Kingfisher Airlines Limited vs State Bank Of India on 29 January, 2014
1
®
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 29th DAY OF JANUARY 2014
PRESENT
THE HON'BLE MR. JUSTICE DILIP B BHOSALE
AND
THE HON'BLE MR. JUSTICE B MANOHAR
O.S.A.NO.1/2014
BETWEEN
KINGFISHER AIRLINES LIMITED
A COMPANY REGISTERED UNDER
THE PROVISIONS OF THE COMPANIES ACT, 1956
AND HAVING IS REGISTERED OFFICE AT
UB CITY, 24, VITTAL MALLYA ROAD
BANGALORE-560 001
REPRESENTED BY ITS
AUTHORISED SIGNATORY ... APPELLANT
(BY SRI K G RAGHAVAN, SR. ADV., FOR SRI RAJESH D M, ADV.,
for RAJESH & RAJESH, ADVS.)
AND
1. STATE BANK OF INDIA
A BANKING CORPORATION
CONSTITUTED UNDER
THE STATE BANK OF INDIA ACT
1955 (23 OF 1955)
HAVING CORPORATE CENTRE
AT STATE BANK BHAVAN
MADAME CAMA ROAD
NARIMAN POINT MUMBAI-400 021
AND HAVING ITS INDUSTRIAL FINANCE BRANCH
2
AT 61, RESIDENCY PLAZA, RESIDENCY ROAD
BENGALURU- 580 025
2. AXIS BANK LIMITED
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT, 1956, AND A BANKING
COMPANY WITH THE MEANING OF SECTION 5(C)
OF THE BANKING REGULATION ACT, 1949
AND HAVING ITS REGISTERED OFFICE
AT TRISHUL, THIRD FLOOR
OPP. SAMARTHESWAR TEMPLE
LAW GARDEN, ELLISBRIDGE
AHMEDABAD 380 006, GUJARAT INDIA
AND HAVING ITS CORPORATE OFFICE AT
AXIS HOUSE, C-2, WADIA INTERNATIONAL CENTRE
PANDURANG BUDHKAR MARG
WORLI, MUMBAI 400 025
3. BANK OF BARODA,
A BODY CORPORATE UNDER
THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1970, (5 OF 1970),
HAVING ITS HEAD OFFICE AT BARODA HOUSE
P.B. NO.506, MANDAVI, VADODARA-396006.
ACTING THROUGH ITS BRANCH OFFICE
AT P.O.BOX NO.11745,
SAMATA BUILDING, GENERAL BHOSALE MARG
NARIMAN POINT, MUMBAI-400 021.
4. BANK OF INDIA
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES (ACQUISITION
AND TRANSFER OF UNDERTAKING) ACT, 1970
AND HAVING ITS HEAD OFFICE AT STAR HOUSE
C5, G BLOCK, BANDRA KURLA COMPLEX
BANDRA (E), MUMBAI 400 051 AND
HAVING ITS LARGE CORPORATE BRANCH AT
3
GROUND FLOOR, ORIENTAL BUILDING,
364, DN ROAD, FORT, MUMBAI-400 001
5. CENTRAL BANK OF INDIA
A BODY CORPORATE CONSTITUTED
UNDER THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1980 AND
HAVING ITS CORPORATE OFFICE AT
CHANDRAMUKHI, NARIMAN POINT
MUMBAI-560 021.
AND HAVING ITS CORPORATE FINANCE
BRANCH (EARLIER KNOWN AS INDUSTRIAL
FINANCE BRANCH) AT CHANDRAMUKHI
GROUND FLOOR, NARIMAN POINT
MUMBAI-400 021
6. CORPORATION BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER
OF UNDERTAKING) ACT, 1980 (40 OF 1980)
HAVING ITS CORPORATE OFFICE AT
MANGALADEVI TEMPLE ROAD, PANDESHWAR
MANGALORE-575001
AND HAVING ITS INDUSTRIAL FINANCE BRANCH
AT RALLARAM MEMORIAL BLDG
1ST FLOOR, CSI COMPOUND
MISSION ROAD, BENGALURU-560 027
7. THE FEDERAL BANK LIMITED
A COMPANY WITHIN THE MEANING OF THE
COMPANIES ACT, 1956, HAVING ITS
REGISTERED OFFICE AT FEDERAL TOWERS
ALUVA 683101, KERALA
AND HAVING ITS BRANCH OFFICE AT
44 & 45, RESIDENCY ROAD
BENGALURU-560 025.
4
8. IDBI BANK LIMITED
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT, 1956, AND A BANKING
COMPANY WITHIN THE MEANING OF THE
BANKING REGULATION ACT, 1949
HAVING ITS HEAD OFFICE AT IDBI TOWER
WTC COMPLEX, CUFFE PARADE, MUMBAI 400 005
MAHARASHTRA, INDIA
AND ACTING THROUGH ITS BRANCH OFFICE AT
CORPORATE BANKING GRTOUP-FAMG
9TH FLOOR, IDBI TOWAR WTC COMPLEX
CUFFE PARADE COLABA, MUMBAI-400 005
9. INDIAN OVERSEAS BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1970 HAVING ITS
CENTRAL OFFICE AT 763, ANNA SALAI
CHENNAI 600 002
AND ITS BRANCH OFFICE AT
HARIKRIPA, 26-A, S.V.ROAD
SANTA CRUZ (WEST), MUMBAI-400 054
10. JAMMU & KASHMIR BANK LIMITED
A BANKING COMPANY INCORPORATED
UNDER THE PROVISIONS OF THE
JAMMU & KASHMIR COMPANIES
ACT NO.XI OF 1977 (SAMVAT)
HAVING ITS REGISTERED OFFICE AT
CORPORATE HEADQUATER
MAULANA AZAD ROAD,
SRINAGAR, KASHMIR-190001
AND ITS BRANCH AT
SYED HOUSE , 124
S.V. SAVARKAR MARG
5
MAHIM (WEST)
MUMBAI-400 016
11. PUNJAB & SIND BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER
OF UNDERTAKING) ACT, 1980
HAVING ITS HEAD OFFICE AT 21,
RAJENDRA PALACE
NEW DELHI-110 008
AND HAVING AMONGST OTHERS
A BRANCH OFFICE
AT J.K. SOMANI BUILDING
BRITISH HOTEL LANE, FORT
MUMBAI-400 023
12. PUNJAB NATIONAL BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1970,
HAVING ITS HEAD OFFICE AT 7,
BHIKAJI CAMA PLACE
NEW DELHI-110066
ACTING THROUGH ITS
LARGE CORPORATE BRANCH
AT CENTENARY BUILDING 28,
M.G.ROAD
BENGALURU-560 001
13. STATE BANK OF MYSORE
A BODY CORPORATE CONSTITUTED UNDER
THE STATE BANK OF INDIA (SUBSIDIARY BANKS)
ACT, 1959 HAVING ITS HEAD OFFICE AT
KEMPE GOWDA ROAD, BENGALURU-560 009
AND ITS CORPORATED ACCOUNTS
BRANCH AT NO.18,
RAMANASHREE ARCADE,
M.G.ROAD, BANGALORE-560 001.
6
14. UCO BANK
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES(ACQUISITION AND
TRANSFER OF UNDERTAKING) ACT, 1970
HAVING ITS HEAD OFFICE AT 10,
BTM SARANI
KOLKATA 700 001,
WEST BENGAL, INDIA.
AND ITS BRANCH OFFICE AT
1ST FLOOR, 13/22, K.G.ROAD,
BENGALURU-560 009.
15. UNITED BANK OF INDIA
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER
OF UNDERTAKING) ACT, 1970 (5 OF 1970)
HAVING ITS HEAD OFFICE AT 11,
HEMANTA BASU SARANI,
KOLKATA 700 001.
ACTING THROUGH ITS BRANCH OFFICE
AT 40, K.G.ROAD,
BENGALURU-560 009 ... RESPONDENTS
(BY S S NAGANAND, SR. ADV., FOR S R TEJAS, ADV., & SRI CHINTAN CHINNAPPA, ADV., FOR DUA ASSOCIATES) THIS OSA FILED U/S 483 OF THE COMPANIES ACT, 1956 R/W SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961, PRAYING TO CALL FOR THE RECORDS PERTAINING TO COMPANY APPLICATION NO.2214/2013 IN CO.P.NO.164/2013 & ETC., THIS OSA COMING ON FOR FINAL HEARING, HAVING RESERVED FOR ORDERS, THIS DAY, PRONOUNCED THE FOLLOWING:
JUDGMENT: (DILIP B. BHOSALE J.) This Original Side Appeal is directed against the order dated 11th December 2013 passed by the learned single Judge whereby Company Application No.2214/13 in CO.P.No.164/2013 has been dismissed. Company Application was filed by the appellant-company under Section 151 of the Code of Civil Procedure, 1908 read with Section 443 of the Companies Act, 1956 (for short "the Act") and Rules 6 and 9 of the Companies (Court) Rules, 1959 seeking direction to the respondents-banks and/or the SBICAP Trustee Company Limited (for short "SBICAP-Trustee") not to prosecute Miscellaneous Application No.342 of 2013 further, filed by them under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (for short "SARFAESI Act"), pending before the Chief Metropolitan Magistrate, Esplanade at Mumbai (for short "CMM"). Further, the appellant also sought direction to the respondents not to take physical possession of the building known as Kingfisher House, situate at Andheri, Mumbai (for short "Kingfisher House").
3. The appellant is a company incorporated under the provisions of the Act and is a constituent of UB Group of Companies. Respondent Nos.1 to 15 are the banks which have formed a consortium and made available various credit facilities from time to time to the appellant-company. The respondents are secured creditors holding a significant majority of the available assets belonging to the appellant-company as security towards the loans advanced including Kingfisher House.
4. SBICAP-Trustee, obviously on behalf of the respondent-Banks, filed Miscellaneous Application No.342/2013 before the CMM, under Section 14 of the SARFAESI Act contending that they are entitled to take physical possession of Kingfisher House and that the appellant-company is likely to resist the respondents from taking possession thereof.
5. SBICAP-Trustee on behalf of the respondent-banks had issued a notice under Section 13(2) of the SARFAESI Act on 3-5-2013 to the appellant-company, UBHL and to Dr.Vijay Mallya. The appellant submitted a representation/objections to the notice under Section 13(3-A) of the SARFAESI Act on 29-6- 2013. SBICAP-Trustee, however, rejected the representation of the appellant vide order dated 14-7-2013. On 10-8-2013 SBICAP-Trustee took symbolic possession and issued notice under Section 13(4) in respect of Kingfisher House. On 14-8- 2013 the office of the Tax Recovery Officer also issued an order of attachment against Kingfisher House. On 19-8-2013, the respondents-banks filed company petition No.164/2013 before this Court seeking winding up of the appellant-company. on 14- 10-2013 SBICAP-Trustee filed an application under Section 14 of the SARFAESI Act, as aforementioned, before the CMM, Mumbai seeking possession of the Kingfisher House. On 23-12-2013, SBICAP-Trustee asked the appellant- company to vacate and handover complete and physical possession of Kingfisher House along with all assets therein on or before 16-1-2014. It is in this backdrop, the appellant-company filed C.A.No.2214/2013 on 14-11-2013 for the relief as aforementioned.
6. The learned single Judge negatived all the contentions urged on behalf of the appellant-company and rejected the application as not maintainable vide order dated 11-12-2013, which is impugned in the present original side appeal.
7. We have heard learned counsel appearing for the parties at considerable length and with their assistance gone through the order dated 11th December 2013 and other materials placed before us for consideration.
8. The principal ground of challenge raised by Mr. K.G.Raghavan, learned Senior Advocate appearing for the appellant-company is that the respondent-banks having invoked the jurisdiction of the Company Judge/ Court, deemed to have relinquished/surrendered all secured assets/security interest held by them over such assets of the appellant-company which had been mortgaged in their favour. It was submitted, that in any case, the respondent-banks being secured creditors, after having filed company petition for winding up, could not have filed application under Section 14 of the SARFAESI Act without leave of the Company Court. He submitted that the leave of the Company Court, in the facts of the present case, would be necessary also in view of the provisions contained in Section 529-A of the Companies Act. He submitted, in any case, the respondent-banks cannot be permitted to "blow hot- blow cold" or "approbate and reprobate". In short, it was submitted that after having filed a petition for winding up the SBICAP-Trustee could not have filed the application under Section 14 of the SARFAESI Act before the CMM, Mumbai. It was submitted that the respondent-banks being secured creditors, either themselves or through the SBICAP-Trustee, are estopped from realizing the secured assets or security interest independent of Company Court in the light of the provisions of Section 446(2), 441(2) and 529(A) of the Companies Act. Lastly, he submitted the SARFAESI Act does not confer independent right on the secured creditor but it only creates additional remedy and once having exhausted the remedy of winding up of a company, the respondent-banks are estopped from taking such remedy of filing an application under Section 14 thereof without leave of the Company Court. In support of these submissions, Mr.Raghavan placed heavy reliance upon the following judgments: M.K.Ranganathan and another Vs. Government of Madras and others, (1955) 2 SCR 374; International Coach Builders Ltd. Vs. Karnataka State Financial Corporation, AIR 2003 SC 2012; Rajasthan State Industrial Development and Investment Corporation and Another Vs. Diamond & Gem Development Corporation Limited and another, (2013) 5 SCC 470, Hegde and Golay Ltd. Vs. State Bank of India, ILR 1987 KAR 2673 and Allahabad Bank Vs. Canara Bank, (2000) 4 SCC 406.
9. On the other hand, Mr.Naganand, learned Senior Advocate appearing for the respondents submitted that the propositions of law urged on behalf of the appellant and the judgments relied upon in support thereof are of no avail to the appellant-company in view of the admitted fact that so far the Company Court has not passed an order of winding up or appointing provisional liquidator till this date. He submitted that, in any case, SARFAESI Act being a special legislation, it is always open to secured creditors, like the respondents in the present case, to follow the due procedure contemplated therein and seek possession of the assets mortgaged with them. He submitted that the respondents-banks, in the company petition, having opted to stand outside winding up, insofar as Kingfisher house, being a secured asset, is concerned, they can avail the remedies available to them under the provisions of SARFAESI Act. We will make reference to the judgments relied upon by Mr. Naganand in support of his submissions, at appropriate stages.
10. The learned single Judge while dealing with the company application in the backdrop of the grounds of challenge and the arguments advanced by the learned counsel for the parties, had formulated the following three questions for consideration:
"a. Whether there is a bar of jurisdiction, in terms of Sections 34 and 35 of the SARFAESI Act, for this Court, as the Company Court, to grant the relief as prayed for.
b. Whether the Petitioner - banks could choose to stand outside the winding up, in seeking to enforce their secured interests, and simultaneously prefer a Company Petition also seeking the winding up of the respondent company, in respect of the balance of the debt not covered by such security.
c. Whether this court, as the Company Court, could exercise jurisdiction over the property, whether before or after a winding up order is passed, in the circumstance that a petitioner before this court is seeking to take possession of the property of the respondent by recourse to the SARFAESI Act in the capacity of a secured creditor."
11. All the three questions formulated by the learned Judge were answered against the appellant-company and in favour of the respondents-banks. Though the company application was dismissed vide order dated 11th December 2013, the learned Judge by a separate order dated 11-12-2013 directed the respondents-banks not to eject the appellant- company summarily without affording a reasonable opportunity to withdraw from the property. While issuing such direction, he rejected the oral application seeking stay of the order to enable the appellant-company to prefer an appeal against the order dated 11th December 2013.
12. At the outset, we would like to consider the questions, as raised by Mr.Raghavan, learned Senior Counsel for the appellant that where a secured creditor such as the respondents-banks or their consortium, having filed company petition for winding up under Section 443 of the Companies Act, is estopped from realizing the secured assets or security interest, independent of Company Court in the light of the provisions contained in Sections 446 (2), 441 (2) and 529-A of the Act., and whether the enunciation of law laid down in Hegde & Golay Ltd., (supra) that a secured creditor has a right to present a winding up petition without electing to stand outside, is only applicable at the stage of proof and ranking of claims and not at the stage presenting a winding up petition, still holds good, in view of law declared by the Supreme Court in Allahabad Bank (supra).
13. Before we consider these and other questions we would also like to consider whether there is a bar of jurisdiction in terms of Sections 34 and 35 of the SARFAESI Act, for the Company Court, to grant the relief as prayed for in the application.
14. Section 34 of the SARFAESI Act bars that the jurisdiction of all civil Courts to entertain any suit or a proceeding in respect of any matter, which a Debt Recovery Tribunal or an Appellate Tribunal is empowered to determine under the said Act. Section 35 declares that the provisions of the SARFAESI Act would prevail over other laws notwithstanding anything inconsistent contained therein. Similarly, Section 446(2) of the Act provides that the Company Court shall have absolute jurisdiction to entertain and dispose of any suit or proceedings against the company in winding up notwithstanding anything contained in any other law.
15. Section 35 of the SARFAESI Act and Section 446 (2) of the Act open with non-obstante clause. The Supreme Court in Allahabad Bank (supra) considered a situation in law where the same statute is treated as special statute vis-à-vis one legislation and again as a general statute vis-à-vis yet another legislation. The SARFAESI Act is undoubtedly a special legislation. If the SARFAESI Act and the Companies Act or certain provisions therein, such as Section 529-A, are treated as special laws, the principle will have to be applied that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving over-riding effect. The SARFAESI, being a latter legislation, shall, therefore, prevail over the Act. The Supreme Court made this principle clear in Allahabad Bank holding that latter legislation, in particular, the relevant provisions giving over- riding effect shall prevail over the former. Applying this principle, and considering the statement of object and reasons of the SARFAESI Act the learned Judge, in our opinion, has rightly held that the provisions contained in the SARFAESI Act shall over-ride the provisions contained in the Act. The statement of object and reasons to the SARFAESI Act make the intention of the legislature clear as has been rightly noticed by the learned single Judge.
15.1. In International Coach Builders Limited (supra), the Supreme Court while dealing with special provisions contained in Sections 29, 30, 31 and 32 of the State Financial Corporation Act (for short "SFC Act") and the amendments made in Section 529 and 529A of the Act, having considered the fact that though the SFC Act was enacted in 1951, the provisions contained in Section 529 and 529A were introduced in 1985 and therefore, placing reliance on its judgment in A.P State Financial Corporation Vs. Official Liquidator, (2000) 7 SCC 291, held that the amendments made in Section 529 and 529A would override and control all the rights under Section 29 of the SFC Act. It was further observed that though the Companies Act may be a general law, the provisions introduced therein in 1985 were intended to confer special rights on the workers and pro tanto must be treated as special law made by Parliament. Thus it was held that since the amendments of the Act were made by the later Act of 1985, they would override the provisions of Section 29 of the SFC Act. As a matter of fact, the Supreme Court agreeing with the view expressed in A.P. State Financial Corporation rejected the contention that the view taken therein needs reconsideration.
15.2. Thus, it is clear that the Company Court would not have jurisdiction to interfere with the proceedings under the provisions of the SARFAESI Act, in particular when order of winding up or appointing provisional liquidator has not been made in the company petition. We may also notice that the appellant-Company did not at any point of time take recourse to the remedies available under Sections 17 and 18 of the SARFAESI Act against the order/action under Section 13(4) of the said Act.
16. At this stage, even before we advert to the contentions urged by learned Senior Counsel for the parties, we would like to consider the judgments of the Supreme Court and High Courts and their effect on the facts of the present case.
16.1. In M.K.Ranganathan (supra), the Supreme Court, amongst other, also considered the question whether the sale effected by respondent No.2 therein without the leave of the winding up Court was void and hence liable to be set-aside. The Supreme Court was considering this question in the light of and after the order of winding up. After considering the relevant provisions of the Indian Companies Act, the Supreme Court reproduced a passage stating the position of a secured creditor, in the winding up of a company, from the judgment authored by Lord Wrenbury in Food Controller v. Cork, 1953 Appeal Cases, 647, which reads thus:
"The phrase 'outside the winding up' is an intelligible phrase if used, as it often is, with reference to a secured creditor, say a mortgagee. The mortgagee of a company in liquidation is in a position to say "the mortgaged property is to the extent of the mortgage my property. It is immaterial to me whether my mortgage is in winding up or not. I remain outside the 'winding up' and shall enforce my rights as mortgagee".
This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor. He may say, 'I will prove in respect of my debt'. If so, he comes into the winding up".
Then, the Supreme court proceeded to observe as follows:
"The secured creditor is thus outside the winding up and can realise his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 231 (corresponding with Section 171 of the Indian Companies Act) to obtain the leave of the winding up Court before he can do so although such leave would almost automatically be granted."
17. In International Coach Builders Ltd. (supra), the Supreme Court considered the question whether the right of the Financial Corporation under Section 29 of the State Finance Corporation Act to sell and realize the security could be exercised without reference to the Company Court without a winding up order is made against the company.
18. From bare perusal of the questions that fell for consideration of the Supreme Court in M.K.Ranganathan (supra) and in International Coach Builders (supra), it is clear that in both the cases the Supreme Court was considering the questions in the light of and after the order of winding up made against the company. The Supreme Court in International Coach Builders considered the rights of the pari passu charge- holders which run equally, temporarily and potentially, with the rights of the secured creditors and held that the secured creditors cannot realize their security without the leave of the winding up Court. However, the observations of the Supreme Court in International Coach Builders made in the concluding paragraph are more relevant. The Supreme Court observed that the right unilaterally exercisable under Section 29 of the State Finance Corporation Act is available against the debtor, if a company, only so long as there is no order of winding up and that, the Corporation cannot unilaterally act to realize the mortgaged properties without the consent of the official liquidator representing the workmen for the pari passu charge in their favour under the proviso to Section 529 of the Act. The question of consent of Official Liquidator would arise only where there is an order of winding up. The Supreme court further observed that if the Official Liquidator does not consent, the Corporation have to move the Company Court for appropriate directions to the Official Liquidator who is the pari passu chargeholder on behalf of the workmen. Insofar as the Official Liquidator is concerned he cannot act without seeking direction from the Company Court and under its supervision. Thus, it is further clear that the secured creditor can exercise its right under the provisions of SARFAESI Act against the company only so long as there is no order of winding up. In other words, until winding up order is passed it is not necessary for the secured creditor to obtain leave of the winding up court before it realises security or mortgaged properties. Merely because winding up petition/s is/are pending that cannot be a ground for obtaining leave of the winding up court. It cannot be assumed that a winding up order will be passed and that the pari passu charge- holders, namely the workmen, will suffer if the secured creditor is allowed to realize their security without the leave of the winding up Court.
19. Sri K.G.Raghavan, learned Senior Counsel irrespective of the findings of learned judge on the first question i.e. a bar of jurisdiction with reference to Sections 34 and 35 of the SARFAESI Act pressed the "doctrine of election" into service. He submitted that once having filed company petition for winding up it is not open to the secured creditor, such as the respondents-banks, to file an application under Section 14 of the SARFAESI Act. In other words, he submitted that the respondent-banks are estopped from filing an application under Section 14 of the SARFAESI Act having been elected a remedy of winding up of the Company. In support of his contention, he placed reliance upon the judgment of the Supreme Court in Rajasthan State Industrial Development and Investment Corporation (supra). In this case, the Supreme court observed that a party cannot be permitted to "blow hot - blow cold", "fast and loose" and "approbate and reprobate". The Supreme Court further observed that the doctrine of election is based on the rule of estoppel-the principle that one cannot approbate and reprobate is inherited in it. The doctrine of estoppel by election is one among the species of estoppel in pais (or equivalent estoppel), which is rule of equity. By this law, a person may be precluded, by way of his actions or conduct, or silence when it is his duty to speak, from asserting a right which he would have otherwise had. Based on this it was vehemently submitted by Mr.K.G.Raghavan, learned Senior Counsel that under any circumstances the proceedings initiated under Section 14 of the SARFAESI Act, not only deserves to be stayed or direction be given to the SBICAP-Trustee not to proceed with the same but also deserves to be quashed.
20. In Allahabad Bank (supra) the dispute before the Supreme Court was between two nationalised banks, Allahabad Bank (appellant) on the one hand which had obtained a simple money decree against the debtor company M/s. M.S.Shoes (East) Co.Ltd. from Debt Recovery Tribunal at Delhi under the Regulatory of Debts Due to Banks and Financial Institutions Act, 1993 (for short "RDB Act") and Canara Bank on the other, whose claim as a secured creditor was still pending before the same Tribunal at Delhi against the same company. Allahabad Bank had appealed before the Supreme Court against the order passed by the Company Judge Under Sections 442 and 537 of the Act in a winding up proceedings by Ranbaxy Ltd. staying the sale proceedings taken out by Allahabad Bank before the Recovery Officer under the RDB Act. Applications for winding up the defendant company were pending in the Delhi High Court. As no winding up order had been passed nor a provisional liquidator was appointed as contemplated by Section 446 (4) of the Act, a point had been raised by the respondent- Canara Bank that the appellant-Allahabad Bank was obliged to seek leave of the Company Court under the Act and the Company Court could stay such proceedings as aforesaid under Sections 442 and 537 for the ultimate purpose of deciding the priorities, in the event of winding up order or other order appointing a provisional liquidator being passed under Section 446 (1) of the Act. After the appellant in that case, had obtained decree from the Debt Recovery Tribunal, some properties of the Company had been sold by the Recovery Officer. The Allahabad Bank, therefore, contended that the Tribunal under the RDB Act can itself deal with the question of appropriation of sale proceeds in respect of sales of the company properties held at its instance and the priorities that the Allahabad Bank alone was entitled to all sums so realized. Admittedly no petition was filed by Allahabad Bank for winding up of the Company and it chose to stand outside winding up. The dispute was also between two Banks over the same security, which has obtained orders from the Debt Recovery Bank. It is against this backdrop, the Supreme Court in paragraphs 62 and 63 observed thus :
"62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding-up.
63. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in Section 529. The insolvency rules are those contained in Sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in Section 592(2). Till today, Canara Bank has not made it clear whether it wants to come under this category."
20.1. The judgment in Allahabad Bank, was prior to the enactment of SARFAESI Act. In that case, the Supreme Court was essentially considering the jurisdiction of the DRT under the Recovery of Debts Due to Banks and Financial Institution Act, 1993 vis-à-vis the Company Court and was not seized of the question whether a secured creditor can file a petition for winding up without relinquishing his security, as in the instant case.
21. In Hegde and Golay Ltd. (supra) this Court was considering the question can a secured creditor maintain a winding up petition without either giving up security or valuing it. The contention in this case was that the bank which is a secured creditor cannot maintain a winding up petition without making an election either to give up security or value it as required by Section 9(2) of the Provisional Insolvency Act 1920. It was further urged that by Section 529 (1) of the Act, the Rules of Insolvency in Section 9(2) are attracted. After having considered the provisions contained in Section 9(2) of the Provisional Insolvency Act, this Court considered the contention that a secured creditor may stand outside insolvency, but, if, he brings-up a creditor's winding up petition, he must, in his petition, state that he is either willing to relinquish the security for the benefit of the body of creditors or give an estimate of the value of security. This Court then considering the judgment of the Supreme Court in M.K.Ranganathan (supra), observed that Section 529(1) of the Act attracts the Rules of Insolvency to winding up in relation to respective rights of secured and unsecured creditors and confine these rules so attracted to matters that arise between these two classes of creditors. Sections 528 and 529 of the Act are in the Chapter "Proof and Ranking of claims" and deal with the question of proof of debts and the rights of the secured and unsecured creditors. Section 529 (2) itself, insofar as, it expressly envisages, and provides for, the contingency that if a secured creditor proceeds to realize his security, he should pay the expenses incurred by the liquidator, by implication, rules out the construction contended on behalf of the Company. This Court further observed that the word winding up of insolvent company in Section 529 (1) of the Act has obvious reference to a post winding-up stage. This Court then proceeded to allow in regard to secured creditor to present petition for adjudication under the insolvency law is different from the right of a secured creditor to present a winding up petition.
22. Secured creditor who seeks to prove whole of his debt in the course of winding up proceedings is necessarily required to relinquish the security. That however, cannot be construed to mean that when he files a petition for winding up, a secured creditor must relinquish his security. Thus, the secured creditor, who seeks to prove whole of his debt in the course of the proceedings of winding up must before he can prove his debt relinquish his security for the benefit of the general body of creditors. If he surrenders his security for the benefit of the general body of creditors, he may prove whole of his debt. But, if the secured creditor realises his security, he may prove for the balance due after deducting the net amount that has been realized. The stage for relinquishing security arise when secured creditor seeks to prove the whole of his debt in the course of winding up. If, he elects to prove in the course of winding up the whole of debt due and owing to him, he has to necessarily surrender his security for the benefit of the general body of creditors. Therefore, it is clear that it would be inappropriate and inapposite to require the secured creditor at the stage when he files company petition for winding up to exercise the option of relinquishing his security since that stage does not arise until the debt is to be proved. (see CANFIN Homes Ltd. Vs. Llyods Steel Industries Ltd. Vol.106 (2001) Company Cases 52, Hegde and Golay Ltd; Kotak Mahindra Bank Ltd. Vs. Eastern Spinning Mill (2013) 177 Comp.Case 15 (Cal.) and ICICI Bank Ltd. Vs. SIDCO Leather Ltd., AIR 2006 SC 2008) .
23. Thus, the law laid down by this Court in Hegde and Golay (supra) in the light of the facts and circumstances that fell for consideration and the law laid down by the Supreme Court in Allahabad Bank (supra) in the light of the facts and circumstances fell for consideration therein, in our opinion, do not conflict and, therefore, the law laid down in Hegde and Golay Ltd. still holds the field, insofar as the point in dispute in our case. The question that falls our consideration is whether respondent-banks can maintain a winding up petition without giving up security and/or can stand outside winding up in respect of secured assets and still maintain the petition for winding up for remaining debts. Our answer, for the reasons recorded in the foregoing paragraph, is in the affirmative.
24. In the present case, the proceedings under the provisions of SARFAESI Act were initiated much before filing of winding up petition. Winding up petition was filed on 19-08- 2013. While after completing other formalities contemplated under Section 13 (1) (3A), notice under Section 13(4) of the SARFAESI Act, was issued on 13-7-2013 and symbolic possession of the Kingfisher House was also taken on 10-8- 2013. When the winding up petition was filed, the respondents- banks being certain that even if all secured assets are sold they would not realize all of their outstanding dues, which admittedly as of today are more than 6000 crores. In this backdrop they were constrained to file company petition. They clarified it in the petition, making their position unequivocably clear at the time of filing of company petition. In paragraph 4 of the memorandum of company petition, the respondents-banks, specifically stated that they are "standing outside winding up" insofar as their secured interest, including Kingfisher House and the same is being filed without relinquishing their rights and interest as secured creditors. They also made it clear in the petition that they were pursuing other remedies available to them for realization of securities created in their favour without seeking assistance of this Court for sale/realization of secured assets. In the petition, they have also made a categoric statement that even if all secured assets are sold and their value realized, they would still not realize substantial/large portion of the outstanding dues. Learned counsel for the parties are ad idem that the worth of Kingfisher House in any case may not be more than Rs.300 Crores as against total outstanding of Rs.6200 Crores. The proceedings under the Act are not recovery proceedings and need to be filed for winding up of the company which is unable to pay its debts. The proceedings initiated by the respondent-banks under SARFAESI are not alternate to the winding up petition.
25. It is thus clear that when the company petition was filed, the respondents-banks did not relinquish the security namely, Kingfisher House. It was not binding on the respondents-banks while filing a petition for winding up to relinquish all the securities.
The requirements of law is that if a secured creditor who seeks to prove "whole of his debt" in the course of proceedings of winding up, must before he could prove the debt relinquish his security for the benefit of the general body of creditors. In other words, if the secured creditor relinquish the entire security for the benefit of general body of creditors, he would have to prove whole of his debt. As against this, if the secured creditor has realised his security, he may prove for the balance due after deducting the net amount that has been realized.
Thus, stage for relinquishing of security arise only when the secured creditor seeks whole of his debt in the course of winding up. In the present case the respondents- banks did not surrender or relinquish their right in the Kingfisher House in respect of which, even before filing of company petition, they had initiated proceedings under the SARFAESI Act.
That apart, the proceedings under Section 14 of the SARFAESI Act, in any case, need not be stayed or directions need not be issued not to proceed with the same, since till this date no order of winding up has been passed against the company at the instance of respondent-banks or at the instance of any other petitioner.
In our opinion, the learned Judge has considered the questions raised in proper perspective in the light of the judgments referred to in the impugned order and we do not find any reason to interfere with the same.
In the result, the appeal fails and dismissed as such. In view of the peculiar facts and circumstances of the case, there shall be no order as to costs.
Sd/-
JUDGE Sd/-
JUDGE Ia
Posts
No comments:
Post a Comment