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2025 Supreme(Telangana) 2297
IN THE HIGH COURT FOR THE STATE OF TELANGANA
T. Vinod Kumar, J.
Gopu Bala Reddy – Petitioner
Versus
BRG Energy Ltd. (in Liquidation), Hyd. and others - Respondents
Company Application No.70 of 2025 In Company Petition No.170 of 2012 & Batch
Decided On : 28-03-2025
For the Petitioner: L. Venkateswar Rao
For the Respondent: J. Srinadh Reddy-Official Liquidator, B.S. Prasad
A secured creditor remaining outside liquidation can enforce security without court leave but must comply with SARFAESI Act notice requirements by notifying the Official Liquidator as the borrower and involving them in valuation to protect statutory preferences, including workmen's dues.
Headnote:(A) Companies Act, 1956 - Sections 446(1), 529, 529-A, 530 and 537(1) - SARFAESI Act, 2002 - Sections 13, 17 and 18 - Security Interest (Enforcement) Rules, 2002 - Rule 8 and 9 - Enforcement of security interest by secured creditor in a company-in-liquidation - While a secured creditor electing to remain outside liquidation proceedings is entitled to enforce security interest without the leave of the Court, the Official Liquidator, stepping into the shoes of the borrower, must be served with mandatory notices under Section 13(2) and 13(4) of the SARFAESI Act and Rule 8 of the Rules - Failure to issue such notices to the Official Liquidator vitiates the auction process and deprives the Official Liquidator of the right to appeal under Sections 17 and 18 of the SARFAESI Act (Paras 35-36, 37-46).
(B) Locus Standi - Ex-Director of a company-in-liquidation - An ex-director can maintain an application against the actions of a secured creditor if such actions negatively impact the liquidation process or the interests of other creditors, particularly where the asset valuation is contested or statutory mandates are ignored (Paras 30-34).
(C) Role of Official Liquidator - Requirement to involve the Official Liquidator in the valuation of assets to ensure that statutory preferences, specifically workmen's dues, are ascertained and protected before the distribution of sale proceeds (Paras 39-42, 47).
Facts of the case:
In a company-in-liquidation, a secured creditor who chose to remain outside the liquidation proceedings initiated an e-auction of the company's immovable assets. The former director of the company and the Official Liquidator challenged the action, contending that the sale was conducted without the leave of the court, without involving the Official Liquidator in the valuation process, and without issuing the mandatory notices required under the SARFAESI Act.
Findings of Court:
The Court held that although a secured creditor does not require the Court's leave to proceed if they remain outside the liquidation process, they must strictly adhere to the procedural requirements of the SARFAESI Act. Since the Official Liquidator acts as the borrower, the failure to serve notices under Section 13(2) and 13(4) and Rule 8 of the Rules rendered the auction void. Furthermore, the failure to involve the Official Liquidator in the valuation process prejudiced the interests of other creditors and workmen.
Issues: (i) Whether a former director has the locus standi to maintain the application; (ii) Whether a secured creditor must obtain leave of the High Court to sell assets of a company-in-liquidation; and (iii) Whether the non-issuance of notices under the SARFAESI Act to the Official Liquidator vitiates the sale process.
Ratio Decidendi: An ex-director has standing if the secured creditor's actions are detrimental to the liquidation interests. While the SARFAESI Act overrides the requirement for court leave for secured creditors remaining outside liquidation, the Official Liquidator is the statutory borrower. Mandatory notices under the SARFAESI Act must be served on the Official Liquidator to allow for the protection of statutory dues and to provide an opportunity for legal redress regarding valuation and distribution of proceeds.
Result: Company Application allowed.
ORDER :
T. Vinod Kumar, J.
This Company Application is filed to declare the action of 2nd respondent in proceeding against the assets of the Company-in- Liquidation i.e. land and buildings situated at plot No.40, admeasuring 20,675 sq. meters in Sy.Nos.315, 317, 318, 319 and 336, Phase-I, Industrial Park, Pashamylaram village, Patancheru Mandal, Sangareddy District by initiating sale of the same without obtaining leave of the Hon’ble High Court as arbitrary, illegal, void, ab initio and contrary to the provisions of the Companies Act, 1956 ( for short ‘the Act’) and consequently direct the 2nd respondent-Bank to obtain necessary leave of the Hon’ble High Court to stay outside the winding up proceeding with the sale of the asset of the Company-in-Liquidation or reaching an OTS with the 3rd respondent Company.
2. Heard Sri L.Venkateshwar Rao, learned counsel for the applicant, Sri J.Sreenadh Reddy, learned counsel for the Official Liquidator and Sri B.S.Prasad, learned Senior Counsel appearing on behalf of 2nd respondent, and perused the record.
3. The applicant herein claiming himself to be a former Director of the 1st respondent Company-in-Liquidation, filed the present application. By the present application, the applicant claims that the 2nd respondent is proceeding with the sale of the immovable assets of the Company-in-Liquidation without obtaining leave of the Court under Section 446(1) r/w Section 537(1) of the Act, which action of the 2nd respondent, it is contended would make the action of e.aucion as null and void.
4. The applicant contends that the petition for winding up of the 1st respondent Company was filed in the year 2012 and was ordered by this Court on 21-08-2018 and that the 2nd respondent, who is a secured creditor, has chosen to remain outside the liquidation process.
5. Applicant further contends that the 2nd respondent having chose to remain outside the liquidation process, had addressed a letter dated 27-12-2024 to the Official Liquidator representing the 1st respondent Company-in-Liquidation seeking for issuance of No Objection Certificate in favour of the 2nd respondent for recovery of dues through SARFAESI/OTS/DRT.
6. It is also contended on behalf of the applicant that, by the aforesaid letter addressed by the 2nd respondent to the Official Liquidator, it has been stated that the 2nd respondent has issued e.auction notice on 09-12-2024 showcasing the 1st respondent factory at Pashamylaram for e.auction scheduled on 10-01-2025, and in the meantime, the borrower had approached the 2nd respondent with proposal for One Time Settlement (OTS); and that the matter is simultaneously pursued through DRT also.
7. On behalf of the applicant, it is further contended that the applicant herein had made an offer of Rs.30.00 crores under OTS and the 2nd respondent, without considering the aforesaid offer is seeking to proceed with the e.auction.
8. On behalf of the applicant, it is also contended that the Official Liquidator representing the Company-in-Liquidation on receiving the letter dated 27-12-2024, vide reply dated 07-01-2025 by drawing attention of the 2nd respondent to the provisions of Section 446(1) and 537(1) of the Act has stated that in the event the 2nd respondent wants to proceed against the assets of the 1st respondent Company-in-Liquidation, it is necessary to obtain leave of the Hon’ble High Court and that the 2nd respondent had published sale notice inviting bids from the prospective purchasers fixing the date of e.auction as 10-01-2025, without leave of the Hon’ble High Court, and thus, the proposed sale of assets to be conducted on 10-01-2025 is highly objectionable.
9. On behalf of the applicant, it is further contended that notwithstanding the aforesaid categorical reply given by the Official Liquidator, the 2nd respondent is proceeding with the sale of the assets of the 1st respondent-Company-in-Liquidation, affairs of which are under the control of the Official Liquidator working under the supervisi
