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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR
VINIT KUMAR MATHUR, J.
The Specified Undertaking Of The Unit Trust of India - Appellant
Versus
M/s Derby Textiles Limited - Respondent
S.B. Company Petition No. 7 of 2000
Decided on : 13-12-2022
COMPANY - WINDING UP - PETITION - ADMISSION - COMPANY PETITION FILED BY SPECIFIED UNDERTAKING OF UNIT TRUST OF INDIA AGAINST M/S DERBY TEXTILES LIMITED - DEFAULT IN PAYMENT OF PRINCIPAL AMOUNT AS WELL AS INTEREST THEREUPON IN RESPECT OF UNSECURED TRANSFERABLE NOTES (UTN) AND SECURED REDEEMABLE NON-CONVERTIBLE DEBENTURES (SRNCD) - RECALL NOTICE ISSUED - NO EFFORTS MADE BY RESPONDENT COMPANY TO SETTLE ACCOUNTS - APPOINTMENT OF PROVISIONAL LIQUIDATOR - APPLICATION FILED BY WORKMAN DINESH GAUR IN COMPANY PETITION NO. 09/2014 - STAY ORDER PASSED BY THIS COURT - APPEAL FILED BY RESPONDENT COMPANY BEFORE HON'BLE SUPREME COURT - DISMISSAL OF APPEAL - IMPLEADMENT OF KOTAK MAHINDRA BANK AS PARTY RESPONDENT - APPLICATION FILED BY KOTAK MAHINDRA BANK FOR VACATION/MODIFICATION OF INTERIM ORDER - REJECTION OF APPLICATION - SPECIAL LEAVE PETITION FILED BEFORE HON'BLE SUPREME COURT - DISPOSAL OF COMPANY PETITIONS - JURISDICTION OF DEBT RECOVERY TRIBUNAL (DRT) - RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (ACT OF 1993) - SECTIONS 17, 18, 19(19), 31 AND 34 - COMPANIES ACT, 1956 (ACT OF 1956) - SECTIONS 433, 434 AND 439 - HELD, DRT HAS EXCLUSIVE JURISDICTION TO DEAL WITH THE RECOVERY OF THE SECURED CREDITORS AND IS HAVING AN OVERRIDING EFFECT OVER ALL OTHER LAWS.
Fact of the Case:
Specified Undertaking of Unit Trust of India (UTI) filed a company petition against M/s Derby Textiles Limited for winding up due to default in payment of principal amount as well as interest thereupon in respect of Unsecured Transferable Notes (UTN) and Secured Redeemable Non-Convertible Debentures (SRNCD). A recall notice was issued to the respondent company, but no efforts were made to settle the accounts. A provisional liquidator was appointed, and an inventory list of the respondent company was filed. During the pendency of the petition, an application was filed by workman Dinesh Gaur in Company Petition No. 09/2014, and a stay order was passed by the court. The respondent company filed an appeal before the Hon'ble Supreme Court, which was dismissed. Kotak Mahindra Bank was impleaded as a party respondent, and its application for vacation/modification of the interim order was rejected. A special leave petition was filed before the Hon'ble Supreme Court, which disposed of the company petitions.
Finding of the Court:
The court held that the Debt Recovery Tribunal (DRT) has exclusive jurisdiction to deal with the recovery of the secured creditors and is having an overriding effect over all other laws. The court relied on various provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act of 1993) and the Companies Act, 1956 (Act of 1956) to arrive at this conclusion.
Issues: 1. Whether the DRT has exclusive jurisdiction to deal with the recovery of the secured creditors? 2. Whether the Act of 1993 has an overriding effect over all other laws?
Ratio Decidendi: The court held that the DRT has exclusive jurisdiction to deal with the recovery of the secured creditors and is having an overriding effect over all other laws. The court relied on the following provisions of the Act of 1993 and the Act of 1956 to arrive at this conclusion: * Section 17 of the Act of 1993: This section confers exclusive jurisdiction on the DRT to entertain and decide applications from banks and financial institutions for recovery of debts due to such banks and financial institutions. * Section 18 of the Act of 1993: This section bars the jurisdiction of any other court or authority to entertain any proceedings in relation to the matters specified in Section 17. * Section 19(19) of the Act of 1993: This section provides that where a certificate of recovery is issued against a company under liquidation, the DRT may direct that the sale proceeds of secured assets of such company be distributed in the same manner as provided in Section 326 of the Act of 1956 or under any other law for the time being in force. * Section 31 of the Act of 1993: This section provides for the transfer of pending cases from other courts to the DRT. * Section 34 of the Act of 1993: This section provides that the provisions of the Act of 1993 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
Final Decision: The company petition filed by the Specified Undertaking of Unit Trust of India against M/s Derby Textiles Limited was allowed, and the company was ordered to be wound up. The Official Liquidator attached to the court was appointed as the Liquidator of the respondent company.
JUDGMENT :
1. Heard learned counsel for the parties and scanned the material available on record.
2. The present company petition as well as the application preferred by the Kotak Mahindra Bank shall stand decided by this common order.
3. Instant company petition has been filed by the Specified Undertaking of the Unit Trust of India (UTI) against M/s Derby Textiles Limited having registered office at Marudhar Industrial Area, Basni, II Phase, Jodhpur.
4. Briefly, the facts noted in the present case are that respondent M/s Derby Textiles Limited through its Managing Director vide letter dated 21.08.1995 requested the petitioner for sanction of credit/loan of Rs.1 Crore against issuance of the Unsecured Transferable Notes (UTN) of Rs.1 Crore. The same was sanctioned by the petitioner vide letter dated 31.01.1996. The UTN for Rs.1 Crore was issued for a period of 12 months carrying interest @ 19.5% p.a. payable at quarterly rate.
5. The respondent-Company through its Managing Director's letter dated 20.12.1995 further requested the petitioner to subscribe to "Secured Redeemable Non-Convertible Debentures" (SRNCD) of the face value of Rs.4 Crores on private placement basis to meet the respondent-Company's long term working capital requirements and other normal expenditures. The same was sanctioned by the petitioner vide letter dated 31.01.1996. In relation to the aforesaid SRNCD of Rs.4 Crores, a subscription agreement dated 14.02.1996 was executed between the parties. The SRNCD was required to be redeemed in one installment at the end of fifth year from the date of allotment, carrying an interest @19% p.a. payable on a quarterly basis.
6. The respondent-Company had also executed a Memorandum of Hypothecation and the Trustee Agreement on 12.09.1996 in favour of Debenture Trustee I.D.B.I. in relation to the SRNCD and had provided copies of both the aforesaid documents to the petitioner. Thereafter, the respondent-Company by Memorandum Entry dated 20.09.1996 created equitable mortgage of its immovable property in favour of Debenture Trustee I.D.B.I. and delivered the title deed of the property to the Trustee.
7. The respondent-Company having defaulted in making payment of principal amount as well as interest thereupon in respect of UTN and SRNCD as per the terms and conditions of the assistance, the petitioner was constrained to issue a recall notice dated 04.01.2000 to the respondent-Company. In these circumstances, the respondent-Company owed a sum of Rs. 8,48,07,764/- as on 31.01.2000 in the following manner:-
| a) Principal Sum | Rs. 1,00,00,000/- |
| b) Penal Interest | Rs. 7,96,527/- |
| c) Simple Interest | Rs. 57,53,836/- |
| d) Overdue Interest | Rs. 24,93,028/- |
| Total | Rs. 1,90,43,391/- |
| a) Principal Sum | Rs. 4,00,00,000/- |
| b) Simple Interest | Rs. 1,88,62,123/- |
| c) Overdue Interest | Rs. 69,02,210/- |
| Total | Rs. 6,57,64,373/- |
8. Since the respondent-Company was unable to pay the debts of the petitioner as mentioned above, the petitioner was constrained to file this winding up petition under Sections 433, 434 and 439 of the Companies Act, 1956 (hereinafter referred to as the "Act of 1956").
9. This Court on 01.03.2000 issued notices to the respondent-Company and thereafter, the company petition was admitted vide order dated 23.03.2001. Thereafter, a Provisional Liquidator was appointed and he was asked to prepare the inventory list of the respondent-Company. A report was filed by the Official Liquidator with regard to inventory of the respondent-Company.
10. During the pendency of the present company petition, this Court on 10.01.2018 passed a detailed order taking note of the events having taken place in the present case. The order dated 10.01.2018 is reproduced as under:-
The main legal point established in the judgment is that the sale proceeds from a non-functional company should be disbursed following the modality prescribed under the Companies Act, 1956, deeming t....
The main legal point established in the judgment is that the claims of the State Government cannot have preference over the claims of workmen and other secured creditors in a winding-up proceeding as....
A secured creditor must involve the Official Liquidator in the auction of assets during liquidation proceedings, as statutory compliance is essential to protect creditor interests and ensure transpar....
Section 529-A of the Companies Act gives overriding preferential treatment to workmen's dues and debts due to secured creditors, and it prevails over the Income Tax Act, 1961.
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