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PUNJAB AND HARYANA HIGH COURT
Swatanter Kumar, J.
Industrial Finance Corporation of India - Petitioners
Versus
M/s. Rama Fibres Ltd. - Respondents
Company Petition No. 157 of 1997.
Decided On : 21 January, 1998
COMPANY - WINDING UP - LEAVE TO CONTINUE PROCEEDINGS - DEBT RECOVERY TRIBUNAL - Secured creditors required to seek leave of the company Court for commencing and/or continuing with their petitions for recovery of money as secured creditors filed before the Debit Recovery Tribunal.
Fact of the Case:
M/s. Rama Fibres Ltd. was ordered to be wound up and Official Liquidator was appointed. Four petitioners/applicants, namely, the Industrial Finance Corporation of India Ltd., the Industrial Credit & Investment Corporation of India Ltd., Industrial Development Bank of India and Industrial Investment Bank of India Ltd., had advanced to the respondent-company financial assistance for setting up the spinning mill. The respondent-company had defaulted in relation to discharge of its liabilities to repay the loans to the petitioners, thus, compelling the petitioners to take recourse to the legal proceedings. The petitioners filed an Original Application before the Debt Recovery Tribunal, at New Delhi against respondents No. 1 to 4. The petitioners though claimed that they were not obliged in law to seek permission of the Company Court under Section 446(1) of the Companies Act, 1956, but as a precautionary measure, they filed the petition under the said provision for seeking the leave to continue/proceed with the original application No. 318 of 1997 before the Debt Recovery Tribunal. Similarly M/s. Rama Fibres Ltd. had approached the State Bank of India for financial assistance and had secured different limits from the State Bank of India. As the accounts of the respondent company became irregular as a result of defaults in repayment of the loans, the Bank was constrained to file an application under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, before the Debts Recovery Tribunal at Delhi for the recovery of Rs. 2,96,44,894.52. The Bank, however, filed the present petition seeking permission of the Court to continue and proceed further with their application before the Debts Recovery Tribunal, Delhi, under Section 446(1) of the Companies Act.
Finding of the Court:
The provisions of the Debt Recovery Act are in no way derogate to the powers of the Companies Act under Section 446 of the Companies Act. Therefore, the petitioners were and are obliged in law to seek permission of the Court for commencing or continuing the present proceedings against the respondent Company. The proceedings per se cannot be termed extra-jus. The petitioners should be granted the leave to prosecute the remedies available to them before the Debt Recovery Tribunal.
Issues: Whether secured creditors are required to seek leave of the company Court for commencing and/or continuing with their petitions for recovery of money as secured creditors filed before the Debit Recovery Tribunal.
Ratio Decidendi: The provisions of Section 446 of the Companies Act, 1956, which require leave of the court for the commencement or continuation of suits or other legal proceedings against a company in liquidation, apply to proceedings before the Debt Recovery Tribunal. The provisions of the Debt Recovery Act, 1993, do not override the provisions of the Companies Act in this regard. Secured creditors are required to seek leave of the company Court for commencing and/or continuing with their petitions for recovery of money as secured creditors filed before the Debit Recovery Tribunal.
Final Decision: The petitioners banks/financial institutions are granted leave under the provisions of Section 446(i) of the Companies Act to prosecute their petitions before the Debt Recovery Tribunal in accordance with law. However, any execution of the decree/recovery certificate so issued in favour of the petitioners would not be executable against the company and its assets, without the leave of this Court.
Swatanter Kumar, J. - This common order would dispose of two Company Petitions being C.P. No. 157 of 1997 and C.P. No. 163 of 1997.
2. M/s. Rama Fibres Ltd. was ordered to be wound up vide order of the learned Company Judge dated 11.7.1996 passed in Company Petition No. 55 of 1996 and consequently Official Liquidator attached to Punjab and Haryana High Court, was appointed as Official Liquidator of the Company. The Official Liquidator is stated to have taken over the assets of the company M/s. Rama Fibres Ltd., hereinafter referred as respondent Company, had approached various financial institutions for seeking financial assistance and loans etc. Four petitioners/applicants, namely, the Industrial Finance Corporation of India Ltd., the Industrial Credit & Investment Corporation of India Ltd., Industrial Development Bank of India and Industrial Investment Bank of India Ltd., had advanced to the respondent-company financial assistance for setting up the spinning mill. The request of the respondent company for financial assistance was accepted by these financial institutions and loans were advanced. Pari passu charge was created in favour of the petitioners except petitioner No. 3 who was on second charge basis and subservient to first charges of pari passu basis in favour of the petitioners. The respondentcompany had executed mortgage deeds and deed of hypothecation in relation to immovable and movable properties of the Company to secure repayment of the financial assistance extended by the petitioners. Respondents No. 2 to 4 (in C.P. No. 157 of 1997) had executed individual and personal-guarantee bonds for repayment of the loans. The respondent-company is stated to have defaulted in relation to discharge of its liabilities to repay the loans to the petitioners, thus, compelling the petitioners to take recourse to the legal proceedings. As a result of default of the respondent-company, the following amounts are stated to be outstanding against the respondent-company :-
Lender Outstanding Amount (in Rs.)
The Industrial Finance Corporation of India Ltd.
(in respect of its said First & Second Loans) : 4,10,72,066.00
The Industrial Credit & Investment 4,58,59,710.00
Corpn. of India Ltd.
(in respect of its said
First & Second Loans) :
Industrial Development Bank of India, 9,78,07,084.00
(In respect of its said
First & Second Loans) : and
(In respect of its said IDBI Special Loan) : 56,08,743.00
Industrial Investment Bank of India Ltd. 77,20,958.00
(in respect of its said IDBI Loan) :
To recover these outstanding amounts, the petitioners filed an Original Application being 318 of 1997 before the Debt Recovery Tribunal, at New Delhi against respondents No. 1 to 4 (in this petition) on or about 7.6.1997. The said application was jointly filed by all the petitioners. The petitioners though claimed that they were not obliged in law to seek permission of the Company Court under Section 446(1) of the Companies Act, 1956, but as aprecautionary measure, they filed the petition under the said provision for seeking the leave to continue/proceed with the original application No. 318 of 1997 before the Debt Recovery Tribunal, which has been registered as CP No. 157 of 1997.
3. Similarly M/s. Rama Fibres Ltd. had approached the State Bank of India for financial assistance and had secured different limits from the State Bank of India. On the request of the respondent-company the State Bank of India had granted the following limits to the Company :-
Original Limit Enhanced/Reduced Limit.
(i) Cash Credit Rs. 40 lacs Rs. 75 Lacs.
(Hypothecation) Limit.
(ii) Bills Discounting/Purchase Rs. 17 Lacs. Rs. 30 Lacs.
limit with D.D. Purchase
Sub-limit of Rs. 5 lacs.
(iii) Letters of Credit limit Rs. 20 Lacs Rs. 50 Lacs.
(iv) Bank Guarantee Rs. 10 Lacs Rs. 2.50 Lacs.
4. As the accounts of the respondent company became irregular as a result of defaults in repayment of the loans, the Bank was constrained to file an application under Section 19 of the Rec
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