1
®
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 29th DAY OF JANUARY 2014
PRESENT
THE HON’BLE MR. JUSTICE DILIP B BHOSALE
AND
THE HON’BLE MR. JUSTICE B MANOHAR
O.S.A.NO.1/2014
BETWEEN
KINGFISHER AIRLINES LIMITED
A COMPANY REGISTERED UNDER
THE PROVISIONS OF THE COMPANIES ACT, 1956
AND HAVING IS REGISTERED OFFICE AT
UB CITY, 24, VITTAL MALLYA ROAD
BANGALORE-560 001
REPRESENTED BY ITS
AUTHORISED SIGNATORY
... APPELLANT
(BY SRI K G RAGHAVAN, SR. ADV., FOR SRI RAJESH D M, ADV.,
for RAJESH & RAJESH, ADVS.)
AND
1.
STATE BANK OF INDIA
A BANKING CORPORATION
CONSTITUTED UNDER
THE STATE BANK OF INDIA ACT
1955 (23 OF 1955)
HAVING CORPORATE CENTRE
AT STATE BANK BHAVAN
MADAME CAMA ROAD
NARIMAN POINT MUMBAI-400 021
AND HAVING ITS INDUSTRIAL FINANCE BRANCH
2
AT 61, RESIDENCY PLAZA, RESIDENCY ROAD
BENGALURU- 580 025
2.
AXIS BANK LIMITED
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT, 1956, AND A BANKING
COMPANY WITH THE MEANING OF SECTION 5(C)
OF THE BANKING REGULATION ACT, 1949
AND HAVING ITS REGISTERED OFFICE
AT TRISHUL, THIRD FLOOR
OPP. SAMARTHESWAR TEMPLE
LAW GARDEN, ELLISBRIDGE
AHMEDABAD 380 006, GUJARAT INDIA
AND HAVING ITS CORPORATE OFFICE AT
AXIS HOUSE, C-2, WADIA INTERNATIONAL CENTRE
PANDURANG BUDHKAR MARG
WORLI, MUMBAI 400 025
3.
BANK OF BARODA,
A BODY CORPORATE UNDER
THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1970, (5 OF 1970),
HAVING ITS HEAD OFFICE AT BARODA HOUSE
P.B. NO.506, MANDAVI, VADODARA-396006.
ACTING THROUGH ITS BRANCH OFFICE
AT P.O.BOX NO.11745,
SAMATA BUILDING, GENERAL BHOSALE MARG
NARIMAN POINT, MUMBAI-400 021.
4.
BANK OF INDIA
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES (ACQUISITION
AND TRANSFER OF UNDERTAKING) ACT, 1970
AND HAVING ITS HEAD OFFICE AT STAR HOUSE
C5, G BLOCK, BANDRA KURLA COMPLEX
BANDRA (E), MUMBAI 400 051 AND
HAVING ITS LARGE CORPORATE BRANCH AT
3
GROUND FLOOR, ORIENTAL BUILDING,
364, DN ROAD, FORT, MUMBAI-400 001
5.
CENTRAL BANK OF INDIA
A BODY CORPORATE CONSTITUTED
UNDER THE BANKING COMPANIES
(ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1980 AND
HAVING ITS CORPORATE OFFICE AT
CHANDRAMUKHI, NARIMAN POINT
MUMBAI-560 021.
AND HAVING ITS CORPORATE FINANCE
BRANCH (EARLIER KNOWN AS INDUSTRIAL
FINANCE BRANCH) AT CHANDRAMUKHI
GROUND FLOOR, NARIMAN POINT
MUMBAI-400 021
6.
CORPORATION BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER
OF UNDERTAKING) ACT, 1980 (40 OF 1980)
HAVING ITS CORPORATE OFFICE AT
MANGALADEVI TEMPLE ROAD, PANDESHWAR
MANGALORE-575001
AND HAVING ITS INDUSTRIAL FINANCE BRANCH
AT RALLARAM MEMORIAL BLDG
1ST FLOOR, CSI COMPOUND
MISSION ROAD, BENGALURU-560 027
7.
THE FEDERAL BANK LIMITED
A COMPANY WITHIN THE MEANING OF THE
COMPANIES ACT, 1956, HAVING ITS
REGISTERED OFFICE AT FEDERAL TOWERS
ALUVA 683101, KERALA
AND HAVING ITS BRANCH OFFICE AT
44 & 45, RESIDENCY ROAD
BENGALURU-560 025.
4
8.
IDBI BANK LIMITED
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT, 1956, AND A BANKING
COMPANY WITHIN THE MEANING OF THE
BANKING REGULATION ACT, 1949
HAVING ITS HEAD OFFICE AT IDBI TOWER
WTC COMPLEX, CUFFE PARADE, MUMBAI 400 005
MAHARASHTRA, INDIA
AND ACTING THROUGH ITS BRANCH OFFICE AT
CORPORATE BANKING GRTOUP-FAMG
9TH FLOOR, IDBI TOWAR WTC COMPLEX
CUFFE PARADE COLABA, MUMBAI-400 005
9.
INDIAN OVERSEAS BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1970 HAVING ITS
CENTRAL OFFICE AT 763, ANNA SALAI
CHENNAI 600 002
AND ITS BRANCH OFFICE AT
HARIKRIPA, 26-A, S.V.ROAD
SANTA CRUZ (WEST), MUMBAI-400 054
10.
JAMMU & KASHMIR BANK LIMITED
A BANKING COMPANY INCORPORATED
UNDER THE PROVISIONS OF THE
JAMMU & KASHMIR COMPANIES
ACT NO.XI OF 1977 (SAMVAT)
HAVING ITS REGISTERED OFFICE AT
CORPORATE HEADQUATER
MAULANA AZAD ROAD,
SRINAGAR, KASHMIR-190001
AND ITS BRANCH AT
SYED HOUSE , 124
S.V. SAVARKAR MARG
5
MAHIM (WEST)
MUMBAI-400 016
11.
PUNJAB & SIND BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER
OF UNDERTAKING) ACT, 1980
HAVING ITS HEAD OFFICE AT 21,
RAJENDRA PALACE
NEW DELHI-110 008
AND HAVING AMONGST OTHERS
A BRANCH OFFICE
AT J.K. SOMANI BUILDING
BRITISH HOTEL LANE, FORT
MUMBAI-400 023
12.
PUNJAB NATIONAL BANK
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER OF
UNDERTAKING) ACT, 1970,
HAVING ITS HEAD OFFICE AT 7,
BHIKAJI CAMA PLACE
NEW DELHI-110066
ACTING THROUGH ITS
LARGE CORPORATE BRANCH
AT CENTENARY BUILDING 28,
M.G.ROAD
BENGALURU-560 001
13.
STATE BANK OF MYSORE
A BODY CORPORATE CONSTITUTED UNDER
THE STATE BANK OF INDIA (SUBSIDIARY BANKS)
ACT, 1959 HAVING ITS HEAD OFFICE AT
KEMPE GOWDA ROAD, BENGALURU-560 009
AND ITS CORPORATED ACCOUNTS
BRANCH AT NO.18,
RAMANASHREE ARCADE,
M.G.ROAD, BANGALORE-560 001.
6
14.
UCO BANK
A BODY CORPORATE CONSTITUTED UNDER
THE BANKING COMPANIES(ACQUISITION AND
TRANSFER OF UNDERTAKING) ACT, 1970
HAVING ITS HEAD OFFICE AT 10,
BTM SARANI
KOLKATA 700 001,
WEST BENGAL, INDIA.
AND ITS BRANCH OFFICE AT
1ST FLOOR, 13/22, K.G.ROAD,
BENGALURU-560 009.
15.
UNITED BANK OF INDIA
A BODY CORPORATE UNDER THE BANKING
COMPANIES (ACQUISITION AND TRANSFER
OF UNDERTAKING) ACT, 1970 (5 OF 1970)
HAVING ITS HEAD OFFICE AT 11,
HEMANTA BASU SARANI,
KOLKATA 700 001.
ACTING THROUGH ITS BRANCH OFFICE
AT 40, K.G.ROAD,
BENGALURU-560 009
... RESPONDENTS
(BY S S NAGANAND, SR. ADV., FOR S R TEJAS, ADV., &
SRI CHINTAN CHINNAPPA, ADV., FOR DUA ASSOCIATES)
THIS OSA FILED U/S 483 OF THE COMPANIES ACT, 1956
R/W SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961,
PRAYING TO CALL FOR THE RECORDS PERTAINING TO
COMPANY APPLICATION NO.2214/2013 IN CO.P.NO.164/2013 &
ETC.,
THIS OSA COMING ON FOR FINAL HEARING, HAVING
RESERVED FOR ORDERS, THIS
DAY, PRONOUNCED THE
FOLLOWING:
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JUDGMENT: (DILIP B. BHOSALE J.)
This Original Side Appeal is directed against the order
dated 11th December 2013 passed by the learned single Judge
whereby Company Application No.2214/13 in CO.P.No.164/2013
has been dismissed.
Company Application was filed by the
appellant-company under Section 151 of the Code of Civil
Procedure, 1908 read with Section 443 of the Companies Act,
1956 (for short “the Act”) and Rules 6 and 9 of the Companies
(Court) Rules, 1959 seeking direction to the respondents-banks
and/or
the
SBICAP
Trustee
Company
Limited
(for
short
“SBICAP-Trustee”) not to prosecute Miscellaneous Application
No.342 of 2013 further, filed by them under Section 14 of the
Securitisation
Enforcement
and
of
Reconstruction
Security
of
Interests
Financial
Act,
2002
Assets
(for
and
short
“SARFAESI Act”), pending before the Chief Metropolitan
Magistrate, Esplanade at Mumbai (for short “CMM”).
Further,
the appellant also sought direction to the respondents not to
take physical possession of the building known as Kingfisher
House, situate at Andheri, Mumbai (for short “Kingfisher
House”).
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3. The appellant is a company incorporated under the
provisions of the Act and is a constituent of UB Group of
Companies. Respondent Nos.1 to 15 are the banks which have
formed a consortium and made available various credit facilities
from time to time to the appellant-company. The respondents
are secured creditors holding a significant majority of the
available assets belonging to the appellant-company as security
towards the loans advanced including Kingfisher House.
4.
SBICAP-Trustee,
obviously
on
behalf
of
the
respondent-Banks, filed Miscellaneous Application No.342/2013
before the CMM, under Section 14 of the SARFAESI Act
contending that they are entitled to take physical possession of
Kingfisher House and that the appellant-company is likely to
resist the respondents from taking possession thereof.
5. SBICAP-Trustee on behalf of the respondent-banks had
issued a notice under Section 13(2) of the SARFAESI Act on
3-5-2013 to the appellant-company, UBHL and to Dr.Vijay
Mallya. The appellant submitted a representation/objections to
the notice under Section 13(3-A) of the SARFAESI Act on 29-6-
9
2013. SBICAP-Trustee, however, rejected the representation of
the appellant vide order dated 14-7-2013.
On 10-8-2013
SBICAP-Trustee took symbolic possession and issued notice
under Section 13(4) in respect of Kingfisher House. On 14-82013 the office of the Tax Recovery Officer also issued an order
of attachment against Kingfisher House.
On 19-8-2013, the
respondents-banks filed company petition No.164/2013 before
this Court seeking winding up of the appellant-company. on 1410-2013 SBICAP-Trustee filed an application under Section 14 of
the SARFAESI Act, as aforementioned, before the CMM, Mumbai
seeking possession of the Kingfisher House. On 23-12-2013,
SBICAP-Trustee asked the appellant- company to vacate and
handover complete and physical possession of Kingfisher House
along with all assets therein on or before 16-1-2014.
It is in
this backdrop, the appellant-company filed C.A.No.2214/2013
on 14-11-2013 for the relief as aforementioned.
6. The learned single Judge negatived all the contentions
urged on behalf of the appellant-company and rejected the
application as not maintainable vide order dated 11-12-2013,
which is impugned in the present original side appeal.
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7. We have heard learned counsel appearing for the
parties at considerable length and with their assistance gone
through the order dated 11th December 2013 and other
materials placed before us for consideration.
8. The principal ground of challenge raised by Mr.
K.G.Raghavan, learned Senior Advocate appearing for the
appellant-company is that the respondent-banks having invoked
the jurisdiction of the Company Judge/ Court, deemed to have
relinquished/surrendered all secured assets/security interest
held by them over such assets of the appellant-company which
had been mortgaged in their favour. It was submitted, that in
any case, the respondent-banks being secured creditors, after
having filed company petition for winding up, could not have
filed application under Section 14 of the SARFAESI Act without
leave of the Company Court. He submitted that the leave of the
Company Court, in the facts of the present case, would be
necessary also in view of the provisions contained in Section
529-A of the Companies Act. He submitted, in any case, the
respondent-banks cannot be permitted to “blow hot- blow cold”
or “approbate and reprobate”. In short, it was submitted that
11
after having filed a petition for winding up the SBICAP-Trustee
could not have filed the application under Section 14 of the
SARFAESI Act before the CMM, Mumbai. It was submitted that
the
respondent-banks
being
secured
creditors,
either
themselves or through the SBICAP-Trustee, are estopped from
realizing the secured assets or security interest independent of
Company Court in the light of the provisions of Section 446(2),
441(2) and 529(A) of the Companies Act. Lastly, he submitted
the SARFAESI Act does not confer independent right on the
secured creditor but it only creates additional remedy and once
having exhausted the remedy of winding up of a company, the
respondent-banks are estopped from taking such remedy of
filing an application under Section 14 thereof without leave of
the
Company
Mr.Raghavan
Court.
placed
In
support
heavy
of
reliance
these
upon
submissions,
the
following
judgments: M.K.Ranganathan and another Vs. Government
of Madras and others, (1955) 2 SCR 374; International
Coach
Builders
Corporation,
Ltd.
AIR
Vs.
2003
Karnataka
SC
2012;
State
Financial
Rajasthan
State
Industrial Development and Investment Corporation and
12
Another Vs. Diamond & Gem Development Corporation
Limited and another, (2013) 5 SCC 470, Hegde and Golay
Ltd. Vs. State Bank of India, ILR 1987 KAR 2673 and
Allahabad Bank Vs. Canara Bank, (2000) 4 SCC 406.
9. On the other hand, Mr.Naganand, learned Senior
Advocate appearing for the respondents submitted that the
propositions of law urged on behalf of the appellant and the
judgments relied upon in support thereof are of no avail to the
appellant-company in view of the admitted fact that so far the
Company Court has not passed an order of winding up or
appointing provisional liquidator till this date.
He submitted
that, in any case, SARFAESI Act being a special legislation, it is
always open to secured creditors, like the respondents in the
present case, to follow the due procedure contemplated therein
and seek possession of the assets mortgaged with them.
He
submitted that the respondents-banks, in the company petition,
having opted to stand outside winding up, insofar as Kingfisher
house, being a secured asset, is concerned, they can avail the
remedies available to them under the provisions of SARFAESI
Act. We will make reference to the judgments relied upon by
13
Mr. Naganand in support of his submissions, at appropriate
stages.
10. The learned single Judge while dealing with the
company application in the backdrop of the grounds of challenge
and the arguments advanced by the learned counsel for the
parties, had formulated the following three questions for
consideration:
“a. Whether there is a bar of jurisdiction, in
terms of Sections 34 and 35 of the SARFAESI Act,
for this Court, as the Company Court, to grant
the relief as prayed for.
b. Whether the Petitioner – banks could
choose to stand outside the winding up, in
seeking to enforce their secured interests, and
simultaneously prefer a Company Petition also
seeking
the
winding
up
of
the
respondent
company, in respect of the balance of the debt
not covered by such security.
c. Whether this court, as the Company
Court,
could
exercise
jurisdiction
over
the
property, whether before or after a winding up
order is passed, in the circumstance that a
14
petitioner before this court is seeking to take
possession of the property of the respondent by
recourse to the SARFAESI Act in the capacity of a
secured creditor.”
11. All the three questions formulated by the learned
Judge were answered against the appellant-company and in
favour
of
the
respondents-banks.
Though
the
company
application was dismissed vide order dated 11th December 2013,
the learned Judge by a separate order dated 11-12-2013
directed the respondents-banks not to eject the appellantcompany summarily without affording a reasonable opportunity
to withdraw from the property. While issuing such direction, he
rejected the oral application seeking stay of the order to enable
the appellant-company to prefer an appeal against the order
dated 11th December 2013.
12. At the outset, we would like to consider the
questions, as raised by Mr.Raghavan, learned Senior Counsel for
the appellant that where a secured creditor such as the
respondents-banks or their consortium, having filed company
petition for winding up under Section 443 of the Companies Act,
15
is estopped from realizing the secured assets or security
interest, independent of Company Court in the light of the
provisions contained in Sections 446 (2), 441 (2) and 529-A of
the Act., and whether the enunciation of law laid down in
Hegde & Golay Ltd., (supra) that a secured creditor has a
right to present a winding up petition without electing to stand
outside, is only applicable at the stage of proof and ranking of
claims and not at the stage presenting a winding up petition,
still holds good, in view of law declared by the Supreme Court in
Allahabad Bank (supra).
13. Before we consider these and other questions we
would also like to consider whether there is a bar of jurisdiction
in terms of Sections 34 and 35 of the SARFAESI Act, for the
Company Court, to grant the relief as prayed for in the
application.
14. Section 34 of the SARFAESI Act bars that the
jurisdiction of all civil Courts to entertain any suit or a
proceeding in respect of any matter, which a Debt Recovery
Tribunal or an Appellate Tribunal is empowered to determine
16
under the said Act. Section 35 declares that the provisions of
the
SARFAESI
notwithstanding
Act
would
anything
prevail
inconsistent
over
other
contained
laws
therein.
Similarly, Section 446(2) of the Act provides that the Company
Court shall have absolute jurisdiction to entertain and dispose of
any suit or proceedings against the company in winding up
notwithstanding anything contained in any other law.
15. Section 35 of the SARFAESI Act and Section 446 (2)
of the Act open with non-obstante clause. The Supreme Court
in Allahabad Bank (supra) considered a situation in law where
the same statute is treated as special statute vis-à-vis one
legislation and again as a general statute vis-à-vis yet another
legislation.
legislation.
The SARFAESI Act is undoubtedly a special
If the SARFAESI
Act
and the Companies Act or
certain provisions therein, such as Section 529-A, are treated as
special laws, the principle will have to be applied that when
there are two special laws, the latter will normally prevail over
the former if there is a provision in the latter special Act giving
over-riding effect.
The SARFAESI, being a latter legislation,
shall, therefore, prevail over the Act. The Supreme Court made
17
this principle clear in Allahabad Bank holding that latter
legislation, in particular, the relevant provisions giving overriding effect shall prevail over the former. Applying this
principle, and considering the statement of object and reasons
of the SARFAESI Act the learned Judge, in our opinion, has
rightly held that the provisions contained in the SARFAESI Act
shall over-ride the provisions contained in the Act.
The
statement of object and reasons to the SARFAESI Act make the
intention of the legislature clear as has been rightly noticed by
the learned single Judge.
15.1.
In
International
Coach
Builders
Limited
(supra), the Supreme Court while dealing with special provisions
contained in Sections 29, 30, 31 and 32 of the State Financial
Corporation Act (for short “SFC Act”) and the amendments
made in Section 529 and 529A of the Act, having considered the
fact that though the SFC Act was enacted in 1951, the
provisions contained in Section 529 and 529A were introduced
in 1985 and therefore, placing reliance on its judgment in A.P
State Financial Corporation Vs. Official Liquidator, (2000)
7 SCC 291, held that the amendments made in Section 529 and
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529A would override and control all the rights under Section 29
of the SFC Act.
It was further observed that though the
Companies Act may be a general law, the provisions introduced
therein in 1985 were intended to confer special rights on the
workers and pro tanto must be treated as special law made by
Parliament. Thus it was held that since the amendments of the
Act were made by the later Act of 1985, they would override the
provisions of Section 29 of the SFC Act. As a matter of fact, the
Supreme Court agreeing with the view expressed in A.P. State
Financial Corporation rejected the contention that the view
taken therein needs reconsideration.
15.2. Thus, it is clear that the Company Court would not
have jurisdiction to interfere with the proceedings under the
provisions of the SARFAESI Act, in particular when order of
winding up or appointing provisional liquidator has not been
made in the company petition. We may also notice that the
appellant-Company did not at any point of time take recourse to
the remedies available under Sections 17 and 18 of the
SARFAESI Act against the order/action under Section 13(4) of
the said Act.
19
16. At this stage, even before we advert to the
contentions urged by learned Senior Counsel for the parties, we
would like to consider the judgments of the Supreme Court and
High Courts and their effect on the facts of the present case.
16.1. In M.K.Ranganathan (supra), the Supreme Court,
amongst other, also considered the question whether the sale
effected by respondent No.2 therein without the leave of the
winding up Court was void and hence liable to be set-aside. The
Supreme Court was considering this question in the light of and
after the order of winding up. After considering the relevant
provisions of the Indian Companies Act, the Supreme Court
reproduced a passage stating the position of a secured creditor,
in the winding up of a company, from the judgment authored by
Lord Wrenbury in Food Controller v. Cork, 1953 Appeal Cases,
647, which reads thus:
“The phrase ‘outside the winding up’ is an
intelligible phrase if used, as it often is, with
reference to a secured creditor, say a mortgagee.
The mortgagee of a company in liquidation is in a
position to say “the mortgaged property is to the
extent of the mortgage my property.
It is
immaterial to me whether my mortgage is in
winding up or not. I remain outside the ‘winding
up’ and shall enforce my rights as mortgagee”.
20
This is to be contrasted with the case in which such
a creditor prefers to assert his right, not as a
mortgagee, but as a creditor. He may say, ‘I will
prove in respect of my debt’. If so, he comes into
the winding up”.
Then, the Supreme court proceeded to observe as follows:
“The secured creditor is thus outside the
winding up and can realise his security without the
leave of the winding up Court, though if he files a
suit or takes other legal proceedings for the
realisation of his security he is bound under section
231 (corresponding with Section 171 of the Indian
Companies Act) to obtain the leave of the winding
up Court before he can do so although such leave
would almost automatically be granted.”
17. In International Coach Builders Ltd. (supra), the
Supreme Court considered the question whether the right of the
Financial Corporation under Section 29 of the State Finance
Corporation Act to sell and realize the security could be
exercised without reference to the Company Court without a
winding up order is made against the company.
18. From bare perusal of the questions that fell for
consideration of the Supreme Court in M.K.Ranganathan
(supra) and in International Coach Builders (supra), it is
clear that in both the cases the Supreme Court was considering
21
the questions in the light of and after the order of winding up
made against the company. The Supreme Court in International
Coach Builders considered the rights of the pari passu chargeholders which run equally, temporarily and potentially, with the
rights of the secured creditors and held that the secured
creditors cannot realize their security without the leave of the
winding up Court.
However, the observations of the Supreme
Court in International Coach Builders made in the concluding
paragraph are more relevant.
The Supreme Court observed
that the right unilaterally exercisable under Section 29 of the
State Finance Corporation Act is available against the debtor, if
a company, only so long as there is no order of winding up and
that, the Corporation cannot unilaterally act to realize the
mortgaged properties
without the
consent of the
official
liquidator representing the workmen for the pari passu charge in
their favour under the proviso to Section 529 of the Act. The
question of consent of Official Liquidator would arise only where
there is an order of winding up. The Supreme court further
observed that if the Official Liquidator does not consent, the
Corporation have to move the Company Court for appropriate
22
directions to the Official Liquidator who is the pari passu
chargeholder on behalf of the workmen. Insofar as the Official
Liquidator is concerned he cannot act without seeking direction
from the Company Court and under its supervision. Thus, it is
further clear that the secured creditor can exercise its right
under the provisions of SARFAESI Act against the company only
so long as there is no order of winding up. In other words, until
winding up order is passed it is not necessary for the secured
creditor to obtain leave of the winding up court before it realises
security or mortgaged properties.
Merely because winding up
petition/s is/are pending that cannot be a ground for obtaining
leave of the winding up court.
It cannot be assumed that a
winding up order will be passed and that the pari passu chargeholders, namely the workmen, will suffer if the secured creditor
is allowed to realize their security without the leave of the
winding up Court.
19. Sri K.G.Raghavan, learned Senior Counsel irrespective
of the findings of learned judge on the first question i.e. a bar of
jurisdiction with reference to Sections 34 and 35 of the
SARFAESI Act pressed the “doctrine of election” into service. He
23
submitted that once having filed company petition for winding
up it is not open to the secured creditor, such as the
respondents-banks, to file an application under Section 14 of
the SARFAESI Act. In other words, he submitted that the
respondent-banks are estopped from filing an application under
Section 14 of the SARFAESI Act having been elected a remedy
of winding up of the Company. In support of his contention, he
placed reliance upon the judgment of the Supreme Court in
Rajasthan State Industrial Development and Investment
Corporation (supra). In this case, the Supreme court observed
that a party cannot be permitted to “blow hot – blow cold”,
“fast and loose” and “approbate and reprobate”. The Supreme
Court further observed that the doctrine of election is based on
the rule of estoppel-the principle that
and reprobate is inherited in it.
one cannot approbate
The doctrine of estoppel by
election is one among the species of estoppel in pais (or
equivalent estoppel), which is rule of equity.
By this law, a
person may be precluded, by way of his actions or conduct, or
silence when it is his duty to speak, from asserting a right which
he would have otherwise had. Based on this it was vehemently
24
submitted by Mr.K.G.Raghavan, learned Senior Counsel that
under any circumstances the proceedings initiated under Section
14 of the SARFAESI Act, not only deserves to be stayed or
direction be given to the SBICAP-Trustee not to proceed with
the same but also deserves to be quashed.
20. In Allahabad Bank (supra) the dispute before the
Supreme Court was between two nationalised banks, Allahabad
Bank (appellant) on the one hand which had obtained a simple
money decree against the debtor company M/s. M.S.Shoes
(East) Co.Ltd. from Debt Recovery Tribunal at Delhi under the
Regulatory of Debts Due to Banks and Financial Institutions Act,
1993 (for short “RDB Act”) and Canara Bank on the other,
whose claim as a secured creditor was still pending before the
same Tribunal at Delhi against the same company.
Allahabad
Bank had appealed before the Supreme Court against the order
passed by the Company Judge Under Sections 442 and 537 of
the Act in a winding up proceedings by Ranbaxy Ltd. staying the
sale proceedings taken out by Allahabad Bank before the
Recovery Officer under the RDB Act. Applications for winding
up the defendant company were pending in the Delhi High
25
Court.
As no winding up order had been passed nor a
provisional liquidator was appointed as contemplated by Section
446 (4) of the Act, a point had been raised by the respondentCanara Bank that the appellant-Allahabad Bank was obliged to
seek leave of the Company Court under the Act and the
Company Court could stay such proceedings as aforesaid under
Sections 442 and 537 for the ultimate purpose of deciding the
priorities, in the event of winding up order or other order
appointing a provisional liquidator being passed under Section
446 (1) of the Act.
After the appellant in that case, had
obtained decree from the Debt Recovery Tribunal, some
properties of the Company had been sold by the Recovery
Officer.
The Allahabad Bank, therefore, contended that the
Tribunal under the RDB Act can itself deal with the question of
appropriation of sale proceeds in respect of sales of the
company properties held at its instance and the priorities that
the Allahabad Bank alone was entitled to all sums so realized.
Admittedly no petition was filed by Allahabad Bank for winding
up of the Company and it chose to stand outside winding up.
The dispute was also between two Banks over the same
26
security, which has obtained orders from the Debt Recovery
Bank. It is against this backdrop, the Supreme Court in
paragraphs 62 and 63 observed thus :
“62. Secured creditors fall under two
categories. Those who desire to go before the
Company Court and those who like to stand outside
the winding-up.
63. The first category of secured creditors
mentioned above are those who go before the
Company Court for dividend by relinquishing their
security in accordance with the insolvency rules
mentioned in Section 529. The insolvency rules
are those contained in Sections 45 to 50 of the
Provincial Insolvency Act. Section 47(2) of that Act
states that a secured creditor who wishes to come
before the official liquidator has to prove his debt
and he can prove his debt only if he relinquishes
his security for the benefit of the general body of
creditors. In that event, he will rank with the
unsecured creditors and has to take his dividend as
provided in Section 592(2). Till today, Canara
Bank has not made it clear whether it wants to
come under this category.”
20.1. The judgment in Allahabad Bank, was prior to the
enactment of SARFAESI Act. In that case, the Supreme Court
was essentially considering the jurisdiction of the DRT under the
Recovery of Debts Due to Banks and Financial Institution Act,
1993 vis-à-vis the Company Court and was not seized of the
question whether a secured creditor can file a petition for
27
winding up without relinquishing his security, as in the instant
case.
21. In Hegde and Golay Ltd. (supra) this Court was
considering the question can a secured creditor maintain a
winding up petition without either giving up security or valuing
it.
The contention in this case was that the bank which is a
secured creditor cannot maintain a winding up petition without
making an election either to give up security or value it
as
required by Section 9(2) of the Provisional Insolvency Act 1920.
It was further urged that by Section 529 (1) of the Act, the
Rules of Insolvency in Section 9(2) are attracted. After having
considered the provisions contained in Section 9(2) of the
Provisional Insolvency Act, this Court considered the contention
that a secured creditor may stand outside insolvency, but, if, he
brings-up a creditor’s winding up petition, he must, in his
petition, state that he is either willing to relinquish the security
for the benefit of the body of creditors or give an estimate of the
value of security. This Court then considering the judgment of
the Supreme Court in M.K.Ranganathan (supra), observed
that Section 529(1) of the Act attracts the Rules of Insolvency
28
to winding up in relation to respective rights of secured and
unsecured creditors and confine these rules so attracted to
matters that arise between these two classes of creditors.
Sections 528 and 529 of the Act are in the Chapter “Proof and
Ranking of claims” and deal with the question of proof of debts
and the rights of the secured and unsecured creditors. Section
529 (2) itself, insofar as, it expressly envisages, and provides
for, the contingency that if a secured creditor proceeds to
realize his security, he should pay the expenses incurred by the
liquidator, by implication, rules out the construction contended
on behalf of the Company. This Court further observed that the
word winding up of insolvent company in Section 529 (1) of the
Act has obvious reference to a post winding-up stage.
This
Court then proceeded to allow in regard to secured creditor to
present petition for adjudication under the insolvency law is
different from the right of a secured creditor to present a
winding up petition.
22. Secured creditor who seeks to prove whole of his debt
in the course of winding up proceedings is necessarily required
to relinquish the security. That however, cannot be construed
29
to mean that when he files a petition for winding up, a secured
creditor must relinquish his security.
Thus, the secured
creditor, who seeks to prove whole of his debt in the course of
the proceedings of winding up must before he can prove his
debt relinquish his security for the benefit of the general body of
creditors.
If he surrenders his security for the benefit of the
general body of creditors, he may prove whole of his debt. But,
if the secured creditor realises his security, he may prove for the
balance due after deducting the net amount that has been
realized.
The stage for relinquishing security arise when
secured creditor seeks to prove the whole of his debt in the
course of winding up.
If, he elects to prove in the course of
winding up the whole of debt due and owing to him, he has to
necessarily surrender his security for the benefit of the general
body of creditors. Therefore, it is clear that it would be
inappropriate and inapposite to require the secured creditor at
the stage when he files company petition for winding up to
exercise the option of relinquishing his security since that stage
does not arise until the debt is to be proved.
(see CANFIN
Homes Ltd. Vs. Llyods Steel Industries Ltd. Vol.106
30
(2001) Company Cases 52, Hegde and Golay Ltd; Kotak
Mahindra Bank Ltd. Vs. Eastern Spinning Mill (2013) 177
Comp.Case 15 (Cal.) and ICICI Bank Ltd. Vs. SIDCO
Leather Ltd., AIR 2006 SC 2008) .
23. Thus, the law laid down by this Court in Hegde and
Golay (supra) in the light of the facts and circumstances that
fell for consideration and the law laid down by the Supreme
Court in Allahabad Bank (supra) in the light of the facts and
circumstances fell for consideration therein, in our opinion, do
not conflict and, therefore, the law laid down in Hegde and
Golay Ltd. still holds the field, insofar as the point in dispute in
our case. The question that falls our consideration is whether
respondent-banks can maintain a winding up petition without
giving up security and/or can stand outside winding up in
respect of secured assets and still maintain the petition for
winding up for remaining debts. Our answer, for the reasons
recorded in the foregoing paragraph, is in the affirmative.
31
24. In the present case, the proceedings under the
provisions of SARFAESI Act were initiated much before filing of
winding up petition.
2013.
Winding up petition was filed on 19-08-
While after completing other formalities contemplated
under Section 13 (1) (3A), notice under Section 13(4) of the
SARFAESI
Act,
was
issued
on
13-7-2013
and
symbolic
possession of the Kingfisher House was also taken on 10-82013. When the winding up petition was filed, the respondentsbanks being certain that even if all secured assets are sold they
would not realize all of their outstanding dues, which admittedly
as of today are more than 6000 crores. In this backdrop they
were constrained to file company petition. They clarified it in the
petition, making their position unequivocably clear at the time of
filing of company petition. In paragraph 4 of the memorandum
of company petition, the respondents-banks, specifically stated
that they are “standing outside winding up” insofar as their
secured interest, including Kingfisher House and the same is
being filed without relinquishing their rights and interest as
secured creditors. They also made it clear in the petition that
they were pursuing other remedies available to them for
32
realization of securities created in their favour without seeking
assistance of this Court for sale/realization of secured assets. In
the petition, they have also made a categoric statement that
even if all secured assets are sold and their value realized, they
would
still
not
realize
substantial/large
portion
of
the
outstanding dues. Learned counsel for the parties are ad idem
that the worth of Kingfisher House in any case may not be more
than Rs.300 Crores as against total outstanding of Rs.6200
Crores.
The proceedings under the Act are not recovery
proceedings and need to be filed for winding up of the company
which is unable to pay its debts. The proceedings initiated by
the respondent-banks under SARFAESI are not alternate to the
winding up petition.
25. It is thus clear that when the company petition was
filed, the respondents-banks did not relinquish the security
namely,
Kingfisher
House.
It
was
not
binding
on
the
respondents-banks while filing a petition for winding up to
relinquish all the securities. The requirements of law is that if a
secured creditor who seeks to prove “whole of his debt” in the
course of proceedings of winding up, must before he could
33
prove the debt relinquish his security for the benefit of the
general body of creditors. In other words, if the secured creditor
relinquish the entire security for the benefit of general body of
creditors, he would have to prove whole of his debt. As against
this, if the secured creditor has realised his security, he may
prove for the balance due after deducting the net amount that
has been realized. Thus, stage for relinquishing of security arise
only when the secured creditor seeks whole of his debt in the
course of winding up.
In the present case the respondents-
banks did not surrender or relinquish their right in the Kingfisher
House in respect of which, even before filing of company
petition, they had initiated proceedings under the SARFAESI Act.
That apart, the proceedings under Section 14 of the SARFAESI
Act, in any case, need not be stayed or directions need not be
issued not to proceed with the same, since till this date no order
of winding up has been passed against the company at the
instance of respondent-banks or at the instance of any other
petitioner. In our opinion, the learned Judge has considered the
questions raised in proper perspective in the light of the judgments
referred to in the impugned order and we do not find any reason
34
to interfere with the same. In the result, the appeal fails and
dismissed as such.
In view of the peculiar facts and
circumstances of the case, there shall be no order as to costs.
Sd/JUDGE
Sd/JUDGE
Ia