Allowed

Assest Reconstruction Company (India ) Limited v. the Official Liquidator Set Telecom Ltd. in Liquidation

Bombay HC14 Oct 2014CA/508/2014

Case brief

AI extract

What is this about?

Respondent secured creditor sought to deposit wound up assets proceeds directly with liquidator instead of applicant assignee, citing assignment agreement excluded pre-date loan receipts from transfer. Court directed Respondent to deposit amount.

What did the court decide?

SBI directed to deposit amount with Official Liquidator; Applicant deposit refunded.

Assest Reconstruction Company (India ) Limited Vs the… — Company and Corporate | Bombay HC (2014)

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Cal 279 of 2014

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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COMPANY APPLICATION (L) NO.279 OF 2014

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OFFICIAL LIQUIDATOR REPORT NO.72 OF 2007 COMPANY PETITION (L) NO.270 OF 2001

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IN THE MATTER OF WINDING UP PROCEEDINGS AGAINST M/S SET TELECOM LTD. (IN LIQUIDATION), APPLICANT

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ASSET RECONSTRUCTION COMPANY (INDIA) LTD. … Applicant

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Dr. B.B.Saraf i/by M/s. Manilal Kher and Ambalal and Co., for Petitioner. Mr. S. Ramakantha, Official Liquidator, present.

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Mr. Bhave i/by M/s. Bhave and Co., for Respondent No.2.

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CORAM: S.J. KATHAWALLA, J. DATE : 14^th OCTOBER, 2014

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The application seeks modification of an order dated 24^th January, 2014 passed by this Court in Official Liquidator’s Report No.72 of 2007 whereby the court directed the Applicant to deposit an amount of Rs.15,20,228/- with accrued interest @12% p.a. with the Official Liquidator. The Applicant prays that the said order be modified and State Bank of India, Respondent No.2 (“SBI”) be directed to deposit the said amount instead of the Applicant.

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SBI was a secured creditor of Set Telecom Ltd. (in liquidation) (“the Company”). SBI filed proceedings before the DRT and a Recovery Certificate was issued in favour of SBI.

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Cal 279 of 2014

By an order dated 29^th August, 2001 the Official Liquidator attached to this court was appointed the provisional liquidator of the Company. Subsequently, on 22^nd June, 2010, the Company was directed to be wound up and the Official Liquidator was appointed.

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During the pendency of the proceedings for winding up of the Company, certain immovable property was sold and the sale proceeds received were permitted to be withdrawn and appropriated by the secured creditors on an undertaking that the secured creditors will bring back the money proportionately, if so directed by the Court. The sale proceeds were disbursed between SICOM, MSFC and SBI. SBI received an amount of Rs.15,20,228/-. A letter of SICOM dated 28^th March 2003 has been placed on record confirming that the said amount of Rs.15,20,228/- was paid to SBI. SBI has not disputed this letter.

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In the meanwhile, since the workers’ claim in excess of Rs.1 crore were received by the Official Liquidator, the Official Liquidator submitted a report before the court seeking directions that the amounts which were disbursed be brought back.

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By an order dated 4^th January, 2014, this court directed the Applicant to deposit an amount of Rs.15,20,228/- with accrued interest @12% p.a. with this court. On the date when the order was passed, the Applicant was not present. The Applicant has thereafter filed the present application. During the pendency

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Cal 279 of 2014

of the application, without prejudice to its rights and contentions, the Applicant deposited the amount in Court.

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It is the Applicant’s case that under an Assignment Agreement dated 29^th March 2006, the amounts which were receivable by SBI form the company were assigned to the Applicant. However, it was SBI which had received the amounts from the court and the obligation to bring back the amounts continued to be that of SBI and that the same cannot be foisted upon the Applicant. The learned counsel on behalf of the Applicant contended that the Applicant has been directed to bring back the amounts on the basis that the amounts appropriated by the SBI were subsequently assigned to the Applicant. Drawing the attention of the court to the Assignment Agreement, it was contended that the said premise is not correct and that the amounts which was disbursed from this court and appropriated by the SBI were in fact not assigned to the Applicant. It is submitted that since SBI has received the amounts and appropriated the same, SBI be directed to bring back the amounts.

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SBI filed an affidavit dated 19^th September 2014 in reply to the Company Application. In the said reply, it was contended that the Applicant has purchased the loan pursuant to Section 5 (1) (b) of SARFAESI and the State Bank of India has disclosed vide its letter dated 10^th March 2006 all the financial documents including the statement of account. It is stated that the said letter is mentioned in the assignment agreements at several places, which inter alia states that the claims and demands have been disclosed in the said letter. It is contended that though the assignment does not include retained obligations,

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Cal 279 of 2014

the retained obligations do not cover the amount recovered /received during the course of the loan. It is further contended that there is an arbitration clause in the assignment agreement and that any dispute should be referred to arbitration. It was contended that this court does not have jurisdiction to try the company application. It was further contended that the Applicant as the assignee of the debt is the absolute legal owner and entitled to the said loan /amounts and security interst or any part thereof and is also entitled to recover and receive all amounts due from the company in liquidation. SBI contends that the definition of ‘loan’ as defined in the assignment agreement includes the monies received by the SBI. Since the loan has been assigned to the Applicant, the Applicant is liable for all liabilities including any statutory liabilities arising under the loan.

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I have considered the rival contentions. It is a matter of fact which is apparent from the letter of SICOM that it was SBI who received the amount of Rs.15,20,228/- which was disbursed from the sale proceeds of the property of the Company.

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A perusal of the assignment agreement discloses that under the same, what has been assigned to the Applicant are the ‘Loans’ as defined in the agreement. Both the definition of the term ‘Loans’ as well as the operative part of the assignment clearly excludes ‘Retained Obligations’. The definition of the terms ‘Loans’ and ‘Retained Obligations’ and also operative part of the assignment agreements are set out hereunder.

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Cal 279 of 2014

“ Loans means the aggregate of all Amounts Due and all other monies whatsoever stipulated in or payable, under the Financing Documents, by the Borrowers to the Seller, including but not limited to:

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(i) past over dues, future payments, interest charges for delayed payments, indemnities and damages or other charges and/or all other monies, if any, received or to be received by the Seller under the Financing Documents, including the proceeds of any enforcement of the Financing Documents or any Security Interest and/or pledge, created by any Borrower to secure the repayment of the Financial Assistance under the Financing Documents and/or any guarantee issued in relation thereto;

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(ii) any and all claims, suits, causes of action, and any other right of the Seller, whether known or unknown, against any Borrower or any of its respective affiliates, agents, representatives, contractors, advisors, or any other entity that in any way is based upon, arises, out of, or is related to, or attributable to any of or arising out of in connection with the Financing Documents;

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(iii) all guarantees and all Security Interests and security of any kind for or in respect of the foregoing;

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(iv) the economic benefit of Distributions received by Seller from and after the Trade Date; and

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(v) all future proceeds of the foregoing.

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Provided that it is hereby clarified that Amounts Due and the monies stipulated in or payable, under the Financing Documents shall not include any Retained Obligations . ”

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(emphasis supplied)

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“ Retained Obligations means all obligations and liabilities of the Seller relating to the Loans/Borrower that result from facts, events, actions, omissions or circumstances occurring prior to the Effective Date, whether such obligations and liabilities arise before, on or after the Effective Date. ”

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“ 2 ASSIGNMENT OF LOANS 2.1 Assignment

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2.1.1 The parties hereto acknowledge that the conditions precedent set forth in Section 3 (Conditions Precedent) have been fulfilled or waived by the Purchaser, as the case may be, and in consideration of the Purchaser, paying the Purchaser Consideration to the Seller, and upon the terms and conditions set forth herein and in the relevant Transaction Documents, the Seller as the true, legal and beneficial owner of the Loans, in the ordinary course of its business, hereby unconditionally and irrevocably sells, assigns, transfers and releases to and unto the Purchaser all the Loans forever, pursuant to Section 5(1)(b)

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Cal 279 of 2014

of the SARFAESI TO HOLD the same absolutely IN TRUST for the benefit of holders of the Security Receipts issued by the Purchaser pursuant to the Arcil – SBPS – 001-IX Trust , and the Trust Deed TO THE END AND INTEND THAT the Purchaser shall hereafter be deemed to be the full and absolute legal owner, and the only person legally entitled to the Loans or any part thereof, free from any or all encumbrances, and to recover and receive all Amounts Due, including the right to file a suit or institute such other recovery proceedings and take such other action as may be required for the purpose of recovery of the Loans, in its own name and right and as an assignee, and not as a representative or agent of the Seller and to exercise all rights of the Seller in relation thereto, Provided that the Retained Obligation shall continue with the Seller .”

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(emphasis supplied)

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From the aforesaid, it is apparent that the assignment clearly excludes Retained Obligations. The definition of the term ‘Retained Obligations’ is wide and includes all obligations and liabilities of SBI relating to loan/borrowers that result from facts, events, actions, omissions or circumstances occurring prior to the effective date whether such obligations and liabilities arise before on or after the effective date. The effective date has been defined in the agreement to be the date of signing of the agreement which is 29^th March 2006.

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In the present case, SBI had received the amount in 2003 i.e. much prior to the assignment. The obligation to bring back the amount is clearly an obligation that results from the fact, event and action of receipt of monies by SBI in 2003. The withdrawal / appropriation was on an undertaking to bring back the amount if so directed by the Court. Such an obligation has not been assigned to the Applicant and continues to be that of SBI.

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Cal 279 of 2014

There is merit in the contention of the Applicant that the order dated 24^th January 2014 proceeds on the premise that ‘ The amount appropriated by the State Bank of India was subsequently assigned to ARCIL’ . At the time when the order was passed by the court, the aforesaid terms of the Assignment Agreement were not brought to the notice of the court.

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The reliance placed on the arbitration clause in the Assignment Agreement on behalf of SBI is misplaced. Since monies were disbursed pending winding up proceedings, it is for the company court to determine who is obliged to bring back the amounts to the court. It is not merely an inter se dispute between SBI and the Applicant. In such circumstances, it is for the company court to consider the rival contentions and the material on record and determine which party is to bring back the amounts.

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The contention of SBI that the Assignment Agreement makes a mention of a letter dated 10^th March 2006 whereby, SBI is said to have disclosed to the Applicant all relevant details in relation to the loans, does not in any manner effect the consideration of the present application. The letter dated 10^th March 2006 has not been placed by SBI on record. Since SBI sought to rely upon the same, I gave an opportunity to SBI to place the said letter on record in order to consider the same. However, SBI was not in a position to place that letter on record to explain the relevance or significance of the same. The Assignment Agreement and the clauses set out hereinabove are clear and clearly exclude from the purview of the assignment any obligations and liability of SBI relating to

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Cal 279 of 2014

the loan /borrowers that result from facts, events, actions and circumstances occurring prior to the effective date.

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In the circumstances as aforesaid, the application deserves to be allowed. Accordingly, the application is allowed in terms of prayer clauses (a), SBI is directed to deposit an amount of Rs.15,20,228/- with accrued interest @ 12% p.a. with the Official Liquidator on or before 12^th November, 2014. Within one week of the amount being so deposited by the SBI, the amount deposited by the Applicant pursuant to the order dated 24^th January 2014 be refunded by the Official Liquidator to the Applicant. The Company Application is accordingly disposed of.

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( S.J. KATHAWALLA, J.)

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Assest Reconstruction Company (India ) Limited v. the Official Liquidator Set Telecom Ltd. in Liquidation

Case brief

What is this about?

What did the court decide?

Assest Reconstruction Company (India ) Limited v. the Official Liquidator Set Telecom Ltd. in Liquidation

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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