Dismissed

State Bank of India v. Official Liquidator of

Karnataka HC26 Jul 2024OSA/3/2024

Case brief

AI extract

What is this about?

The High Court dismissed an appeal by State Bank of India challenging a Single Judge's order directing the official liquidator of United Breweries to value company assets. The court held that Section 457(2A) mandates asset valuation to ensure best prices for creditors, and the liquidator's custodial duties take precedence over pending PMLA claims regarding possession. The order authorizes valuatio

What did the court decide?

The appeal filed by State Bank of India against the order directing the official liquidator to value properties is dismissed.

State Bank of India Vs Official Liquidator of — Company and Corporate | Karnataka HC (2024)

¶1

¶2

NC: 2024:KHC:29474-DB OSA No.3/2024

¶3

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26^TH DAY OF JULY, 2024

¶4

PRESENT

¶5

THE HON'BLE MRS JUSTICE K.S.MUDAGAL

¶6

AND

¶7

THE HON'BLE MR JUSTICE VIJAYKUMAR A. PATIL

¶8

ORIGINAL SIDE APPEAL No.3/2024

¶9

¶10

COMPANY APPLICATION NO.340/2022

¶11

IN COMPANY PETITION NO.57/2012

¶12

BETWEEN:

¶13

STATE BANK OF INDIA

¶14

STRESSED ASSETS MANAGEMENT BRANCH 2^ND FLOOR, OFFICE COMPLEX BUILDING LHO CAMPUS, NO.65, ST. MARKS ROAD BENGALURU- 560 025 REP. BY ITS ASSISTANT GENERAL MANAGER MR.RAGHAVENDRA G MUTTAGI

¶15

...APPELLANT

¶16

(BY SRI K.N.PHANINDRA, SENIOR COUNSEL FOR SRI VEERENDRA PATIL, ADVOCATE)

¶17

Digitally signed by K S RENUKAMBA Location: High Court of Karnataka

¶18

AND:

¶19

1 . OFFICIAL LIQUIDATOR OF M/S UNITED BREWERIES (HOLDINGS) LTD., (IN LIQN) ATTACHED TO HIGH COURT OF KARNATAKA

¶20

“CORPORATE BHAVAN” NO 26-27 12^TH FLOOR, RAHEJA TOWERS

¶21

M G ROAD, BENGALURU - 560 001

¶22

2 . M/S HDFC LTD., RAMON HOUSE H T PAREKH MARG, NO.169 BACKBAY RECLAMATION

¶23

CHURCH GATE, MUMBAI – 400 002

¶24

¶25

NC: 2024:KHC:29474-DB OSA No.3/2024

¶26

3 . PRESTIGE ESTATE PROJECTS LTD., PRESTIGE FALCON TOWERS NO.19, BRUNTON ROAD

¶27

CRAIG PARK LAYOUT, VICTORIA LAYOUT

¶28

BENGALURU – 560 025 …RESPONDENTS

¶29

(BY SMT.KRUTIKA RAGHAVAN, ADVOCATE FOR C/R1; SRI R.V.GOUTHAM, ADVOCATE FOR R2; R3 SERVED)

¶30

THIS ORIGINAL SIDE APPEAL IS FILED UNDER SECTION 483 OF THE COMPANIES ACT, 1956 READ WITH SECTION 4 OF THE KARNATAKA HIGH COURTS ACT, 1961 PRAYING TO ALLOW THIS APPEAL AND CONSEQUENTLY SET ASIDE THE ORDER DATED 06.02.2024 PASSED BY THE LEARNED SINGLE JUDGE IN COMPANY APPLICATION BEARING C.A.NO.340/2022 FILED IN COP NO.57/2012.

¶31

THIS ORIGINAL SIDE APPEAL HAVING BEEN RESERVED FOR JUDGMENT ON 15.07.2024 COMING ON FOR PRONOUNCEMENT THIS DAY, K.S.MUDAGAL J , DELIVERED THE FOLLOWING:

¶32

CORAM: HON'BLE MRS JUSTICE K.S.MUDAGAL

¶33

AND

¶34

HON'BLE MR JUSTICE VIJAYKUMAR A. PATIL

¶35

CAV JUDGMENT

¶36

(PER: HON'BLE MRS JUSTICE K.S.MUDAGAL)

¶37

Challenging the order of the learned Single Judge, respondent No.2 in Company Application No.340/2022 in Company Petition No.57/2012 has preferred the above appeal.

¶38

The appellant was respondent No.2, respondent No.1/Official Liquidator was the applicant, respondent No.2 was respondent No.1, respondent No.3 was respondent No.3 in C.A.No.340/2022 before the learned Single Judge.

¶39

¶40

NC: 2024:KHC:29474-DB OSA No.3/2024

¶41

The brief facts of the case are as follows:

¶42

(i) The appellant and several others filed company petitions against United Breweries (Holdings) Limited (‘UBHL’ for short) for winding up of the said company. Company petition filed by the appellant was registered in COP.No.162/2013 and that was tagged with the petition in COP.No.57/2012 before this Court. This Court by order dated 07.02.2017 allowed the COP.No.162/2013 ordering the winding up of UBHL. The said order was unsuccessfully challenged before the Hon’ble Supreme Court. Consequently the official liquidator has taken charge of the company affairs.

¶43

(ii) UBHL is also proceeded in Spl.C.No.5/2018 and Spl.C.No.7/2017 before the Court of Special Judge for CBI for Greater Bombay at Mumbai under the Prevention of MoneyLaundering Act, 2002 (‘PML Act’ for short). The properties of UBHL were attached in the said cases. The appellant led the consortium of 11 banks to recover the dues payable by the company in liquidation and approached the Debt Recovery Tribunal (DRT for short). The DRT passed the order allowing the claim of the appellant. Further the Recovery Officer of DRT

¶44

¶45

NC: 2024:KHC:29474-DB OSA No.3/2024

¶46

by order dated 07.02.2022 permitted the appellant to enforce the recovery certificate subject to necessary clarification to be obtained from the concerned Court.

¶47

(iii) The order of attachment passed by the Special Court under PML Act was vacated and the properties were restored in favour of the appellant-SBI led consortium, despite resistance of the official liquidator. The said order of restoration is challenged in W.P.No.2720/2021 and W.P.No.2721/2021 before the High Court of Mumbai, but there is no interim order against the official liquidator.

¶48

(iv) The appellant has recovered

¶49

Rs.10040,81,70,704.82/- (approximate Rupees Ten Thousand Forty Crores ) by sale of shares of the company. Again that sale is questioned and pending before the Hon’ble Supreme Court.

¶50

Such being the facts, the official liquidator filed C.A.No.340/2022 before the learned Single Judge seeking the following reliefs:

¶51

(i) To direct the HDFC Bank (respondent No.2) to hand over original title deeds of certain immovable properties belonging to the company in liquidation.

¶52

¶53

NC: 2024:KHC:29474-DB OSA No.3/2024

¶54

(ii) To appoint two reputed valuers for each property

¶55

mentioned in the application to value the same and to secure the valuation report in sealed cover.

¶56

(iii) To permit the official liquidator to incur the expenditure towards valuation from the funds available to the credit of the company in liquidation.

¶57

(iv) To direct the Joint Developer-Prestige Estate Projects Ltd. (respondent No.3 herein) to assist the valuer in evaluating the properties.

¶58

That application was opposed by the appellant-SBI and respondent No.2-HDFC Bank.

¶59

Respondent No.2–HDFC Bank contended that it is a secured creditor and it has priority claim over the properties and the proceedings under the PML Act are pending before the Special Court.

¶60

The appellant-SBI opposed the application on the ground that for the amount payable to it, DRT has issued recovery certificate in its favour and the properties are restored to it by the Special Court subject to its undertaking of returning the same whenever required.

¶61

¶62

NC: 2024:KHC:29474-DB OSA No.3/2024

¶63

Learned Single Judge on hearing the parties, by the impugned order has allowed the application of the respondent No.1/official liquidator in the following terms:

¶64

(i) The assets of the Company in liquidation viz., No.24, UB Towers, Vittal Mallya Road, Bengaluru-560 001, No.87/16, Rusthumji Residency, Richmond Road, Richmond Town, Bengaluru and at No.602, HB, Wallace Apartments, Nasir Bharucha Marg, Grant Road Mumbai, are to be valued by two independent valuers.

¶65

(ii) Respondent No.2-HDFC Bank shall permit the valuers to inspect the original title deeds pertaining to the properties referred to above belonging to the Company in liquidation, and shall also permit the valuers to take Xerox copies of the said title deeds.

¶66

(iii) The invoices relating to the valuation shall be placed before this Court for appropriate orders relating to valuers' fees.

¶67

(iv) The joint owner -Prestige Estate Projects Ltd./respondent No.3 shall co-operate with the valuers in valuation process.

¶68

¶69

NC: 2024:KHC:29474-DB OSA No.3/2024

¶70

(v) Respondent No.1/Official Liquidator, respondent No.2-HDFC and the appellant-SBI shall submit the list of 5 valuers, in sealed cover to enable this Court to finalise the valuers to value the properties.

¶71

Respondent No.2-HDFC has not challenged the said order. Therefore the said order has attained finality against it.

¶72

The appellant-SBI has challenged the said order in the above appeal.

¶73

Sri K.N.Phanindra, learned Senior Counsel appearing for Sri Veerendra Patil, learned Counsel on record for the appellant assails the impugned order mainly on the following grounds:

¶74

(i) The official liquidator has not adjudicated all the claims of the creditors. Unless the same is done, the valuation of the properties becomes wasteful exercise.

¶75

(ii) The Special Court has restored the properties in favour of the appellant subject to the appellant’s undertaking to restore them to the said Court, if at all it is held that the properties are proceeds of the crime . If at all the official

¶76

¶77

NC: 2024:KHC:29474-DB OSA No.3/2024

¶78

liquidator wants valuation or sale of the properties, he should approach the Special Court.

¶79

(iii) The DRT has issued recovery certificate in favour of

¶80

the appellant and the recovery officer in the order dated 07.02.2022 has directed that the official liquidator shall seek clarification from the concerned Court which means the Special Court. Therefore the official liquidator should have approached the Special Court for valuation or sale of the properties.

¶81

In support of his submissions, he relies on the judgment of the Hon’ble Supreme Court in Allahabad Bank v. Canara Bank¹ .

¶82

Smt.Krutika Raghavan, learned Counsel for respondent No.1/official liquidator justifies the impugned order on the following grounds:

¶83

(i) The attachment order of the Special Court only bars sale or transfer of the assets.

¶84

(ii) The affidavit undertaking of the appellant before the Special Court is to either restore the properties or value the same.

¶85

1 (2000) 4 SCC 406

¶86

¶87

NC: 2024:KHC:29474-DB OSA No.3/2024

¶88

(iii) The appellant itself has sold the attached shares worth Rs.700 crores. Therefore, it does not lie in its mouth to say that the official liquidator is barred from seeking valuation of the properties for the purpose of realization. Even after the sale the official liquidator deposits the amount in escrow account and the eligibility of the creditors can be considered by the Court.

¶89

(iv) Under Section 457(2A) (b)(c) of the Companies Act, 1956 (‘Companies Act’ for short) the official liquidator is obligated to value the properties and protect the same. By such objection, the appellant on untenable grounds is preventing the official liquidator from discharging his duties under the provisions of the Companies Act.

¶90

(v) The costs of maintenance of the properties comes to Rs.2 crores per month. The official liquidator was appointed on 07.02.2017. Challenge to his appointment was dismissed on 26.10.2020. Therefore the paper publication was taken calling for claims of the parties and the process of adjudication is going on. The delay in valuation of the properties and realization of the same affects the interest of the creditors.

¶91

10 -

¶92

NC: 2024:KHC:29474-DB OSA No.3/2024

¶93

(vi) Learned Single Judge by taking into consideration all the aspects has passed the impugned order and the same does not warrant interference of this Court.

¶94

In support of her submissions, she relies on the

¶95

following judgments:

¶96

(i) Allahabad Bank v. Bengal Paper Mills Co.Ltd.²

¶97

(ii) Union Bank of India v. Official Liquidator³

¶98

On hearing both the parties and on examining the records, the point that arises for determination is “Whether the

¶99

learned Single Judge was justified in allowing COP No.340/2022”?

¶100

Analysis

¶101

The admitted facts of the case which are also listed

¶102

by learned Single Judge are as follows:

¶103

(i) The company in liquidation was ordered to be wound up by an order dated 07.02.2017.

¶104

(ii) The said order is confirmed as the appeal

¶105

challenging the said order is dismissed by the Division Bench of this Court.

¶106

2 (1999) 4 SCC 383

¶107

3 (2000) 5 SCC 274

¶108

11 -

¶109

NC: 2024:KHC:29474-DB OSA No.3/2024

¶110

(iii) The Special Leave Petition filed by the Company in Liquidation is not entertained.

¶111

(iv) The DRT has passed an order for the recovery of dues payable by the company in liquidation in favour of a consortium led by SBI.

¶112

(v) The application properties were attached under the PML Act, and the attachment order was vacated and the restoration orders are passed in favour of the SBI-led consortium.

¶113

(vi) The orders of restoration are under challenge in W.P.No.2720/2021 and W.P.No.2721/2021 before the High Court of Bombay and there is no interim order operating against the Official Liquidator.

¶114

(vii) The DRT has issued a certificate of recovery in favour of SBI-led consortium with a rider that appropriate orders are to be obtained from the competent Court before putting the properties for sale.

¶115

(viii) Respondent No.2-HDFC bank has recovered its dues from sale of shares of the company and the dispute in respect of said recovery by respondent No.2-HDFC bank is the subject matter of a petition pending in the Supreme Court.

¶116

12 -

¶117

NC: 2024:KHC:29474-DB OSA No.3/2024

¶118

The first objection raised by Sri K.N.Phanindra, learned Senior Counsel is that the official liquidator has to adjudicate all the claims before valuation of the properties, otherwise, it would be a wasteful exercise. He submits that if the properties are valued at huge costs and adjudication takes some years, again the properties value will change and the same exercise has to be done.

¶119

Admittedly the official liquidator was appointed on 07.02.2017 itself and that order has attained finality on 26.10.2020. Even after lapse of four years, the process of realizing the properties has not yet begun. Section 457(2A) of the Companies Act which prescribes duties of the official liquidator reads as follows:

¶120

“457(2A) The Liquidator shall -

¶121

(a) appoint security guards to protect the property of the company taken into his custody and to make out an inventory of the assets in consultation with secured creditors after giving them notice;

¶122

(b) appoint , as the case may be, valuer , chartered surveyors or chartered accountant to assess the value of the company's assets within fifteen days after taking into custody of property , assets referred to in sub-clause (a) and effects or

¶123

13 - NC: 2024:KHC:29474-DB OSA No.3/2024

¶124

actionable claims subject to such terms and conditions as may be specified by the Tribunal;

¶125

(c) give an advertisement, inviting bids for sale of the assets of the company, within fifteen days from the date of receiving valuation report from the valuer, chartered surveyors or chartered accountants referred to in clause (b), as the case may be.

¶126

Since the language ‘ shall’ is employed in the above Section, it is mandatory for the official liquidator to commence the process of appointing the valuers for valuation of the properties within 15 days after taking custody of the property.

¶127

Para 19(g) of the order dated 07.02.2022 in T.R.C.No.255/2017 in O.A.No.766/2013 relied on by learned Senior Counsel reads as follows:

¶128

“19(g). Since it is brought to my notice that the immovable properties owned by UBHL and now restored in favour of CHBs are in the custody of Official Liquidator and transfer of custody of such properties (including title deeds and related documents) for the purpose of enforcement of same may be lengthy and cumbersome process, the official liquidator if consenting is permitted to retain the custody of the immovable properties owned by UBHL, and to sell the properties in a time bound frame . Under this circumstance, a clarification is required to be obtained from the concerned Court or any higher

¶129

14 -

¶130

NC: 2024:KHC:29474-DB OSA No.3/2024

¶131

Forum either by CHB or by Official Liquidator or together, regarding sale of immovable properties restored to CHBs through Recovery Officer by DRT and the issue of undertaking to be furnished by Official Liquidator. Till a clarification is received from the concerned Court or from any higher forum , no further action on the affidavit filed by CHBs for sale of immovable properties shall be entertained by this Authority due to the reasons as mentioned above.”

¶132

(Emphasis supplied)

¶133

Reading of the above order shows that even though the properties were restored to the custody of the appellantSBI, the official liquidator was permitted to retain the custody of immovable properties and permission was given to him to sell the properties. Parties were directed to obtain clarification from the concerned Court or higher forum regarding sale of immovable properties restored to the appellant through the Recovery Officer.

¶134

The order dated 24.05.2021 in Special Case No.5/2018 and the order dated 01.06.2021 in Special Case No.7/2017 show that the Recovery Officer of DRT was permitted to proceed in accordance with law subject to compliance of the order of Karnataka High Court dated

¶135

15 -

¶136

NC: 2024:KHC:29474-DB OSA No.3/2024

¶137

07.02.2017 in COP.No.57/2012 in respect of official liquidator of UBHL.

¶138

While considering the request of the appellant for disbursal of sale proceeds of shares etc., the Recovery Officer of DRT in addition to para 19 (g) of the order dated 07.02.2022 referred to above, in para 19(c) permitting the official liquidator to proceed with the matter in terms of the order in COP.No.57/2012 held as follows:

¶139

“c. It is clarified that in terms of Company Petition No.57/2012 before the Hon’ble High Court of Karnataka, the Official Liquidator remains custodian of all assets of UBHL which were not attached by the Enforcement Directorate and this order will not come in the way of official liquidator disposing of the Liquidation proceeds of such assets as per the priority prescribed in the Companies Act.

¶140

The aforesaid orders and Section 457(2A) of the

¶141

Companies Act clearly show that the official liquidator is permitted to proceed for realization of the assets. None of the provisions of the Companies Act say that before valuation there should be adjudication of all the claims of the creditors. Therefore the contention that valuation of the properties shall

¶142

16 -

¶143

NC: 2024:KHC:29474-DB OSA No.3/2024

¶144

be made only after adjudication of all the claims deserves no merit.

¶145

The next contention of Sri K.N.Phanindra, learned Senior Counsel is that the appellant-SBI has given undertaking affidavit before the Special Court to restore the properties. Therefore the said properties cannot be sold. In para 9 of their bond undertakings dated 01.06.2021 and 03.06.2021, the appellant has stated as follows:

¶146

Bond undertaking dated 01.06.2021:

¶147

“Now in consideration of the above stated we the applicant Banks herein by way of this bond undertaking do hereby unconditionally and unequivocally undertake to restore assets or its equivalent value under the PMLA order dated 24 May 2021 if such restoration is required to be done as per the applicable laws.”

¶148

Bond undertaking dated 03.06.2021:

¶149

“Now in consideration of the above stated we the applicant Banks herein by way of this bond undertaking do hereby unconditionally and unequivocally undertake to restore assets or its equivalent value under the PMLA order dated 1^st June 2021 if such restoration is required to be done as per the applicable laws.”

¶150

17 -

¶151

NC: 2024:KHC:29474-DB OSA No.3/2024

¶152

The above undertakings are clearly either to restore the properties or valuation of the properties. In para 8 of the affidavit in T.R.C.No.255/2017 (R.C.No.11395/2017) in O.A.No.766/2013 before the Recovery Officer, DRT-1, Chennai Raghavendra G.Muttagi, the Assistant General Manager of the appellant-SBI himself has clearly admitted that by selling the shares of the company under liquidation up to 16.07.2021, the appellant-SBI has realized Rs.792,00,57,816.65/-. Despite the said undertaking, the appellant itself has sold the shares right under the nose of bond of undertaking. By opposing the valuation of the properties on the ground of same undertaking, despite the appellant itself selling the shares, the appellant is blowing hot and cold together which is impermissible. Similarly if at all movable/immovable properties were valued or sold, it is always open to restore the sale proceeds to the Special Court. The official liquidator in clear terms has stated that the amount realized by sale of the properties will be deposited in escrow account and that can be disbursed subject to the result of the proceedings under the PML Act. Therefore even that contention does not sustain.

¶153

18 -

¶154

NC: 2024:KHC:29474-DB OSA No.3/2024

¶155

Similarly, all the orders including the order passed by the Special Court say that for any properties, clarification shall be sought from the higher forum or higher authority. Respondent No.1 has filed application before this Court in C.A.No.340/2022 in COP No.57/2012 which had passed winding up order and appointed official liquidator. Therefore Company Court becomes Higher authority. Therefore, there is no merit in the contention that the official liquidator should have approached the Special Court seeking valuation of the properties.

¶156

Sri K.N.Phanindra, learned Senior Counsel relied on the judgment of the Hon’ble Supreme Court in Allahabad Bank’s case referred to supra to claim that Recovery of Debts Due to Banks and Financial Institutions Act, 1993 has overriding effect over the Companies Act. Absolutely, there is no dispute with regard to the said legal preposition. However, in this case, by the impugned order the learned Single Judge has not tried to meddle with the properties before the DRT. As against that, by above referred orders, the said Court and the Recovery Officer themselves have directed to seek clarification from the Company Court. Therefore the said judgment does

¶157

19 -

¶158

NC: 2024:KHC:29474-DB OSA No.3/2024

¶159

not serve the appellant’s challenge to the impugned order. Moreover the impugned order, facilitates only valuation of the assets of the company in liquidation. When such sale of properties come, the appellant can raise all contentions open to it under law.

¶160

In para 21 of the judgment in Bengal Paper Mills Co. Ltd.’s case referred to supra, relied on by learned Counsel for the official liquidator it is held that to ensure that the best possible price is realized upon sale of the assets and properties of the company under liquidation, the sale thereof by the liquidator is required to be confirmed by the High Court. Therefore that goes to show that liquidator has to make all efforts to get the best price for the properties vested under him.

¶161

In para 10 of the judgment in Union Bank of India’s case referred to supra , relied on by learned Counsel for the official liquidator it was held that since the Court acts as custodian for the interest of the company and the creditors, before sanctioning the sale of the assets, the Court is required to exercise its discretion to see that the properties are sold at a reasonable price. It was further held that for deciding what

¶162

20 -

¶163

NC: 2024:KHC:29474-DB OSA No.3/2024

¶164

would be a reasonable price, valuation report of an expert is must. It is not only the duty of the Court to disclose the said valuation report to the secured creditors and other interested persons including the offerors, but it is also the duty of the Court to apply its mind to the valuation report for verifying whether the report indicates reasonable market value of the property to be auctioned, even if objections are not raised.

¶165

The above judgment shows that there is sufficient safeguard to protect the interest of the appellant, if valuation report is submitted. The impugned order in no way has adversely affected the interest of the appellant. Therefore there is no merit in the appeal. Hence the following:

¶166

ORDER

¶167

The appeal is dismissed.

¶168

Sd/(K.S.MUDAGAL) JUDGE

¶169

Sd/(VIJAYKUMAR A. PATIL) JUDGE

¶170

KSR

¶171

List No.: 1 Sl No.: 2

State Bank of India v. Official Liquidator of

Case brief

What is this about?

What did the court decide?

State Bank of India v. Official Liquidator of

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

Shri Venkatesh K R Vs the Union of India

Pramod Mehra Vs Karnataka State Financial Corporation

Subbanna Vs the Assistant Commissioner

Sri Chandrashekara B T Vs Smt Rajini H J

The Managing Director Vs the Special Land

Dr Aravind Rao H T Vs Dr. Kumuda Rao H.T.