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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR
Sameer Jain, J.
Khurana Textile Mills Pvt. Ltd. - Petitioner
Versus
Rathi Syntex Ltd. - Respondent
S.B. Company Petition No. 16 of 2014, S.B. Company Petition No. 2 of 2015, S.B. Company Application No. 3, 7 of 2020
Decided On : 14-02-2024
Expenses - Companies Act - Section 529, Rule 292 - The court held that the expenses incurred by the Official Liquidator (OL) in discharge of statutory obligations had a preferential charge over all other debts of the company. The secured creditor was directed to release the payment of Rs. 3,92,200/- along with 6% simple interest from the date of the report to the date of payment.
Fact of the Case:
The Official Liquidator sought reimbursement of expenses from the secured creditor, Bank of Baroda (BoB), for expenses incurred in the liquidation process of Rathi Syntex Limited. The BoB contested the claim, stating that the OL had failed to substantiate the expenses and that the OL had no statutory right to claim the expenses.
Finding of the Court:
The court found the OL's claim for expenses to be tenable and directed the secured creditor to release the payment of Rs. 3,92,200/- along with 6% simple interest. However, the future expenses claimed were held to be untenable.
Issues: The main issue was whether the secured creditor was liable to pay the expenses incurred by the OL in the liquidation process, and whether the expenses had a statutory backing.
Ratio Decidendi: The court held that the expenses incurred by the OL in discharge of statutory obligations had a preferential charge over all other debts of the company. The secured creditor was directed to release the payment of Rs. 3,92,200/- along with 6% simple interest from the date of the report to the date of payment.
Final Decision: The court directed the secured creditor to release the payment of Rs. 3,92,200/- along with 6% simple interest from the date of the report to the date of payment. The future expenses claimed by the OL were held to be untenable.
ORDER :
1. Matter comes up on Report No. 12988/2021, filed by the Official Liquidator (for short “OL”), seeking the following reliefs:
(ii) The Hon’ble Court may direct Bank of Baroda (for short “BoB”) being Secured Creditor who has sold all the assets of the Company in liquidation to deposit a sum of Rs. 5 lakhs with the Official Liquidator as stated in para 6 of this report
(iii) Any other order/orders as may be deemed fit and proper in the circumstances of the case may also kindly be passed.”
2. The details of the expenses sought to be recovered by the OL from the secured creditor are as under:
| S. No. | Particulars (Payment) | Amount in Rupees |
| 1 | Advertisement expenses | 370772 |
| 2 | TDS | 7908 |
| 3 | GST | 7710 |
| 4 | Misc. legal expenses and T.A expenses | 4010 |
| 5 | Professional valuation fees expenses | 1800 |
|
| TOTAL | 392200 |
The details of the future expenses which are to be incurred are as under:
| S. No | Particulars (Payment) | Amount in Rupees |
| 1 | H.Y. statement audit | 15000 |
| 2 | ROC fees (8x500) and other government fees and expenses | 2000 |
| 3 | Office misc. expenses | 15000 |
|
| TOTAL | 32000 |
3. Learned counsel for the OL submits that to meet the aforesaid expenses, the OL took a loan of Rs. 3,93,070/- from the common pool, out of which till date Rs. 3,92,200/- is the amount of expense incurred till date, which has not been paid by the secured creditor/BoB despite due intimations vide letters dated 03.03.2020, 09.07.2020 and 03.11.2020, i.e. immediately after receiving the intimation of sale from secured creditor/BoB vide letter dated 26.02.2020. Thereafter, since no payment was made by secured creditor/BoB, the present report was filed.
4. Learned counsel for the OL contends that the aforesaid amount is payable in view of Section 529 of Companies Act, 1956 (for short “Companies Act”) read with Rule 292 of the Companies (Court) Rules, 1959 (for short “Companies Rules”). It is further contended that it is misconceived to state that since the secured creditor stayed outside the winding up proceedings and proceeded to sell the secured assets under the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “SARFAESI Act”), no expenses has incurred towards the security of the assets since it is undisputed that the secured creditor/BoB has filed an application for condonation of delay in filing claim before this Court. In support of his contentions, learned counsel for the OL has placed reliance on judgment of Bombay High Court in the case of Sterling Trade v. Trimbak Ispat (P) Ltd.: 2018 SCC OnLine Bom 12339 wherein it was held that each party contributes to the expenses in proportion to the benefit each party deprives.
5. Per contra, learned counsel for the secured creditor/BoB submits that the BoB had given certain credit facilities to the company under liquidation as secured creditor in the year 2010. The company under liquidation had mortgaged a total of seven immovable properties in favour of BoB. Subsequently, the loan account of the company under liquidation were classified as Non-performing Assets (for short “NPA”) on 28.03.2014 and the BoB invoked the mortgage, took physical possession of the mortgaged properties and put the same to auction on 11.09.2015, 04.11.2015, 07.04.2016, 26.10.2017, 31.07.2019 and 05.02.2020 in exercise of powers under the SARFAESI Act. The auction notice dated 16.01.2020 was also issued to the company under liquidation and only thereafter did the BoB issued sale certificate with respect to the auctioned mortgaged properties in favour of auction purchaser. It is contended that the entire case of OL is primarily based on the purported liquidation expenses incurred by the OL in the liquidation process of Rathi Syntex Lim
Expenses incurred by the Official Liquidator in discharge of statutory obligations have a preferential charge over all other debts of the company.
Claims for costs incurred during liquidation are distinct from debts owed to creditors under the Companies Act.
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.
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....
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