IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 24.07.2006 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN W.P.Nos.25635, 27208 and 35296 of 2004 and W.P.M.P.Nos.31147, 33103, 33104 and 42531 of 2004 and W.V.M.P.Nos.1757 and 2103 of 2004 W.P.No.25635 of 2004: M/s.Timels Guarantee Limited having its Registered Office at The Times of India Building Dr.D.N.Road, Mumbai – 400 001 now at Ground Floor Matulya Mills Compound S.B.Marg, Lower Parel (W) Mumbai – 400 013. ... Petitioner Versus 1. The Branch Manager Industrial development Bank of India, No.480, Anna Salai Chennai – 600 035 2. The Recovery Officer Debt Recovery Tribunal-I 6th Floor, Spencer Towers 770-A, Anna Salai Chennai – 600 002 3. The Official Liquidator Representing M/s.Rajalakshmi Mills Ltd., 1126, Trichy Road Singanallur Post Coimbatore – 641 005 (wound up by order of the High Court in C.P.No.122 of 1997) 4. K.N.Ramajeyam ... Respondents Respondent NO.4 is impleaded as per order dated 29.9.2004 made in W.M.P.No.33009 of 2004. https://hcservices.ecourts.gov.in/hcservices/ W.P.No.27208 of 2004: Rajalakshmi Mills High School rep.by its Secretary R.Narayanaswami, Singanallur Post, Coimbatore District Pin: 641 005. ... Petitioner Vs. 1. The Recovery Officer The Debt Recovery Tribunal-I Spencer Towers VI Floor 770-A, Anna Salai Chennai – 600 002 2. The Industrial Development Bank of India, rep.by its Deputy General Manager, Stock Exchange Building 638-686, Trichy Road Coimbatore – 641 005. 3. The Director of School Education College Road, Chennai – 600 009 4. The District Educational Officer Gopalapuram, Coimbatore – 18 5. Rajalakshmi Mills Ltd., rep.by aits Director Singanallur, Uppilipalayam village Coimbatore District 6. Ramajeyam ... Respondents. W.P.No.35296 of 2004: K.P.Natarajan ... Petitioner Vs. 1. The Recovery Officer The Debt Recovery Tribunal-I Spencer Towers VI Floor 770-A, Anna Salai Chennai – 600 002 2. The Industrial Development Bank of India, rep.by its Deputy General Manager, Stock Exchange Building 638-686, Trichy Road Coimbatore – 641 005. 3. K.N.Ramajeyam ... Respondents https://hcservices.ecourts.gov.in/hcservices/ Prayer: Writ Petitions filed under Article 226 of the Constitution of India for the relief of issuance of writ of mandamus, declaration and declaration respectively as stated therein. For Petitioner : Mr.K.Mani in W.P.No.25635/04 For Petitioner : Mr.Kamalanathan in W.P.No.27208/04 for Mr.A.M.Packianathan Easter For Petitioner : Mr.S.Gopinathan in W.P.No.35296/04 For Respondents: Mr.R.Viduthalai, No.3 in W.P.No. Sr.Counsel for 35296 of 2004 M/s.Aiyar & Dolia and for respondent No.4 in W.P.No. 25635 of 2004 For Respondent : Mr.P.Sukumar No.1 in W.P.No. 25635 of 2004, for respondent No.2 in W.P.Nos. 27208 and 35296 of 2004 For Respondent : Mr.T.K.Ramkumar & NO.5 in W.P.No. Mr.R.S.Varadarajan 27208 of 2004 For Respondent : Mr.K.Ramakrishna Reddy in W.P.No.27208 of 2004. O R D E R The secured creditor Industrial Development Bank of India, Chennai obtained a decree on 21.11.2001 against the debtor Rajalakhmi Mills Limited, Singanallur, Coimbatore in O.A.No.91 of 2000 from the Debt Recovery Tribunal-I, Chennai. As the debtor failed to pay the amount, the Recovery Officer brought the mortgaged property in an extent of 20 Acres 87 cents of land situated at Uppilipalayam village, Coimbatore District for sale in D.R.C.No.79 of 2002. In that sale, one Ramajeyam, the fourth respondent in W.P.No.25636 of 2004 has knocked down the property for a sum of Rs.15.08 crores. The said auction purchaser deposited 25 percent of the amount on the date of sale on https://hcservices.ecourts.gov.in/hcservices/ 30.8.2004 and balance amount of Rs.11.31 crores on 30.9.2004 as per the terms of the sale notice. While that being so, on 7.9.2004, writ petition in W.P.No.25635 of 2004 was filed by Times Guaranty Limited seeking for the relief of writ of mandamus forbearing the second respondent – the Recovery Officer, Debt Recovery Tribunal- I , Chennai from proceeding against the properties set out in the auction sale notice in DRC.No.79 of 2002 by arraying the Industrial Development Bank of India, the Recovery Officer, Debt Recovery Tribunal-I, Chennai and the Official Liquidator representing Rajalakshmi Mills Limited as respondents No.1 to 3 respectively, on the premise that they are the unsecured creditors in a sum of Rs.50 lakhs by way of discounting of bills of exchange and the debtor Rajalakshmi Mills failed to honour the bills. In spite of the repeated promises, the company Rajalakshmi Mills unable to pay the amount. Thus, the writ petitioner Times Guarantee Limited filed a Company Petition in C.P.No.122 of 1997 under Section 433 of the Companies Act for winding up of the Company. The Company Court passed an order of winding up of the Company on 7.4.2000. The Division Bench in O.S.A.No.179 of 2001 at the instance of the writ petitioner and in terms of the compromise memo filed by the writ petitioner Times Guarantee Limited and the debtor – Rajalakshmi Mills, passed an order dated 26.6.2001 setting aside the winding up order dated 7.4.2000 and directed the appellant to pay a sum of Rs.5,000/- by way of reimbursement of the money expended by the Official Liquidator within a week from the date of order. In the joint memo filed before the Division Bench, the debtor Rajalakshmi agreed to pay Rs.50 lakhs on or before 31.7.2001 to the writ petitioner and discharged the Official Liquidator appointed by the Company Court, with a covenant that in the event of default of payment of the amount as agreed by the debtor, the winding up order passed on 7.4.2000 in C.P.No.122 of 1997 shall stand revived. Again, the Division Bench by its order dated 30.4.2003 in C.M.P.No.18534 of 2002 revived the order passed by the Company Court dated 17.4.2000 winding up the debtor Rajalakshmi Mills. Thus, the action of the secured creditor Industrial Development Bank of India moving the Debt Recovery Tribunal by filing O.A.No.91 of 2000 and obtaining a decree on 28.11.2001 is all against the statutory provisions of the Companies Act. Once the winding up proceedings are initiated before the Company Court, without the leave of the Company Court, no action could be taken by the secured creditors. It is still worse on the part of the secured creditor to move the Debt Recovery Tribunal and proceed against the property mortgaged to it, dehors the provisions of the Companies Act, particularly, when the winding up order is passed and on that basis, obtained an order of interim stay of confirmation of auction sale from this Court on 9.9.2004, i.e., on the date the writ petition was admitted. 2. The auction purchaser, who got himself impleaded as the fourth respondent by order dated 29.9.2004, filed W.V.M.P.No.1757 of 2004 to vacate the interim order dated 9.9.2004 passed in W.P.M.P.No.31147 of 2004. https://hcservices.ecourts.gov.in/hcservices/ 3. While the matters stand thus, the Secretary of Rajalakshmi Mills High School filed another writ petition in W.P.No.27208 of 2004 by arraying the Recovery Officer, Debt Recovery Tribunal-I, Chennai, Industrial development Bank of India, Coimbatore, the Director of School Education, Chennai, the District Educational Officer, Gopalapuram, Rajalakshmi Mills Limited and the auction purchaser Ramajeyam as respondents seeking for the relief of writ of declaration declaring the public auction held in D.R.C.No.79 of 2002 on 30.8.2004 by the second respondent therein – the Recovery Officer in respect of the land measuring 3.35 acres in S.No.564/3, 566/1, 566/2, Uppilipalayam village, Coimbatore Taluk and District and bearing Door No.652/1, Trichy Road, Singanallur, Coimbatore – 5 and the School buildings and play ground thereon is illegal and arbitrary and in violation of Section 31 of the Tamil Nadu Recognised Private Schools (Regulation) Act, 1973 and consequently cancel the sale of the above asset in favour of the sixth respondent on the premise that the fifth respondent debtor – Rajalakshmi Mills passed a resolution to hand over the building and play ground along with 3.35 acres for the purpose of running of the School and the School is running there for several years and catering the needs of children of the employees of the mill. As per Section 31 of the Tamil Nadu Private Schools Regulation Act, the property in an extent of 3.35 acres comprised in the above survey numbers in which the School is running cannot be brought for sale without prior approval of the Educational authorities arrayed as respondents No.3 and 4 in the writ petition and on that basis sought for interim injunction restraining the first respondent from confirming the sale. The said writ petition was filed on 21.9.2004 and was admitted on 24.9.2004 and interim injunction was granted on the same day. 4. Thereupon, one K.P.Natarajan filed a writ petition in W.P.No.35296 of 2004 on 1.12.2004 by arraying the Recovery Officer, Debt Recovery Tribunal-I, Chennai, Industrial Development Bank of India, Coimbatore and the auction purchaser K.N.Ramajeyam seeking for the relief of writ of declaration declaring that the public auction held in D.R.C.No.79 of 2002 by the first respondent – Recovery Officer, Debt Recovery Tribunal – I, Chennai bringing the land measuring 1757 Sq.ft. in S.No.494/2, Uppilipalayam village, Coimbatore Taluk and District and bearing Nos.12-A, 25 and 26, Kalliamadai Road, Singanallur, Coimbatore and the petitioner's land, building thereon as illegal and arbitrary on the premise that the petitioner is the owner of the property in the above said extent in Survey No.494/2 bearing Dooor Nos.12-A, 25 and 26. The said writ petition was admitted and interim injunction for conformation of sale is granted on 2.12.2004. 5. Now, all the three writ petitions came up for orders. The auction purchaser filed applications in W.V.M.P.Nos.1757 and 2103 of 2004 to vacate the interim order in W.P.Nos.25635 and 27208 of 2004 respectively. https://hcservices.ecourts.gov.in/hcservices/ 6. When the matter is taken up for orders, the learned counsel on either side argued on merits and consented for disposal of the main writ petitions. 7. The petitioner in W.P.No.25635 of 2006 through his counsel submitted that the petitioner is not interested in prosecuting the writ petition and the writ petition may be dismissed as withdrawn. However, the counsel appearing for the auction purchaser has submitted that because of the filing of the writ petition and obtaining of interim order by the petitioner, great prejudice has been caused to the auction purchaser from getting the auction confirmed in his name in spite of the fact the entire amount as required in a sum of Rs.15.08 crores has been paid by him. This sort of filing writ petition and causing hardship to the third party and withdrawing the writ petition for extraneous reason at the time of disposal cannot be allowed. 8. I heard the learned counsel. The point on which the writ petition was filed by the unsecured creditor, who filed Company Petition and thereupon taking the matter to Division Bench in O.S.A and getting the order of winding up setting aside on the false promise that the amount would be paid and thereby getting time and even thereafter failed to perform the promise and thereafter the Order of the Company Court was got to be revived cannot be appreciated. Even on merits, the entire issue as to (1) Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the Banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres? (2) Whether for initiation of various proceedings by the Banks and financial institutions under the RDB Act, leave of the Company Court is necessary under Sections 537 before a winding up order is passed against the Company or before provisional liquidator is appointed under section 446(1) and whether the Company Court can pass orders of stay of proceedings before the Tribunal, in exercise of powers under section 442? (3) Whether after a winding up order is passed under Section 446 (1) of the Company Act or a provisional liquidator is appointed, whether the Company Court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution, and priority under section 446 (2) and (3) read with sections 529, 529A and 530 etc. of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal? (4) Whether, in case it is decided that the distribution of monies is to be done only by the Tribunal, the provisions of section 73 CPC and sub- clause (1) and (2) of section 529, Section 530 of the Companies Court also apply-apart from section 529A - to the proceedings before the Tribunal under the RDB Act? are all decided by the Supreme Court against the petitioner at paragraph No.30 of the judgment in the case of ALLAHABAD BANK VS. CANARA BANK AND ANOTHER reported in AIR 2000 SUPREME COURT 1535, wherein after referring the earlier case of the Supreme Court in DAMJI VALJI SHAH VS. LIFE INSURANCE https://hcservices.ecourts.gov.in/hcservices/ CORPORATION OF INDIA reported in AIR 1966 SC 135, the Supreme Court has held as follows: "... Just as the Company Court was held incompetent to stay or transfer and decide the claims made before the LIC Tribunal because the Company Court could not decide the claims before the LIC Tribunal, the said Court cannot, in our view, decide the claims of Banks and financial institutions. On the same parity of reasoning as in Damji Valji Shah's case, there is no need for the appellant to seek leave of the Company Court to proceed with its claim before the Debt Recovery Tribunal or in respect of the execution proceedings before the Recovery Officer. Nor can they be transferred to the Company Court." The Supreme Court further strengthened their view by pointing out as follows: " ... It may also be noticed that in the LIC Act of 1956, there was no provision like section 34 of the RDB Act giving overriding effect to the provisions of the LIC Act. Still this Court upheld the exclusive jurisdiction of the LIC Tribunal observing as follows: "the provisions of the special Act i.e. the LIC Act will override the provisions of the general Act, the Companies Act which is an Act relating to Companies in general." We are of the view that the appellant's case under the RDB Act - with an additional section like section 34 - is on a stronger footing for holding that leave of the Company Court is not necessary under section 537 or under section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the Company Court cannot also use its powers under section 442 against the Tribunal/Recovery Officer. Thus, sections 442, 446 and 537 cannot be applied against the Tribunal." In the proceedings before the Debt Recovery Tribunal-I, Chennai, the Company in liquidation was represented by Official Liquidator and even in the proceedings before the Recovery Officer, the Official Liquidator was a party. Therefore, the writ petition cannot be sustainable. Useful reference can be had to the judgment of the Supreme Court in the case of RAJASTHAN STATE FINACNIAL CORPORATION VS. OFFICIAL LIQUIDATOR reported in (2005) 8 SCC 190 and of the Division Bench of this Court in ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED VS. THE OFFICIAL LIQUIDATOR, HIGH COURT reported in 2006-2-LAW WEEKLY 442. 9. In view of the above said position, the challenge of the petitioner in W.P.No.25635 of 2004 has to fail and the writ petition has to be dismissed. 10. The writ petition filed by Rajalakshmi Mills School is a case having a checked history. The petitioner relied on Section 31 of the Tamil Nadu Recognised Private Schools (Regulation) Act, 1973 and contended that in view of the said provision, the https://hcservices.ecourts.gov.in/hcservices/ property of the School could not be put to sale under public auction. I am not able to agree with the reasoning. The petitioner is well aware that the auction taken by the secured creditor, the Industrial Development Bank of India was under Central Legislation and that alone would prevail. The exclusive jurisdiction of the Tribunal created under the Act and the Recovery Officer has been upheld by the Supreme Court in AIR 2000 SC 1535 referred above. 11. Further, Section 31 of the Tamil Nadu Recognised Private Schools (Regulation) Act provides that notwithstanding anything contained in any other law for the time being in force or in any deed, document or instrument having effect by virtue of such other law – (a) no property of a private school, shall except with the previous permission in writing of the competent authority, be transferred by way of sale, exchange, mortgage, charge, pledge, lease, gift or any other manner whatsoever; and (b) if any such property is transferred without such permission, the transfer shall be null and void. 12. In this case, it is the case of the Secretary of the petitioner School that the debtor Rajalakshmi Mills passed necessary resolution and signed the agreement to hand over the building and playground in an extent of 3.50 acres to the School. On that basis, they claimed that the property is a private School property. It is unfortunate that no document, what so ever, has been filed by the petitioner to prove that the property and the School are separate and different entities than the debtor Rajalakshmi Mills. On the other hand, one of the documents filed by them i.e., Form 5-F under Rule 17(31) of the Tamil Nadu Urban Land Tax Act, 1966 made available at page No.10 clearly states that the debtor Rajalakshmi Mills Private Limited, Trichy Road, Singanallur, Coimbatore is the owner of the property in which the School is running. So, the Secretary of the School Committee cannot claim that the property is the private property of the School itself, so as to attract Section 31 of the Private School Regulation Act. 13. Yet another obstacle is also there against the petitioner school, which cannot be get over by them easily. The Parent Teacher Association of the same School had filed a probono publico by way of writ petition in w.P.No.24486 of 2004 before the Division Bench of this Court seeking for the very same relief by raising the very same ground of violation of Section 31 of the Tamil Nadu Private Schools Regulation Act as ground No.(c) in the said writ petition. In order to have a clarity, the prayer in the probono publico is extracted here, which reads as follows: "For the reasons stated in the accompanying affidavit, it is prayed that this Hon'ble Court may be pleased to issue a writ of mandamus or any other writ or direction in the nature of writ forbearing the respondents 1 and 2 herein from in any manner proceeding with S.Nos.564/3, 566/1, 566/2, bearing Door No.652/1 Tiruchy Road, Singanallur, Uppilipalayam village, Coimbatore – 5 wherein the Rajalakshmi Mills High school, Elementary school and the play grounds are https://hcservices.ecourts.gov.in/hcservices/ located pursuant to the auction notification issued by the second respondent and published in the Dina Mani Newspaper dated 30.087.2004 and described as Item No.2 either on 30.08.2004 or in any other date contrary to the mandatory provisions of the Tamil Nadu Recognised Private Schools Regulation) Act, 1973 and the Rules made thereunder." 14. The prayer of the present writ petition in W.P.No.27208 of 2004 is also one and the same in respect of the very same property, though differently moulded. 15. The Division bench in its order dated 30.8.2004 made in W.P.No.24486 of 2004 non-suited them for maintaining the writ petition and directed them to agitate the matter under Order 1 Rule 8 of the Civil Procedure Code before the competent Civil Court. What the School could not achieve before the Division bench cannot be now re-agitated before this Court by the Secretary of the School. On these grounds, the petitioner cannot succeed in this writ petition. 16. However, the students and the staff of the petitioner School cannot be left in the lurch during the middle of the academic year. In this regard, it is worthwhile to note the averments made in the solemn affidavit filed by the auction purchaser in W.V.M.P.No.2103 of 2004 seeking to vacate the interim injunction granted in W.P.M.P.No.33104 of 2004 in w.P.No.27208 of 2004. In paragraph No.10 of the said affidavit, it is averred as follows: "... Presently, I have given a letter dated 25- 09-2004 to the Chief Educational Officer that I intend to run the school after the sale is confirmed in my name in the same place till the alternative place is located by me at my cost. Though, the school does not have independent right to claim rights or ownership over the subject lands, on humanitarian grounds, and as an educationalist I hereby undertake to take over the management and to run the school in the present place till the alternative site is located by me and shifting the school to the said alternative site. It is significant to note that at this juncture that I have already sent a letter to this effect to the petitioner as well as the educational authorities on 25-09-2004." The above said averments are recorded and the undertaking given by the auction purchaser would take care of the interest of the students and staff working in the School. With this observation, W.P.No.27208 of 2004 has to be dismissed. 17. The affidavit filed by K.P.Natarajan, the petitioner in W.P.No.35296 of 2004 is not so happily worded. However, from paragraph Nos.2 to 5, it could be discerned that the petitioner claimed ownership over the property at Nos.12-A, 25 and 26, Kalliamadai Road, Singanallur, Coimbatore in S.No.494/2 in Uppilipalayam village from 1960 onwards, that he was conferred title by settlement deed 16.3.1979, registered as document No.609 https://hcservices.ecourts.gov.in/hcservices/ of 1979 in Sub-Registrar's Office, Singanallur and the settlement deed dated 1.4.1981 registered as document No.582/81 in the Sub- Registrar's Office, Singanallur. The third respondent – auction purchaser claimed that he is the owner of the property being the purchaser of the same in the auction sale conducted by the Recovery Officer of the Debt Recovery Tribunal-I, Chennai. 18. I am afraid whether a writ petition can be maintained by the petitioner with these factual averments to stall the auction conducted by the Recovery Officer, who is exercising his exclusive jurisdiction as decided by the Supreme Court. If any encroachment or misclaim is made by the auction purchaser, the remedy of the petitioner is elsewhere and not by way of writ petition. 19. It was argued by the counsel for the debtor - Company that the auction purchaser has withdrawn most part of the amount deposited by him leaving a small fraction so as to keep the litigation alive. Per contra, it is submitted by the auction purchaser that the Industrial development Bank of India has not shown any interest to get the stay order vacated. The petitioner got impleaded himself as a party in W.P.No.25635 of 2004 on 29.9.2004 and filed applications to vacate the interim orders granted in W.P.Nos.25635 and 27208 of 2004 and the vacate stay petition was not listed on 6.10.2004. As the matter has not been taken up for final orders, the auction purchaser withdrawn portion of the amount by giving an unconditional undertaking to deposit the entire amount within seven days of the disposal of the writ petitions in his favour. 20. Having regard to the above submission made on either side, I am of the view that some sanctity should be attached to the auction sale conducted for recovery of debt due to the Banks and Financial Institutions. If such sales are disputed in Courts for extraneous reasons, the intending purchasers would be forced to be think twice before participating in the auction sale as they are also purchasing litigation. In such case the object of the Debt Recovery Act as adumbrated by the Supreme Court in Allahabad Bank case and Rajasthan Financial Institution case stated supra would be defeated. In this case, for recovery of a sum of Rs.4,27,12,957/-, the property was offered in auction thrice on 30.8.2003, 29.10.2004 and 27.2.2004 by fixing the upset price as Rs.18 Crores, Rs.15.50 Crores and Rs.13.00 Crores respectively, but there were no takers. When the property was offered for sale for the fourth time on 30.8.2004 by fixing the upset price to Rs.12.50 Crores, the auction purchaser offered Rs.15.08 Crores and paid 25 percent (Rs.3.77