The MPID Act does not apply to companies in liquidation and cannot supplant the Companies Act in the matter of winding up and liquidation of the company.

JUDGMENT :

(G.S. Patel J.) -

1. The two Appeals, both disposed of by this common order and judgment, are by the State of Maharashtra. The appeals are on a matter of principle. Very shortly stated, the concern of the State Government, as voiced by the learned Advocate-General, Mr Kumbhakoni, is that as a result of the impugned orders dated 9th June 2017, the beneficial provisions of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act 1999 (“the MPID Act”) are entirely denuded and reduced to meaninglessness when the financial establishment in question is a corporate entity in liquidation. In that situation, Mr Kumbhakoni argues, the assets of the company are vested in the Official Liquidator (“OL”). It is the OL who then invites claims and makes a distribution of the sale proceeds of the company’s assets in order of priority prescribed by statute, that is to say by the Companies Act. Only whatever is left, and Mr Kumbhakoni says there is almost always nothing left, is then made available to the MPID Court for distribution amongst the hapless depositors. They are all treated as unsecured creditors of the company in liquidation and enjoy no priority at all. This is not the purpose or the objective of the MPID Act, Mr Kumbhakoni says.

2. We have understood his submission to mean that while there may not be a repugnancy between the Companies Act and the MPID Act, that is to say that the two statutes are not in conflict, each operating in its own sphere, there are nonetheless ‘competing interests’. On the one hand. there are the interests of creditors of the company under the Companies Act and those who enjoy a statutorily-defined priority in distribution. On the other are the interest of these small depositors for whose benefit the State enacted the MPID Act.

3. The learned Single Judge, RD Dhanuka J, considered precisely this question. In summary, he concluded that where a company is ordered to be wound up, there is an automatic vesting of the assets of the company in the company court, represented for all practical purposes by the OL. An order by the State Government under the MPID Act notifying the company cannot have the effect of divesting the company court of the assets of the company or of transferring that asset-vesting to the MPID Court. The Companies Act 1956 (and now its successor statute, the Companies Act 2013) provide that unsecured creditors are entitled to receive their dues pro-rata only after “preferential payments” are made to secured creditors and those ranked pari passu with secured creditors. The competent authority or the MPID Court is not jurisdictionally competent to adjudicate on these preferential payments or, for that matter, on the claims of any other unsecured creditors, workmen or persons referred to in Section 530 of the Companies Act 1956. The protective net of the MPID Act covers only a single class of creditors. While it belongs to a broader genus of ‘creditors’, it actually addresses the concerns of only a small species of that genus viz., those who have placed deposits with the company. Other unsecured creditors are not covered by the MPID Act. The State’s MPID Act is emphatically not for the benefit or protection of other investors or creditors of the financial establishment.

4. Dhanuka J returned this finding and said that the experience of one or two companies in liquidation could not be universalized or broadened in defeasance of the provisions of the Companies Act. He held in paragraph 111 of the impugned order that the powers of the competent authority and the MPID court under the MPID Act could not prevail over the powers of the company court or of the OL. As he sharply pointed out, the MPID Court is entirely silent on any aspect of winding up of a company. It cannot take away powers conferred under the Companies Act. It cannot undermine duties, obligations and responsibilities demanded by the Companies Act. Dhanuka J said, and in our view correctly, that