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2006(8) Supreme 940
SUPREME COURT OF INDIA
(From Kerala High Court)
S.B. Sinha & Dalveer Bhandari, JJ.
Kerala State Financial Enterprises Ltd. - Appellant
versus
Official Liquidator, High Court of Kerala - Respondents
Civil Appeal No. 4333 of 2006
(Arising out of SLP (Civil) No. 11517 of 2004)
Decided on 29-9-2006
Counsel for the Parties :
For the Appellant : C.N. Sree Kumar, Advocate.
For the Respondents : Romy Chacko, Advocate.
Held : Ordinarily a charge should be registered in terms of Section 125 of the Act. If the charges are not registered, the same would be void against the liquidator or creditors. The question which arises for consideration is as to whether if the properties are attached by a Revenue Recovery Court, Section 125 of the Act would be applicable? An attachment itself does not create any charge in the property. By reason of attachment, no decree is passed.(Para 9)
Save the except certain special statutes in relation to recovery of debts from the properties of a company which has been directed to be wound up, the provisions of the Companies Act shall apply. An order of attachment made prior to passing of an order winding up may not be void, but then the execution proceedings must be allowed to continue with the leave of the court in terms of Section 446 of the Companies Act.(Para 13)
Section 125 of the Companies Act contains a special provision. It may have any application in a case where a decree has already been passed, as was the case of Indian Bank vs. Official Liquidator, Chemmeens Exports (P) Ltd. and Others [(1998) 5 SCC 401], on the ground that in terms of sub-section (2) of Section 446, the Company Court is not empowered to declare a decree passed by a competent court to be void. In that case it was held that the provisions of a special statute would apply subject to the provisions of the Companies Act. Therein a decree was already operative and observations were made only in that context.(Para 16)
For the reasons aforementioned, we do not think that the High Court has committed any error in refusing to exercise its discretionary jurisdiction under Section 446 of the Companies Act. The appeal is dismissed.(Para 24)
The legal document indicates that the rights of a financial corporation, even when statutory, are not absolute and are subject to the overarching principles of equity and due process of law. Specifically, the document emphasizes that the provisions of the Companies Act, which include protections for the rights of creditors and procedures for recovery and liquidation, must be adhered to, unless explicitly overridden by a special statute. It clarifies that attachment of properties by a Revenue Recovery Court does not automatically create a charge that can supersede the rights of the company's liquidator or other creditors, and that such attachments are subject to the rules of the court and the due process of law (!) (!) .
Furthermore, the document underscores the importance of respecting orders of competent courts and the necessity of following proper legal procedures, including registering charges and obtaining leave from the court for certain actions. It states that statutory rights, such as those of financial corporations, are subordinate to the due process of law and the orders of courts with proper jurisdiction. The rights of a financial corporation are therefore not insulated from the principles of fairness, legal procedure, and judicial authority, and must operate within the framework of the law and court orders (!) (!) .
In summary, the document supports the view that the rights of a statutory financial corporation are subject to the principles of equity and due process, which include respecting the orders of competent courts and following the prescribed legal procedures.
JUDGMENT
S.B. Sinha, J. - Leave granted.
2. Appellant herein is a Government company. It is engaged in conduct of chitties. M/s. Concert Capital Limited together with its sister concern M/s Concert Securities Limited took loan from it. They failed to repay the said loan. A recovery proceeding was initiated against the defaulting company under the Kerala Revenue Recovery Act, 1968. A notification was issued in that behalf in terms of Section 71 thereof.
3. The properties belonging to the defaulting company were attached. In the meanwhile, the Company went for voluntary liquidiation. A provisional liquidator was appointed. Appellant was informed thereabout.
4. In the pending company proceeding being C.A. No. 165 of 2001, Appellant filed an application seeking leave to proceed with the sale of the properties, which was object to, inter alia, on the premise that the charge in respect of the alleged debt was not registered with the Registrar of Companies and, thus, it was an unsecured creditor. A Counter Affidavit thereto was filed by Respondent. A prayer was also made by the Official liquidator for a direction upon Appellant to surrender the original documents. The application for leave to proceed with the revenue recovery proceeding was rejected by a learned Single Judge of the High Court by its order dated 28.11.2003.
5. An appeal thereagainst being Company Appeal No. 14 of 2004 preferred by Appellant was dismissed by a Division Bench of the High Court. Appellant is, thus, before us.
6. The contentions raised in support of the appeal are:
(i)In view of the fact that an order of attachment was passed by the Revenue Recovery Officer, the provisions of Section 125 of the Companies Act, 1956 were not attracted;
(ii)The provisions of the Kerala Revenue Recovery Act being a special statute, the same shall prevail over the Companies Act;
(iii)The order of attachment passed in favour of Appellant was saved under sub-section (1) of Section 537 of the Companies Act;
(iv)In any event, the dues of Appellant shall get precedence in terms of sub-section (2) of Section 537 of the Companies Act.
7. The Official Liquidator, on the other hand, contended that no charge is created by reason of an order of attachment and as upon liquidation all the properties vest in the Official Liquidator being an unsecured creditor, the provisions of the Companies Act shall prevail.
8. Appellant is a Government company. Its dues are not Government dues. The provisions of the Kerala Revenue Recovery Act might have been made applicable, but only by reason thereof, dues of a Government company would not become the dues of the Government within the meaning of sub-section (2) of Section 537 of the Companies Act.
9. Ordinarily a charge should be registered in terms of Section 125 of the Act. If the charges are not registered, the same would be void against the liquidator or creditors. The question which arises for consideration is as to whether if the properties are attached by Revenue Recovery Court, Section 125 of the Act would be applicable? An attachment itself does not create any charge in the property. By reason of attachment, no decree is passed.
10. The expression ‘attachment’ has no definite connotation. An order of attachment is passed for achieving a limited purpose. It is subject to further orders as also provisions of other statute.
11. The word ‘attachment’ would only mean ‘taking into the custody of the law of the person or property of one already before the court, or of one whom it is sought to bring before it. It is used for two purposes : (i) to compel the appearance of a defendant; and (ii) to seize and hold his property for the payment of the debt. It may also mean prohibition of transfer, conversion, disposition or movement of property by an order issued by the court.
12. In Sardar Govindrao Mahadik and Another vs. Devi Sahai and Others [AIR 1982 SC 989 : (1982) 1 SCC 237], this Court held:
“What is the effect of attachment before judgment? Attachment before judgme
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