators
and auxillaries were already supplied to the company in liquidation and that the
title of the goods had passed on to the buyer, learned single Judge held that
BHEL has no right to claim any lien over the goods. Observing that BHEL stands
in no better footing than Walchandnagar Industries Limited, learned single
Judge held that the objection of the BHEL for the sale of Turbo Generators
supplied by them to ASM cannot be sustained and the applications filed under
Section 9 of Arbitration Act came to be dismissed.
126.
Learned counsel for BHEL has submitted that when the land and building and
other equipments belonging to the company in liquidation are liable to be
brought to sale, there is no justification for bringing to sell the equipments
supplied by BHEL in which, ASM has no title. It was further submitted that
learned single Judge should have made distinction between the equipments
supplied by BHEL and the land and building and other equipments belonging to
ASM and both the assets cannot be treated on par. Learned counsel for BHEL
would mainly contend that as per Clause 3.11.1 of General Conditions of the
Contract, till the entire money is paid BHEL has possessory lien over the Turbo
Generators and therefore, the machineries supplied by BHEL cannot be brought
for sale and in view of the arbitration clause, Section 9 application filed by
the BHEL is to be allowed.
127.
In pursuance to the contract, BHEL has supplied (i) A 8400 KW Capacity
Extraction cum Back Pressure Turbo generator and (ii) A 4280 KW Capacity Low
Pressure Condensing Turbo generator with all its auxillaries. Clause 3.11.1 of
General Conditions of Contract provides for possessory lien. Clause 3.11.1
reads as under:- "Clause 3.11.1 The Goods, shall immediately, in consideration
of payment of the first installment of the Contract Price to the SUPPLIER by
the PURCHASER, become and remain the property of the PURCHASER; provided always
that the SUPPLIER shall have a particular possessory lien on the Goods to the
extent the value thereof exceeds the total value of the installment payments
made by the PURCHASER to the SUPPLIER. Transfer of title to goods shall be
ex-works."
128.
By careful reading of Clause 3.11.1 of General Conditions of Contract, it is
seen that on payment of first instalment at the contract price, the ownership
of the goods shall immediately be passed to the purchaser and remain the
property of the purchaser. Even though, Clause 3.11.1 stipulates that the
supplier shall have possessory lien on the goods, as per Section 49 of Sale of
Goods Act, the seller loses its lien under three circumstances viz., (i) when
he delivers the goods to a carrier or other bailee for transmission to the
buyer, without reserving the right of disposal; (ii) when the buyer of his
agent lawfully obtains possession of the goods; and (iii) by waiver. ASM has
already taken delivery of A 8400 KW Capacity Extraction cum Back Pressure Turbo
generator and A 4280 KW Capacity Low Pressure Condensing Turbo generator with
all its auxillaries and title has already passed to the buyer/ASM. While so,
BHEL has no right to claim any lien over the goods under Section 49 of Sale of
Goods Act and lien of BHEL is terminated when ASM had taken lawful possession
of the goods. As held by the learned single Judge, position of BHEL is only as
unsecured creditor. BHEL has to establish its claim before Official Liquidator
and has to stand in the long queue of unsecured creditors behind all secured
creditors and workmen. We do not find any error warranting interference with
the finding of the learned single Judge and the Appeals [O.S.A.Nos.58 &
59 of 2011] preferred by BHEL are liable to be dismissed.
129.
Points No.14 and 15:
ASM
did not deny the debt, but was merely taking time to settle the dues. Inspite
of repeated demands by IREDA and other secured creditors and opportunities by
IREDA, ASM has not repaid the amount in the Company Court. Inspite of taking
sufficient time, ASM could not secure investor/purchaser and ASM neglected to
pay the huge amount to IREDA and to other secured creditors and also
non-secured creditors is a prima facie evidence of its inability to pay the
amount. The incapability of ASM to pay the debt is writ large on the facts.
130.
Upon analysis of materials on record, the learned single Judge rightly ordered
sale of assets of ASM along with the machines thereon. It is unfortunate that
IREDA, a Government of India Enterprise, which has parted with huge amount is
unable to recover its dues. On the application filed by IREDA, being the major
secured creditor, the learned single Judge rightly ordered sale of movable and
immovable assets of ASM. We only hope that the assets are sold for a better
price.
131.
Based on the valuation of ITCOT Consultancy Services Private Ltd, the learned
single Judge fixed the upset price at Rs.86.44 Crores as under:
(1)
Land (120.70 Acres) - Rs.11.00 crores
(2)
Land (4.96 Acres) - Rs. 0.44 crores
(3)
Building - Rs. 9.00 crores
(4)
Plant and Machinery &
other
movable assets - Rs.66.00 crores
----------------------
Rs.86.44
crores
----------------------
Even
in January, 2006, when IREDA has caused sale notice, the upset price was fixed
at Rs.96.80 Crores. After giving wide publicity in news papers, bid cum auction
was held by IREDA on 20.2.2006. Even in February 2006, IREDA received bid from
Ambika Sugars for Rs.135.50 Crores, which did not fructify because of
subsequent proceedings. In the Company Court, ASM has brought an offer from one
Ramchander, who was ready to give a loan of around Rs.120 Crores to
rehabilitate the unit, which also subsequently did not fructify. In such facts
and circumstances, we are of the view that fixing upset price of Rs.86.44
Crores is very much on the lower side.
132.
Based on the ITCOT valuation, the learned single Judge has fixed the upset
price at Rs.86.44 Crores as stated above. Considering the above valuation, we
find that value of the land appears to have been taken around Rs.90,000/- per
acre. Even though land is situated at Mallappambadi, as the land is being used
for industrial purpose where sugar mill has been running in a 125.66 acres in
one lot, in our view, the value of Rs.90,000/- per acre is very less. Having
regard to the escalation of land prices and other factors, we deem it
appropriate to take the value of the land per acre at Rs.One Crore. In so far
as the valuation of the building, the valuation of the building was fixed at
Rs.9 Crores and the same is increased by another 50 percent. i.e., value of the
building is fixed at Rs.13.50 Crores. The value of plant and machinery and
other movable assets are taken at the same value of Rs.66.00 Crores.
Accordingly, the total value is fixed at Rs.204.46 Crores as under: (1) Land
(120.70 Acres) - Rs.120.00 crores
(2)
Land (4.96 Acres) - Rs. 4.96 crores
(3)
Building - Rs. 13.50 crores
(4)
Plant and Machinery &
other
movable assets - Rs. 66.00 crores
----------------------
Rs.204.46
crores
----------------------
The
above valuation is not only reasonable but also justifiable. As pointed out
earlier, in 2006, IREDA received offer from Ambika Sugar Mills for Rs.135.50
Crores. For arriving at the current value, giving reasonable increase of 10
percent every year for the said amount of Rs.135.50 Crores in 2006, in our
considered view, fixing of upset price at Rs.204.46 cores is quite reasonable.
133.
For the assets to fetch a better price, we direct the Official Liquidator to give
wide publicity of the proposed sale not only within the State but throughout
the country. We also direct the Official Liqudiator to take every endeavour to
see that the assets are sold for a better price. All other directions of the
learned single Judge for effecting paper publication inviting tenders shall
hold good.
134.
In the result, O.S.A.Nos.58, 59, 63, 64 and 81 of 2011 are dismissed, with the
following directions:-
The
Official Liquidator is directed to effect publication in one edition of the English
Daily "THE HINDU" in all the editions throughout India and
one edition of the Tamil Daily "Daily Thanthi" throughout
Tamilnadu inviting sealed tenders for the purchase of the assets, both movable
and immovable belonging to the company in liquidation Arunachalam Sugar Mills and financed by the
IREDA and Sundaram Finance Limited. The publication shall indicate that it is
issued by the Official Liquidator both on his behalf and on behalf of IREDA and
other secured creditors in respect of the assets of the company in liquidation
as well as the machineries of New Horizon Sugar Mills Limited, now lying in the
factory premises of the Arunachalam Sugar Mills. The paper publication shall be
effected on or before 16.05.2011. The last date for receipt of tenders shall be
indicated as 16.06.2011 and the date of auction shall be fixed as 23.06.2011.
The cost of Tender Forms is fixed at Rs.1,000/-. The publication shall indicate
that the Tender Forms shall be accompanied by Demand Drafts/Pay Orders for an
amount representing 5% of the bid amount towards Earnest Money Deposit. The
publication shall indicate that the Tender Forms along with the Demand
Draft/Pay Order shall be sent in a sealed cover addressed to the Registrar
General, High Court, Madras on or before the date indicated above viz.,
16.06.2011. The upset price shall be indicated in the paper publication as
follows:- (1) Land (120.70 Acres) - Rs.120.00 crores
(2)Land
(4.96 Acres) - Rs. 4.96 crores
(3)Building
- Rs. 13.50 crores
(4)
Plant and Machinery &
other
movable assets - Rs. 66.00 crores
----------------------
Rs.204.46
crores
----------------------
135.
The paper publication shall also indicate that the intending purchasers who
wish to inspect the properties may give an indication to the Official
Liquidator and that upon an intimation being delivered by the intending
purchasers, the Official Liquidator will arrange an inspection at the
convenience of the Official Liquidator and Tenderers. The Official Liquidator
shall also cooperate with the intending purchasers to arrange for the
inspection of the premises and the machineries without any delay. If necessary
the Official Liquidator shall seek adequate police protection from the
Superintendent of Police of the District, on the dates of inspection. Upon
production of a copy of this order by the Official Liquidator, the
Superintendent of Police of the District concerned shall provide adequate
police protection to ensure smooth inspection on the dates indicated above. It
is open to the Officials of IREDA, the officials of Sundaram Finance and other
secured creditors/non-secured creditors and the representatives of the company
in liquidation Arunachalam Sugar Mills
to accompany the Official/Deputy Official Liquidator, on the dates of the
inspection along with the intending purchasers. The cost of the paper
publication in the English Daily and the Vernacular Daily shall be borne by the
Official Liquidator, which can be reimbursed from out of the sale proceeds.
Apart from issuing paper publications, the Official Liquidator shall also send
intimation of the proposed sale to the leading Sugar Mills in the country
including (i) Ambica Sugar Mills which already offered to purchase for
Rs.135.50 crores; (ii) the Sugar Mills which already evinced interest in buying
these properties by tendering letters of offer and Mr.M.G.Ramachandran, who
made offer for investment; and (iii) the Sugar Mill which purchased the
properties of New Horizon Sugar Mills Limited.
136.
In order to avoid any confusion, it is made clear at the cost of repetition
that the news paper publications inviting tenders, should contain the following
details:-
(i)The
upset price of the land, building, plant and machinery and other movables, as
detailed in the preceding paragraph.
(ii)The
cost of the Tender Forms, the last date for submission of tenders, the dates
for inspection and the date of auction.
(iii)The
fact that the Tender Forms should be accompanied by Demand Draft/Pay Order
representing 5% of the bid amount quoted by the tenderer towards Earnest Money
Deposit.
(iv)The
fact that the sealed tenders are to be submitted along with the Pay
Order/Demand Draft, addressed to the Registrar General, High Court, Madras on
or before 16.06.2011.
(v)Indicating
that the tenders will be opened and the auction amongst the tenderers will be
held before the single Judge on 23.06.2011.
(vi)The
fact that it is issued by the Official Liquidator both on his behalf and on
bahalf of IREDA as well as Sundaram Finance Limited and the secured creditors
and non-secured creditors in respect of the assets of the company in
liquidation Arunachalam Sugar Mills as
well as the machineries of New Horizon Sugar Mills Limited, now lying in the
factory premises of the company in liquidation.
137.
The matter shall be listed before the single Judge on 16.6.2011 i.e., the last
date for receipt of sealed tenders. The learned single Judge shall then call
the matter on 23.06.2011 for the conduct of auction and the parties and
interested bidders are directed to appear before the single Judge. It is open
to the Official Liquidator/IREDA to seek any clarification, if necessary.
However,
there is no order as to costs. Consequently, the connected miscellaneous
petitions are closed.
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