Important Points
‘Creditors’ means whole body of creditors, secured or unsecured.
The rights of secured creditors would not affect the rights of the third parties or even the statutory power of the financial corporation.

Headnote:(a)State Financial Corporations Act, 1951 – Section 29 – The 1951 Act is a special statute – If a financial corporation intends to exercise a statutory power under Section 29, the same will prevail over the general powers of the Company Judge under the Companies Act – Thus the proceedings under Section 29 would prevail over a winding up proceeding before a Company Judge (Paras 39 and 40)
       (2003)10 SCC 482: 2003(2) Supreme 460; (2005)8 SCC 190; 2006 (5) SCALE 27 – Relied upon.
       (b)State Financial Corporations Act, 1951 – Section 29 – SICOM has a statutory power but it could waive the same – It preferred the conduct of the auction at the hands of the Company Judge in stead and place of carrying on the same by itself – It submitted itself to the jurisdiction of the Company Judge, and not only it took part in the proceedings without any demur whatsoever, it actively participated therein – For all intent and purport it waived its right – It is, therefore, not a case where the learned Company Judge had no jurisdiction to exercise supervision of sale of the assets of the appellant on behalf of SICOM. (Para 40)
       (c)Companies Act, 1956 – Section 529A – The jurisdiction of a Company Court extends only to those matters which are specified in the Companies Act and apart therefrom it had no jurisdiction – It also has a duty to see that the claims of all creditors be dealt with, including those of the workers whose claims are pari passu to the secured creditors of the Company. (Paras 42, 43, 52 and 54)
       (2000) 4 SCC 406: 2000(3) Supreme 205; (2005) 5 SCC 75 – Relied upon.
       1888 (39) Chancery Division 88 – Distinguished.
       (d)Companies Act, 1956 – Section 529A – The contention that SICOM was exercising its statutory power to cause sale of the assets of the mortgagor and at the same time that then sale was affected by the court through SICOM is impermissible in law. (Para 46)
       (2005) 8 SCC 219: 2005(7) Supreme 409; (2000)7 SCC 291: 2000(5) Supreme 495 – Relied upon.
       (e)Companies Act, 1956 – Section 446(4) – The Execution Petition having been filed in the High Court itself, Executive Court being a co-ordinate court transferred the same to the Company Judge having regard to the fact that a provisional liquidator was appointed – Section 446(4), therefore, had no application. (Para 50)
       (f)Companies Act, 1956 – Section 456 – Liquidator or the provisional liquidator, as the case may be, shall take into his control of the property, assets and actionable claims to which the company is or appears to be entitled – Absence of the court’s permission to the liquidator to take over the assets by itself does not mean that the provisional liquidator was denied from performing its other functions. (Para 52)
       (g)Companies Act, 1956 – Section 529A – The rights of secured creditors would not affect the rights of the third parties or even the statutory power of the financial corporation. (Para 57)
       (h)Companies Act, 1956 – Section 529A – Court, while resorting to sale of assets of the company under liquidation cannot ignore involvement of the provisional liquidator – However, the discretion of the court for selecting the mode and manner of the sale has nothing to do with the process required to be gone into. (Para 58)
       1975 (45) Company cases 60; 1964 (1) Chancery Division 19; [2003] UKHL 49 – Distinguished impliedly.
       (i)Companies Act, 1956 – Section 529A – ‘Creditors’ means whole body of creditors, secured or unsecured. (Para 62)
       Facts of the case :
       1.SICOM Ltd. advanced a loan of Rs.17 crores to the appellant (M/s. Bakemans Industries Pvt. Ltd.). It became a defaulter. SICOM issued a notice under Section 29 of the State Financial Corporations Act (1951 Act in short) on 22nd January, 2003. Another notice was issued for taking over possession of the properties of the sister concern of the appellant, viz. Captain Hygiene Products Ltd. Appellant and its sister concern filed two writ petitions in the Punjab and Haryana High Court at Chandigarh. They were dismissed as withdrawn on 10th February, 2003.
       2.1st respondent and fourteen others filed fifteen applications before the Delhi High Court for winding up of the appellant-company. Notices were issued thereupon. SICOM issued a second notice under Section 29 of the 1951 Act on 6th June, 2003.
       3.Indisputably the factory of the appellant at Patiala was an ongoing concern which was taken over by SICOM on 18th July, 2003. It had finished bakery products which were perishable in nature. Allegedly the operations were shut down and the factory was locked.
       4.A purported agreement was entered into by and between the appellant and one NRI Lead Bank. The purported disputes between them were referred to Arbitral Justice Tribunal of ADR Arbitration. The arbitration proceeding was closed on 23rd August, 2003.
       5.A new set of Arbitrators was constituted by the Tribunal who rendered an award on 16th August, 2003 upon holding a day’s sitting only opining that (i) taking over of the unit was illegal and (ii) a direction was issued to handover possession to Bakemans.
       6.A purported execution petition was filed by NRI Lead Bank before the Delhi High Court not only against the appellant and its sister concern, Captain Hygiene Products Pvt. Ltd. but also against SICOM seeking execution of a purported written agreement/settlement dated 16th August, 2003 passed by the Board of Conciliation in the said proceedings. Industrial Development Bank of India, Industrial Finance Corporation of India, HUDF Bank, State Bank of Patiala, and Punjab State Industrial Development Corporation Ltd. were also impleaded as parties therein.
       7.However, in the meantime, another proceeding by way of an application under Section 9 of the Arbitration and Conciliation Act, 1996 was filed before the Tis Hazari Courts, Delhi wherein a prayer was made to appoint a receiver. However, it appears that another Bank initiated a proceeding before the Debt Recovery Tribunal for recovery of its dues. A Receiver was appointed by the said Tribunal in respect of the perishable goods on 1st September, 2003.
       8.Possession of the said perishable goods lying in the factory was taken from SICOM. A spot report was prepared.
       9.Appellant in the meantime relying on or on the basis of the said purported Award of the Board of Conciliation took forcible possession of the factory premises on 14th September, 2003.
       10.SICOM filed an application in the said purported execution proceeding.
       11.The Company Applications were admitted by an order dated 6th April, 2004. A Provisional Liquidator was appointed. It was directed to take charge of the properties and books of accounts of the company. On an application made by SICOM, however, the learned Company Judge by order dated 16th April, 2004 directed that its possession may not be disturbed.
       12.By reason of the impugned judgment dated 2nd July, 2007 the Letters Patent Appeal preferred by the appellant was dismissed and by an order dated 6th July, 2007 the sale certificate was directed to be issued to M/s. Ceylon Biscuits.
       Findings of the Court :
       The Company Judge erred in not considering the claims of the unsecured creditors.
       Result : Appeal allowed.

Judgment

S.B. Sinha, J. —

1.Leave granted in both the matters.

2.Whether power of a Company Court to sell the property of a company vis-à-vis the power of the Financial Corporation can be merged is the question involved in these appeals which arise out of the Judgments and Orders dated 2nd July, 2007 and 6th July, 2007 passed in Company Appeal No. 27 of 2004 and Company Appeal No.2 of 2007 respectively passed by the Division Benches of the Delhi High Court.

3.Certain basic facts are not in dispute which are as under :

SICOM Ltd. (SICOM in short) advanced a loan of Rs.17 crores to the appellant (M/s. Bakemans Industries Pvt. Ltd.). It became a defaulter. SICOM issued a notice under Section 29 of the State Financial Corporations Act (1951 Act in short) on 22nd January, 2003. Another notice was issued for taking over possession of the properties of the sister concern of the appellant, viz. Captain Hygiene Products Ltd. Appellant and its sister concern filed two writ petitions in the Punjab and Haryana High Court at Chandigarh. They were dismissed as withdrawn on 10th February, 2003.

4.1st respondent and fourteen others filed fifteen applications before the Delhi High Court for winding up of the appellant-company. Notices were issued thereupon. SICOM issued a second notice under Section 29 of the 1951 Act on 6th June, 2003.

5.Indisputably the factory of the appellant was an ongoing concern. SICOM took over the possession of the appellant’s factory at Patiala on 18th July, 2003. It was at that time in operation. It had finished bakery products which were perishable in nature. Allegedly the operations were shut down and the factory was locked.

6.We may notice here that different proceedings were initiated either at the instance of the appellant or at the instance of some of the respondents.

7.Appellant evidently took recourse to a proceeding which was unknown to law. A purported agreement was entered into by and between the appellant and one NRI Lead Bank. We are not aware as to what were the disputes about between them. The said purported disputes were referred to Arbitral Justice Tribunal of ADR Arbitration, a body said to have been recognized by the Government of India in terms of Section 21 of the Arbitration and Conciliation Act, 1996. A purported reference of disputes in terms of a purported arbitration agreement contained in a composite instrument dated 14th August, 2003 was referred on 16th August, 2003. It was accepted by the Tribunal on 18th August, 2003 and notices were issued. The majority of the Tribunal opined that there was no genuine arbitration agreement. The arbitration proceeding was closed on 23rd August, 2003.

8.A new set of Arbitrators was constituted by the Tribunal who rendered an award on 16th August, 2003 upon holding a day’s sitting only opining that (i) taking over of the unit was illegal and (ii) a direction was issued to handover possession to Bakemans.

9.A purported execution petition was filed by NRI Lead Bank before the Delhi High Court seeking execution of a purported written agreement/settlement dated 16th August, 2003 passed by the Board of Conciliation in the said proceedings.

10.The execution petition was filed not only against the appellant and its sister concern, Captain Hygiene Products Pvt. Ltd. but also against SICOM. Industrial Development Bank of India, Industrial Finance Corporation of India, HUDF Bank, State Bank of Patiala, and Punjab State Industrial Development Corporation Ltd. were also impleaded as parties therein.

11.We shall deal with the factual matrix thereabout a little later.

12.However, in the meantime, another proceeding by way of an application under Section 9 of the Arbitration and Conciliation Act, 1996 was filed before the Tis Hazari Courts, Delhi. It was registered as Misc. Suit No. 139 of 2003. Inter alia, a prayer was made therein to appoint a receiver. However, it appears that another Bank initiated a proceeding before the Debt Recovery Tribunal for recovery of its dues. A Recei

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2008 Supreme(SC) 919

Important Points‘Creditors’ means whole body of creditors, secured or unsecured.The rights of secured creditors would not affect the rights of the third parties or even the statutory power of the financial corporation.

Cases Referred (6)

Important Points
‘Creditors’ means whole body of creditors, secured or unsecured.
The rights of secured creditors would not affect the rights of the third parties or even the statutory power of the financial corporation.