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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
ANANT S. DAVE, R.P. DHOLARIA, JJ.
Authorized Officer - Appellant
Vs.
OL of Jhagadia Copper & Ors. - Opponents
O.J Appeal No. 9 of 2016 In Misc. Civil Application (OJ) No. 204 of 2015 In Official Liqudator Report No. 5 of 2015 In Company Petition No. 42 of 2010 With Civil Application (OJ) No. 169 of 2016 In O.J Appeal No. 9 of 2016
Decided On : 02-09-2016
COMPANY - WINDING UP - SALE OF ASSETS - SECURED CREDITOR - SARFAESI ACT - COMPANIES ACT - JURISDICTION - POWERS OF COMPANY COURT - COMPANY JUDGE - OFFICIAL LIQUIDATOR - SALE COMMITTEE - CLAIMS OF SECURED CREDITORS AND WORKERS - DISTRIBUTION OF SALE PROCEEDS - PARI PASSU CHARGE - WORKMEN'S DUES - OVERRIDING PREFERENTIAL PAYMENT - JURISDICTION OF COMPANY COURT TO INVITE CLAIMS - ASSOCIATION OF OFFICIAL LIQUIDATOR - UNDERTAKING BY SECURED CREDITOR - DISTRIBUTION OF SALE PROCEEDS - APPLICATION OF INSOLVENCY RULES - RIGHTS OF SECURED CREDITORS - ENFORCEMENT OF SECURITY INTEREST - INTERVENTION OF COURT OR TRIBUNAL - JURISDICTION OF DEBTS RECOVERY TRIBUNAL - OVERRIDING EFFECT OF SARFAESI ACT - HARMONIZATION OF SARFAESI ACT WITH COMPANIES ACT - PROTECTION OF WORKMEN'S DUES - SECTION 529, 529A AND 530 OF THE COMPANIES ACT, 1956 - SECTION 13(9) OF THE SECURIATIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002.
Fact of the Case:
The appellant, Asset Reconstruction Company India Limited (ARCIL), filed an appeal against the orders passed by the Company Judge, whereby the Official Liquidator (OL) was permitted to constitute a Sale Committee comprising of the OL, secured creditors, union of workmen and also permitted the OL to invite claims from the workers and secured creditors under Sections 529, 529A and 530 of the Companies Act, 1956. ARCIL contended that as a secured creditor, it is open for it to remain outside winding up proceedings and to get its dues realized by exclusive proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and that it is not under any legal obligation to stake its claim before the OL under the provisions of the Companies Act, 1956. The respondent, on the other hand, argued that the appeal is premature since no cause of action has arisen in favor of the appellant and no adverse order is passed infringing the right of the appellant, a secured creditor under SARFAESI Act.
Finding of the Court:
The Court held that the Company Judge has only invited claims under Sections 529, 529A and 530 of the Companies Act, 1956 and no decision is taken to disburse the amount from sale proceeds, hence, the appeal is premature since no cause of action has arisen in favor of the appellant and no adverse order is passed infringing the right of the appellant, a secured creditor under SARFAESI Act. The Court further held that ARCIL, a secured creditor who has opted to realize its dues/security by remaining outside the winding up proceedings, is in no manner affected. No order of disbursement is made to any of the secured creditor and the claim amount is to be scrutinized by OL subject to objections that may be raised by ARCIL and permissible in accordance with law.
Issues: 1. Whether a secured creditor can remain outside winding up proceedings and get its dues realized by exclusive proceedings under SARFAESI Act? 2. Whether a secured creditor is under any legal obligation to stake its claim before the Official Liquidator under the provisions of the Companies Act, 1956? 3. Whether the Company Court has jurisdiction to invite claims from secured creditors and workmen? 4. Whether the Official Liquidator can be associated with the sale process under SARFAESI Act?
Ratio Decidendi: 1. A secured creditor can remain outside winding up proceedings and get its dues realized by exclusive proceedings under SARFAESI Act, provided that it complies with the post-sale conditions specified in the SARFAESI Act. 2. A secured creditor is not under any legal obligation to stake its claim before the Official Liquidator under the provisions of the Companies Act, 1956, if it opts to realize its dues under SARFAESI Act. 3. The Company Court has jurisdiction to invite claims from secured creditors and workmen, even if the company is being wound up under SARFAESI Act, in order to determine the pari passu charge in favor of the workmen and to ensure that their dues are paid in priority to all other debts. 4. The Official Liquidator can be associated with the sale process under SARFAESI Act, but only for the purpose of protecting the interests of the workmen and to ensure that their dues are paid in priority to all other debts.
Final Decision: The appeal was dismissed.
Anant S. Dave, J.
The appellant - Asset Reconstruction Company India Limited [for short, ‘ARCIL’] has filed this appeal under Section 483 of the Companies Act, 1956 against order dated 26.02.2016 passed in OJMCA No. 204 of 2015 and order dated 14.10.2015 passed in Official Liquidator Report No. 5 of 2015 in Company Petition No. 42 of 2010.
1.1 The appellant has also filed OJCA No. 169 of 2016 in OJ Appeal No. 9 of 2016 for stay of implementation of order dated 26.02.2016 passed in OJMCA No. 204 of 2015 and order dated 14.10.2015 passed in Official Liquidator Report No. 5 of 2015 in Company Petition No. 42 of 2010.
2. The learned Company Judge vide impugned orders dated 26.02.2016passed in OJMCA No. 204 of 2015 and order dated 14.10.2015 passed in Official Liquidator Report No. 5 of 2015 permitted the Official Liquidator to constitute the Sale Committee comprising of the Official Liquidator and secured creditors, union of workmen and also permitted the Official Liquidator to invite claims from the workers and secured creditors under Sections 529, 529A and 530 of the Companies Act, 1956 by publishing advertisement in the newspaper.
3. The appellant filed OJMCA No. 204 of 2015 to recall and/or to modify the order dated 14.10.2015, which came to be rejected. Hence, this appeal.
4. The appellant herein is holding 76% of debts of the company in liquidation and of the secured assets are in custody of ARCIL, and the appellant conducted auction under the provisions of The Secularization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [for short, ‘SARFAESI Act, 2002’].
5. Mr. Mihir Thakor, learned Senior Advocate appearing for the appellant and Mr. K.S Nanavati, learned Senior Advocate appearing for the respondent have relied on orders passed in the earlier proceedings of company petition to which we have to make reference as they also cover the circumstances under which Company Petition No. 42 of 2010 was filed by GIIC for winding up respondent - Jhagadia Copper Limited under Sections 433 and 434 of the Companies Act, 1956. Along with above company petition, Company Petition Nos. 174 of 2010 and 42 of 2010 also were filed which came to be admitted. For the sake of convenience order dated 11.06.2014 passed by the learned Company Judge [Coram: Hon'ble Mr. Justice S.R. Brahmbhatt], while admitting the above petition, is reproduced herewith:
“1. The counsels have indicated that there is no objection from any quarter for passing winding-up orders in these winding-up petitions. Formal order of admission was not made in Company Petition No. 174 of 2010 and Company Petition No. 42 of 2010, hence it is ADMITTED.
2. Heard learned advocate for the parties. All the petitions are seeking up appropriate relief in terms of winding-up of the respondent company and in one of the matter i.e Company Petition No. 295 of 2008 this Court while admitting the matter has elaborately observed the requirement and justification for admission of the matter. The same is reproduced as under:-
1. Present Company Petition has been preferred by the petitioner-Creditor, Gujarat Industrial Investment Corporation Ltd. (GIIC) for winding up of the respondent Jhagadia Copper Limited under Section 433 and 434 of Companies Act, 1956.
2. It is the case on behalf of the petitioner that an amount of Rs. 2290.69 lacs is due and payable by the respondent-Company to the petitioner by way of total amount outstanding as on 15.8.2007 towards the term loan amount, out of which Rs. 1685.60 lacs is the principal and amount of Rs. 605.08 lacs is towards interest upto 15.8.2007 It is the case on behalf of the petitioner that thus, huge outstanding amount remained unpaid by the respondent-Company. It is also the case on behalf of the petitioner that as the respondent-Company has defaulted in payment of installment of principal amount which has acc
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