Partly allowed

Canara Bank v. the Official Liquidator of

Karnataka HC30 May 2023OSA/48/2013

Case brief

AI extract

What is this about?

Appellate bench allowed two appeals seeking to set aside a Company Judge's order that declared an auction sale void and ordered possession handed over, ruling that the sale preceded the winding-up and was based on a DRT judgment, and the liquidator should have approached the Tribunal.

What did the court decide?

Order dated 13.06.2013 and subsequent Company Application No.190/2008 set aside. Appeals allowed.

Canara Bank Vs the Official Liquidator of — Company and Corporate | Karnataka HC (2023)

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O.S.A. No.48 of 2013 C/W O.S.A. No.36 of 2013

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 30^TH DAY OF MAY, 2023

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PRESENT

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THE HON'BLE MR. JUSTICE ALOK ARADHE

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AND

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THE HON'BLE MR. JUSTICE ANANT RAMANATH HEGDE

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O.S.A. NO.48 OF 2013

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C/W

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O.S.A. NO.36 OF 2013

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IN O.S.A. NO.48 OF 2013

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BETWEEN:

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Digitally signed by RUPA V Location: High Court of Karnataka

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CANARA BANK MADIWALA BRANCH #20/01, HOSUR MAIN ROAD MADIWALA, BANGALORE 68 REP. BY ITS AUTHORIZED SIGNATORY.

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(BY SRI. D. ASWATHAPPA, ADV.,)

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…APPELLANT

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AND:

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THE OFFICIAL LIQUIDATOR OF M/S. KRITHIKA RUBBER INDUSTRIES PVT. LTD. (IN LIQUIDATION) ATTACHED TO HIGH COURT OF KARNATAKA CORPORATE BHAVAN, 12TH FLOOR RAHEJA TOWER, M.G. ROAD BANGALORE-560001.

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SRI. T. DEVARAJA S/O M. TUKARAM RAO AGED ABOUT 49 YEARS NO.57, 16TH CROSS, 10TH MAIN WILSON GARDEN, BANGALORE 30

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…RESPONDENTS

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O.S.A. No.48 of 2013 C/W O.S.A. No.36 of 2013

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(BY SRI. K.S. MAHADEVAN, ADV., FOR SMT. REVATHY ADINATH NARDE, ADV., FOR R1 SRI. R. PARTHASARATHY, ADV., FOR SRI. ASHOK NAIK, ADV., FOR R2)

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THIS OSA IS FILED UNDER RULE 483 OF THE COMPANIES ACT 1956, R/W RULE 9 OF THE COMPANIES (COURT) RULES 1959, PRAYING TO ALLOW THE APPEAL BY SETTING-ASIDE THE ORDER DATED 13.06.2013 PASSED IN C.A. NO.190/2008 IN CoP NO.167/1999 ALLOWING THE COMPANY APPLICATION AND SET-ASIDE THE AUCTION SALE ONE IN EXECUTION OF THE RECOVERY CERTIFICATE ISSUED BY THE DEBT RECOVERY TRIBUNAL (FOR SHORT DRT) IN PURSUANCE TO THE AWARD DATED 26.06.2000 PASSED IN OA NO.194/1997 FILED BY THE APPELLANT HEREIN AS SECURED CREDITOR AND PASS ANY SUCH OTHER ORDER/S DEEM FIT IN THE MATTER AND ETC.,

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O.S.A. NO.36 OF 2013

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BETWEEN:

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T. DEVARAJA S/O LATE M. TUKARAM RAO AGED ABOUT 53 YEARS NO.57, 16TH CROSS 10TH MAIN, WILSON GARDEN LAKKASANDRA EXTN BANGALORE-560030.

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…APPELLANT

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(BY SRI. R. PARTHASARATHY, ADV., FOR SRI. ASHOK NAIK, ADV.,)

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AND:

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OFFICIAL LIQUIDATOR OF M/S KRITIKA RUBBER INDUSTRIES PVT LTD (IN LIQUIDATION) ATTACHED TO HIGH COURT OF KARNATAKA 'F' WING, 4TH FLOOR, KENDRIYA SADAN KORAMANGALA BANGALORE-560034.

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NOW OFFICE AT: CORPORATE BHAVAN 26-27, 12TH FLOOR RAHEJA TOWERS M G ROAD, BANGALORE-1.

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CANARA BANK MADIWALA BRANCH # 20/01, HOSUR MAIN ROAD MADIWALA, BANGALORE-68 REPTD BY ITS AUTHORITSED SIGNATORY.

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…RESPONDENTS

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(BY SRI. K.S. MAHADEVAN, ADV., FOR SMT. REVATHY ADINATH NARDE, ADV., FOR R1 SRI. D. ASWATHAPPA, ADV., FOR R2)

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THIS OSA IS FILED U/S 483 OF THE COMPANIES ACT, 1956, R/W SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961, PRAYING TO SET ASIDE THE ORDER DATED 13.06.2013 PASSED IN COMPANY APPLICATION NO.190/2008 BEING FILED IN COMPANY PETITION NO.167/1999 VIDE ANNEXURE-A PASSED BY THE HON'BLE SINGLE JUDGE OF COMPANY COURT, AT BANGALORE AND CONSEQUENTLY DISMISS THE COMPANY APPLICATION NO.190/2008 BEING FILED IN COMPANY PETITION NO.167/1999 TO MEET THE ENDS OF JUSTICE. TO PASS SUCH OTHER OR DIRECTION AS DEEM FIT UNDER THE CIRCUMSTANCE OF THE CASE.

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THESE APPEALS COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

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JUDGMENT

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These appeals under Section 483 of the Companies Act, 1956 read with Rule 9 of Companies (Code) Rules, 1959 have been filed against the order dated 13.06.2013 passed by Learned Company Judge by which company application filed by the official liquidator under Section 537 read with Section 456 of the Companies Act has been allowed and the auction of the property held on 05.10.2005, which was confirmed on 16.11.2005 as well as sale certificate dated 02.02.2006 issued by the Debt Recovery Tribunal has been set aside. In addition, the respondents in the company application were directed to hand over the possession of the property in question. O.S.A.No.48/2013 has been filed by the financial

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institution viz., Canara Bank whereas, O.S.A.No.36/2013 has been filed by the auction purchaser.

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Facts leading to filing of these appeals briefly

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stated are that M/s Kritika Rubber Industries Private Limited (hereinafter referred to as 'the Company' for short) had availed of financial assistance from the Canara Bank (hereinafter referred to as 'the Bank' for short). However, the company defaulted in making repayment of the amount of loan to the bank. Thereafter, the bank initiated the proceedings for recovery of the aforesaid amount before the Debt Recovery Tribunal, Bangalore (hereinafter referred to as 'the Tribunal' for short). Therefore, the bank on 19.02.1997 initiated proceedings for recovery of the amount before the Tribunal. A petition for winding up of the company viz., Co.P. No.167/1999 was filed by one of the creditors viz., Colonel D.B.Singh on 19.06.1999 against the company. On 30.03.2000, the aforesaid petition for winding up of the company was admitted. The recovery proceedings viz., O.A.No.194/1997 initiated by the bank against the company was allowed

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by the tribunal on 26.06.2000. In execution proceedings, recovery officer by an order dated 27.06.2005 attached the property No.67G in Sy.No.205 measuring 4026 square feet situated at Bommasandra, Anekal Village, Bangalore Rural Taluk (hereinafter referred to as 'the schedule property' for short). Thereafter, a public notice of auction of sale was issued on 02.10.2005 by recovery officer of the tribunal to sell the schedule property.

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In pursuance of the aforesaid public notice,

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the auction was conducted on 05.10.2005, which was confirmed on 16.11.2005. Thereafter, the Tribunal issued a sale certificate on 02.02.2006 in favour of auction purchaser. After the sale certificate was issued, the petition for winding up of the company as allowed on 29.06.2006.

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The Official Liquidator filed a company

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application viz., C.A.No.190/2008 under Section 537 of the Act on 06.03.2008 seeking a declaration that the sale of assets of the company by the bank in favour of auction purchaser is void. The learned Company Judge by an order dated 25.11.2008 allowed the aforesaid company application and declared the sale to be void and directed the respondents in the company application to hand over the assets. Thereafter, the bank as well as the auction purchaser filed appeals under Section 483 of the Companies Act, 1956 (hereinafter referred to as 'the Act' for short) seeking to set aside the order dated 25.11.2008 passed by the Company Judge. A division bench of this court set aside the order passed by learned Company Judge and remitted the matter to the company court for fresh consideration.

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Thereafter, in pursuance of the order of

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remand, company had by an order dated 13.06.2013 inter alia held that during the pendency of the company petition, the recovery officer of the tribunal attached the property on 27.06.2005 and auctioned the same. It was further held that Official Liquidator represents the secured creditor as well as the workmen and therefore, he cannot be kept out of sale proceedings. The learned Company Judge therefore, set aside the certificate of sale dated 02.02.2006 and directed the auction purchase to hand over the possession.

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Being aggrieved, the bank filed a review petition viz., R.P.No.600/2013, which was dismissed by a Company Judge by an order dated 10.10.2013. Thereafter, the auction purchaser and the bank have filed these appeals. In the aforesaid factual background, these appeals arise for our consideration.

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Learned counsel for the auction purchaser as

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well as for the bank at the outset submitted that the order passed by the learned Company Judge is per incuriam in as much as the same has been passed in ignorance of law laid down by Hon'ble Supreme Court in 'BANK OF MAHARASHTRA VS. PANDURANG

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KESHAV GORWARDKAR AND OTHERS', (2013) 7 SCC

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754. Learned counsel has invited the attention of this court to paragraph 67.6 of the aforesaid decision. It is contended that the Recovery of Debts Due to Banks And Financial Institution Act, 1993 is a special law and a later law and therefore, has an overriding effect over the provisions of the Act. It is further submitted that in any case, if the Official Liquidator was aggrieved, he ought to have approached the tribunal and had no option to initiate the proceedings before the company court. In support of aforesaid submissions reference has

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been made to decision of the Hon'ble Supreme Court in

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'OFFICIAL LIQUIDATOR, UTTAR PRADESH AND

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UTTARAKHAND VS. ALLAHABAD BANK AND

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OTHERS', (2013) 4 SCC 381. On the other hand, learned counsel for the Official Liquidator fairly submitted that the controversy involved in this appeal is covered by a decision of Hon'ble Supreme Court in BANK OF MAHARASHTRA supra. However, it is submitted that the Official Liquidator be granted the liberty to make a claim on behalf of the secured creditor as well as the workmen before the Bank.

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We have considered the rival submissions made on both sides and have perused the record. Admittedly, in the instant case, after the auction was held on 05.10.2005, which was confirmed on 16.11.2005, a sale certificate was issued on 02.02.2006. Thereafter, after a period of four months, by an order dated 29.06.2006, winding up petition was allowed. Thus, prior to appointment of Official Liquidator, the auction was already held, which was confirmed and the

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sale certificate was duly issued to the auction purchaser. The Hon'ble Supreme Court in BANK OF MAHARASHTRA in para 67.6 has held as under:

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Where the winding-up petition against the debtor company is pending but no order of winding up has been passed nor has any provisional liquidator been appointed in respect of such company at the time of order of sale by DRT and the properties of the debtor company have been sold in execution of the recovery certificate and proceeds of sale realized and full disbursement of the sale proceeds has been made to the bank or financial institution concerned, the subsequent event of the debtor company going into liquidation is no ground for reopening disbursement by DRT.

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Thus, from aforesaid enunciation of law, it is evident that at the time when the order of sale is made and the properties have been sold in execution of the recovery certificate, when no order of winding up has

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been passed or no provisional liquidator has been appointed, the sale cannot be re-opened.

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However, it appears that the aforesaid decision of the Hon'ble Supreme Court was not brought to the notice of the learned Company Judge. Therefore, in view of the law laid down by Hon'ble Supreme Court in BANK OF MAHARASHTRA supra, and therefore, the association of Official Liquidator with the sale was not required as the same was conducted prior to appointment of the Official Liquidator.

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For yet another reason, the impugned order cannot be sustained. The Hon'ble Supreme Court in OFFICIAL LIQUIDATOR supra has held that a person aggrieved by an action taken by the Recovery Officer has to approach the tribunal and cannot take recourse to doctrine of election. In the instant case, the only remedy available to the Official Liquidator was to challenge the order passed by the Recovery Officer

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