A.P. Industrial Development Corporation Limited, v. The Official Liquidator

Telangana HC4 Nov 2013OSA/15/2013

Case brief

AI extract

What is this about?

The High Court dismissed appeals challenging the recognition of the 1st respondent as a secured creditor replacing Central Financial Institutions (CFIs). The Court held that contractual assignments of debt rights are valid unless illegal, and the Official Liquidator must honor the assignment terms.

What did the court decide?

Original Side Appeals Nos. 15 and 16 of 2013 dismissed; miscellaneous petitions disposed of; no order as to costs.

A.P. Industrial Development Corporation Limited, Vs… — Company and Corporate | Telangana HC (2013)

¶1

*** THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE M.S.K.JAISWAL**

¶2

+ O.S.A.Nos.15 and 16 of 2013

¶3

%Date: 04.11.2013

¶4

#A.P.Industrial Development Corporation Limited, Hyderabad. …appellant. and $The Official Liquidator and others.

¶5

…Respondents

¶6

! Counsel for appellant: Sri S.Sriram Reddy ^ Counsel for Respondents :Sri B.Chandra Sen Reddy & Sri M.Anil Kumar < GIST: > HEAD NOTE: ? Cases referred

¶7

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY

¶8

AND

¶9

THE HON’BLE SRI JUSTICE M.S.K.JAISWAL

¶10

O.S.A.Nos.15 and 16 of 2013

¶11

COMMON JUDGMENT: (Per the Hon’ble Sri Justice L.Narasimha Reddy)

¶12

These Original Side Appeals under Clause 15 of the Letters Patent read with Section 483 of the Companies Act, 1956 (for short ‘the Act’) are filed against a common order, dated 12.06.2012, passed in C.A.Nos.1007 of 2011 and 524 of 2008 in C.P.Nos.26 and 65 of 1987. Hence, they are disposed of through a common order.

¶13

For the sake of convenience, the parties herein are referred to as arrayed in O.S.A.No.16 of 2013.

¶14

M/s. Vidyut Steels Limited, a Company incorporated under the Companies Act (for short “the Company”), has established an Industrial Unit. The appellant advanced a sum of Rs.29.00 lakhs, as loan to the Company. Immovable properties of the Company were mortgaged and movables were hypothecated, in favour of the appellant. In addition to that, the Company has obtained loan from various financial institutions, such as ICICI, IDBI, IFCI and LIC (the Central Financial Institutions – for short “CFIs”). The charge against the properties of the Company was made pari-pasu in nature. The creditors of the Company filed C.P.Nos.26 and 65 of 1987 for winding up. After conducting a detailed enquiry, this Court passed an order directing winding up of the Company, and accordingly, the Official Liquidator (OL) was appointed. The CFIs are said to have assigned their rights to recover the loan from the Company, in favour of the 1^st respondent for a consideration of Rs.90.00 lakhs. The properties of the Company were put to sale. At the stage of allocation of the sale proceeds to clear the liabilities of the Company, the 1^st respondent filed C.A.No.524 of 2008 with a prayer to direct the OL to recognize

¶15

them as one of the secured creditors of the Company in the place of CFIs. It was pleaded that the 1^st respondent has been assigned the loans and it has right to recover them from the Company.

¶16

Three years thereafter, the appellant filed C.A.No.1007 of 2011 with a prayer to direct the OL to treat it as the sole secured creditor. According to the appellant, the very transaction of assignment of the loans by the CFIs in favour of the 1^st respondent was a fictitious transaction. It was pleaded that the liability towards the CFIs was almost to the tune of Rs.20 crores and assignment thereof for a paltry sum of Rs.90.00 lakhs in favour of the 1^st respondent would demonstrate the dubious nature of the transaction. M/s. Andhra Bank has also filed applications, being C.A.Nos.257 and 306 of 2012 to get itself impleaded in C.A.Nos.524 of 2008 and 1007 of 2011.

¶17

Through common order, dated 12.06.2012, the learned single Judge of this Court allowed C.A.No.524 of 2008 and disposed of C.A.No.1007 of 2011. Hence, these two appeals.

¶18

Sri S. Sriram Reddy, learned counsel for the appellant, submits that if at all they were interested to press their claims, CFIs were entitled to present the same in the liquidation proceedings and in stead, they have resorted to gross misconduct and irregularity of assignment of their securities in favour of the 1^st respondent for a totally unconscionable consideration. He contends that once the CFIs have not chosen to press the securities, the learned single Judge ought to have acceded to the prayer of the appellant to recognize it as the only secured creditor of the Company. Alternatively, he contends that in the event of the 1^st respondent being permitted to come in the place of CFIs, its entitlement can be restricted to Rs.90.00 lakhs and nothing more.

¶19

Sri B.Chandra Sen Reddy, learned counsel for the 1^st respondent and Sri M.Anil Kumar, learned counsel for OL, on the other hand, submit that each and every step to be taken by the OL is governed by the provisions of the Act and the Rules made thereunder and the appellant cannot be permitted to dictate its own terms. They submit that once a list of secured creditors is prepared, the assets of the Company under liquidation must be applied, to satisfy the securities in accordance with law. It is their case that law does not prohibit the secured creditor from assigning its right against a Company under liquidation to a third party. They submit that the learned single Judge has taken the correct view of the matter and no interference is warranted, with the order under appeal.

¶20

Though two separate applications came to be made, the one filed by the appellant can be treated as a measure to counter, or oppose the application filed by the 1^st respondent. It is a matter of record that M/s. Vidyut Steels Limited has been ordered for liquidation, on company petition being filed by its creditors and that the OL has taken charge of the same. The manner in which the assets of the Company under liquidation are to be applied to serve the debts is clearly provided under the Act and the Rules made thereunder. The secured creditors assume priority and primacy in this regard. The appellant does not dispute that CFIs were treated and recognized as secured creditors along with it. The available assets are to be distributed to the secured creditors, proportionately, since a pari-pasu agreement was entered into. The appellant can certainly press its claim as per the relevant provisions of law vis-à-vis the company under liquidation. Its effort, however, is to ensure that it alone remains as a secured creditor. Even this plea is based upon the contention that the assignment of right to recover the loans due to CFIs in favour of the 1^st respondent is not legal. No provision of law is cited, nor any precedent

¶21

is relied upon, in support of its contention. The transaction between the CFIs, on the one hand, and the 1^st respondent, on the other hand, is purely contractual in nature. As long as the contract is not for any purpose prohibited by law, the right of an individual or agency to contract with another, cannot be denied or scuttled.

¶22

Much argument is advanced to the effect that the consideration paid by the 1^st respondent is disproportionate. Not only for the appellant, but also for anyone, the assignment of the loans to the tune of Rs.20 crores for a consideration of Rs.90.00 lakhs may appear to be too disproportionate, if not inequitable. However, if CFIs have taken recourse to such a step, may be on account of the long pendency of the matter for the past quarter century and their not being hopeful of getting any amount in the immediate future, their decision to assign their rights by receiving some amount in hard cash, cannot be found fault with. If at all anyone, it is their respective Boards of Management that must have any objection in this regard. No third party can be permitted to comment on the wisdom of entering into such a contract.

¶23

Another contention advanced on behalf of the appellant is that in the event of the 1^st respondent being permitted to replace the CFIs, its entitlement must be restricted to Rs.90.00 lakhs. Here again, it becomes difficult to accept that contention. The manner in which the secured debts must be served, is provided for under the Act and the Rules made thereunder. No third party can dictate as to how much must be paid by the OL to a secured creditor or its assignee. In case the OL acts in contravention of any provision of law, the matter can certainly be brought to the notice of the Court. We do not find any basis to interfere with the order passed by the learned single Judge of this Court.

¶24

The O.S.As. are accordingly dismissed. There shall be no order as to costs.

¶25

The miscellaneous petitions filed in these appeals shall stand disposed of.

¶26

____________________ L.NARASIMHA REDDY, J.

¶27

_______________ M.S.K.JAISWAL, J.

¶28

Dated:04.11.2013 L.R. copy to be marked. GJ

¶29

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY and

¶30

THE HON’BLE SRI JUSTICE M.S.K.JAISWAL

¶31

O.S.A.Nos.15 and 16 of 2013

¶32

(Judgment of the Bench delivered by the Hon’ble Sri Justice L.Narasimha Reddy)

¶33

Date:04.11.2013

¶34

A.P. Industrial Development Corporation Limited, v. The Official Liquidator

Case brief

What is this about?

What did the court decide?

A.P. Industrial Development Corporation Limited, v. The Official Liquidator

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

Jakkireddy Bramananda Reddy Vs The Revenue Divisional Officer-cum-Land Acquisition

The Spl dy Collector Vs Narasimha Rao

D.M. New India Assurance Co. Ltd. Vs Gosula Savithramma and 3 Others

Saduram Singh Vs Thakur Basanti Bai and Others.

Budati Chandrika Vs Bitra Mallikharjuna Vara Prasad

Sri Talla Somalingam, Vs M/s. Midwest (India) Industries Limited