Allowed

Kotak Mahindra Bank Ltd. v. Official Liquidator of Clarisis Organics Ltd.

Gujarat HC7 Aug 2015COMA/285/2011

Case brief

AI extract

What is this about?

An assignee bank sought secured assets held by the liquidator for SARFAESI enforcement. The court directed delivery of possession and permitted further enforcement, subject to the Section 13(9) proviso and informing the liquidator of steps taken. Non-registration of the assigned charge did not defeat enforcement. The judgment was stayed for three weeks.

What did the court decide?

Liquidator directed to deliver secured assets; further SARFAESI action permitted subject to Section 13(9) proviso and informing the liquidator. Judgment stayed for three weeks.

Kotak Mahindra Bank Ltd. Vs Official Liquidator of… — Company and Corporate | Gujarat HC (2015)

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O/COMA/285/2011 CAV JUDGMENT

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

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COMPANY APPLICATION NO. 285 of 2011

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In COMPANY PETITION NO. 50 of 2011 In COMPANY APPLICATION NO. 248 of 2011

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FOR APPROVAL AND SIGNATURE:

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HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI

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1 Whether Reporters of Local Papers may be allowed to see the judgment ?

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2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?

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4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?

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KOTAK MAHINDRA BANK LTD....Applicant(s)

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Versus

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OFFICIAL LIQUIDATOR OF CLARISIS ORGANICS LTD & 1....Respondent(s)

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Appearance:

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MR NAVIN K PAHWA, ADVOCATE for the Applicant(s) No. 1 MR ASHOK L SHAH, ADVOCATE WITH MR PAVAN S GODIAWALA, ADVOCATE for the Respondent(s) No. 2

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MS AMEE YAJNIK, ADVOCATE for the Respondent(s) No. 1

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CORAM: HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI

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Page 1 of 78

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O/COMA/285/2011 CAV JUDGMENT

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Date :07/08/2015

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CAV JUDGMENT

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1.The applicant-Kotak Mahindra Bank
Limited has taken out the Judges' summons in
which the following relief is prayed:

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“1(A) That this Hon'ble Court may be
pleased to direct the respondent
Official Liquidator who is appointed as
Provisional Liquidator pursuant to order
dated 8.2.2011 made by this Hon'ble
Court in Company Petition No.50/2010, to
hand over possession of the secured
assets particularly described in the
schedule annexed hereto and marked as
Annexure-”A”, to the applicant who has
already initiated measures under the
provisions of the Securitisation and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act,
2002 prior to the appointment of the
Provisional Liquidator and permit the
applicant to proceed further in relation
thereto, in the interest of justice.”

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2.Heard learned advocate Mr.Navin K Pahwa

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for the applicant, learned advocate Ms.Amee
Yagnik for respondent no.1-Official Liquidator
and learned advocate Mr.Ashok L Shah with learned
advocate Mr.Pawan C Godiawala for respondent
no.2.

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3.Learned advocate Mr.Pahwa for the

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applicant submitted that the State Bank of India
(hereinafter referred to as `SBI' for the sake of
convenience) had granted various credit
facilities to Clarisis Organics Limited
(hereinafter referred to as the `Company' for the
sake of convenience). The said credit facilities
were renewed from time to time. Against the said
credit facilities, the company had mortgaged the
properties being land and building bearing survey
no.489, 502, 502/1/A, 502/1/B, 502/1/C, 502/2-P
and consolidated survey no.489 situated at
village Mokhsi, Taluka Savli, District Vadodara
admeasuring 30,451 sq.mtrs. The Company had also
hypothecated all its movables being raw
materials, stock in progress, finished goods,
packing materials, plant and machinery etc.,
except plant and machinery, other movables from
3.4.DCNB unit and 3.4 DCA project. The plant and
machinery and other movables of the aforesaid
unit and project have been hypothecated to
TechnologyInformation,Forecastingand
Assessment Council (hereinafter referred to as
`TIFAC' for the sake of convenience).

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3.1Learned advocate Mr.Pahwa further
submitted that the Company had initially created
mortgage in favour of ICICI Bank Limited, IDBI
Bank Limited, IFCI Limited and SBI by way of
joint mortgage by deposit of title deeds dated

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Page 3 of 78

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24.4.1991 in respect of the aforesaid immovable
property. However, thereafter, credit facilities
available by the Company from ICICI Limited, IDBI
Limited and IFCI Limited were settled and thereby
only SBI remained the exclusive first charge
holder in priority of all other charges over the
immovable property. At this stage, learned
advocate further submitted that on 23.3.2006, the
Deed of Assignment was executed between SBI and
the applicant-bank whereby SBI assigned its debts
due and payable by the company and assigning out
all the aforesaid credit facilities in favour of
the applicant. Thus, in pursuance to the Deed of
Assignment, applicant has become full and
absolute owner of the debts payable by the
company to SBI. Learned advocate, therefore,
submitted that the applicant-bank is the only
bank legally entitled to receive repayment of
amount or any part thereof including the right to
file proceedings in its own name and to take all
other steps as may be required to enforce its
interest in the secured assets.

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3.2Learned advocate Mr.Pahwa further

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contended that the company failed and neglected
to pay the amount payable to the applicant and,
therefore, applicant issued demand notice dated
15.11.2006 to the company under the provisions of
Section 13(2) of the Securitisation and

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ReconstructionofFinancialAssetsand
Enforcement of Security Interest Act, 2002
(hereinafter referred to as `SARFAESI' Act for
the sake of convenience). By way of the said
notice, the company was called upon to repay the
amount mentioned in the said notice together with
interest. Learned advocate referred to the
contents of the said notice which is produced at
Annexure `B' to the compilation.

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3.3Learned advocate, thereafter, submitted
that the company gave reply dated 3.1.2007 and
raised certain objections. Therefore, the
applicant considered the said objections raised
by the company, rejected the same and by
communication dated 25.1.2007 it was informed to
the company that objections raised by it were
rejected. Thereafter, company did not make the
payment. Hence, the authorized officer of the
applicant took constructive possession of the
secured assets by issuing possession notice dated
12.12.2007. It was published in local daily
newspapers on 14.12.2007. The said possession
notice was also affixed at the site of the
secured assets on 19.12.2007.

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3.4Learned advocate Mr.Pahwa thereafter
submitted that when the authorized officer of the
applicant went to take physical possession of the

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secured assets, the representatives of the
company prevented the authorized officer from
taking physical possession. In the meantime, the
company also filed application under Section 17
of the SARFAESI Act before Debts Recovery
Tribunal, Ahmedabad (hereinafter referred to as
`DRT' for short) wherein demand notice dated
15.11.2006 as well as possession notice dated
12.12.2007 were challenged. At this stage,
learned advocate Mr.Pahwa pointed out that the
company was before Board for Industrial and
Financial Reconstruction. (hereinafter referred
to as `BIFR' for short). Therefore, the applicant
informed the BIFR about the measures taken by the
applicant under Section 13(4) of the SARFAESI
Act. BIFR, therefore, by an order dated
17.12.2007 abated the reference. The company,
therefore, preferred an appeal before Appellate
AuthorityforIndustrialandFinancial
Reconstruction. (hereinafter referred to as
`AAIFR' for short). However, the said appeal was
also came to be dismissed by the appellate
authority by an order dated 4.2.2009. It is
pointed out by learned advocate that the
aforesaid orders were challenged by the company
by filing Special Civil Application No.2361 of
2009 before this Court. However, the said
petition was also disposed of by order dated
1.9.2009 by this Court in view of the statement

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made on behalf of the applicant that the
application dated 14.12.2007 filed by the
applicant before BIFR will be withdrawn and the
applicant will move for recall of order dated
17.12.2007 made by BIFR. The applicant,
therefore,movedBIFRwithappropriate
application. The applicant also affixed fresh
possession notice in respect of secured assets on
29.1.2010. The company once again refused to
handover the actual and physical possession to
the authorized officer. The said possession
notice once again came to be published in local
dailies on 4.2.2010. In the meantime, on
23.7.2009, learned advocate of TIFAC admitted
before the BIFR that the applicant represents
more than 75% of the secured debts of the
company. Learned advocate Mr.Pahwa further
submitted that BIFR recorded its opinion in terms
of Section 20(1) of Sick Industries (Special
Provisions) Act of 1985 (hereinafter referred to
as `SIC' Act for the sake of convenience) and
recommended to this Court for winding up of the
company. Thus, in view of the opinion of BIFR,
the Company Petition No.50 of 2010 has been
registered before this Court.

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3.5Thereafter, learned advocate contended
that the company refused to handover the actual
and physical possession to the authorized officer

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of the applicant. Therefore, the applicant filed
an application before the learned District
Magistrate, Vadodara under Section 14 of SARFAESI
Act whereby assistance of District Magistrate was
sought for for taking over the possession of the
secured assets. In the meantime, the applicant
came to know that this Court has admitted the
Company Petition No.50 of 2010 by an order dated
8.2.2011 whereby the Official Liquidator attached
with this Court is appointed as Provisional
Liquidator to take over the possession of the
assets of the company. The applicant came to know
about the said aspect when SBI forwarded a copy
of letter dated 8.3.2011 received by it from the
Official Liquidator. The applicant, therefore,
addressed a letter dated 16.3.2011 to Official
Liquidator whereby the information was given to
him about the proceedings taken out by the
applicant under the SARFAESI Act in respect of
the secured assets. It was also pointed out that
the symbolic possession of the secured assets is
already taken by the applicant. In spite of the
aforesaid communication, the grievance is made by
learned advocate that the Official Liquidator
proceeded with taking over the possession of the
assets of the company including the secured
assets. The physical possession of the assets of
the company was taken over on 18.3.2011.

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Page 8 of 78

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3.6In the aforesaid background of the facts
of the present case, learned advocate Mr.Pahwa
would submit that the applicant is secured
creditor of the company and is standing outside
the liquidation proceedings. The applicant has
already initiated measures under the provisions
of SARFAESI Act, also filed an Original
Application before the DRT which is pending. The
symbolic possession of the assets has been taken
over on 29.1.2010. Therefore, the applicant is
entitled to proceed with the enforcement of the
securities under the SARFAESI Act. He further
contended that once the secured creditor has
chosen to stand outside the liquidation
proceedings, the role of the Official Liquidator
is restricted to taking care of the interest of
workmen of the company.

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3.7Learned advocate thereafter would
contend that provisions of SARFAESI Act and more
particularly Section 13(9) of the same provides
that any amount realized from the sale of secured
assets shall be distributed in accordance with
the provisions of Section 529A of the Companies
Act, 1956 and, therefore, the Official Liquidator
cannot have any grievance against the reliefs
prayed for in this application. The applicant is
the sole secured creditor in respect of the
secured assets and it has already taken over the

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symbolic possession prior to the taking over of
the physical possession by the Official
Liquidator. Only certain plant and machinery and
movables which are hypothecated in favour of
TIFAC by the company. Except that, the applicant
is entitled to proceed against the secured assets
as per the provisions of the SARFAESI Act.

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3.8Learned advocate Mr.Pahwa thereafter
contended that it is now settled legal position
that a secured creditor is entitled to proceed
with the enforcement of its securities even when
the company is in liquidation, and no permission
from the Company Court is required before taking
measures under the SARFAESI Act. At this stage,
learned advocate referred to judgment and order
dated 9.3.2006 rendered by this Court in Company
Application No.177 of 2005 whereby this Court,
after considering relevant provisions of SARFAESI
Act vis-a-vis provisions of the Companies Act of
1956 has been pleased to allow the said
application which was filed for direction against
the Official Liquidator to hand over the
possession of the assets of the Company in
liquidation to the concerned bank which has
initiated steps under SARFAESI Act.

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3.9Learned advocate Mr.Pahwa further
pointed out that this Court passed an order on

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Page 10 of 78

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22.9.2011 in O.L.R.No.80 of 2011 whereby the
action of the Official Liquidator in taking over
possession was ratified by this Court. The
applicant was also directed to deposit Rs. 1 lac
with the office of the Official Liquidator to
meet with the expenses of preparing inventory
valuation report. The applicant is also directed
to deposit Rs.15,750/- every month with the
Official Liquidator towards security charges. He
further submitted that on 17.7.2014, application
filed by the Company under Section 17 of the
SARFAESI Act is dismissed by the DRT.

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3.10Learned advocate Mr.Pahwa appearing for
the applicant has placed reliance upon the
decision rendered by the Hon'ble the Supreme
Court in the case of ICICI Bank Limited v/s
Official Liquidator of APS Star Industries
Limited and others, reported in (2010)10 SCC 1.
The Hon'ble the Supreme Court remanded the matter
back to the Hon'ble Division Bench of this Court
for considering the other issues with regard to
registrations, stamp duty etc. The Hon'ble the
Division Bench passed an order in O.J.Appeal
No.156 of 2007 whereby the matter was remanded
back to the learned Company Judge. The learned
Company Judge, thereafter, passed an order in
Company Application No.489 of 2006 on 28.1.2015.

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Page 11 of 78

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3.11Learned advocate Mr.Pahwa thereafter has
placed reliance upon the decision rendered by
this Court in the case of Bank of India V/s O.L.
Of Phar East Laboratories Ltd. reported in 2006
JX (Guj)146 which is produced at page 53 of the
compilation. Learned counsel has mainly relied
upon the observation made by this Court in
paragraphs 23, 25 to 29.

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3.12Thereafter, he placed reliance upon the
decision rendered by the High Court of Delhi in
the case ofKotak Mahindra Bank Ltd. V/s
Megnostar Telecommunicatios (P.)Ltd., reported in
2013(36) Taxmann.com 87 (Delhi). He mainly relied
upon the observations made in paragraphs 22 to
26, 30 and 31 of the said judgment.

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3.13Then, he placed reliance upon the
decision rendered by the High Court of A.P. in
the case of Indian Bank V/s the Sub Registrar,
reported in AIR 2015(AP) 38, more particularly,
observations made in paragraphs 25 to 31, 36 and
37.

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3.14Thereafter, learned advocate Mr.Pahwa
has placed reliance upon the decision rendered by
the High Court of Bombay in the case of Akola Oil
Industries V/s State Bank of India, reported in
(2006)66 SCL 147 (Bom.), and more particularly,

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observations made in paragraphs 10 and 11.

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3.15Thereafter, learned advocate has relied
upon the order dated 21.7.2009 passed by this
Court in Special Civil Application No.7979 of
2008 and submitted that the said order is
confirmed by the Division Bench of this Court and
passed an order on 3.11.2009 in Letters Patent
Appeal No.1951 of 2009. He submitted that the SLP
No.7887 of 2010 filed against the order passed by
the Division Bench of this Court has been
dismissed by the Hon'ble Supreme Court by an
order dated 26.3.2010.

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3.16With regard to the contention taken by
the respondent in the reply affidavit that the
applicant bank has not registered charge with the
Registrar of Companies under the provisions of
Section 125 of the Companies Act of 1956, learned
advocate submitted that SBI has already
registered the charge over the secured assets of
the company. The applicant is an assignee and,
therefore, such charge is not required to be
registered. However, matter is pending before the
Company Law Board. Learned advocate places
reliance upon the decision rendered by High Court
of Bombay in the case of IDBI Ltd., through its

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Authorized Officer, B.Srinivasa Rao, Deputy
General Manager, Recovery Department V/s Official

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Liquidator of Maharashtra Explosives Ltd. (in
liqn.), reported in 2011 vol.113(4) BLR 2213. He
mainly relied upon the observation made by the
BombayHighCourtinparagraphs
17,40,41,42,44,45,46.

¶82

3.17Learned advocate further submitted that
nobody has initiated any action under the
Registration Act or with regard to the payment of
the stamp duty against the applicant. Thus, it is
not open for the respondents to contend that the
applicant has not paid the proper stamp duty or
proper registration is not made before the
competent authority.

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4.Learned advocate Mr.A.L.Shah appearing
with learned advocate Mr.Pavan Godiawala for the
intervenor mainly submitted that the intervenor
is the creditor of the company in liquidation for
an amount of Rs.1,34,929/- by way of unsecured
loan/deposit advanced to the company. He
submitted that there are other creditors/deposit
holders having claim against the company and they
are also supporting the case of the intervenor.
He further pointed out that the intervenor is a
shareholder (contributory) of the company and
holding 85,100 equity shares of the company. The
intervenor is also alleged to be a guarantor to
the SBI for the loans/credit facilities granted

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by the SBI to the company.

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4.1Learned advocate Mr.Shah contended that
the applicant-bank has filed this application on
the basis that it is a secured creditor of the
company on the basis of the Deed of Assignment
executed by SBI with the applicant on 23.3.2006.
The applicant is not a creditor of the company
much less a secured creditor of the company. He
pointed out that initially the bank had not
produced the Deed of Assignment on the basis of
which it is claiming to have acquired the rights
from SBI. However, thereafter, such document was
produced on record. He contended that from the
Deed of Assignment received by the intervenor, it

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is revealed that the said deed is not duly
stamped nor it is duly registered and, therefore,
SBI cannot assign any claims or security interest
in favour of the applicant. Thus, such Deed of
Assignment creates no rights or security interest
in favour of the applicant. He referred to the
order dated 25.1.2002 issued in exercise of
powers under Section 9(a) of the Bombay Stamp Act
whereby rate of stamp duty applicable to
instruction of Assignment of Debts with
underlying securities came to be changed.
Similarly, he referred to the order dated
1.4.2003 issued under the aforesaid section
whereby rate of stamp duty has been changed. He

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referred to the Deed of Assignment and submitted
that the said Deed of Assignment purports to
transfer and assign rights etc. and securitize
and assign debts, loans along with security
interest in case of 143 parties. However, stamp
duty of an amount of Rs.1,40,200/- is paid. In
fact, the applicant is required to pay the stamp
duty of at least Rs.1,43,00,000/-. Such type of
stamp duty is payable and required to be
calculated on the basis of per loan securitized
or per debts assigned and not on the basis of per
borrower or per party.

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4.2He further contended that the Deed of
Assignment is not duly registered under the
provisions of the Registration Act and
consequently therefore the said applicant cannot
create or transfer any rights in favour of the

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applicant. When any interest is created or
extinguished in any immovable property, the
document is compulsorily required to be
registered under Section 17 of the Registration
Act. As per Section 28 of the Registration Act,
every document referred to in Section 17 of the
said Act insofar as such document relates
immovable property, it shall be presented for
registration in the office of the Sub-Registrar
within whose sub-district the whole or any part
of the property to which such document relates is

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situated. In the present case, it is pointed out
by learned advocate that the immovable property
is situated in sub-district of Baroda and,
therefore, the same is required to be registered
at the office of Sub-Registrar, Vadodara.
However, the Deed of Assignment is registered in
Paldi sub-district Ahmedabad. Learned counsel
referred to and relied upon Section 49 of the
Registration Act also. He, therefore, contended
that in absence of proper registration with the
competent authority, such document cannot be
relied as evidence. Hence, the applicant has not
acquired any security interest in the properties
of the company.

¶97

4.3Learned advocate Mr.Shah would contend
that the applicant was not entitled to issue
notice under Section 13(2) of the SARFAESI Act.
The applicant is not lender of the company. The
applicant has not classified the account of the
company as Non-performing Asset (for short `NPA'
for the sake of convenience) at all. He submitted
that the entire credit facilities were
restructured by SBI on 28.10.2003 pursuant to
which fresh loan agreement was entered into
between SBI and company on 29.1.2004. On the
restructuring, old arrangement was replaced by
the new arrangement. Thus, any default under the
old arrangement was given a go-by on the

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restructuring of the credit facilities by
entering into new agreement on 29.1.2004. On the
newfinancialarrangementunderthe
restructuring, replacing the old financial
arrangement, there was a novatio and old rights
and obligations were replaced and substituted by
new rights and new obligations. Thus,
classification of the company's account as NPA
under the old arrangement stood cancelled. It is
specifically submitted by learned advocate
Mr.Shah that after the new restructured financial
arrangement, the account of the company has not
at all been classified as NPA. He further
submitted that even assuming without admitting
that if the default is said to have taken place
from the first day of the restructured
arrangement dated 29.1.2004, the account would
become NPA at the end of 90 days i.e. on
28.4.2004. He referred to the RBI guidelines and
submitted that as per the said guidelines, a bank
can sell its NPA only if the account has remained
in its books as NPA for atleast two years. Under
the new restructured financial arrangement, even
if default has taken place on the very first day,
the account could have been classified as NPA
only on 28.4.2004 and have been sold by SBI only
after two years from 28.4.2004 i.e.only after
28.4.2006. In the present case, the Deed of
Assignment was executed on 23.3.2006, thereby SBI

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and the applicant have violated the guidelines of
RBI.

¶104

4.4At this stage, learned advocate Mr.Shah
further submitted that after restructuring of
credit facilities by SBI on 28.1.2004, the
account of the company has not at all been
classified as NPA even by SBI. Therefore, Section
13(2) of the SARFAESI Act is not applicable at
all. Hence, the notice issued by the applicant on
15.11.2006 allegedly under Section 13(2) of the
SARFAESI Act is not at all notice under the
provisions of the said Act. Learned advocate
submitted that for a notice to be qualified to be
a notice under Section 13(2) of the SARFAESI Act,
certain conditions are required to be fulfilled
i.e. (1) it must be issued by secured creditor in
respect of whom borrower is under a liability.
(2) The borrower must have defaulted in repayment
of the principal or installment of the secured
creditor. (3) The secured creditor in respect of
whom the default has been committed must have
classified the account of the borrower in its
books as a NPA. In the present case, the
applicant has not complied with the said
conditions.

¶105

4.5Learned advocate Mr.Shah once again
submitted that the company has not been

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classified as NPA after novatio of old credit
facilities arrangement by new credit facilities
arrangement in the year 2004. Even the earlier
classification of the account of the company as
NPA was by SBI and if it is taken into
consideration, only the secured creditor i.e. SBI
alone can issue a notice under Section 13(2) of
the SARFAESI Act. The applicant shall not be
entitled to issue such notice and, therefore, on
this ground also the applicant is not entitled to
initiate any action under Section 13(4) of the
said Act.

¶109

4.6LearnedadvocateMr.Shahfurther
submitted that the applicant is not at all the
creditor of the company much less a secured
creditor. The applicant is not entitled to
initiate any action under the SARFAESI Act. The
applicant has not lent any money to the company.
The company has not borrowed any money from the
applicant. The provisions of SARFAESI Act do not
apply to the applicant which is neither a
securitization company nor a reconstruction
company. At this stage, learned advocate Mr.Shah
referred to the statement of objects and reasons
of SARFAESI Act. He referred to the definition of
`Asset reconstruction' defined under Section 2(1)
(b) of SARFAESI Act. It provides that :

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2(1)(b) “asset reconstruction” means
acquisition by any securitisation
company or reconstruction company of any
right or interest of any bank or
financial institution in any financial
assistanceforthepurposeof
realisationofsuchfinancial
assistance.”

¶113

4.7Learned advocate Mr.Shah thereafter
referred to the word `Securitization” defined in
Section 2(1)(z) which provides that :

¶114

2(1)(z)“securitisation”means
acquisition of financial assets by any
securitisation company or reconstruction
company from any originator, whether by
raising of finds by such securitisation
company or reconstruction company from
qualified institutional buyers by issue
of security receipts representing
undivided interest in such financial
assets or otherwise.”

¶115

4.8Learned counsel Mr.Shah thereafter
referred to Section 3 of SARFAESI Act which

¶116

provides for the registration of Securitization
companies or reconstruction companies. Then, he

¶117

placed reliance on Section 5 of the said Act
which provides that any securitization company or
reconstruction company may acquire financial
assets of any bank or financial institution. Then
he referred to Section 10 of the said Act which
provides for the other functions of the
securitization company or reconstruction company.

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¶120

Section 12 gives power to Reserve Bank to
determine policy and issue directions. Learned
advocate thereafter placed reliance on Section 22
of the said Act which provides for keeping
register of securitization, reconstuction and
security interest transactions at the head office
of central registrar. Section 23 of the said Act
provides that the particulars of every
transaction, securitization, asset reconstruction
or creation of security interest shall be filed
with the Central Registrar. Learned counsel then
referred to Section 27 of the said Act which
provides for the penalty in default or breach of
certain provisions of the Act.

¶121

4.9Learned advocate Mr.Shah thereafter
referred to Section 15 of the SIC Act and more
particularly 3rd proviso of the said section which
provides that:

¶122

“Provided also that on or after the
commencement of the Securitisation and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act,
2002, where a reference is pending
before the Board for Industrial and
Financial Reconstruction, such reference
shall abate if the secured creditors,
representing not less than three-fourth
in value of the amount outstanding
against financial assistance disbursed
to the borrower of such secured
creditors, have taken any measures to
recover their secured debt under sub-

¶123

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¶125

section (4) of section 13 of that Act. “

¶126

4.10Then, he referred to Section 20(1) of
SIC Act which provides as under:

¶127

“20(1) Where the Board, after making
inquiry under section 16 and after
consideration of all the relevant facts
and circumstances and after giving an
opportunity of being heard to all
concerned parties, is of opinion that
the sick industrial company is not
likely to make its net worth exceed the
accumulated losses within a reasonable
time while meeting all its financial
obligations and that the company as a
result thereof is not likely to become
viable in future and that it is just and
equitable that the company should be
wound up, it may record and forward its
opinion to the concerned High Court.”

¶128

4.11Learned advocate Mr.Shah thereafter
contended that even if the provisions of the
SARFAESI Act are applicable, even then the
assignment made by SBI in favour of the applicant
is bad in view of the guidelines issued by RBI.
Learned advocate produced on record the
guidelines dated 13.7.2005 issued by RBI. Clause
5(viii) provides that:

¶129

“A non-performing asset in the books of
a bank shall be eligible for sale to
other banks only if it has remained a
non-performing asset for at least two
years in the books of the selling bank.”

¶130

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¶132

Clause-6 of the said guidelines further provides
that:

¶133

“6. Prudential norms for banks for the
purchase/sale transactions

¶134

(A) Asset classification norms

¶135

(i) The non-performing financial asset
purchased, may be classified as
`standard' in the books of the
purchasing bank for a period of 90 days
from the date of purchase. Thereafter,
the asset classification status of the
financial asset purchased, shall be
determined by the record of recovery in
the books of the purchasing bank with
reference to cash flows estimated while
purchasing the asset which should be in
compliance with requirements in Para
5(iii).

¶136

(ii) The asset classification status of
an existing exposure (other than
purchased financial asset) to the same
obligor in the books of the purchasing
bank will continue to be governed by the
record of recovery of that exposure and
hence may be different.

¶137

(iii) Where the purchase/sale does not
satisfyanyoftheprudential
requirementsprescribedinthese
guidelines the asset classification
status of the financial asset in the
books of the purchasing bank at the time
of purchase shall be the same as in the
books of the selling bank. Thereafter,
the asset classification status will
continue to be determined with reference

¶138

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¶140

to the date of NPA in the selling bank.

¶141

(iv) Any restructure/reschedule/rephrase
of the repayment schedule or the
estimated cash flow of the non-
performing financial assetby the
purchasing bank shall render the account
as a non-performing asset.”

¶142

4.12He submitted that in the present case,
the Deed of Assignment is dated 23.3.2006 and
therefore the said guidelines are applicable. In
spite of that, the same has been violated. Hence,
the assignment itself is bad.

¶143

4.13Learned advocate Mr.Shah would submit
that the company was borrower of lender-SBI. The
account of the company was declared as NPA in the
year 2001. Thereafter, the said account was
restructured by entering into another agreement
and as submitted earlier, thereafter, SBI has not
declared the account of the company as NPA. The
applicant, after executing the Deed of Assignment
with SBI, issued the notice under Section 13(2)
of the SARFAESI Act on 15.11.2006. Therefore,
after the account of company was declared as NPA
in 2001, notice was issued after a period of more
than 5 years and, therefore, the action under
SARFAESI Act was initiated after a period of
limitation. If no limitation is prescribed for
initiation of action even then, the same is
required to be initiated within a reasonable

¶144

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¶146

time. In support of this contention, learned
advocate Mr.Shah has placed reliance upon the
order dated 20.9.2007 passed by this Court in
Special Civil Application No.13426 of 2007. Then,
he placed reliance upon another order dated
20.10.2008 passed by this Court in Special Civil
Application No.9945 of 2008. Learned advocate
then placed reliance upon the order dated
2.4.2009 passed by Division bench of this Court
in LPA No.1266 of 2008 and more particularly,
relied upon observation made in paragraph 9 of
the said order.

¶147

4.14Thus, learned advocate Mr.Shah submitted
that after declaring the account of the company
as NPA in the year 2001, SBI had not initiated
any action under SARFAESI Act till March, 2006,
when the Deed of Assignment was executed with
applicant. It can be presumed that SBI has waived
the statutory right to initiate action under the
SARFAESI Act and, therefore, once the said right
is waived, it cannot be assigned by executing
deed with the applicant.

¶148

4.15Learned advocate Mr.Shah thereafter
referred to provision of Sections of 125 and 135
of the Companies Act of 1956. Section 125 of the
said Act provides that certain charges are void
against liquidator or creditors unless the same

¶149

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¶151

have been registered with Registrar of Companies.
Section 135 provides that terms or conditions or
extent or operation of any charge registered with
Registrar is modified, the same is to be sent to
Registrar for registration.

¶152

4.16Learned advocate Mr.Shah referred to the
circular issued under Section 135 of the
Companies Act which provides as under:

¶153

“A question has been raised as to
whether the transfer or assignment of
his rights by the charge-holder would
amount to modification of charge within
the meaning of section 135, requiring
the filing of a return by the company to
the Registrar of Companies in Form No.14
accompanied by the prescribed filing
fee. The question has been examined in
this Department in all its aspects. It
is considered that whenever a charge is
assigned in favour of another person,
the assignee becomes the de jure charge-
holder. Such charge would, therefore,
amount to a modification of charge
requiring registration under section
135. This conclusion is supported by the
accepted practice of making the names of
the parties in a contract as the
relevant terms of the contract.
Moreover, under section 130, one of the
particulars to be entered by the
Registrar in the register of charges
(Form No.13) on payment of the
prescribed fee by the company is about
the persons entitled to the charge.
Hence, if the particulars regarding the
assignee of the charge are not duly
entered by the Registrar in the register

¶154

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¶156

of charges on the transfer of rights by
theoriginalcharge-holder,the
creditors or shareholders, inspecting
such register, would not be able to know
who the present charge-holders are. The
registration of this modification of
share should, therefore, be effected by
the company concerned in Form No.14 on
payment of the prescribed filing fee.”

¶157

4.17Thus, learned advocate submitted that
the applicant has not registered the charge or
the modification as required under Sections 125
and 135 of the Companies Act and, therefore, the
applicant is not having any right against the
Official Liquidator or the company.

¶158

4.18LearnedadvocateMr.Shahfurther
contended that the applicant is not a secured
creditor within the meaning of Section 2(1)(zd)
of SARFAESI Act. He referred to the definition
given in the said section and submitted that no
security interest is created in favour of the
applicant.

¶159

4.19Learned advocate Mr.Shah then submitted
that the applicant has wrongly relied upon the
decision rendered by the Hon'ble the Supreme
Court in the case of ICICI Bank Limited (supra).
The issue before the Hon'ble Court was in a
narrow compass i.e. the question whether the bank
can assign NPA or not. In paragraph 9 of the

¶160

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¶162

decision, the Hon'ble Supreme Court observed with
regard to the issue before the company court and
thereafter in paragraph 51 in last three lines,
the Hon'ble Supreme Court observed as under:

¶163

“That, an account receivable becomes an
NPA only because of the default
committed by the borrower(s) who fails
to repay. Lastly, it may be mentioned
that the said SARFAESI Act, 2002 was
enacted enabling specified SPVs to but
NPAs from the banks. However, from that
it does not follow that the banks inter
se cannot transfer their own assets.
Hence the said SARFAESI Act, 2002 has no
relevance in this case.”

¶164

However, from that it does not follow that the
banks interse cannot transfer their own assets.
Hence, the said SARFAESI Act of 2002 has no
relevance in this case. He, therefore, submitted
that the Hon'ble the Supreme Court has not
considered in detail the provisions with regard
to the SARFAESI Act.

¶165

4.20Learned advocate Mr.Shah has relied on
the provision of Sections 28 and 49 of the
Registration Act, 1908.

¶166

“28. Place for registering documents
relating to land -Save as in this Part
otherwise provided, every document
mentioned in section 17, sub-section
(1), clauses (a), (b), (c),(d) and (e),
section 17, sub-section (2), insofar as

¶167

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¶169

such document affects immovable property
and section 18, clauses (a)(b)P(c) and
(cc),shallbepresentedfor
registration in the office of a Sub-
Registrar within whose sub-district the
whole or some portion of the property to
which such document relates is situate.

¶170

49. Effect of non-registration of
documents required to be registered – No
document required by section 17 [or by
any provision of the Transfer of
Property Act, 1882 (4 of 18820], to be
registered shall -

¶171

(a) affect any immovable property
comprised therein, or

¶172

(b) confer any power to adopt, or

¶173

(c) be received as evidence of any
transaction affecting such property or
conferring such power,
unless it has been registered:

¶174

[Provided that an unregistered document
affectingimmovablepropertyand
required by this Act or the Transfer of
Property Act, 1882 (4 of 1882), to be
registered may be received as evidence
of a contract in a suit for specific
performance under Chapter II of the
Specific Relief Act, 1877 (3 of 1877),
or as evidence of any collateral
transaction not required to be effected
by registered instrument.”

¶175

He submitted that the State of Tamil Nadu has

¶176

made an amendment in Section 28 of the
Registration Act which provides that :

¶177

“28. Place for registering documents
relating to land:- Save as in this part
otherwise provided:- (a) Every document
mentioned in clauses (a),(b),(c),(d) and
(e) of sub-section (1) and sub-section

¶178

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¶180

(2) of Section 17 in so far as such
document affects immovable property and
in clauses (a),(b),(c) and (cc) of
Section 18, shall be presented for
registered in the office of a Sub-
Registrar within whose sub-district the
whole or some portion of the property to
which such document relates is situate
in the State of Tamil Nadu; and

¶181

(b) any document registered outside the
State of Tamil Nadu in contravention of
the provisions of clause (a) shall be
deemed to be null and void.”

¶182

4.21Thereafter, learned advocate has placed
reliance upon the decision rendered by the Madras
High Court in the case of Veena Textiles Limited
V/s The Authorised Officer delivered on 1.8.2014

¶183

in Writ Petition No.8761 of 2014. Learned
advocate has placed reliance upon paragraphs 13
and 14 of the said decision.

¶184

“13. It is not in dispute that the above
properties thus assigned under the deed
of assignment dated 25.05.2011, are
admittedly situated in Tamil Nadu and
not within the jurisdiction of the
Registering Authority at Calcutta.
Therefore, it is very clear that the
said assignment deed made at Calcutta in
respect of property situated in Tamil
Nadu and got registered before the
Registering Authority, Calcutta was
against Section 28 of the Registration
Act as amended by the Tamil Nadu Act 19
of 1997 with effect from 29.03.1997,
which reads as follows:-

¶185

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¶187

28. Place for registering documents
relating to land:- Save as in this part
otherwise provided:- (a) Every document
mentioned in clauses (a),(b),(c),(d) and
(e) of sub-section (1) and sub-section
(2) of Section 17 in so far as such
document affects immovable property and
in clauses (a),(b),(c) and (cc) of
Section 18, shall be presented for
registered in the office of a Sub-
Registrar within whose sub-district the
whole or some portion of the property to
which such document relates is situate
in the State of Tamil Nadu; and

¶188

(b) any document registered outside the
State of Tamil Nadu in contravention of
the provisions of clause (a) shall be
deemed to be null and void.

¶189

14. A perusal of the above said
provision of law would show that the
document registered outside the State of
Tamil Nadu in contravention of the
provisions of clause (a) of Section 28
of the Registration Act shall be deemed
to be null and void. Therefore, there
cannot be any doubt that the deed of
assignment dated 25.05.2011 is deemed to
be null and void, since the same was
made in violation of Section 28(b) of
the Registration Act. Consequently, the
first respondent, having not empowered
to act legally against the petitioners
in pursuant to the said deed of
assignment dated 25.05.2011, was not
entitled to initiate the proceedings
before the second respondent under the
SARFAESI Act, which has resulted in
passing the impugned order by the second
respondent under Section 14(3) of the
SARFAESI Act.”

¶190

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¶192

4.22Learned advocate Mr.Shah therefore
submitted that in the present case, from the
Assignment Deed placed on record, it is clear
that some of the properties which are described
in the Deed of Assignment are situated in Tamil
Nadu. Therefore, in absence of proper
registration, the document namely Deed of
Assignment itself is void.

¶193

5.LearnedadvocateMs.AmeeYajnik
appearing for the Official Liquidator referred to
report filed by the Official Liquidator and
mainly contended that the applicant is not a
secured creditor and, therefore, it is not
entitled to initiate proceedings under the
SARFAESI Act. She further contended that the
applicant has not registered its charge with
Registrar of Companies as per Section 125 of the
Companies Act of 1956 and therefore the Official
Liquidator is entitled to reject the claim of the
applicant as secured creditor. Thereafter, she
contended that the applicant has nowhere stated
with regard to dues of ICICI Bank Limited, IFCI
Limited and IDBI Limited i.e. other secured
creditors. She pointed out the averments made in
paragraph 12 of the affidavit in support of
Judges' summons that during the hearing of
23.7.2009 before BIFR, the advocate for TIFAC
admitted that the applicant represents more than

¶194

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¶196

75% for secured debts. However, she submitted
that no confirmation of the aforesaid statement
is available from the other secured creditors
like ICICI Bank Limited, IFCI Bank Limited and
IDBI Limited. What is the claim of TIFAC is also
not stated. Thus, in view of absence of details,
this Court may not consider the averments of the
applicant.

¶197

5.1Learned advocate Ms.Yajnik further
contended that the sale of assets of the company
in winding up and distribution of sale
proceedings of assets of the company can only be
under Sections 529, 529A and 530 of the
Companies Act, 1956 in association with the
liquidator under the supervision of the company
Court. Sale of assets of the company in
liquidation and realized security can be
exercised only after obtaining permission from
the company Court. Learned counsel has placed
reliance upon the decision rendered by the
Hon'ble the Supreme Court in the case of
Rajasthan State Financial Corporation and Another
V/s Official Liquidator and Another, reported in
2005(8) SCC 190.

¶198

5.2Learned counsel thereafter submitted
that without prejudice to the aforesaid
contention, if the securitization company seeks

¶199

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¶201

to sell or transfer the assets of the company in
liquidation, opting the course under Section
13(4) of the SARFAESI Act could be exercised by
securitization company only after obtaining
permission from the company Court. She refers to
Section 35 of the SARFAESI Act which provides
with a non-obstant clause for overriding effect
of this provision over anything inconsistent with
the provision of that Act. She submitted that it
is only inconsistency which would bar the
application of other laws and not otherwise.
There is no inconsistency between the issues of
supervisory direction in order to achieve avowed
object of Section 529A of the Companies Act as
accorded by different provisions of Section 13(9)
of SARFAESI Act. In support of such contention,
she placed reliance upon the decision rendered by
the High Court of Punjab and Haryana in the case
of Haryana State Industrial and Infrastructure
Development Company V.Haryana Concast Limited &
another reported in (2010)158 CC 168 (P & H).

¶202

6.Learned advocate Mr.Pahwa appearing for
the applicant submitted that under the SARFAESI
Act, secured creditor having security interest in
the property can enforce the same. He has once
again relied upon the decision rendered by the
Hon’ble Supreme Court in the case of ICICI Bank

¶203

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¶205

Limited (supra). Learned advocate thereafter
referred to the observation made by the Division
Bench of this Court in O.J.Appeal No.156 of 2007
and more particularly paragraph 4.1 of the said
order. Paragraph 4.1 reads as under:

¶206

“4.1Inlightoftheabove
observations made by the Apex Court,
Mr.Mihir Joshi, learned Senior Counsel
submitted that the issue regarding
substitution has already been concluded
by the Apex Court. Mr.Ashok Shah,
learned Senior Counsel has tried to
contest this contention by submitting
that the issue of substitution is not
concluded by the Apex Court. We cannot
accept this submission of Mr.Shah. A
bare reading of the observations of the
Apex Court in para 46 as extracted
hereinabove makes it explicitly clear
that the moment ICICI Bank Ltd.
transfers the debt with underlying
security, the borrower(s) ceases to be
the borrower(s) of the bank and becomes
the borrower(s) of Kotak Mahindra Bank
Ltd (assignee). Thus it is explicitly
clear that Kotak Mahindra Bank has
become entitled to recover the amount
from the borrowers and therefore their
prayer for substitution cannot be
rejected.”

¶207

6.1Learned advocate Mr.Pahwa thereafter
referred to the order dated 28.1.2015 passed by
the learned Company Judge in Company Application
No.489 of 2006 and allied matters and relied upon
the observations made in paragraphs 2,10,11,12 to

¶208

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¶210

14 and 15.

¶211

6.2He, therefore, contended that the
learned advocates for the opponents had not made
any submissions with regard to registration or
stamp duty as observed in the said order and,
therefore, it is not open for them to challenge
at this stage in these proceedings about the said
issues.

¶212

6.3Without prejudice to the aforesaid
contention, learned advocate Mr.Pahwa would
submit that Deed of Assignment is already
registered by the competent authority and no
objection is taken by the said authority while
registering the said document. Similarly, stamp
duty authority adjudicated the stamp duty which
is duly paid by the applicant on the Deed of
Assignment. Therefore, in this application which
is filed by the applicant, it is not open for the
present respondents to take objection about the
registration as well as stamp duty before this
Court. He once again submitted that nobody has
initiated any action with regard to the aforesaid
aspects against the applicant. Therefore,
submissions canvassed by the learned advocates of
the respondents are misconceived.

¶213

6.4Learned advocate for the applicant

¶214

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¶216

referred to the definition provided in Section
2(1)(zd) and 2(1)(zf) in SARFAESI Act. He
submitted that security interest is created in
favour of the applicant.

¶217

6.5Thereafter, learned advocate submitted
that the account of the company in liquidation
became NPA on 30.9.2001. As per the request of
the borrower, the account of the borrower was
restructured. However, as per the said
arrangement also, the borrower could not make the
payment and hence SBI called upon the borrower to
make the payment by communication dated 7.9.2005
and thereafter the present applicant issued
notice under Section 13(2) of the SARFAESI Act on
15.11.2006 to the borrower. He, therefore,
submitted that there is no delay in initiation of
the proceedings as alleged by the respondents.

¶218

6.6With regard to registration of the
charge under Sections 125 and 135 of the
Companies Act with Registrar of Companies,
learned advocate Mr.Pahwa submitted that SBI
registered the charge with Registrar of Companies
under Section 125 of the Companies Act. Learned
advocate has placed reliance upon the decision
rendered by the High Court of Bombay in Company
Application No.624 of 2010 and in Company
Application No.1123 of 2009. Learned advocate,

¶219

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¶221

therefore, submitted that present application be
allowed.

¶222

7.I have considered the submissions
advanced on behalf of learned advocates for the
parties. I have also gone through the documents
produced on record as well as the provision of
law and decisions relied upon by the learned
advocates for the parties.

¶223

8.The issue which is required to be
considered by this Court is whether the
Provisional Liquidator can be directed to hand
over the possession of the secured assets
described in the schedule to the applicant on the
basis of the Deed of Assignment entered into
between the SBI and the applicant or not?

¶224

9.For deciding the aforesaid issue,
certain important aspects emerging from the
record are required to be considered which are as
under:

¶225

(a)SBI granted various credit facilities to
the company in liquidation. Said credit
facilities were renewed from time to time. The
company had mortgaged certain properties,
description of which is given in the schedule at
Annexure `A’ of the compilation.

¶226

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¶228

(b)The company had initially created
mortgage in favour of three other banks also by
way of joint mortgage by deposit of title deeds.
Credit facilities available by the company from
three other companies were settled and only SBI
remained as the exclusive first charge holder.

¶229

(c)On 30.9.2001, account of the company
became NPA. On the basis of the request of the
company, SBI restructured the credit facilities
on 28.10.2003. On 29.1.2004, fresh loan agreement
was entered into between SBI and the company.
However, as per the said new arrangement also,
the company had not made payment and defaulted.
Therefore, on 7.9.2005, SBI called upon the
company to make the outstanding payment.

¶230

(d)The Deed of Assignment was executed
between SBI and the applicant-bank on 23.3.2006
whereby SBI assigned its debts due and payable by
the company and assigned all the credit
facilities in favour of the applicant.

¶231

(e)On 15.11.2006, the applicant issued
notice under Section 13(2) of the SARFAESI Act
and on 3.1.2007, the company replied to the said
notice. The objection of the company was
considered and rejected.

¶232

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¶234

(f)On 12.12.2007, the applicant has taken
measures under Section 13(4) of the SARFAESI Act.
The applicant affixed the possession notice. The
company was before BIFR. The applicant informed
the BIFR about the action taken by it under
SARFAESI Act. BIFR, therefore, abated the
reference. The appeal preferred by the company
was also dismissed. The petition was preferred
before this Court which was also disposed of.
Thereafter, the applicant issued fresh possession
notice in January, 2010 in respect of the secured
assets. Thereafter, BIFR finally recorded its
opinion under Section 20(1) of SIC Act and had
recommended this Court for winding up of the
company. This Court, therefore, on 8.2.2011
appointed Official Liquidator to take over the
possession of the properties of the company. An
order of winding up was passed on 23.3.2011. At
the time of taking over the possession by the
Official Liquidator, the applicant has already
initiated the action under the SARFAESI Act.

¶235

10.In view of the aforesaid broad facts of
the present case, the submissions canvassed on
behalf of the learned advocates of the parties
are required to be considered.

¶236

11.At this stage, following provisions of

¶237

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¶239

SARFAESI Act are required to be kept in mind
while deciding the issue involved in this matter.
Section 2(1)(zd) provides that:

¶240

2 (1)(zd) : “secured creditor” means any
bank or financial institution or any
consortium or group of banks or
financial institutions and includes-

¶241

(i) debenture trustee appointed by any bank or financial institution; or

¶242

(ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or

¶243

(iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance.”

¶244

Similarly, section 2(1)(zf) defines the word
`security interest'. It reads as under:

¶245

“2 (1)(zf): security interest” means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31.”

¶246

Thus, the present applicant who is a bank can be
said to be a secured creditor within the meaning

¶247

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¶249

of provision of SARFAESI Act. The said secured
creditor has a security interest within the
meaning of Section 2(1)(zf) of the said Act.

¶250

12.The applicant-bank has already initiated
the measures under the provisions of the SARFAESI
Act in November, 2006. The symbolic possession of
the assets of the company in liquidation has been
taken over on 29.1.2010. On the basis of the
opinion of BIFR, this Court admitted Company
Petition No.50 of 2010 by an order dated 8.2.2011
and thereafter pursuant to the order passed by
this Court, the Official Liquidator has taken
over the physical possession of the assets of the
company on 18.3.2011. From the record, it appears
that the applicant-bank is the sole secured
creditor in respect of the secured assets. Thus,
as observed above, the applicant who is a secured
creditor having security interest in the property
of the company in liquidation has preferred this
application for the reliefs prayed for in the
Judges' summons.

¶251

13.In the case of ICICI Bank Ltd (supra),
the Hon'ble Supreme Court has held as under:

¶252

“51. In view of the above exposition of
law, we find that under the impugned
deed of assignment only the account
receivables in the books of ICICI Bank
Ltd. has been transferred to Kotak

¶253

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¶255

Mahindra Bank Ltd. The obligations of
ICICI Bank Ltd. towards its borrower(s)
(customer) under the loan agreement
securedbydeedof
hypothecation/mortgage have not been
assigned by ICICI Bank Ltd. to the
assignee Bank, namely, Kotak Mahindra
Bank Ltd. Hence, it cannot be said that
the impugned deed of assignment is
unsustainable in law. The obligations
referred to in the impugned deed of
assignment are the obligations, if any,
of ICICI Bank Ltd. towards Kotak
Mahindra Bank Ltd. (assignee) in the
matter of transfer of NPAs. For example,
when an account receivable is treated as
NPA and assigned to the assignee Bank,
the parties have to follow certain
guidelines issued by RBI. If there is a
breach of the guidelines or statutory
directions issued by RBI by the assignor
in regard to transfer of NPA then the
assigneeBankcanenforcesuch
obligations vis-a-vis the assignor Bank.
It is these obligations which are
referred to in the impugned deed of
assignment. That, an account receivable
becomes an NPA only because of the
default committed by the borrower(s) who
fails to repay. Lastly, it may be
mentioned that the said SARFAESI Act,
2002 was enacted enabling specified SPVs
to buy NPAs from the banks. However,
from that it does not follow that the
banks inter se cannot transfer their own
assets. Hence the said SARFAESI Act,
2002 has no relevance in this case.

¶256

52. Before concluding, we may state that
NPAs are created on account of the
breaches committed by the borrower. He
violates his obligation to repay the
debts. One fails to appreciate the
opportunity he seeks to participate in

¶257

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¶259

the “transfer of account receivable”
from one bank to the other.

¶260

Conclusion:

¶261

53. As stated above, by the impugned
judgment, the Division Bench of the
Gujarat High Court upheld the order of
the Company Court only on one ground,
namely, assignment of debts by the banks
inter seis an activity which is
impermissibleundertheBanking
Regulation Act, 1949. However, the
Division Bench did not go into other
issues which arose for determination
before the Company Court, including
applicability of the provisions of the
Registration Act, 1908.”

¶262

14.The Hon'ble Supreme Court in the case of
OfficialLiquidator,UttarPradeshand

¶263

Uttarakhand V/s Allahabad Bank and Others,
reported in (2013)4 SCC 381, considered the
question whether the Company Judge under the
Companies Act of 1956 has jurisdiction at the
instance of the Official Liquidator to set aside
the auction or sale held by the Recovery Officer
under the Recovery of Debts Due to Banks and
Financial Institutions Act of 1993 (hereinafter
referred to as `RDB Act' for short) or whether
the Official Liquidator is required to follow
route as engrafted under the RDB Act by filing an
appeal assailing the auction and resultant
confirmation of sale. The Hon'ble Supreme Court,
after considering the provisions of the Companies

¶264

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¶266

Act of 1956 and the provision of RDB Act, held
that in view of Section 34 of the RDB Act, the
Tribunal has exclusive jurisdiction and, hence,
the Company Court cannot use its powers under
Section 442 of Companies Act,1956 against the
Tribunal/Recovery Officer. The special provisions
made under the RDB Act have to be applied. In
view of Section 34 of RDB Act, it overrides the
Companies Act, 1956 to the extent there is
anything inconsistent between the Acts. The DRT
has exclusive jurisdiction to sell the properties
in a proceeding instituted by the banks or
financial institutions but at the time of auction
and sale, it is required to associate the
Official Liquidator. Once the Official Liquidator
is associated, needless to say, he has a role to
see that there is no irregularity in conducting
the auction and appropriate price is obtained by
holding the auction in a fair, transparent and
non-arbitrary manner in consonance with the Rules
framed under the RDB Act of 1993. It is further
held that the Official Liquidator protects the
interests of the workmen and the creditors and,
hence, his association at the time of auction and
sale has been thought appropriate. Thus, he has
been conferred locus standi/standing to put forth
his stand in the said matters. Therefore, anyone
who is aggrieved by any act done by th Recovery
Officer can prefer an appeal before the Tribunal.

¶267

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¶269

15.In the case of Kotak Mahindra (supra),
the High Court of Delhi has observed and held in
paragraphs 22 to 26, 30 and 31 as under:

¶270

“22. Even though the DRT Act also does
not provide for associating the official
liquidator with sale and section 19(19)
thereof requires the DRT to only order
the sale proceeds to be distributed in
accordance with the provisions of
section 529A but the Supreme Court still
directed association of the official
liquidator in the sale. According to us
the said ratio of the Supreme Court in
the context of DRT Act and SFC Act,
would not apply to a sale under the
SARFAESI Act because while the sale
under the DRT Act or the SFC Act is with
the intervention of the court, i.e., the
DRT or the District Judge, the sale
under the SARFAESI Act is to be by the
securedcreditor,i.e.,the
bank/financialinstitutionitself,
without the intervention of the court.
We also find express pointers in the
SARFAESI Act against associating the
official liquidator in such sale. The
second proviso to section 13(9) permits
a secured creditor, who opts to realise
his security interest instead of
relinquishing his security and proving
his debt under proviso to sub-section(1)
of section 529 of the Companies Act, to
retainthesaleproceedsafter
depositing the workmen's dues with the
official liquidator in accordance with
the provisions of section 529A. The
third proviso to section 13(9) requires
the official liquidator to intimate to
the secured creditor the workmen's dues
or an estimate thereof in accordance

¶271

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¶273

with section 529A of the Companies Act.
The fourth proviso to section 13(9)
makes the secured creditor liable to pay
the balance if any of the workmen's dues
if the deposit earlier with the official
liquidator is on an estimate. The sixth
proviso to section 13(9) also requires
the secured creditor to furnish an
undertaking to the liquidator to pay the
balance of the workmen's dues if any. We
are of the opinion that were the
official liquidator intended to be
associated with the sale (making the
same possible only with the intervention
of the company court and which would be
contra to the purpose of the SARFAESI
Act) the sale proceeds would have been
received by the official liquidator and
the need for the provisos aforesaid
would not have arisen. The provisos
aforesaid are indicative of the secured
creditor, while on the one hand being
entitled to exercise the right to sell
without intervention even of the
official liquidator/company court and on
the other hand being made liable for the
dues of the workmen. The language of
section 13(9) and provisos thereto is
thus clearly suggestive of the role of
the official liquidator being confined
only to determination of the workmen's
dues and receiving payment thereof and
undertaking from the secured creditor.
The Supreme Court in Rajasthan Financial
Corpn. (supra) as aforesaid, has already
carved out a difference between the
“right to sell” and the “distribution of
sale proceeds”. The SARFAESI Act does
not even vest the power of such
distribution in the official liquidator.
Significantly, section 13(9) permits
sale only under agreement between the
secured creditors representing not less
than three-fourths in value of the

¶274

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¶276

amount outstanding and makes the said
agreement binding on all the secured
creditors. The question thus of
distribution by the official liquidator
to other secured creditors also does not
arise.

¶277

23. As far as the reason behind
associating the official liquidator in
sale, of ensuring that a proper price is
fetched for the assets, is concerned, we
find the SARFAESI Act and the Rules
framed thereunder to be a complete code
in that respect. Rules 5 and 8 of the
SIE Rules require the authorised officer
of the bank/financial institution to
obtain the estimated value of the asset
from an approved valuer and in
consultation with the secured creditor
fix the reserve price of the property.
The mode of sale has similarly been
prescribed exhaustively particularly in
rule 8 relating to sale of immovable
assets. We are of the view that
requiring the official liquidator to be
associated in sale will lead only to
conflict.

¶278

24. Though sale of the secured asset by
the secured creditor under the SARFAESI
Act is without the intervention of the
court but a safety valve preserving the
rights of the debtor/borrower/mortgagor
or for that matter any other person (see
United Bank of India v. Satyawati Tondon
[2010] 158 Comp.Cas.251 (SC) aggrieved
from the measures taken by the
bank/financial institution under section
13(4) of the Act is provided in section
17 of the Act. The Legislature in making
the sale under the SARFAESI Act without
theinterventionofthecourt,
constituted DRT only as the forum for
redressal of grievances. We are of the

¶279

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¶281

viewthatifthe
debtor/borrower/mortgagor
himself/herself/itself has not been
given any right of participation in the
sale except in the manner provided in
section 17 of the Act, the question of
our interpreting the provisions in a
manner vesting such right in the
official liquidator who is but a
successor-in-interestofthe
debtor/borrower/mortgagorandalso
representing the interest of the workmen
andothercreditorsofsuch
debtor/borrower/mortgagor,doesnot
arise. Significantly, the Legislature in
enumeratinginsection31the
cases/situations in which the provisions
of the SARFAESI Act are not to apply,
didnotchoosetolistthe
case/situationwherethe
debtor/borrower/mortgagor is a company
in liquidation.

¶282

25. Though the language of section 17 of
the SARFAESI Act suggests that the right
to appeal thereunder is only against the
measures under section 13(4) of the Act
but the Supreme Court in Authorized
Officer, Indian Overseas Bank v. Ashok
Saw Mill [2009]94 SCL 73has held that
the remedy under section 17 is not
confined to the stage contemplated under
section 13(4) but is available qua
action taken by the secured creditor
after the stage contemplated under
section 13(4) also. The scrutiny by the
DRT under section 17 is thus not
confined only to whether the measures
under section 13(4) are in accordance
with the SARFAESI Act and the Rules
framed thereunder but also extends to
the actions of the secured creditor
under section 13(5) to (13). It is thus
not as if the debtor/borrower/mortgagor

¶283

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¶285

or for that matter, in the case of such
a debtor/borrower/mortgagor being in
liquidation, the liquidator is without
any remedy or that the sale is merely at
the whim and fancy of the secured
creditor and his authorised officer. Not
only are the modalities of sale
prescribed but a forum for redressal of
grievances with respect thereto is also
provided in the form of DRT. The
official liquidator, thus if of the view
that appropriate price is not being or
has not been fetched or relating to
issues of distribution, has the remedy
before the DRT.

¶286

26. If it were to be held that the
official liquidator (who acts under the
dictates of the company court) is to be
also associated with the sale, it will
naturally open up the fora of the
company court also for entertaining
matters relating to such sale and which
as aforesaid is not only likely to lead
to conflicts but is also contrary to the
spirit of the SARFAESI Act of sale being
without the intervention of the court.

¶287

30. The remedies of the official
liquidator with respect to such a sale
are only before the DRT in accordance
with section 17 of the SARFAESI Act and
not before the company court. The
SARFAESI Act being a later legislation
to the incorporation of section 529A in
the Companies Act thus prevails over the
Companies Act and sale as provided for
under the SARFAESI Act holds good during
the pendency of winding up petition
against the debtor/borrower/mortgagor
and also after a winding up order is
made and remains unaffected therefrom.

¶288

31. We are therefore, with respect,

¶289

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¶291

unable to agree with the dicta of the
Punjab and Haryana High Court in Haryana
State Industrial and Infrastructure
DevelopmentCorpn.(supra)and
axiomatically allow these appeals and
set aside the judgment of the learned
single Judge. The applications filed by
the bank and the auction purchaser for
de-sealing of the property would thus
stand allowed. However, the sale
proceeds in custody of the bank are
subject to the claims if any under
sections 529 and 529A of the Companies
Act. The bank to accordingly comply,
specially with the provisos to section
13(9) of the SARFAESI Act. We may
highlight that the Supreme Court
recently in Employees Provident Fund
Commissioner V. Official Liquidator of
Esskay Pharmaceuticals Ltd. [2011] 110
SCL 520/15 taxmann.com 140(SC) has also
held the dues under the Employees'
ProvidentFundandMiscellaneous
Provisions Act, 1952, to be a first
charge on the assets of an establishment
and to be paid in priority to all other
debts while distributing the sale
proceeds.”

¶292

16.The High Court Andhra Pradesh in the
case of AIR 2015 AP 38 has observed and held in
paragraphs 25 to 31, 36 and 37 as under:

¶293

“25. Again the Apex Court in case of
JagdishSinghV.Heeralal
MANU/SC/1126/2013 :(2014)1 SCC 479,
observed in paragraph 24 of the report
as proposition of law as follows:

¶294

“Any person aggrieved by any of the
measures referred to in sub-section (4)

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¶297

of Section 13 has got a statutory right
of appeal to the DRT under Section 17.
The opening portion of Section 34
clearly states that no civil court shall
have the jurisdiction to entertain any
suit or proceeding in respect of any
matter which a DRT or an Appellate
Tribunal is empowered by or under the
Securitisation Act to determine. The
expression in respect of any matter
referred to in Section 34 would take in
the measures provided under sub-section
(4) of Section 13 of the Securitisation
Act. Consequently, if any aggrieved
person has not any grievance against any
measures taken by the borrower under
sub-section (4) of Section 13, the
remedy open to him is to approach the
DRT or the Appellate Tribunal and not
the civil court. The civil court in such
circumstances has no jurisdiction to
entertain any suit or proceedings in
respect of those matters which fall
under subsection (4) of Section 13 of
the Securitisation Act because those
matters fell within the jurisdiction of
the DRT and the Appellate Tribunal.
Further,Section35says,the
Securitisation Act overrides other laws,
if they are inconsistent with the
provisions of that Act, which takes in
Section 9 CPC as well.

¶298

26. Noting above pronouncement, we are
ofconsideredopinionwhenthe
legislatureintendslegalityand

¶299

validity of sale under the provisions of
Section 13 of SARFAESI Act has to be
brought for scrutiny before the Debts
Recovery Tribunal, by virtue of Section
17 of SARFAESI Act the jurisdiction of
the company court cannot be inferred to
have been conferred rather by necessary
implication, the same is held to be

¶300

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¶302

ousted. It is true that Section 34
mentioned the words Civil Court (not
apparently company court), but in our
view after winding up order is passed by
virtue of the provisions of Section
446(2) of the Companies Act, the Company
Court exercises jurisdiction of the
civil court. So, essentially, the
company court becomes civil court. What
is important is not the nomenclature of
the Court, but power and functions
exercised by that Court. In view of
discussions above, accepting argument of
Mr.S.Ravi and rejecting contention of
the learned counsel for the respondent
and Official Liquidator, we hold that
the company court has no jurisdiction to
deal with the issues arising out of
action of secured creditor under Section
13 of SARFAESI Act.

¶303

27. But, in this case, the learned trial
Judgehasnotonlyexercised
jurisdiction of the company court but
also that of writ court. No one can
debate now that writ court has
jurisdiction within its own power as
enshrined in Articles 226 & 227 of the
Constitution of India to entertain any
dispute and it cannot be taken away by
way of simple legislation.

¶304

28. Now, we examine the third question.
We have already discussed that to the
extent of inconsistency provision of
SARFAESI Act will prevail over Companies
Act. We examine whether there has been
apparently inconsistent provision for
taking action by the secured creditor in
this Act vis-a-vis Companies Act. It
will appear from Section 13 (1), as
quoted above, it clearly provides that
without intervention of the Court or
Tribunal action can be taken for sale of

¶305

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¶307

securities, whereas the provisions of
Section 537 of Companies Act requires
leave of Company Court. We, accordingly,
hold this is apparent inconsistency in
two competing provisions in two
different Acts on the same subject.
Similar view is expressed by the
Division Bench of the Bombay High Court
in case of The Akola Oil Industries
(under liquidation) through Official
Liquidator V. State Bank of India
MANU/MH/0501/2005 : 2006(1) Bom.CR.362.
Therefore, the provisions of SARFAESI
Act will prevail over the provisions of
Section 537 of the Companies Act to the
extent of inconsistency. We, accepting
contention of Mr.S.Ravi, hold that no
leave is required under Section 537 of
the Companies Act, moreover jurisdiction
of the Company Court is also ousted as
discussed above.

¶308

29. Next, the question appears to us
whether the provisions of Section 531 &
531A of the Companies Act will be
applied or not in this case.

¶309

30. We have already held to the extent
of inconsistency provision of the
Companies Act are to be overlooked. For
this, we have to examine the provisions
of sub-sections (4) & (6) of Section 13
of the SARFAESI Act to find element of
inconsistency on this issue. These
provisions are set out hereunder:

¶310

13. Enforcement of security interest:

¶311

(4) In case the borrower fails to
discharge his liability in full within
the period specified in sub-section (2),
the secured creditor may take recourse
to one or more of the following measures
to recover his secured debt, namely:-

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¶314

(a) take possession of the secured
assets of the borrower including the
right to transfer by way of lease,
assignment or sale for realising the
secured asset;

¶315

(b) take over the management of the
secured assets of the borrower including
the right to transfer by way of lease,
assignment or sale and realise the
secured asset; Provided that the right
to transfer by way of lease, assignment
or sale shall be exercised only where
the substantial part of the business of
the borrower is held as security for the
debt;

¶316

Provided further that where the
management of whole of the business or
part of the business is severable, the
secured creditor shall take over the
management of such business of the
borrower which is relatable to the
security for the debt.

¶317

(c) appoint any person (hereafter
referred to as the manager), to manage
the secured assets the possession of
which has been taken over by the secured
creditor;

¶318

(d) require at any time by notice in
writing, any person who has acquired any
of the secured assets from the borrower
and from whom any money is due or may
become due to the borrower, to pay the
secured creditor, so much of the money
as is sufficient to pay the secured
debt.

¶319

(emphasis supplied)

¶320

(6) Any transfer of secured asset after
taking possession thereof or take over
of management under sub-section (4), by
the secured creditor or by the manager
on behalf of the secured creditors shall
vest in the transferee all rights in, or

¶321

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¶323

in relation to, the secured asset
transferred as if the transfer had been
made by the owner of such secured asset.

¶324

31. It is clear from sub-section (6) the
moment action taken under sub-section(4)
by the secured creditor or any manager
on his behalf of the secured creditor
for transfer all rights shall vest in
the transferee in relation to the
secured assets. In other words, if
action taken under Section 13(4) is
found to be lawful and valid in
accordance with SARFAESI Act, no other
legal provision can invalidate it.
Whereas Sections 531 & 531A provide
otherwise if any transfer including sale
is effected in violation thereof the
same is invalid and void. Thus it
appears that there has been glaring
inconsistencynaturally,weare
constrained to hold that the provisions
of Section 531 & 531A have no manner of
application and the same do not apply in
case of valid sale undertaken under the
SARFAESI Act and the Rules framed
thereunder.Besideswefailto
comprehendhowSection531Ais
applicable carefully reading the same on
fact in this case. In order to apply
this section, three factual conditions
must be satisfied viz., (i) transfer
must be by the company (ii) it must be
voluntary (iii) such transfer must be
within one year before presentation of
winding up petition. In this case
admittedly transfer is not made by
company not even on behalf of the
company, but by secured creditor,
appellant herein, by virtue of power
coupled with right under sub-section (4)
of Section 13 of the SARFAESI Act. This
could have been decided by the Debts
Recovery Tribunal itself since writ

¶325

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¶327

court has decided on the admitted fact.
Thus the decision of the Hon'ble trial
judge while applying the aforesaid
provisions in the instant sale without
examining the implications of sub-
sections (1), (4) & (6) of Section 13 of
SARFAESI Act at all, is unacceptable
legally. We accordingly overrule these
findings and decisions in this regard.

¶328

36. In case of Kotak Mahindra Bank
Limited V. Megnostar Telecommunications
Private Limited MANU/DE/4385/2012 :
(2013) 176 Company Cases 246 (Delhi)
Delhi High Court did not deal with
applicability of Sections 531, 531A and
537 of the Companies Act in view of
provisions of SARFAESI Act, however
dwelt upon applicability of Sections 529
and 529A of Companies Act. While doing
so it was held amongst others that sale
proceeds fetched by sale under this Act
are subject to the claims, if any, under
Sections 529 and 529A of the Companies
Act.

¶329

37. Punjab and Haryana High Court in
case of Haryana State Industrial and
InfrastructureDevelopmentCompany
V.Haryana Concast Limited & another
MANU/PH/1162/2009 : (2010)158 Company
Cases 168 while examining legal
implication of provision of Sections
13(4), 9, 35 of SARFAESI Act vis-a-vis
Section 529A of Companies Act held that
there is no inconsistency of the
provision of Section 13 of SARFAESI Act
with Sections 529 and 529A of the
Companies Act, 1956 as by the proviso in
sub-section (9) of Section 13 above two
sections of the Companies Act are
saved.”

¶330

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¶332

17.Special Civil Application No.7979 of
2008 was preferred under Articles 226 and 227 of
the Constitution of India by concerned
petitioners challenging the threatened action of
the respondent of the said petition i.e. Kotak
Mahindra Bank under Section 13(4) of the SARFEESI
Act wherein it was prayed that the Court may
declare that the respondent-bank (Kotak Mahindra)
has not acquired any right pursuant to the Deed
of Assignment dated 23.3.2006 and, therefore, not
entitled to take action under the provisions of
SARFAESI Act and to quash and set aside the
public advertisement issued in the newspaper and
with further prayer to restrain the bank from
taking action in pursuance to the said
advertisement. In the said matter also, the SBI
took the possession of secured assets belonging
to the company in liquidation and by virtue of
Deed of Assignment dated 23.3.2006, the SBI
assigned the debts to Kotak Mahindra Bank.
Learned counsel for the said petitioners raised
similar contention in the said petition that the
Deed of Assignment dated 23.3.2006 is not valid
and unenforceable since it created no right in
favour of Kotak Mahindra Bank. It does not bear
proper stamp duty. The assignments of debts by
SBI to Kotak Mahindra Bank is a novatio and it is
not binding to the borrowers. Kotak Mahindra Bank
is not a securitization company or a

¶333

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¶335

reconstruction company and either original lender
or a securitization company to which the debt is
assigned by the original lender only can take
measure under the SARFAESI Act. The said
petitioner is not a borrower of Kotak Mahindra
Bank within the meaning of Section 2(f) of
SARFAESI Act read with Section 5(2) of the said
Act. However, learned Single Judge of this Court
dismissed the said petition on the ground that
the petitioners can prefer an appeal before the
DRT under Section 17 of SARFAESI Act and on the
ground of alternative remedy, the said petition
was dismissed. The said petitioners challenged
the order passed by the learned Single Judge by
filing LPA No.1951 of 2009. The Hon'ble Division
bench also dismissed the said appeal. In
paragraph 3 of the said order, the Hon'ble
Division Bench has observed as under:

¶336

“3. In view of the aforesaid assignment,
the respondent-Bank filed Company
Application No.318 of 2007 and 100 of
2008 seeking permission to proceed with
sale of the assets of the company in
liquidation. By order dated 29.2.2008,
the Company Court, after hearing the
learned Counsel for the parties, allowed
the above two Company Applications in
the following terms:

¶337

“8. Having heard the learned advocates
appearing for the respective parties and
having gone through the application as
well as earlier orders passed by this
Court, the Court is of the view that

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¶340

though the Court is not considering the
applicant-Bank as the secured creditor,
since all the secured creditors except
GIIC have assigned their debts in favour
of the applicant-Bank under the
Securitization Act, there may not be any
objection to permit the applicant Bank
to proceed with the sale of the assets
of the company in liquidation. Earlier,
this Court has passed an order in
Company Application No.239 of 2005 on
17.02.2006 whereby this Court has issued
direction to constitute sale committee
comprising of applicant, GIIC and the
Official Liquidator for finalizing the
value of the property and the modalities
on which the property is required to be
sold.

¶341

9. In the above view of the matter,
since all other secured creditors except
GIIC have assigned their debts in favour
of the present applicant they are not
required to be joined as the member of
the sale committee as their interest may
be taken care by the applicant before
the property of the company in
liquidation is put to sale under the
Securitization Act. The Court hereby
directs to constitute sale committee
consisting of the present applicant GIIC
and the Official liquidator for
finalizing the value of the property and
the modalities on which the property is
required to be sold. This application is
accordingly disposed off. However,
before putting the property to sale, the
meeting of the sale committee be called
and in the said meeting, reserved price
and other modalities shall be set out.
After the offers are received, and
auction is held, the applicant may
submit fresh application for acceptance
of any of such offers and confirmation

¶342

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¶343

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¶344

of sale in favour of highest bidder.

¶345

10. Granting of these two applications,
however, may not be construed as
granting of status of secured creditor
to the applicant-Bank.

¶346

11.Subjecttotheaforesaid
observations and directions, both these
applications are accordingly, disposed
off.”

¶347

18.Thus,whenanotherpetitioners
challenged the Deed of Assignment dated 23.3.2006
executed between the SBI and the present
applicant-bank on various grounds including the
ground of stamp duty as well as other grounds
which are recorded by learned Single Judge in the
said order, this Court has not entertained the
said petition by observing that the petitioners
can prefer appeal before the DRT. The said order
is confirmed by the Hon'ble Division Bench
against which SLP No.7887 of 2010 filed by the
aggrieved party was dismissed by the Hon'ble
Supreme Court and, therefore, I am of the opinion
that in the present proceedings which is filed by
the Kotak Mahindra Bank i.e. the applicant-the
intervenor cannot raise such type of contentions
before this Court. If they have any grievance,
they can approach before the appropriate
authority/forum/Tribunal but the said issues
cannot be agitated in the proceedings filed by

¶348

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¶349

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¶350

the applicant.

¶351

19.The contention of the intervenor that
the Deed of Assignment does not bear proper stamp
duty and same is not properly registered before
the concerned registering authority, such
contention is also not required to be accepted in
view of the fact that the said issues were kept
open by the Hon'ble Supreme Court while remanding
the matter back to the Division Bench of this
Court and Division Bench remanded the matter back
to the learned Company Judge, the Official
Liquidator as well as the concerned respondents
have not challenged the said aspects before this
Court which is clear from the order passed by
this Court in Company Application No.489 of 2006
rendered by the learned Company Judge on
28.1.2015. This Court observed in paragraphs 10
to 15 as under:

¶352

“10. Mr.Roshan Desai, learned counsel
for the Official Liquidator submitted
that the relief claimed in the
applications has already been granted by
the Supreme Court and the Division Bench
and hence, these applications for
substitution stand decided. Vis-a-vis
the other issues that were raised before
the Company Court at the time when the
earlier decision came to be rendered,
namely, compliance with the provisions
of the Registration Act, Stamp Act etc.,
it was submitted that the parties may
raise the same before the appropriate

¶353

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¶354

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¶355

forum.

¶356

11. Dr.Amee Yajnik and Mr.J.S.Yadav,
learned advocates appearing on behalf of
the Official Liquidator in some of the
matters, reiterated the submissions
advanced by Mr.Roshan Desai, learned
counsel for the Official Liquidator.

¶357

12.Mr.A.L.Shah,learnedcounsel
appearing with Mr.D.S.Vasavada, learned
advocate for the Textile Labour
Association, submitted that the Supreme
Court has held that assignment of debts
is a permissible activity and has
permitted substitution. Accordingly, the
applications for substitution stand
allowed. As regards the other issues
which were raised before the Company
Court when the previous decision came to
be rendered, it was submitted that once
the applications stand allowed in view
of the decision of the Supreme Court and
the Division Bench, the question of
deciding the rights of the parties on
merits does not arise in these
applications and such questions would be
decided by the appropriate forum at an
appropriate stage. However, nothing
remains to be done by this court in
these applications.

¶358

13. This Court has considered the
submissions advanced by the learned
counsel for the respective parties and
has perused the earlier order passed by
the Company Court as well as the order
passed by the Supreme Court in the
above-referred matter as well as the
order dated 30.9.2014 passed by the
Division Bench remanding the matter to
this court.

¶359

14. From the submissions advanced by the

¶360

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¶361

O/COMA/285/2011 CAV JUDGMENT

¶362

learned counsel for the respective
parties, it is apparent that the common
refrain of the learned counsel is that
these applications are limited to the
prayer for substitution, which stand
allowed by the Supreme Court as well as
by the Division Bench by holding that
such substitution is permissible in law
and hence, the matters come to an end.
The other issues as to whether the
individual deeds of assignment meet with
the requirements of other enactments,
like the Registration Act, the Stamp
Act, etc., do not arise in the present
applications and that as and when such
issues are raised at an appropriate
stage before the appropriate forum, the
same would be decided by the concerned
forum.

¶363

15. In the light of the fact that it is
common ground between the respective
parties that the applications being
limited to substitution, which relief
stands granted in terms of the above
decisions of the Supreme Court and the
Division Bench and that though the
matters have been remanded to the
Company Court by permitting the parties
to raise issues other than the issue of
substitution, none of the parties deem
it fit to raise any other issues before
this court on the ground that such
issues do not fall for consideration by
this court at this stage and that such
issues are required to be decided by the
appropriate authority at an appropriate
stage when such issues are raised before
the concerned authority, in the opinion
of this court, nothing further remains
to be done in these applications.”

¶364

Thus, now it is not open for the respondents to

¶365

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¶366

O/COMA/285/2011 CAV JUDGMENT

¶367

agitate the said issue. However, it is open for
them to agitate the said issue before the
appropriate forum as observed by this Court.

¶368

20.Apart from that, it is clear from the
material produced on the record that the Deed of
Assignment is already registered by the competent
authority and no objection is taken by the said
authority while registering the said document.
The said document is registered in the year 2006
and, therefore, now the respondent/intervenor
herein cannot challenge the same after more than
five-six years that too in the proceedings
initiated by the applicant-bank. Similarly, it is
also clear from the record that stamp duty
authorityadjudicatedthestampduty.
Accordingly, the applicant-bank has duly paid the
same on the Deed of Assignment. Thus, the
respondent/intervenor cannot agitate such issue
in the proceedings filed by the applicant-bank.
It is pertinent to note at this stage that the
registering authority or the stamp duty
authorities have not at all initiated any action
till today against the applicant-bank. Thus, I am
of the opinion that the contentions raised by the
respondent and intervenor are misconceived and
are required to be discarded.

¶369

Page 66 of 78

¶370

O/COMA/285/2011 CAV JUDGMENT

¶371

intervenor is that in view of Sections 125 and
135 of the Companies Act of 1956, when the
applicant has not registered charge or modified
the charge registered with the Registrar of
Companies, the applicant is not having any right
against the Official Liquidator or the Company.

¶372

22.However, the said contention is required
to be considered in view of the decision rendered
by the various High Courts. In the case of
Pridhvi Asset Reconstruction & Securitization
Company Limited V/s M/s Pennar Peterson Limited
(In Liquidation) Rep. by Official Liquidator,
High Court of A.P., in Company Application No.411
of 2014 on 22.4.2014, the High Court of Andhra
Pradesh has observed as under:

¶373

“The only issue that needs consideration
in this application is whether the
applicant cannot claim disbursement of
money without registration of the
assignment of the securities with the
ROC.”

¶374

Thereafter, it is observed as under:

¶375

“As noted above, it is the admitted case
that the provisions of Section 125 of
the Act have been complied with by the
banks in whose favour, the charge of the
assets of the respondent-Company was
created. However, it does not appear
that the applicant, in whose favour the
charge of assets of the respondent-

¶376

Page 67 of 78

¶377

O/COMA/285/2011 CAV JUDGMENT

¶378

Company is assigned, has sent the
particulars of the assignment of the ROC
and got the same registered. On a close
reading of Section 135 of the Act, I am
unable to accept the submission of the
learned Counsel for the petitioner and
the Official Liquidator that a deed of
assignment falls within the provisions
of Section 135 of the Act. The said
provision takes within its sweep the
modification pertaining to terms or
conditions of the charge or the extent
or operation of any charge. It is no
one's case that any of the terms or
conditions of the charge or extent or
operation of charge are modified. All
that is done is that the banks, which
held the charges and which are
registered, have transferred their
interests to the applicant. If the
parliament intended that such transfer
or assignment is required to be
registered with the ROC once again,
nothing would have been prevented it
from using the words `transfer' or
`assignment' in the said provision.
Absence of these words would indicate
that once a charge is registered with
the ROC, a subsequent assignment need
not be once again registered. The reason
for this is not far to seek. The main
purpose of registration of charge with
the ROC is to prevent the Companies from
indulging in creation of fake charges
with intent to defraud the shareholders
and creditors of the Company. Once the
charge is registered, it would hardly
make any difference whether such charge
is held by X, Y or Z. That seem to be
the obvious reason why no provision is
made for registration of assignment.

¶379

The learned Counsel contended that in
some cases the assignment has also been

¶380

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¶381

O/COMA/285/2011 CAV JUDGMENT

¶382

registered. Merely because such a
practice was followed, the same would
not expand the scope of the extant
statutory provision.

¶383

It is not the pleaded case of either the
petitioner or the Official Liquidator
that the transfer or assignment made by
the Banks, which held charge, is mala
fide or that the same is intended to
defeat the interests of the unsecured
creditors. But for the assignment, the
nine banks, in whose favour the
adjudication has been made, would have
been entitled to receive the money.
Hence, from the point of view of the
unsecured creditors, it hardly makes any
difference whether the nine banks, which
held the charge, or the applicant herein
get money.

¶384

For the aforesaid reasons, I do not find
any merit in the objections of the
applicant and the Official Liquidator.”

¶385

23.Similarly, in the case of IDBI Ltd.
(supra), the question before the Bombay High
Court was whether the Company Court has
jurisdiction under Section 446 of the said Act to
decide the question whether the charge of the
secured creditors are registered under Section
132 of the said Act and to the extent such
charges are not registered, claims of the secured
creditors against the Official Liquidator can be
declared as void in view of the provisions of
Section 125 of the said Act? The Hon'ble Bombay
High Court held in paragraphs 44 to 46 as under:

¶386

Page 69 of 78

¶387

O/COMA/285/2011 CAV JUDGMENT

¶388

“44. The questions whether the charge is
registered or there is a non-compliance
of Section 125(1) of the said Act, are
the disputed questions of fact. In fact,
the determination by the Official
Liquidator under Rule 163 of the said
Rules by the communication dated 20th
February, 2009, impugned in the appeals,
is on the basis that the charge is
registered. The Official Liquidator
himself has produced the copies of the
certificates of registration of the
chargesonrecord.Hence,the
registration of charges by the Registrar
of Companies is not disputed.

¶389

45. What has to be seen is the non-
compliance of Sub-section (1) of Section
125 of the said Act. The Debts Recovery
Tribunal,inexerciseofits
jurisdiction under Section 17 of the RDB
Act, has delivered its judgment and
order on 31st August, 1995 recording the
finding that the charges of out
standings have been secured by the deeds
of hypothecation and the mortgage of the
property. It has also decided the
question as to what extent the secured
creditors are entitled to recover the
out standings. It has been held that the
Official Liquidator's liability shall be
restricted to the extent of available
estate, workmen's dues and claims of
other secured creditors. The ICICI Bank
Ltd. (Kotak Mahindra Bank Ltd.), IDBI
and IFCI Ltd. are held to be first
charge holders, whereas the Bank of
Maharashtra and the Bank of India have
been held to be the second charge
holders.

¶390

46. In the judgment of the Apex Court in
Allahabad Bank's case, cited supra, it

¶391

Page 70 of 78

¶392

O/COMA/285/2011 CAV JUDGMENT

¶393

has been held in Para 49 thereof that at
the stage of adjudication under Section
17 and execution of the certificate
under Section 25, the provisions of the
RDB Act confer exclusive jurisdiction
upon the Tribunal and the Recovery
Officer in respect of the debts payable
to the banks and financial institutions
and there can be no interference by any
Court under Section 442 read with
Section 537 or under Section 446 of the
Companies Act. In Para 31 of the said
judgment (which is reproduced in Para 32
above), it has been held that the
Company Court cannot use its powers
under Section 446 of the said Act
against the Tribunal/Recovery Officer
and Sections 442,446 and 537 cannot be
applied against the Tribunal. In view of
this,thematteriscompletely
determined by the Debts Recovery
Tribunal and this Court has no
jurisdiction under Section 446 to re-
open the issues concluded by the
judgment and order passed by the Debts
Recovery Tribunal under Section 17 of
the RDB Act.”

¶394

24.In another case decided by the High
Court of Bombay in the case of Ashish Bhatia V/s
The Official Liquidator, High Court passed in
Company Application No.1123 of 2009 on 18.8.2011,
the Bombay High Court as observed and held in
paragraph 11 as under:

¶395

“11. Equally, it is stated that assuming
it comes into existence on account of
documents that are executed, yet, there
is no compliance with section 125(1) of
the Companies Act. It is pertinent to

¶396

Page 71 of 78

¶397

O/COMA/285/2011 CAV JUDGMENT

¶398

note that it is not the company which is
raising this objection but it is the
applicant who is a ex-director, has
raised this objection. The company in
liquidation has no objection to the
second respondent proceeding on the
basis that the property was equitably
mortgaged to it. That the documents
evidencing title are deposited with an
intention to create mortgage is
something on which, both, the second
respondent and company in liquidation,
have proceeded; that all the monies and
advances have been utilised and
facilities have been availed of. In such
circumstances, it is too late in the day
now to argue that there is no compliance
with section 125(1) of the Companies
Act. While it is true that the legal
position as enunciated by the Division
Bench in Kamani's case (supra) would
apply with full force, yet, as far as
sub-section 1 to be attracted, there
must be a charge to which section 125(1)
applies. That must be sofar as any
security on the company's property or
undertaking, that charge is void against
liquidator and any creditor of the
company.Unlesstheprescribed
particulars of the charge together with
instruments, if any, by which the charge
is created or evidenced or a copy
thereof verified in prescribed manner
are filed with the Registrar for
registration, in the manner required by
the Act within 30 days from its
creation, sub-section 2 of section 125
of Companies Act, at once clarifies that
nothing in sub-section 1 shall prejudice
any contract or obligation for repayment
of money secured by the charge. The
charges to which the section applies are
enlisted then in sub-section 4.
Therefore, firstly it must be proved

¶399

Page 72 of 78

¶400

O/COMA/285/2011 CAV JUDGMENT

¶401

that charge created by a company to
which the section applies, has been so
created. That the instant arrangement
with respondent No.2 is in the nature of
a charge to which section 125(1) applies
has not been clarified at all. Further,
it is the argument of the applicant that
the charge is void as against the
liquidatororcreditorunless
registered. Therefore, that is for the
purpose of Companies Act and that it is
clear that the same is qua the
liquidator and the creditor of the
company. In these circumstances, one
cannot hold on the strength of this
provision that the security interest in
a later enactment is in any way affected
because of non compliance with section
125(1) of the Companies Act. There is
nothing in the Securitisation Act, which
is a later Statute, which would in any
way make section 125 or part V of the
Companies Act applicable to any security
interestcreatedunderthe
Securitisation Act or will have any
effect on it. In such circumstances, if
on the own force of the Securitisation
Act in terms of the security interest
created in favour of the second
respondent, the second respondent can
proceed to take steps to sell company's
property, then, I do not see how that
sale can be questioned or nullified at
the instance of a person like the
applicant and only because in his
opinion section 125(1) of the Companies
Act is not complied with. For the sale
to be nullified, it must be demonstrated
that there is something in the
Securitisation Act which makes Section
125 applicable to the security interest
created in the said Act and as
understood by the Securitisation Act. A
perusal of the relevant provisions of

¶402

Page 73 of 78

¶403

O/COMA/285/2011 CAV JUDGMENT

¶404

both enactments leave me in no manner of
doubt that Securitisation Act does not
envisage any such compliance. In these
circumstances, the argument that the
sale is bad in law for non compliance
with section 125(1) of the Companies Act
cannot be accepted and must be
rejected.”

¶405

25.Thus, in view of the aforesaid decision
rendered by the various High Courts, I am of the
opinion that in the present case, SBI has
registered its charge under Section 125 of the
Companies Act before ROC over the secured assets
of company, the applicant is an assignee and,
therefore, if the applicant has not registered
its charge over the secured assets before the
Registrar of Companies, it cannot be said that
the applicant is not entitled to proceed against
the secured assets.

¶406

26.Another contention of learned advocate
of the intervenor is that the account of the
company in liquidation was declared NPA in the
year 2001 by SBI. Thereafter, credit facilities
were restructured by SBI and fresh agreement was
entered into in January, 2004. Thereafter, the
account of the company in liquidation was never
declared as NPA. SBI has thereafter not initiated
the proceedings under SARFAESI Act and therefore
waived its right and hence the applicant-bank

¶407

Page 74 of 78

¶408

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¶409

cannot now initiate the proceedings under the
SARFAESI Act against the company in liquidation
after a period of five years.

¶410

27.In my opinion, the aforesaid contention
is misconceived. It is true that the account of
the company in liquidation was declared NPA in
the year 2001. However, at the request of the
company in liquidation, the SBI has restructured
the credit facilities. However, so far as that
facility is concerned, also, the company in
liquidation has not complied with the terms. SBI
has, therefore, issued the notice on 7.9.2005 to
the company in liquidation and called upon the
borrower to make the payment. However, the
borrower-company in liquidation has not made the
payment as per the notice. Thereafter, the SBI
assigned its debts in favour of the applicant-
bank by Deed of Assignment dated 23.3.2006.
Thereafter, the applicant-bank has issued the
notice under SARFAESI Act on 15.11.2006. Thus, in
my view, there is no delay in initiation of the
proceedings nor it can be said that SBI had
waived its right to initiate action against the
company in liquidation.

¶411

28.It is further required to be noted that
the Official Liquidator filed Appeal No.27 of
2007 before the DRT against the applicant-bank.

¶412

Page 75 of 78

¶413

O/COMA/285/2011 CAV JUDGMENT

¶414

However, learned advocate Mr.Pahwa has placed on
record the order dated 17.7.2014 passed by DRT
below Exh.23 whereby the said appeal was disposed
off as dismissed for default due to want of
prosecution. The Official Liquidator or the
intervenor has not placed any other material on
record to show that the said appeal has been
restored. Thus, the fact remains that the
Liquidator did file an appeal before the DRT. It
is clarified that if the said appeal is restored
on file of DRT, it is open for the Official
Liquidator to take all available contentions
before the learned Tribunal.

¶415

29.In view of the aforesaid discussion, the
other contentions are not further dealt with in
detail and the decisions relied upon by learned
advocates for the respondents are not applicable
to the facts of the present case.

¶416

30.Thus, the relief prayed for in this
Judges' summons is required to be allowed. The
respondent no.1 herein is hereby directed to hand
over the possession of the secured assets
particularly described in schedule annexed at
Annexure `A' to the applicant who has already
initiated measures under the provisions of the
SARFAESI Act. The applicant is also permitted to
proceed further in relation to the secured assets

¶417

Page 76 of 78

¶418

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¶419

subject to compliance of provisions of proviso to
Section 13(9) of the Act. However, it is
clarified that the applicant-bank has to inform
the Official Liquidator about the steps which it
will take against the secured assets.

¶420

31.With the above observation, this
application is accordingly allowed and disposed
of.

¶421

(VIPUL M. PANCHOLI, J.)

¶422

Srilatha

¶423

When this judgment is pronounced in the open
Court, learned advocate Mr.A.L.Shah appearing
with learned advocate Mr.Godiawala for the
intervenor requested that this Court may grant
stay of this judgment for a period of three weeks
so that the intervenor can approach before the
Hon'ble Division Bench against this judgment.
Learned advocate Mr.Pahwa appearing for the
applicant has vehemently opposed the request made
by the learned advocate for the intervenor.

¶424

In the interest of justice, I am of the view that
request made by learned advocate Mr.Shah is
required to be accepted. This judgment and order
is stayed for a period of three weeks.

¶425

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¶426

O/COMA/285/2011 CAV JUDGMENT

¶427

(VIPUL M. PANCHOLI, J.)

¶428

Srilatha

¶429

Page 78 of 78

Kotak Mahindra Bank Ltd. v. Official Liquidator of Clarisis Organics Ltd.

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Kotak Mahindra Bank Ltd. v. Official Liquidator of Clarisis Organics Ltd.

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