Company Law; Anita International Vs. Tungabadra Sugar Works Mazdoor Sangh [Supreme Court of India, 04-07-2016]

Recovery of Debts Due to Banks and Financial Institutions Act, 1993 – For recovery of a debt due to a bank or a financial institution, the concerned bank or financial institution, can legitimately initiate proceedings, by filing a winding up petition before the jurisdictional Company Court, or alternatively, intervene in a pending winding up petition. 

Company Court

(2016) 9 SCC 44 : 2016 (6) Scale 215 : JT 2016 (7) SC 517 : 2016 (3) Law Herald (SC) 1763 : 2016 (3) L.A.R. 162 : 2016 (3) CompL.J. 129 : 2016 (164) AIC 1 : 2016 (137) SCL 159 : 2016 (198) Comp Cas 194 : 2016 All SCR 1720 : 2016 (118) ALR 484 : 2016 (3) BankJ 81 : 2016 (2) D.R.T.C. 490 : 2016 (8) MLJ 39 : 2016 (133) R.D. 510 : 2016 (3) ICC 798

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

(Jagdish Singh Khehar) and (Adarsh Kumar Goel) JJ.

July 04, 2016

CIVIL APPEAL NOS. 6042-6048 OF 2011

Anita International …. Appellant

versus

Tungabadra Sugar Works Mazdoor Sangh – and others …. Respondents

with

CIVIL APPEAL NOS. 5501-5502 OF 2016

(Arising out of SLP(C) Nos. 7490-7491 of 2014)

Tungabadra Sugar Works Mazdoor Sangh …. Appellant

versus

Official Liquidator and others …. Respondents

J U D G M E N T

Jagdish Singh Khehar, J.

1. Leave granted in Special Leave Petition (C) Nos. 7490-7491 of 2014.

2. Two company petitions, i.e., Company Petition Nos. 170 of 1995 and 35 of 1997 were filed by Videocon International Ltd. and Tapti Machines Pvt. Ltd., for winding up of Deve Sugars Ltd. before the High Court of Judicature at Madras. Deve Sugars Ltd. was running a sugar factory in the State of Karnataka. Deve Sugars Ltd. was ordered to be wound up on 16.4.1999. An Official Liquidator was accordingly directed to take possession of the properties of the company – Deve Sugars Ltd.. The Official Liquidator took possession of the assets of the company situate at Harige (in District Shimoga, in the State of Karnataka), on 28.9.1999.

3. The State Bank of Mysore had also extended some loans to Deve Sugars Ltd.. When Deve Sugars Ltd. defaulted in the repayment of the loans, the State Bank of Mysore filed Original Application Nos. 440 of 1997 and 1300 of 1997, before the Debts Recovery Tribunal, Bangalore, (hereinafter referred to as, the DRT, Bangalore) for the recovery of Rs.22,31,78,558.55. During the course of the instant proceedings, the DRT, Bangalore issued a recovery certificate in the sum of Rs.8.40 crores. It would be relevant to mention, that the State Bank of Mysore also filed Company Application Nos.1251-1253 of 1999, in the pending Company Petition No.170 of 1995, before the High Court at Madras, seeking leave to proceed with the recovery proceedings before the DRT, Bangalore, under the

Recovery of Debts Due to Banks and Financial Institutions Act, 1993

(hereinafter referred to as, the RDB Act).

4. The Company Court in the High Court at Madras, while granting leave to the State Bank of Mysore, passed the following order on 10.3.2000 (while disposing of Company Application Nos. 1251-1253 of 1999):

“This company application praying this Court to grant leave to the applicant Bank to proceed and prosecute further O.A. No.1300 of 1997 filed by them against the respondent Company in the Debt Recovery Tribunal at Bangalore.

Company Applications coming on this day before this Court for hearing in the presence of Mr. R. Varichandran advocate for the applicant, herein and the official liquidator, High Court, Madras, the respondent, appearing in person, and upon reading the Judges Summons and affidavit and report of the Official Liquidator filed herein, the Court made the following orders:-

Leave is granted subject to the condition that official liquidator is impleaded and no coercive steps are taken against the assets of the company during or after the conclusion of the proceedings before the Tribunal.”

(emphasis supplied)

A perusal of the above order reveals, that leave was granted, subject to the condition that the Official Liquidator, was impleaded before the DRT, Bangalore, and further, that no coercive steps would be taken against the assets of the company – Deve Sugars Ltd., during or after the conclusion of proceedings before the DRT, Bangalore.

5. On 1.8.2001, the workers’ union of Deve Sugars Ltd. was granted the responsibility to overlook security arrangements of the establishment of Deve Sugars Ltd..

6. Immediately after the DRT, Bangalore, issued the recovery certificate, the State Bank of Mysore moved DCP No.1912 in Original Application No.440 of 1997, seeking the disposal of the assets of the company in liquidation, at the hands of the Recovery Officer of the DRT, Bangalore (hereinafter referred to as, the Recovery Officer). Simultaneously, the State Bank of Mysore being conscious of the order passed by the High Court at Madras on 10.3.2000, filed Company Application No.1300 of 2003, with a prayer that it be permitted to seek execution of the recovery certificate dated 15.5.2002 (for recovering the amounts due to it, from out of the assets of Deve Sugars Ltd.). It is relevant to mention, that the aforesaid Company Application No.1300 of 2003 was not entertained by the Registry of the High Court at Madras. While declining to entertain Company Application No.1300 of 2003, the Registry of the High Court at Madras, relied upon a judgment rendered by this Court in Civil Appeal No. 2536 of 2000 (reported as

Allahabad Bank v. Canara Bank, (2000) 4 SCC 406

While not entertaining Company Application No.1300 of 2003, the Registry of the High Court recorded the following endorsement:

“ORDER

As per order in Civil Appeal no.2536/00 as reported in 2000 (3) SCC 205. Leave is not necessary.”

7. Consequent upon the return of Company Application No.1300 of 2003, it came to be assumed by the State Bank of Mysore, that leave of the High Court, was not required for the sale of the assets of Deve Sugars Ltd.. Accordingly, the State Bank of Mysore approached the Recovery Officer, for the disposal of the assets of Deve Sugars Ltd., in continuation of the recovery certificate issued by the DRT dated 15.5.2002. On the above prayer of the State Bank of Mysore, the Recovery Officer issued a proclamation of sale in Form-13, by following the procedure prescribed under the RDB Act. The auction of the properties of Deve Sugars Ltd., in the first instance, was fixed for 1.10.2014.

8. At the instant juncture, the workers’ union (Tungabadra Sugar Works Mazdoor Sangh), of Deve Sugars Ltd., approached the High Court of Karnataka, by filing Writ Petition No.37991 of 2004. Through the above writ petition, the workers’ union assailed the recovery proceedings initiated by the State Bank of Mysore, before the Recovery Officer. The workers’ union also sought an interim direction from the High Court of Karnataka, to restrain the continuation of the sale proceedings, at the hands of the Recovery Officer, because their salary and provident fund dues, were still payable by Deve Sugars Ltd.. The aforesaid prayer was made by asserting, that the workers’ union had a preferential claim, as against the claim of the State Bank of Mysore, under the provisions of the Companies Act. A learned single Judge of the High Court of Karnataka, while issuing notice, directed that the sale made by the Recovery Officer would be subject to the final outcome of the writ petition. It would also be relevant to reiterate, that the Official Liquidator was authorized by the High Court at Madras, to take over possession of the properties of the company under liquidation. The Official Liquidator had accordingly taken over possession of the said properties on 28.9.1999. While permitting the State Bank of Mysore to pursue the recovery proceedings against Deve Sugars Ltd. before the DRT, the High Court at Madras, had directed that the Official Liquidator be impleaded as a respondent before the DRT. The Official Liquidator, had also raised objections to the purported sale by the Recovery Officer (in continuation of the recovery certificate dated 15.5.2002, issued by the DRT). The Official Liquidator sought deferment of the sale proceedings at the hands of the Recovery Officer, under Section 529A of the Companies Act. It would be relevant to mention, that the objections raised by the workers’ union and the Official Liquidator, were overruled by the Recovery Officer.

9. It is also pertinent to mention, that the auction scheduled by the Recovery Officer for 1.10.2004, could not be conducted. Accordingly, a fresh proclamation was issued, for the auction of the properties of Deve Sugars Ltd., fixing 11.8.2005 as the date for holding the auction. The rival parties were also permitted to bring their buyers, if there was anyone interested. The reserve price was fixed at Rs.10 crores. The auction was actually conducted on 11.8.2005. The highest bid was made by Anita International, the appellant before this Court. The bid of Anita International of Rs.10.25 crores was accepted. The bidder deposited the bid amount, within the stipulated period. No challenge was raised against the auction conducted on 11.8.2005, within the postulated period of 30 days, as is permissible in terms of the Rules framed under the RDB Act. The Recovery Officer ordered the confirmation of the sale of the auctioned property, after the expiry of statutory period, expressed in Rules 60, 61, and 62 of the Second Schedule of the Income Tax Act (as is applicable to proceedings, before Debts Recovery Tribunals), on 12.9.2005.

10. On 20.9.2005, the Recovery Officer appointed a Receiver, to take possession of the property, sold at the auction. The Court Commissioner allegedly took over possession of some of the properties, and handed over the same to the auction purchaser – Anita International. At the instant juncture, the appellant – Anita International, filed Company Application No.1811 of 2005 before the High Court at Madras for removal of the security agency. At the said juncture, Videocon International Ltd. and Tapti Machines Pvt. Ltd. filed Writ Petition No.26564 of 2005 before the High Court of Karnataka. The above writ petition, and Writ Petition No.37991 of 2004 (filed by the workers’ union) were heard by a learned single Judge, wherein the auction purchaser – Anita International, raised a preliminary objection. It was submitted, that the petitioners before the High Court had an efficacious alternative remedy, under the RDB Act. It was accordingly prayed, that the petitioners be relegated to their alternative remedy. Company Application No.854 of 2006 was filed before the Company Court in the High Court at Madras, wherein a challenge was raised to the sale of the assets of Deve Sugars Ltd., at the hands of the Recovery Officer. It would be relevant to mention, that the above two writ petitions were disposed of by the High Court of Karnataka, by a common order dated 27.10.2006. The petitioners before the Karnataka High Court were allowed to avail of their alternative remedy before the DRT, Bangalore. The above common order dated 27.10.2006 was challenged, by filing Writ Appeal Nos.2050 and 2051 of 2006. Both the above writ appeals were dismissed on 23.2.2007. Liberty was, however, reserved with appellants, by permitting them to approach the DRT, Bangalore, by filing appeals. As a matter of abundant caution, the appellate Court ordered, that the DRT, Bangalore, would deal with the controversy, uninfluenced by the orders passed by the High Court.

11. In compliance with, and in continuation of the outcome before the High Court of Karnataka, the workers’ union preferred AOR No.15 of 2006 and Videocon International Ltd. preferred AOR No.1 of 2007. In the above appeals, a challenge was raised to the order dated 12.9.2005 passed by the Recovery Officer, whereby the sale of the properties of Deve Sugars Ltd. conducted on 11.8.2005, in favour of Anita International was confirmed. Simultaneously, one N. Ponnusamy, an ex-Director of Deve Sugars Ltd., filed Company Application Nos.2740-2742 of 2007 before the Company Court in the High Court at Madras, and sought the setting aside of the auction sale dated 11.8.2005, as well as, the confirmation order dated 12.9.2005, after the payment of the consideration amount. The challenge raised by N. Ponnusamy was primarily on the ground that the reserve price of Rs.10 crore was too low. N. Ponnusamy, also sought transfer of the recovery proceedings, from the DRT, Bangalore, to the High Court at Madras. While entertaining the proceedings initiated by N. Ponnusamy, the High Court by its order dated 24.10.2007, passed an ex parte interim order of stay. Anita International and State Bank of Mysore, filed detailed objections, to the applications filed by the Official Liquidator, as well as, by the aforementioned N. Ponnusamy. All the applications filed in C.A. No.1811 of 2005 were taken up for consideration, collectively. By a common order dated 3.3.2009, the application filed by the Official Liquidator was dismissed, by holding that the Official Liquidator was a party before the Karnataka High Court (in the proceedings which were disposed of by a common order dated 27.10.2006), and in consonance with the above order, the Official Liquidator was obliged to file an appeal, to challenge the auction sale (dated 11.8.2005), as well as, the order of confirmation (dated 12.9.2005) passed by the Recovery Officer. Likewise, the proceedings initiated by N. Ponnusamy, also did not yield any result. His claim was also rejected on the ground, that he too could have availed of the remedy of filing an appeal, to assail the orders passed by the Recovery Officer. The other applications, which came up for hearing jointly were likewise dismissed, as the said applicants, had already availed of the appellate remedy, before the DRT, Bangalore. As against the above, the application filed by Anita International for possession of the property purchased by way of auction at the hands of the Recovery Officer, was allowed.

12. Dissatisfied with the order passed by the Company Court, the applicants raised a challenge to the order dated 3.3.2009 (passed in C.A. Nos.1811 of 2005, 854 of 2006 and 2740-2742 of 2007 – in Company Petition No.170 of 1995) by filing O.S.A. Nos. 59-63, 76, 77 and 82 of 2009. The impugned order in the present appeals dated 17.9.2009, was passed by a Division Bench of the Company Court in the High Court at Madras. In arriving at its conclusions, the High Court took into consideration inter alia the following factors: Firstly, the Official Liquidator had raised objections before the Recovery Officer, in respect of the sale of the properties of Deve Sugars Ltd.. There was nothing to indicate, that the said objections were ever considered by the Recovery Officer. Conversely, the High Court also arrived at the conclusion, that the Official Liquidator who was the custodian of the properties of Deve Sugars Ltd. (consequent upon the Official Liquidator having taken possession of the assets of the company on 28.9.1999), had failed to effectively protect the property of the company. Secondly, no material had been placed before the High Court to indicate, that the valuation report (dated 24.3.2002) and the inventory (dated 25.11.2004) were prepared after giving notice to the Official Liquidator, who was undoubtedly in exclusive custody of the properties (which were subject matter of auction). Thirdly, even after the workers’ union had raised objections before the Recovery Officer, no material was placed before the High Court, that there was proper application of mind at the hands of the Recovery Officer, leading to the inference, that the objections were rejected in a casual and lackadaisical manner. Fourthly, the inspection of the properties of the company under winding up, by the intending purchasers (for the auction sale scheduled on 11.8.2005) was permitted only on the day preceding the date of auction (namely, on 10.8.2005), leading to the inference, that the entire process of auction was a mere formality. Fifthly, on the advertised date fixed for the auction (on 11.8.2005) the Recovery Officer received only two bids. Despite the above, he closed the bid on 11.8.2005 itself. Insofar as the above two bids are concerned, it was felt, that there was for all intents and purposes only a singular bid. One of the bidders was Anita International – the appellant herein, and the other bid was by Synergy Steel Ltd. – a sister company of the appellant – Anita International. In sum and substance therefore, the Recovery Officer closed the bid, after receiving a singular bid. Sixthly, after holding the auction on 11.8.2005, the Recovery Officer confirmed the sale in favour of Anita International on 12.9.2005. This could not have been done, in view of the order dated 10.3.2000 passed by the High Court at Madras, wherein it was directed, that no coercive steps would be taken against the assets of the company under liquidation, during or after the conclusion of the proceedings before the DRT, Bangalore. And as such, the State Bank of Mysore could not have proceeded with, the sale of the assets of Deve Sugars Ltd.

13. While dealing with the proposition of law declared by this Court in the Allahabad Bank case1 , wherein this Court had unambiguously concluded, that the provisions of the RDB Act required, Debts Recovery Tribunals alone, to decide applications for recovery of debts due to banks and financial institutions. And wherein, it was also held, that the aforesaid responsibility included, the adjudication of the liability of the debtor to banks and financial institutions, as well as, the execution of the recovery certificate by the Recovery Officer. In spite of the above, it was submitted, that the High Court by relying on the judgment in