By TIOL News Service

NEW DELHI, JAN 10, 2016: THE issue is whether a Company Court, directly or through an Official Liquidator, can wield any control in respect of sale of a secured asset by a secured creditor in exercise of powers available to such creditor under the SARFAESI Act, 2002. The answer is NO.

Facts

The Pegasus Assets Reconstruction Private Limited (the Appellants), a registered securitization company, invoked the appellate jurisdiction of the apex court against the impugned orders of Punjab & Haryana High Court, where certain fetters were placed upon the appellants in respect of its powers as a secured creditor under the SARFAESI Act. The appellants being the sole secured creditor of the M/s. Haryana Concast Ltd.(the Respondents), a company under liquidation. The appellants informed the Official Liquidator (OL) that it intended to remain outside the winding up process, to enforce its security as per the provisions of SARFAESI Act, subject to the rights of the erstwhile workmen of the respondents as per Section 529A of the Companies Act. It further approached the Company Judge to sought directions to the Official Liquidator to hand over the secured assets of the respondent in its favour. The Company Judge allowed the appellants to proceed under the SARFAESI Act for enforcing its security but put certain fetters on its powers. Hence this appeal was preferred. There were few other appeals which were combined here dealing with the same issue in one such matter where the Delhi High Court took a different view.

Reasoning

1. The Companies Act cannot be used to put any fetters on the sale by secured creditors because a secured creditor under Section 13 of the SARFAESI Act has been granted a right to enforce the security interest "without the intervention of the court or tribunal" in accordance with the provisions of the SARFAESI Act.

2. Sections 9 and 13 of the SARFAESI Act leaves no doubt that for enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower company is under liquidation for which proviso to sub-section (9) of Section 13 contains clear mandate keeping in view the provisions of Section 529 and 529A of the Companies Act, 1956.

3. The Security Interest (Enforcement) Rules, 2002 ensure that the OL is in knowledge of the proceedings under the SARFAESI Act in case the borrower happens to be a company under winding up. The OL has ample opportunity to get the details of the workers dues as ascertained under the Companies Act, placed before the authorized officer and seek proper distribution of the amount realised from the sale of secured assets in accordance with various provisos under sub-section (9) of Section 13 of the SARFAESI Act.

4. There is nothing lacking in the SARFAESI Act so as to borrow anything from the Companies Act till the stage the secured assets are sold by the secured creditors in accordance with the provisions in the SARFAESI Act and the Rules. At the post sale stage, the rights of the persons or parties having any stake in the sale proceeds are also taken care of by sub-section (9) of Section 13 and its five provisos In the event, in the capacity of a borrower the OL is not satisfied with the decisions or steps taken by the secured creditor or the authorized officer, at appropriate stage it has sufficient opportunity to avail right of appeal under Section 17 and 18. Thus, it is evident that the required provisions of the Companies Act have been incorporated in the SARFAESI Act for harmonizing this Act with the Companies Act in respect of dues of workmen and their protection under Section 529A of the Companies Act, 1956. In view of such exercise already done by the legislature, there is no plausible reason as to take recourse to any provisions of the Companies Act and permit interference in the proceedings under the SARFAESI Act either by the Company Judge or the OL.

(See 2016-TIOL-02-SC-CA)