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State Bank of India v/s Shakumbhri Straw Product Limited & Another

    Special Appeal No. 430 of 2019

    Decided On, 02 April 2019

    At, High Court of Judicature at Allahabad

    By, THE HONOURABLE MR. JUSTICE PANKAJ MITHAL & THE HONOURABLE MR. JUSTICE SAUMITRA DAYAL SINGH

    For the Appearing Parties: Sandeep Arora, Narendra Kumar Giri, Advocates.



Judgment Text

s1. Heard Sri. Anurag Khanna, Senior Counsel assisted by Sri. Sandeep Arora, learned counsel appearing for the appellant and Sri. Ashok Mehta, Senior Counsel assisted by Sri. Ashish Agrawal for the Official Liquidator. Sri. Narendra Kumar Giri has accepted notice on behalf of respondent No. 2 who is a formal party.

2. The appeal under Chapter VIII, Rule 5 of the High Court Rules purports to challenge two orders, the main order is dated 27.02.2018 and the other order is dated 02.11.2018.

3. The order dated 02.11.2018 is an order rejecting the listing application of the appellant. Sri. Khanna, at the very outset, submits that he does not want to press the appeal against the aforesaid order and is confining the challenge in this appeal to the order dated 27.02.2018.

4. Accordingly, we have heard the parties on the validity of the order dated 27.02.2018 only.

5. The appeal was reported to be beyond time by about 87/89 days which we had condoned vide our order dated 26.03.2019 subject to payment of cost of Rs. 5,000/- by the appellant.

6. The order impugned in this appeal is an interlocutory order by which the proceedings initiated by the appellant State Bank of India for e-auction of the assets of the company in liquidation under the provisions of The Securitisation And Reconstruction of Financial Assests And Enforcement of Security Interest Act, 2002 (in short "SARFAESI Act, 2002") have been stayed for the reason that the possession of the said property was taken by the appellant-bank after the passing of the winding up order and without the leave of the Company Court.

7. The facts as revealed from the appeal are that the M/s. Shakumbhri Straw Product Limited had availed huge loans to the tune of over Rs. 75 crores from the appellant-bank upon the equitable mortgage of immovable properties. Its account was declared to be a Non Performing Asset (in short "N.P.A.") way back in the year 2011 whereupon proceedings under the SARFAESI Act, 2002 were drawn against it and its Directors for the recovery of the defaulted amount. It is alleged that the possession of the secured assets which/mortgaged properties were taken over by the appellant-bank on 29.10.2014/31.10.2014 and was duly notified in the widely circulated newspapers Times of India and Hindustan on 15.11.2014 in accordance with the Security Interest (Enforcement) Rules, 2002.

8. In addition to the above proceedings alleged to have been initiated by the appellant-bank, it appears that one another creditor of the company in liquidation M/s Arjun Chemicals Private Limited initiated winding up proceedings as the company in liquidation was unable to pay its debts. The Company Court vide order dated 25.08.2017 ordered for the winding up of the company and appointed the Official Liquidator.

9. It is in the aforesaid facts and circumstances when the appellant-bank proceeded for e-auction of the mortgaged properties of the company in liquidation fixing 28.02.2018 that on the report of the Official Liquidator Nos. 25 and 27 of 2018, the impugned order was passed staying the auction proceedings.

10. The primary submission of Sri. Khanna, ignoring the factum of possession of the mortgaged properties by the appellant-bank, is that the SARFAESI Act, 2002 is a special enactment and that it prevails over and above the provisions of the Companies Act and as such the proceedings of auction initiated by the appellant-bank in respect of the properties of the company in liquidation are not liable to be interfered with by the Company Judge.

11. Sri Mehta has defended the order of the Company Judge by submitting that the appellant-bank has already applied for the recall of the above order and the application in that regard continues to be pending. As such, the appellant-bank is not entitled to maintain this appeal. He also argued that in view of the Proviso to sub-section (9) of Section 13 of the SARFAESI Act, 2002, the secured creditor i.e. the appellant-bank is obliged to furnish an undertaking before the Liquidator to pay the balance of the workers due, if any, and therefore until such an undertaking is furnished, the appellant-bank cannot proceed with the auction.

12. On behalf of the appellant-bank, it has been contended that the application filed for the recall of the order impugned has been withdrawn.

13. The appellant-bank may have applied for the withdrawal of the above application, but probably there is no specific order of the Court dismissing it as withdrawn.

14. Nonetheless, as the appellant-bank has the remedy to apply for recall of the order impugned or to challenge it, even if no specific order has been passed permitting its withdrawal, it makes no difference as far as the adjudication of the order is concerned.

15. There is no dispute to the fact that the company in liquidation was ordered to be wound up on 25.08.2017 and in proceedings initiated by the appellant-bank under the SARFAESI Act, 2002. E-Auction of the mortgaged properties of the company in liquidation was fixed for 28.02.2018.

16. The question as to when the possession of the mortgaged assets of the company in liquidation were taken over by the appellant-bank is a disputed one and therefore assuming for the sake of arguments that the possession was taken subsequent to the winding up or may not have been taken over at all. The issue is whether the appellant-bank can be restrained from proceedings under the SARFAESI Act, 2002.

17. The aforesaid issue is no longer res-integra as it has been considered and decided by the Apex Court in the case of Pegasus Assets Reconstruction P. Ltd. v. M/s. Haryana Concast Limited and another, (2016) AIR SC 494. In the said case, the Apex Court has expressly held that any proceedings under the SARFAESI Act, 2002 viz-a-viz the Companies Act, interference either by the Company Judge or the Official Liquidator is not permissible as SARFAESI is a complete Court and the secured creditor has a right to enforce its security interest without intervention of the Court or the Tribunal.

18. The Supreme Court in the aforesaid decision in paragraph 24 and 25 observed as under:-

"24. Since we have held earlier in favour of views of Delhi High Court, it is not necessary to burden this judgment with the case laws which support that view and have been noted by the High Court. We are in agreement with the submissions advanced on behalf of respondent Kotak Mahindra Bank as well as respondent No. 2 that there is no lacuna or ambiguity in the SARFAESI Act to warrant reading something more into it. For the purpose it has been enacted, it is a complete code and the earlier judgments rendered in the context of SFC Act or RDB Act vis-a-vis the Companies Act, cannot be held applicable on all force to the SARFAESI Act. There is nothing lacking in the Act so as to borrow anything from the Companies Act till the stage the secured assets are sold by the secured creditors in accordance with the provisions in the SARFAESI Act and the Rules. At the post sale stage, the rights of the persons or parties having any stake in the sale proceeds are also taken care of by sub-section (9) of Section 13 and its five provisos (not numbered). It is significant that as per sub-section (9) a sort of consensus is required amongst the secured creditors, if they are more than one, for the exercise of rights available under sub-section (4). If borrower is a company in liquidation, the sale proceeds have to be distributed in accordance with the provisions of Section 529-A of the Companies Act even where the company is being wound up after coming into force of the SARFAESI Act, if the secured creditor of such company opts to stand out of the winding up proceedings, it is entitled to retain the sale proceeds of its secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529-A of the Companies Act. The third proviso is also meant to work out the provisions of Section 529-A of the Companies Act, in case the workmen's dues cannot be ascertained, by relying upon communication of estimate of such dues by the liquidator to the secured creditor, who has to deposit the amount of such estimated dues with the liquidator and then it can retain the sale proceeds of the secured assets. The other two provisos also are in aid of the liquidator to discharge his duties and obligations arising under Section 529A of the Companies Act. Thus, it is evident that the required provisions of the Companies Act have been incorporated in the SARFAESI Act for harmonizing this Act with the Companies Act in respect of dues of workmen and their protection under Section 529-A of the Companies Act. In view of such exercise already done by the legislature, there is no plausible reason as to take recourse to any provisions of the Companies Act and permit interference in the proceedings under the SARFAESI Act either by the Company Judge or the liquidator. As noted earlier, the Official Liquidator as a representative of the borrower company under winding up has to be associated, not for supplying any omission in the SARFAESI Act but because of express provisions therein as well as in the Rules. Hence the exercise of harmonizing that this Court had to undertake in the context of SFC Act or the RDB Act is no longer warranted in respect of SARFAESI Act vis-a-vis the Companies Act."

"25. The aforesaid view commends itself to us also because of clear intention of the Parliament expressed in Section 13 of the SARFAESI Act that a secured creditor has the right to enforce its security interest without the intervention of the

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court or tribunal. At the same time, this Act takes care that in case of grievance, the borrower, which in the case of a company under liquidation would mean the liquidator, will have the right of seeking redressal under Sections 17 and 18 of the SARFAESI Act." 19. In view of the above legal position, we are of the opinion that the order impugned in this appeal which may be of an interlocutory nature granting interim stay order is patently without jurisdiction and cannot be sustained in law. 20. Accordingly, we set aside the order dated 27.02.2018 and allow the appellant-bank to proceed under the SARFAESI Act, 2002 against the mortgaged assets of the company in liquidation in accordance with law, subject to submitting of an undertaking before the Official Liquidator as contemplated vide Section 13 (9) of the SARFAESI Act, 2002. 21. The appeal is allowed and the amount of cost directed to be deposited in allowing the delay condonation application, if not already deposited, be deposited by the appellant-bank within a further period of 10 days.
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