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PUNJAB & HARYANA HIGH COURT
M.M.Kumar and Jaswant Singh JJ.
Haryana State Industrial & Infrastructure Development Corporation
Versus
Haryana Concast Limited, Hisar
C.A.P.P. No. 23 of 2009,
Decided On : DECEMBER 15, 2009
COMPANY - WINDING UP - SALE OF ASSETS - JURISDICTION OF COMPANY COURT - SARFAESI ACT - SECURED CREDITOR - SUPERVISORY DIRECTIONS - COMPANY COURT JURISDICTION - FACTUAL ERROR - MODIFICATION OF ORDER.
Fact of the Case:
The Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) claimed that the directions issued by the learned Company Judge by keeping Pegasus Asset Reconstruction Private Limited (the Securitisation Company) without associating the HSIIDC, are wholly erroneous and it has right to be associated with the process of sale from beginning to end. However, the Securitisation Company attacked the supervisory directions issued by the learned Company Judge in his order dated 20.3.2009 by requiring it to submit all proposal for sale to the Official Liquidator and the details of valuation obtained from the conduct of the sale and that the sale notice should incorporate specifically a clause that winding up proceedings have been pending before the Company Court, with details of case number and the Court of adjudication. Further grievance of the Securitisation Company is that the learned Company Judge has required it to place before the Company Court the details of its claim and all expenses incurred prior to making any appropriation to itself and disbursing the amount.
Finding of the Court:
The Company Court enjoys the jurisdiction to issue directions to a securitisation company or a secured creditor who might have opted to stay outside the winding up and has invoked its power under Section 13(4) of the SARFAESI Act. Therefore, the learned Company Judge has correctly appreciated the issue when it placed reliance on a judgment of Allahabad High Court in the case of In Re: BPL Display Devices (supra) and proceeded to observe in para 11 as under:- "11. The Allahabad High Court identified the objects of the SARFAESI Act as providing for enforcement of Securities Act without any intervention of Court or Tribunal and went on to hold on a point which it had earlier observed that was not a pointed controversy that "there was no apparent conflict between SARFAESI Act and the Companies Act and therefore does not appear to be any conflict between the sale of the security interest. The SARFAESI Act has to be harmonized in that the Act itself declares that is in addition and not in derogation of the Companies Act. It said at paragraph 41 that the objects of speedy recovery of loan from non-performing assets would be defeated if the O.L. would intervene to enforce the provisions of the Companies Act and to monitor each step of the securitization and enforcement of Security interest. The Company Court therefore must allow the provisions of SARFAESI Act to be put into motion even if the proceedings of the winding up have been recommended or are pending of that Company is under liquidation. The statutory duties of the Company Court for protecting the workmens dues, and interest of the other stake holder including the public interest will however, oblige the Court to be informed with the process of sale"."
Issues: Whether the Company Court enjoys jurisdiction to issue supervisory direction to a securitisation company/secured creditor in connection with a company in liquidation or under winding up in the face of Section 13 of the SARFAESI Act or securitisation company opting to stand outside the winding up is absolutely free to utilise the sale proceeds of assets of the company in liquidation? Whether the learned Company Judge committed a factual error by observing that the HSUDC has hypothecation in respect of plant and machinery?
Ratio Decidendi: The Company Court enjoys the jurisdiction to issue directions to a securitisation company or a secured creditor who might have opted to stay outside the winding up and has invoked its power under Section 13(4) of the SARFAESI Act. Therefore, the learned Company Judge has correctly appreciated the issue when it placed reliance on a judgment of Allahabad High Court in the case of In Re: BPL Display Devices (supra) and proceeded to observe in para 11 as under:- "11. The Allahabad High Court identified the objects of the SARFAESI Act as providing for enforcement of Securities Act without any intervention of Court or Tribunal and went on to hold on a point which it had earlier observed that was not a pointed controversy that "there was no apparent conflict between SARFAESI Act and the Companies Act and therefore does not appear to be any conflict between the sale of the security interest. The SARFAESI Act has to be harmonized in that the Act itself declares that is in addition and not in derogation of the Companies Act. It said at paragraph 41 that the objects of speedy recovery of loan from non-performing assets would be defeated if the O.L. would intervene to enforce the provisions of the Companies Act and to monitor each step of the securitization and enforcement of Security interest. The Company Court therefore must allow the provisions of SARFAESI Act to be put into motion even if the proceedings of the winding up have been recommended or are pending of that Company is under liquidation. The statutory duties of the Company Court for protecting the workmens dues, and interest of the other stake holder including the public interest will however, oblige the Court to be informed with the process of sale"."
Final Decision: The appeals are dismissed. However, the factual error is accepted and the following line, as it exists in para 3 of the impugned judgment, is ordered to be deleted: "The plant and machinery alone had been the subject of hypothecation to HSIIDC at the time when the Company was wound up."
M.M.Kumar, J.
1. This order shall dispose of two cross appeals bearing CAPP Nos.23 and 28 of 2009, filed under Section 483 of the Companies Act, 1956 (for brevity, the Act) against the order dated 20.3.2009, passed by the learned Company Judge. The Haryana State Industrial and Infrastructure Development Corporation (appellant in CAPP No.23 of 2009) [for brevity, HSIIDC] has principally claimed that the directions issued by the learned Company Judge by keeping Pegasus Asset Reconstruction Private Limited (for brevity, the Securitisation Company) without associating the HSIIDC, are wholly erroneous and it has right to be associated with the process of sale from beginning to end. However, the Securitisation Company (appellant in CAPP No.28 of 2009) has even attacked the supervisory directions issued by the learned Company Judge in his order dated 20.3.2009 by requiring it to submit all proposal for sale to the Official Liquidator and the details of valuation obtained from the conduct of the sale and that the sale notice should incorporate specifically a clause that winding up proceedings have been pending before the Company Court, with details of case number and the Court of adjudication. Further grievance of the Securitisation Company is that the learned Company Judge has required it to place before the Company Court the details of its claim and all expenses incurred prior to making any appropriation to itself and disbursing the amount.
2. It would be necessary to notice few facts to put the controversy in its proper prospective. The Haryana Concast Limited, Hisar-respondent No. 1 is a Company incorporated on 20.11.1973, which was promoted by the State of Haryana and its major share holdings were held by the State Government and HSIIDC. The State Government acquired 40 acres of land to promote this company on 23.1.1974. It had taken a loan of Rs.30 lacs from Bank of India, which was secured by tangible plant, machinery and building. Respondent No. 1-Company became sick and it was recommended to be wound up by the Board for Industrial and Financial Reconstruction (for brevity, BIFR). On 28.10.1999, this Court ordered winding up of respondent No.l Company and the Official Liquidator attached to this Court was directed to take over the assets of the company in liquidation.
3. On 28.5.2004, this Court allowed the Official Liquidator to sell immoveable assets of respondent No. 1 Company to satisfy claims of the creditors. The Official Liquidator sold the assets of respondent No.l Company accepting the highest bid of Rs.21.10 crores and the sale was confirmed by this Court in favour of M/s Radha Raman Builders. The auction purchaser failed to deposit 15% of the bid amount, therefore, the earnest money deposited by it was forfeited. On 20.3.2008, the sale concluded by the Official Liquidator was set aside by this Court. The amount of earnest money paid by M/s Radha Raman Builders was ordered to be refunded. He was directed to undertake the sale afresh. The auction purchaser M/s Radha Raman Builders filed company appeal and was awarded interest vide order dated 22.1.1999.
4. It is pertinent to notice here that the Securitisation Company has claimed that the Bank of India was the sole secured creditor of respondent No.l Company. On 27.8.2008, the Securitisation Company entered into an Assignment Agreement with the Bank of India. It purchased all its advances together with all other attendant rights, titles and interests of Bank of India in the credit documents including underlying collateral, security interest, pledges and/or guarantee in respect of such advances, as per the terms and conditions contained in the Assignment Agreement (A-l attached with CAPP No.28 of 2009) and as envisaged under Section 5(l)(b) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity, the SARFAESI Act). In this manner, the Securitisation Company stepped into the shoes of Bank of India
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