SINDUSTRIAL DEVELOPMENT BANK OF INDIA Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) Company Application No. 54 of 1992 is filed by the Industrial Credit and Investment Corporation of India Limited (for short "the ICICI") for grant of leave under section 446(1) of the Companies Act, 1956 (briefly referred to as "the Act"), to continue Suit No. 3485 of 1986 in the Bombay High Court filed against Krishi Engines Limited, the company under winding up (briefly referred to as "the company") and for grant of leave to continue the court receiver appointed in the said suit as receiver of all the hypothecated properties of the company. Company Application No. 55 of 1992 is filed by the ICICI for grant of leave under section 537 of the Act to the court receiver to put up the hypothecated properties for sale upon being empowered to do so by the Bombay High Court. Company Application No. 280 of 1992 is filed by the Industrial Development Bank of India, Bombay (for short "the IDBI"), for grant of leave under section 446(1) of the Act to continue Suit No. 3041 of 1989, filed against the company in the Bombay High Court and for grant of leave to take steps for appointment of a receiver in respect of the hypothecated properties and for the sale of those properties. Company Application No. 281 of 1992 is filed by the IDBI for grant of leave under section 537 of the Act to the court receiver to put up the hypothecated properties for sale upon being empowered to do so by the Bombay High Court. These four company applications arise out of common facts and hence are disposed of by a common order. The applicants who are secured creditors filed suits, bearing Nos. 3485 of 1986, and 3041 of 1989, respectively, against the company in the Bombay High Court to recover Rs. 43,97,117.29 and Rs. 15,27,095.70, respectively together with interest. The suits were pending by the time the company was directed to be wound up in Company Petition No. 14 of 1987, dated 10/11/1991. The official liquidator has filed a report stating all the facts and also that counsel for the applicants in the suits in the Bombay High Court were requested by him earlier to file petitions in this court for grant of leave. The applications were mainly opposed by three directors who also stood as guarantors for the debt due by the company. One of the directors, Shri J. Rameshwar Rao, has filed a counter stating that there are a number of secured creditors other than the two applicants. He further states that the fair and equitable method will be through the intervention of this court by way of a comprehensive one time settlement among all the parties including the official liquidator and that if the suits are allowed to be continued in the Bombay High Court, the applicants, viz., the ICICI and the IDBI, cannot recover anything effectively without the co-operation and consent of other secured creditors like the State Bank of Hyderabad and the Andhra Pradesh Industrial Development Corporation. The other director, Shri V. R. Reddy, opposes the applications stating that : (1)(a) that as secured creditors, the applicants have to participate in winding up proceedings and can recover their dues without filing suits; (b) that even otherwise as the company court can adjudicate the claim under section 446(2)(b) of the Act, leave to continue the suit must not be granted; (2) that the company had become sick under the Sick Industrial Companies (Special Provisions) Act, 1985, and the matter is pending before the Board for Industrial and Financial Reconstruction (for short "the BIFR") in Case No. 200 of 1987, and in view of section 22 of the said Act, the appointment of the receiver is illegal and the suits could not have been filed; (3) that the suits also could not have been filed since winding up proceedings are pending in this court in Company Petition No. 14 of 1987; (4)(a) that there are no merits in the suits; (b) that the Bombay High Court has no territorial jurisdiction to try the suits; (c) that the suits are barred by limitation; and (d) that the guarantors stood fully discharged; (5) that, in any event, as the properties of the company are in Andhra Pradesh, the suits must be transferred from the Bombay High Court to this court in the interests of justice and equity; (6) that, in any event, grant of leave for sale of properties does not arise as the suits are pending in the Bombay High Court.

(2.) The first objection is whether the secured creditors are entitled to stand outside the winding up proceedings. It is settled by the Supreme Court, as early as in 1955, Interpreting the analogous section 171 of the Indian Companies Act, 1913, in M. K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344; AIR 1955 SC 604, that the secured creditor can stand outside the winding up proceedings and can realise his security without the intervention of the court by effecting a sale of the hypothecated property by private treaty or by public auction and that in case the creditor can recover the security only through the intervention of the court, he can do so but with the leave of the company court. So I reject this objection of the respondent. The alternative submission of Shri A. Krishna Murty, learned counsel, for the contesting respondents, is that the secured creditors need not have filed the suits but can pursue the remedy under the winding up proceedings and that the claim can be investigated into by the company court. For this proposition he relies on Star Engineering Works Ltd. v. Official Liquidator, Krishnakumar Mills Co. Ltd. [1977] 47 Comp Cas 30 (Guj). In that case, the suit was filed by an unsecured creditor against the company sought to be wound up for recovery of money due to it for supply of goods. On the facts of the case, it was held by the Gujarat High Court that there was no prima facie case made out for grant of leave by the creditor and that the debt due to it can be adjudicated in the winding up proceedings by the company court. I fail to see how this helps the contesting respondents. In the present case, the applicants are secured creditors and the debts are due on mortgages. Further, unlike in Star Engineering Works Ltd. v. Official Liquidator, Krishnakumar Mills Co. Ltd. [1977] 47 Comp Cas 30 (Guj), here leave is sought for continuance of suits filed already and not for filing the suits. When the secured creditor has got the right to stand outside winding up proceedings and recover his security through court, that right cannot be defeated by saying that the creditor need not file or continue the suit but can participate in the winding up proceedings. Whether to stand outside or participate in the winding up proceedings is a matter for the secured creditor to decide. So I reject this part of the first objection.

(3.) The second objection is that as the proceedings to declare the company a sick industry are pending in Case No. 200 of 1987 before the BIFR under section 22 of the Sick Industrial Companies (Special Provisions) Act, the suits could not have been filed and that in any event the receiver could not have been appointed. There is no substance in this plea. Section 22 of the Sick Industrial Companies (Special Provisions) Act bars only execution and coercive process in the execution of decrees but not the filing of suits. Further, the receiver was appointed in Suit No. 3485 of 1986 by the Bombay High Court in December, 1986, while admittedly the proceedings are registered before the BIFR as 200 of 1987. So the appointment of the court receiver cannot be said to be contrary to section 22 of the Sick Industrial Companies (Special Provisions) Act. It is also to be noted that the BIFR has declared the company sick on 18/08/1989, and the same has been confirmed in appeal by the appellate authority on 18/03/1991. Pursuant to that, this court directed the company to be wound up on 16/11/1991. So, as on date, there are no proceedings pending before BIFR and the question of the bar under section 22 of the Sick Industrial Companies (Special Provisions) Act does not operate any more. Therefore, I reject the second objection.