ASN 1 Appeal-664.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL LODGING NO.664 OF 2011 Kotak Mahindra Bank Ltd. ..Appellant. Vs. Krantikari Kamgar Union and anr. ..Respondents. Mr.Sudhir Talsania ,Sr. Counsel along with Mr. Cyrus Ardeshir and Mr. Nikhil Rajani i/by M/s. V. Deshpande & Co. for the Appellant. Mr. Sanjay Singhiv with Jane Cox for Respondent No.1. CORAM : MOHIT S. SHAH, C. J. AND SMT. ROSHAN DALVI, J. DATE : 14 October 2011 ORAL ORDER (Per Chief Justice): By order dated 20 June 2007 of the Company Court M/s. Zadona Electronics Ltd. came to be ordered to be wound up. The assets of the company have been sold and total amount of Rs.87.10 Crores is lying with the D.R.T.-I. 2 By order dated 20 May 2011, Recovery Officer of the D.R.T. ordered to release the payments of the following amounts i) Rs. 4.00 Crores to Kotak Mahindra Bank Ltd. ii) Rs.15.00 Crores to the Official Liquidator towards claim of the workers. It was further directed that the claim of all the workers and and issues were kept open. ASN 2 Appeal-664.sxw 3 Thereafter, the Official Liquidator submitted a report dated 3 August 2011 holding that out of the 714 claimants received by the Official Liquidator from workers, the claim of 615 workers was adjudicated at Rs.31,42,87,768/- The Official Liquidator also submitted in the report that 99 workers’ claim could not be adjudicated as 79 workers claims were received after due date and the same will be adjudicated after the said 79 claimants obtained the necessary order for condonation of delay from the Company Court. The remaining 20 claims could not be adjudicated for want of documentary evidence from the respective claimants. As far as secured creditors are concerned, it appears that only one secured creditor submitted the claim but the claim could not be adjudicated for want of submission of documentary evidence. 4 As far as 79 plus 20 workers are concerned, their claim is to the tune of Rs.19,42,31, 220/-. 5 As far as secured creditors are concerned, their claims are pending before the D.R.T. At the hearing today, it is contended by the appellant-Kotak Mahindra Bank Ltd. that their original claim is Rs.70/- Crores as per the recovery certificate issued by the D.R.T. It is further stated that there are three other parties who are secured creditors and their claims are to the extent of about Rs.38/- Crores. It is submitted that unless and until all the claims of the secured creditors are determined and the final claim of the workers is determined, no final distribution can be made and even ad-hoc distribution cannot be made ASN 3 Appeal-664.sxw as workmen are entitled to get full amount of Rs.31.42 Crores adjudicated by the liquidator. The directions given by the learned Company Judge requiring the Official Liquidator to move the DRT for distribution of 31.00 Crores is therefore, challenged in this appeal. 6 The learned counsel for the workers submitted that the workers’ claim of Rs.31.00 Crores is also accepted by the Official Liquidator and therefore, the entire amount of Rs.31.00 Crores should be released in their favour because the balance amount of Rs.56.00 Crores and some odd amount will be available for the secured creditors. It is further submitted that the secured creditors have claimed much higher amount than entitled to them and that they have even calculated interest after the period of winding up which is not permissible as per the decision of the Gujrat High Court in the case of Textile Labour Association, Bhadra, Ahmedabad and Official Liquidator, Ahmedabad and ors. 1999 II LLJ 859. 7 Having heard the learned counsel for the parties, we find that the order dated 20 May 2011 of the Recovery Officer DRT- I for releasing Rs.15.00 Crores to the Officer Liquidator towards the claim of the workers was never challenged and today also the learned counsel for the appellant submits that the appellant would have no objection for disbursement of Rs.15.00 Crores but nothing further should be disbursed in favour of the workers. The dispute therefore, falls upon the balance amount of Rs.15.00 Crores and some odd amount for which the Official Liquidator has already adjudicated the ASN 4 Appeal-664.sxw claim in favour of the workers. It is, however, not clear as to how the amount is due and payable to the secured creditors. The appellant claims to have issued recovery certificate of total amount of Rs.70/- Crores . The Unit Trust of India claims that they are debenture holders and have their claim of Rs.16.00 Crores. J. P. Morgan claims another amount of Rs.15.00 Crores and it is stated that Bank of Omen claims Rs.6.50 Crores. 8 The learned counsel for the appellant submitted that the Company Court has no jurisdiction to pass the impugned order. In support of the submissions reliance is placed on Paragraph 49 of the decision of the Apex Court in the case of Allahabad Bank Vs. Canara Bank and another AIR 2000 S.C.1535. The said paragraph reads as under: “For the aforesaid reasons, we hold that at the stage of adjudication under S.17 and execution of the certificate under S.254 etc. the provisions of the RDB Act, 1993 confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to Banks and financial institutions and there can be no interference by the Company court under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the Banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with Section 19(19) read with section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the Companies Act,1956 and the latter ASN 5 Appeal-664.sxw Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition against the debtor company and also after a winding up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against the respondents”. 9 On the other hand, the learned counsel for the workers has relied upon the decision of the three Judges Bench of the Apex Court in the case of Rajasthan Financial Corporation and another Vs. Official Liquidator and another (2005) 128 Company Cases 387 (S.C.) on the following observations:- “Thus, from the authorities what emerges is that once a winding up proceeding has commenced and the liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institution coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the official liquidator and under the supervision of the company court. The right of a financial institution or of the Recovery Tribunal or that of a final corporation or the court which has been approached under section 321 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the official liquidator being associated with it, giving the company court the right to ensure that the distribution of the assets in terms of section 529A of the Companies Act takes place. In the case on hand, ASN 6 Appeal-664.sxw admittedly, the appellants have not set in motion any proceeding under the SFC Act . What we have is only a liquidation proceeding pending and the secured creditors, the financial corporations approaching the company court for permission to stand outside the winding up and sell the properties of the company in liquidation. The company court has rightly directed that the sale be held in association with the official liquidator representing the workmen and that the proceeds will be held by the official liquidator until they are distributed in terms of section 529A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this court in the decisions referred to above. In this situation, we find no reason to interfere with the decision of the High Court. We clarify that there is no inconsistency between the decisions in Allahabad Bank v. Canara Bank (supra) and International Coach Builders Ltd. v. Karnataka State Financial Corporation (supra) in respect of the applicability of sections 529 and 529A of the Companies Act in the matter of distribution amongst the creditors. The right to sell under the SFC Act or under the Recovery of Debts Act by a creditor coming within those Acts and standing outside the winding up is different from the distribution of the proceeds of the sale of the Security and Distribution in a case where the debtor is a company in the process of being would up, can only be in terms of section 529A read with section 529 of the Companies Act. After all the liquidator represents the entire body of creditors and also holds a right on behalf of the workers who have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in section 530 of the Companies Act under the directions of the company court. In other words, the distribution of ASN 7 Appeal-664.sxw the sale proceeds under the directions of the company court is a responsibility. To ensure the proper working out of the scheme of distribution, it is necessary to associate the official liquidator with the process of sale so that he can ensure in the light of the directions of the company court, that a proper price is fetched for the assets of the company in liquidation. It was in that context that the rights of the official liquidator were discussed in International Coach Builders Ltd. (supra). The Debt Recovery Tribunal and the District Court entertaining an application under Section 31 of the SFC Act should issue notice to the liquidator and hear him before ordering a sale, as the representative of the creditors in general. In the light of the discussion as above, we think it proper to sum up the legal position thus: (i) A Debt Recovery Tribunal acting under the recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the same for sale and to sell the properties of the Debtor even if a company in liquidation through its Recovery Officer but only after notice to the official liquidator or the liquidator appointed by the company court and after hearing him. (ii) A District Court entertaining an application under Section 31 of the SFC Act will have the power to order to sell the assets of a borrower-company in liquidation but only after notice to the official liquidator or the liquidator appointed by the company court and after hearing him. (iii) If a financial corporation acting under section 29 of the SFC Act seeks to sell or ASN 8 Appeal-664.sxw otherwise transfer the assets of a debtor, company in liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the company court and acting in terms of the directions issued by that court as regards associating the official liquidator with the sale, the fixing the upset price of the reserve price, confirmation of the sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of section 539A and section 529 of the Companies Act. (iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the concerned creditor is to approach the company court for appropriate directions regarding the realization of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company in liquidation. Now reverting back to the case on hand, we find that the directions issued by the company court are in the interest of all the creditors and are well within its jurisdiction. But we find merit in the submission that the company court was not justified in not ordering a fresh valuation of the properties. Having regard to the lapse of time, we are satisfied that a fresh valuation is necessary. We direct the company court to get a fresh valuation done by a valuer from the panel of valuers of the High Court. The other directions issued by the company court are affirmed. The appeal is thus disposed of affirming the directions issued by the company court, but with ASN 9 Appeal-664.sxw a modified direction for getting a fresh valuation of the properties as indicated in the earlier paragraph. We make no order as to costs.” 10 A reading of the above judgment shows a reconciliation made by the Supreme Court upon the powers of the DRT and the Company Court. Both have to work in unison and with notice to the Official Liquidator who would ultimately represent all the creditors, secured as well as unsecured. The jurisdiction of the Company Court is, therefore, not ousted as contended by the various secured creditors. The Company Court would have to exercise jurisdiction for the ultimate distribution of the properties of the Banks and Financial Institutions sold by and under the supervision of the DRT. 11 Hence, the directions passed by the learned Company Judge are within his jurisdiction. However, on the facts the case, grant of the above amount claimed by the workers, who have only a pari passu claim, would require modification. 12 Having regard to the claim of the secured creditors, it appears that interest of justice will be served if the total amount of Rs. 23.00 Crores (Rs.15.00 as already ordered plus Rs.8.00 Crores i. e. Rs. 23.00 Crores) is permitted to be distributed as ad-hoc payment instead of Rs.31.00 Crores adjudicated by the learned Company Judge pending final determination and distribution of the amount due and payable to the secured creditors and the workers. ASN 10 Appeal-664.sxw 13 The Official Liquidator shall accordingly, finally determine the amount due and payable to the workers as directed by the Company Judge. 20 workers who have not lodged their claim within time limit shall also be permitted to lodge their claim within one month from today i. e. by 14 November 2011. In the mean time, the DRT shall consider the claims of the secured creditors and determine the total amount payable to the secured creditors after notice to the Official Liquidator. The Official Liquidator shall thereafter work out the ratio of the dues payable to the secured creditors and the amount payable to the workers after giving all parties opportunity of hearing and shall finally determine their claims by 15 December 2011. The final order for distribution shall be in consonance with the reconciliation in terms of the above Supreme Court Judgment. 14 This order is passed without prejudice to the rights and contentions of the parties and all contentions are kept open including the contention of the learned counsel for the workers that for determining the cut-off date for calculating interest, the date should be the date of winding up order and not any date prior thereto. CHIEF JUSTICE ( SMT. ROSHAN DALVI, J. )