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2004 Supreme(Kar) 516
Karnataka High Court
Judges : D.V SHYLENDRA KUMAR
KARNATAKA STATE FINANCIAL CORPORATION - Appellant
Versus
M/S.SPAN PROJECTS PVT.LTD - Respondent
Company Petition 159 Of 2001
Decided On : 08/19/2004
The main legal point established in the judgment is the priority of the Official Liquidator in taking possession of company assets upon liquidation, and the rights of secured creditors in the disposal of such assets.
Headnote:
Attachment - Company Application - Indian Companies Act, 1956, Section 446(1), Section 537(1) - The court discussed the provisions of the Indian Companies Act, 1956, specifically Section 446(1) and Section 537(1), in relation to an application filed by M/s Karnataka State Financial Corporation (KSFC) to take over the assets of a company under liquidation and to repossess goods from a second respondent. The court also considered the implications of attachment before judgment and the rights of secured creditors in the disposal of assets.
Fact of the Case:
M/s Karnataka State Financial Corporation (KSFC) filed an application to take over the assets of a company under liquidation and to repossess goods from a second respondent. The second respondent had obtained an order of attachment before judgment in a separate suit against the company.
Finding of the Court:
The court found that the second respondent had seized assets of the company through court orders and discussed the implications of the orders issued by the trial court and the subsequent decisions of the court. The court also addressed the rights and duties of the Official Liquidator in charge of the company under liquidation.
Issues: The issues included the validity of the attachment before judgment, the rights of the secured creditor (KSFC), and the obligations of the second respondent and the Official Liquidator in relation to the company's assets.
Ratio Decidendi: The court held that the second respondent did not have the right to retain the goods seized through attachment before judgment once the company was ordered to be wound up. It also emphasized the duty of parties holding company assets to deliver them to the Official Liquidator.
Final Decision: The court disposed of the application, permitting the second respondent to hand over the assets taken from the company to the Official Liquidator within three weeks.
( 2 ) THE aforesaid application is filed under the provisions of section 446 (1) read with section 537 (1) of the Indian companies Act, 1956 (in short the Act) praying for permission to take over the assets of the company under liquidation by the applicant KSFC in exercise of their statutory powers under Section 29 of the State Finance Corporations Act (in short the SFC Act) as also to take into their fold some of the assets of the company which are with M/s Elegant Rocks (P) Ltd. , 2ndrespondent to this application who it appears, had instituted a suit against the company under liquidation for recovery of certain amount in O. S. No. 15579/2000 before the City Civil Court at Bangalore and had also obtained an order of attachment before judgment in respect of some of the assets of the company such as computers and oil filing machines.
( 3 ) SUBMISSION of Sri. Joshi, learned counsel for KSFC, is that the 2ndrespondent had seized some of the assets of the company by taking delivery of those assets through court by filing application under Order 38 Rule 1 and 5 CPC in O. S. No. 15579/2000. He submits that though there cannot be any surprise if plaintiff can obtain an order of attachment before judgment, in the instant case, the plaintiff had also been permitted to take possession of the goods so attached and that is not permitted in law.
( 4 ) THE applicant/ksfc had in fact tried to intervene in the proceedings in O. S. No. 15579/2000 and it appears that the trial court had passed an order dt. 15. 7. 2000 on an application moved by the defendant company in the suit inter alia praying for lifting of attachment and redelivery of goods etc.
( 5 ) IT transpires that the trial court had passed an order on 15. 7. 2000 directing the plaintiff to restore the possession of the attached goods to the defendant company. But it is not clear whether attachment had been lifted or not it has been continued.
( 6 ) AS against this order, the plaintiff had carried the matter to this court by filing civil revision petitions in CRPs. 2555, 2555 and 2557/2000. These petitions were disposed of as per order dt. 25. 8. 2000 wherein this court justified the order of the trial court in the sense that the direction for redelivery of goods to the defendant company was confirmed. Further, an option was also given to the defendant company to execute security bond to the extent of Rs. 5 lakhs in which event the attached goods shall be redelivered to the company.
( 7 ) IT is in the background of such developments, the present application has come up for orders today before this Court. I have heard Sri D. S. Joshi, learned counsel for the KSFC, Sri Deepak, learned counsel for the Official Liquidator, and Sri. Paras Jain, learned counsel for the 2ndrespondent.
( 8 ) FURTHER development to the order dt. 25. 8. 2000 of this court in C. R. P. Nos. 2555, 2556 and 2557/2000 is that petition for winding up had been presented before this court and that this court in fact passed an order of winding up in terms for the order dt. 3. 10. 2002, that the Official Liquidator has been put in charge of the affairs of the company and the Official Liquidator has also taken possession of the available assets of the company and further winding up proceedings are pending before this court. At this stage, the present application has been filed. The aim of the application obviously appears to be not only to repossess the goods of the company which had been taken over by the 2ndrespondent M/s Elegant Rocks (P) Ltd but also to take over the entire assets of the company in exercise of its statutory powers under Section 29 of the SFC Act and to take steps for sale of assets by as
