Prime Industries vs B.S. Refrigerators Ltd.

H.N. Nagamohan Das, J.—These petitions are filed u/s 433(e) of the Companies Act, 1956 for winding up of the Respondent-company.

Respondent-company is a company incorporated under the provisions of the Companies Act as a Public Limited Company. The registered office of the Respondent-company is situated at Bangalore. The main object of the Respondent-company is manufacture and sale of refrigeration equipments and other allied activities. Petitioners entered into trade transaction with the Respondent-company. Since the Respondent-company failed to pay the debts due to the Petitioners, they got issued statutory notices demanding the Respondent-company to pay the dues. Since the Respondent-company failed to pay the amounts due to the Petitioners, they are before this Court for winding up of the Respondent-company.

This Court vide order dated 20-4-2009 permitted to take out newspaper publication and the same is complied. Pursuant to the advertisement, the secured creditors have filed their objections opposing the winding up of the Respondent-company.

Respondent-company entered appearance and filed statement of objections, inter alia, admitting that there are certain dues payable by them to the Petitioners and not as stated and claimed in the petitions.

Heard arguments on both the sides and perused the entire petition papers.

Learned Counsel for the Respondent submits that there are certain dues payable to the Petitioners and they are unable to pay the same. When the Respondent-company admits that they are liable to pay certain debts and fails to pay the same, then there is no impediment for passing the order of winding up.

The grievance of the Objector-Secured creditors that they have invoked the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ''SARFAESI'' Act) and therefore, at this stage, if an order of winding up is passed, the Official Liquidator will step in and will prevent the secured creditors from proceedings with under the provision of SARFAESI Act. This apprehension in the mind of the Objector-Secured creditors is unfounded.

Section 537 of the Companies Act, specifies that where a company is being wound up by the Court, any attachment, distress or execution put in force without leave of the Court against the estate of the company or sale shall be void. On the other hand, Section 13 of SARFAESI Act, specifies the right to the secured creditors to enforce the security interest against the debtor company. Supreme Court in Allahabad Bank Vs. Canara Bank and Another, held a under:

For the aforesaid reasons, we hold that at the stage of adjudication u/s 17 and execution of the certificate u/s 25, etc. the provisions of the RDB Act, 1993 confer exclusive jurisdiction on 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 u/s 442, read with Section 537 or u/s 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 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.

We have already held that the adjudication, execution and distribution of the sale proceeds and working out priorities as between banking and financial institutions and other creditors of the Defendant Company - so far as the monies realised under the RDB Act are concerned - has to be done only by the Tribunal and not by the Company Court. The next question is as to the manner of distribution of these monies between the banks or financial institutions on the one hand and the other creditors, secured or unsecured of the company under winding-up. This question depends upon the effect of Section 19(19) of the RDB Act as introduced by Ordinance 1 of 2000.

In view of the law declared by the Apex Court in Allahabad Bank''s case (supra) provisions of SARFAESI Act overrides Section 537 of the Companies Act. Therefore, Objectors being the secured creditors need not seek leave of the Company Court for the sale of the assets of the Respondent-company under the provision of the SARFAESI Act. Therefore, the objections filed by the objectors are hereby rejected.

For the reasons stated above, the following order:

(i) Petitions are hereby allowed.

(ii) The Respondent-company is ordered to be wound up. Petitioners are directed to deposit a sum of Rs. 25,000 with the Official Liquidator to meet the initial expenses of winding up proceedings.

(iii) Petitioners are directed to take out paper publication in the English daily newspaper "The Hindu "within fourteen days from the date of receipt of copy of this order.

(iv) The Petitioners are directed to serve a copy of this order on the Registrar of Companies within 30 days.