Page 1 C.A.No.3646/2011 etc.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3646 OF 2011

Pegasus Assets Reconstruction P. Ltd. …..Appellant

Versus

M/s. Haryana Concast Limited & Anr. ...Respondents

With

Civil Appeal No. 14736 of 2015

(Arising out of SLP(C) No. 7074 of 2010)

Civil Appeal Nos.14737-14738 of 2015

(Arising out of SLP(C) Nos. 117-118 of 2011) and

Civil Appeal Nos. 9293-94 of 2014

J U D G M E N T

SHIVA KIRTI SINGH, J.

1.A common issue of law: 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 Securitization and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (for brevity ‘the SARFAESI Act’), arises in all

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Page 2 C.A.No.3646/2011 etc.

these matters which have been heard together and shall be

governed by this common judgment.

2.In order to understand the central issue involved in each of

the matters, it may be useful to notice that Civil Appeal No. 3646 of

2011 preferred by Pegasus Assets Reconstruction Private Limited

(for brevity, ‘Pegasus’), which has been heard as the lead matter,

arises out of a Division Bench judgment of Punjab and Haryana

High Court dated 15.12.2009 whereby the Division Bench upheld

the judgment of Company Court and approved of certain fetters

placed upon M/s. Pegasus Assets Reconstruction Pvt. Ltd., while

allowing it to exercise its powers as a secured creditor under the

SARFAESI Act and proceed with the sale of the secured assets.

Since the judgment of Division Bench disallowed the appeal of

Haryana State Infrastructure and Industrial Development

Corporation (for brevity ‘HSIIDC’) against the order of Company

Judge allowing Pegasus to stay outside the winding up proceeding

of the respondent Haryana Concast Limited, HSIIDC is also before

this Court through SLP (C) No. 7074 of 2010.

3.The secured asset in the form of approximately 36 acres of

land of Haryana Concast Ltd. was subjected to auction by Pegasus

in association and collaboration with the Official Liquidator as per

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Page 3 C.A.No.3646/2011 etc.

order of the company judge and was ultimately sold for Rs.32

crores in favour of M/s. Venus Realcon Pvt. Ltd. One Vinod

Rajaliwala challenged the orders of the company judge confirming

sale in favour of M/s. Venus Realcon Pvt. Ltd. by preferring a

company appeal and also through a public interest litigation (a writ

petition). Both were dismissed by the Division Bench. Those orders

have been challenged by Mr. Vinod Rajaliwala through Special

Leave Petition (C) Nos.117-118 of 2011. The three matters

indicated above thus relate to secured assets of the same company

under Liquidation, M/s. Haryana Concast Limited.

4.The fourth matter, C.A. No. 9293-94 of 2014 preferred by

Megnostar Telecommunications Private Limited (for brevity,

‘Megnostar’) arises out of a Division Bench Judgment of Delhi High

Court dated 17.9.2012. By this order the Delhi High Court has

differed with the views taken by the Punjab and Haryana High

Court in the judgment assailed by Pegasus in Civil Appeal No.3646

of 2011. According to Delhi High Court, the company judge or the

official liquidator cannot have any say in the sale of secured assets

by the secured creditors under the SARFAESI Act. 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

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Page 4 C.A.No.3646/2011 etc.

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. It goes

without saying that if the view taken by the Punjab and Haryana

High Court in the matter of Pegasus is approved and the Civil

Appeal No. 3646 of 2011 is dismissed, then the Delhi High Court’s

view will stand disapproved and Civil Appeal No. 9293-94 of 2014

will have to be allowed.

5.In order to decide the issue indicated above, it is not

necessary to go into factual details relating to either the case of

Pegasus or to that of Megnostar. Only the broad features necessary

for appreciation of rival submissions in respect of these matters

have been taken note of.

C.A.No.3646 of 2011

6.M/s. Haryana Concast Ltd., respondent no.1 suffered a

winding up order of the Company Judge of Punjab & Haryana High

Court in 1999. The only secured creditor, the Bank of India

obtained a recovery certificate against respondent no.1 from the

Debt Recovery Tribunal, Chandigarh in 2002 for a sum of Rs.5.84

crores approx. with pendente lite and future interest @ 18% p.a.

from the date of filing of the suit till realization. Although the High

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Page 5 C.A.No.3646/2011 etc.

Court allowed the Official Liquidator to sell the assets of the

company in May 2004 and the bank also submitted its claim before

the Official Liquidator in July 2004 for Rs.10.58 crores approx. as

dues upto 30

th

June 2004, the sale could not be effected for one

reason or the other. Being a guarantor, the HSIIDC settled the

liabilities of three banks by paying Rs.10.39 crores approx. and as

a result acquired a charge only over the moveable assets, that is,

raw materials of the company. Accordingly it was substituted/

subrogated in place of the three banks. As a registered

securitization company, Pegasus entered into an assignment

agreement with the sole secured creditor, Bank of India on

27.8.2008 and soon informed the Official Liquidator that it intends

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 company, respondent no.1 as per Section

529A of the Companies Act. Pegasus pursued its aforesaid stand

by filing an application before the Company Judge for recalling an

order dated March 20, 2008 wherein it had directed the Official

Liquidator to undertake a fresh sale of the assets of the company.

In this petition dated 22.09.2008, Pegasus also sought directions to

the Official Liquidator to hand over the secured assets of the

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Page 6 C.A.No.3646/2011 etc.

company in its favour. The Company Judge allowed Pegasus to

proceed under the SARFAESI Act for enforcing its security by an

order passed on March 20, 2009 but in view of orders passed

earlier in the winding up proceedings the Company Judge laid

down certain terms and conditions for permitting Pegasus to stay

outside the winding up proceedings and bring about sale of secured

assets under Section 13 of the SARFAESI Act read with Rules 8

and 9 of Security Interest Enforcement Rules, 2002 (hereinafter

referred to as ‘the Rules’). These conditions forming part of

paragraph 19 of the judgment of the learned Company Judge are

extracted hereinbelow because these have been objected to by

Pegasus as fetters which the Company Judge could not have

obtained and therefore Pegasus preferred Company Appeal No.28 of

2009 which has been dismissed by the order under appeal dated

15.12.2009. Para 19 is as follows :

“19.If any attempt to harmonize the provisions of the

SARFAESI Act and the Companies Act could be made, in

the context of orders for sale having already been made

by the Company Court and the participation of the

assignor of the applicant at several steps for the conduct

of sale through the Company Court, it will be inexpedient

unyoke the proceeding that were put through the O.L.

While upholding the claim that the procedure laid down

under the SARFAESI Act would enable the provisions of

the Security Enforcement Rules to be applied for conduct

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Page 7 C.A.No.3646/2011 etc.

and confirmation of the sale, the dispensation in this

case would be

(a) to permit the applicant to stay outside the

winding up proceedings and take action to bring to sale

the secured assets under Section 13 of the SARFAESI Act

read with Rules 8 and 9 of Security Interest Enforcement

Rules, 2002.

(b) The applicant-Reconstruction Company shall

keep all the steps taken under the SARFAESI Act and the

relevant rules transparent and submit all the proposals

for sale to the O.L. and the details of valuation obtained

for the conduct of the sale for the purpose of determining

the used price.

(c) Sale shall be advertised with a specific clause

that the winding up proceedings are pending before the

Company Court, with details of case number and the

Court of adjudication.

(d)The expenses already incurred for the conduct

of the sale by O.L. shall be deducted from out of the sale

proceeds before any appropriation or disbursement and

deposited with O.L.

(e)The Reconstruction Company shall place

before the Company Court the details of its claim and all

expenses incurred before the Company Court before

making any appropriation to himself and disbursed.

(f)The surplus proceeds over what is lawfully

due to it shall be deposited to the credit of the Company

(in liquidation) before the O.L.”

7.The stand of the appellant, Pegasus is that the Division

Bench erred in law in not appreciating that rights and liabilities of

the appellant as an asset reconstruction company had to be

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Page 8 C.A.No.3646/2011 etc.

governed by and within the four corners of the SARFAESI Act and

not by or under the Companies Act. On a pointed query that it had

accepted the order including the terms and conditions and finalized

the sale of the secured asset in collaboration with the Official

Liquidator, learned counsel for Pegasus fairly accepted that

Pegasus was not against the sale of secured asset already

concluded but the appeal is being pursued for getting the legal

issue settled as a precedent for future, otherwise as an assets

reconstruction company the appellant shall be facing similar fetters

in case the secured assets happen to be of a company under

winding up.

8.Learned counsels representing the company respondent no.1

which is represented by the Official Liquidator and learned counsel

for respondent no.2 HSIIDC have advanced submissions to the

contrary. According to them a winding up proceeding has to be

supervised by the Official Liquidator as per orders of the Company

Judge and the provisions of the Companies Act. The counsel for

the company, respondent no.1 asserted that once the assets have

come into the hands of the Official Liquidator, these have to be

protected and governed by provisions of the Companies Act which

are meant not only to serve the interest of secured creditor like

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Page 9 C.A.No.3646/2011 etc.

Pegasus but also to take care of interest of the workmen and by

ascertaining their dues which have highest priority and require

protection as per Section 529A of the Companies Act as well as

interest of the unsecured creditors. The stand of respondent no.2

is that once the bank had opted to participate in the winding up

proceedings before the Company Judge, Pegasus should not have

been permitted to take a contrary stand as it could have only

stepped into the shoes of the bank. HSIIDC had also preferred a

cross appeal bearing No. 23 of 2009 before the Division Bench

against order of the Company Judge dated March 20, 2009. Before

the Division Bench, it claimed a right to be associated with Pegasus

in the process of sale of the secured assets of the company, from

beginning to end. However, it is clear as a crystal that HSIIDC is

neither a secured creditor of the company under winding up nor it

has stepped into shoes of any secured creditor.

C.A.Nos.9293-9294 of 2014

9.Megnostar is the company, now under liquidation, which

mortgaged its property bearing Plot No.1297 admeasuring 502.33

Sq. Yds. situated at MIE, Bahadurgarh, Haryana along with

structures, present and future, with respondent-bank through

Memo of Deposit of Title Deeds dated 29.04.2008 for securing loans

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Page 10 C.A.No.3646/2011 etc.

obtained from the bank. In December 2008 respondent-bank

issued a notice under Section 13(2) of the SARFAESI Act upon

Megnostar on account of persistent defaults in making timely

payment of amounts due to the bank. On 05.02.2009 Megnostar

requested for release of the secured assets to enable it to sell the

same for making part payment of dues of the bank. A Company

Petition No.359 of 2009 was filed by an unsecured creditor M/s.

Magicon Impex Pvt. Ltd. for winding up of Megnostar but the bank

was not made aware of this proceeding till visit of some officials

from the office of the Official Liquidator on 28.08.2011. The bank

obtained directions from the District Magistrate concerned under

Section 14(1) of the SARFAESI Act, took over possession of the

secured asset on 16.06.2010 and a notice to that effect was

published in various newspapers on 18.06.2010. O.A. No.38 of

2009 filed by the bank against Megnostar was allowed by DRT-II,

Delhi on 13.07.2010 holding the company liable to pay to the bank

Rs.12.95 crores approx. with pendente lite and future interest @

15.5.% p.a. with quarterly interests from date of filing of O.A. till

date of realization. To realize its dues, the respondent-bank

published auction-cum-sale notice of the secured assets on

23.07.2011 in exercise of its rights under Section 13(4) of the

10

Page 11 C.A.No.3646/2011 etc.

SARFAESI Act. In the public auction held on 24.08.2011

respondent, M/s. Mohan Tractors (P) Ltd. offered the highest bid of

Rs.80 lacs. As a successful auction purchaser, it was handed over

the possession and title deed of the mortgaged property. On

28.08.2011 this property at Bahadurgarh was visited by 4-5

persons claiming to be from the office of the Official Liquidator.

They had come to take possession of the property on the basis of

an order dated 03.08.2011 in Company Petition No.359 of 2009

whereby the Company Judge had appointed the Official Liquidator

as a provisional liquidator with direction to take charge of all assets

of the company Megnostar. The personnel from the office of the

Official Liquidator were apprised of developments and sale under

the SARFAESI Act but with the aid of police personnel they took

forcible possession of the mortgaged property on August 30, 2011.

In September 2011 the bank filed C.A.No.1948 of 2011 in C.P.

No.359 of 2009 for a direction upon the Official Liquidator to

unseal the property and hand over its possession to M/s. Mohan

Tractors. To similar effect was C.A.No.1947 of 2011 filed by M/s.

Mohan Tractors. The Company Judge appointed a valuer who

submitted a Valuation Report on 14.01.2012. As per the report the

land was valued at Rs.77.44 lacs approx. and the construction

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Page 12 C.A.No.3646/2011 etc.

existing on the land was valued at Rs.40.65 lacs, the total value

thus amounted to Rs.1.18 crores approx. The learned Company

Judge dismissed C.A. Nos.1947 and 1948 of 2011 by order dated

26.4.2012. Against that, the bank respondent no.2 preferred

Company Appeal No.58 of 2012 before the Division Bench of High

Court of Delhi. A separate appeal bearing no.62 of 2012 was filed

by M/s. Mohan Tractors. Those appeals were allowed by the

Division Bench as per order under appeal dated 17.09.2012.

10.The case of Mr. Vinod Rajaliwala requires separate

consideration but only after an adjudication on the main issue

indicated earlier and after deciding which of the two views is in

accordance with law, of Delhi High Court in the case of Megnostar

or of Punjab & Haryana High Court in the case of Pegasus. As the

case of Pegasus has been argued as a lead matter, we propose to

first consider the views of Punjab & Haryana High Court. After

noticing the Statement of Objects & Reasons for enactment of the

SARFAESI Act as discussed by the Company Judge, the Division

Bench took note of detailed arguments advanced on behalf of

Pegasus which is to the following effect. Section 5 of the SARFAESI

Act provides for acquisition of rights or interest in financial assets

of any bank or financial institution by any securitization company

12

Page 13 C.A.No.3646/2011 etc.

or reconstruction company, inter alia, by entering into an

agreement and this Section begins with a non obstante clause.

Section 9 enumerates various measures which can be adopted by a

securitization company or reconstruction company, including the

sale or lease of a part or whole of the business of the borrower and

this Section also begins with a non obstante clause. Chapter III

consists of 7 sections providing for enforcement of security interest

created in favour of any secured creditor. Section 13, which also

begins with a non obstante clause of a limited nature for

overcoming the hurdles of Section 69 or Section 69A of the Transfer

of Property Act, 1882, creates a right in the secured creditor to

enforce any security interest in its favour without the intervention

of a court or tribunal, in accordance with the provisions of this Act.

The detailed scheme for enforcement of the secured assets under

various sub-sections and provisos in Section 13 were pointed out

along with Section 35 and 37 in support of a submission that the

provisions are not only a complete code for enforcement of secured

asset by a secured creditor but in case of conflict with any other

statute, the provisions of the SARFAESI Act would prevail. Some

other statutes enumerated in Section 37 can play a supplemental

role along with any other law for the time being in force including

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Page 14 C.A.No.3646/2011 etc.

the Companies Act but obviously only till they are consistent with

provisions of the SARFAESI Act. The relevant case laws were also

cited and considered. The rival contention and case laws were

noted for framing the main question of law in the following words :

-

“Whether the Company Court enjoys jurisdiction to issue

supervisory direction to a securitization company/

secured creditor in connection with a company in

liquidation or under winding up in the face of Section 13

of the SARFAESI Act or securitization company opting to

stand outside the winding up is absolutely free to utilise

the sale proceeds of assets of the company in

liquidation?”

11.The Division Bench of Punjab & Haryana High Court

considered the case of Mardia Chemicals v. Union of India (2004)

4 SCC 311; Rajasthan State Financial Corporation v. Official

Liquidator AIR 2006 SC 755 = (2005) 8 SCC 190; Bakemans

Industries v. New Cawnpore (2008) 144 Company Cases 71 (SC);

Ram Kripal Singh v. State of Uttar Pradesh (2007) 11 SCC 22;

and Central Bank of India v. State of Kerala (2009) 4 SCC 94 for

coming to a conclusion in paragraph 34 that the Company Court

enjoys the jurisdiction to issue directions to a securitization

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Page 15 C.A.No.3646/2011 etc.

company or a secured creditor who has opted to stay outside the

winding up and invoke its power under Section 13 of the SARFAESI

Act.

12.We are unable to subscribe to the aforesaid views. On the

other hand, after going through the judgment of Delhi High Court

in the case of Megnostar we are persuaded to approve its views

because of various reasons some of which we shall enumerate and

explain hereinafter.

13.The relevant case laws discussed in the two conflicting

judgments are virtually the same but the error committed by the

Division Bench in the case of Pegasus lies mainly in coming to a

conclusion that there is no inconsistency between the Companies

Act and the SARFAESI Act if the Company Judge issues

supervisory directions to achieve the object of Section 529A which

finds a clear mention in one of the provisos of Section 13(9) of the

SARFAESI Act. This view is unacceptable for the reasons detailed

by Delhi High Court in the case of Megnostar. Those reasons

commend themselves to us also. We are particularly in agreement

with the view in paragraph 26 of the judgment which is as follows :

“26.If it were to be held that the Official Liquidator (who

acts under the dictates of the Company Court) is to be

also associated with the sale, it will naturally open up the

15

Page 16 C.A.No.3646/2011 etc.

fora of the Company Court also for entertaining matters

relating to such sale and which as aforesaid is not only

likely to lead to conflicts but is also contrary to the spirit

of the SARFAESI Act of sale being without the

intervention of the Court.”

14.However, there are certain areas covered by the Delhi High

Court which need further elucidation and clarification. For that it

will be relevant and necessary to first go through the ambit, scope

and peculiarities of Statutes like the State Financial Corporations

Act, 1951 (for brevity the ‘SFC Act’) and The Recovery of Debts due

to Banks and Financial Institutions Act, 1993 (for brevity the ‘RDB

Act’) in contrast with the SARFAESI Act and some case laws which,

in our view, are of special significance for better understanding of

the issues.

15.All the aforesaid Acts are Central legislations enacted for

specific purposes. The SFC Act enables the State Governments to

establish a Financial Corporation for a State on the lines of Central

Industrial Finance Corporation set up under Act XV of 1948 to

provide medium and long term credit to industrial undertakings,

somewhat outside the normal lending activities of Commercial

Banks. This Act, inter-alia, vests special privileges in the State

Financial Corporations in the matter of enforcement of its claims

against borrowers, through sections such as 29, 30, 31 and 32.

16

Page 17 C.A.No.3646/2011 etc.

Coercive steps including sale of secured property is, vide Section 31

required to be taken by moving appropriate application before the

concerned District Judge as per procedure prescribed under

Section 32. Section 46B does bestow overriding status on this Act

over the then existing law but not over the Companies Act of 1956

which is a later law. Hence, in several judgments it has rightly

been held that if the defaulter is a company under winding up, a

State Financial Corporation can at best be a secured creditor who

may opt to remain out of winding up but nonetheless it will be

subject to orders passed in accordance with law under the

Companies Act.

16.The RDB Act is of 1993, i.e. later to the Companies Act. Its

avowed object is to provide for the establishment of Tribunals for

expeditious adjudication and recovery of debts due to banks and

financial institutions and for matters connected therewith or

incidental thereto. This Act creates a special machinery for speedy

recovery of dues of banks and financial institutions which, by an

amendment of 2004 now include a registered securitization

company or reconstruction company envisaged under the

SARFAESI Act. Section 18 bars the jurisdiction of ordinary courts

or authority in respect of matters falling within the jurisdiction of

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Page 18 C.A.No.3646/2011 etc.

Tribunal as specified in Section 17. An Appellate Tribunal is

provided under Section 20. The power of the tribunal extends to

determining the debt due as well as its realization. Section 34

confers over-riding effect upon this Act over any other law in force.

17.In contrast, the SARFAESI Act was enacted in 2002 to

regulate securitization and reconstruction of financial assets and

enforcement of security interest and for matters connected

therewith or incidental thereto. Inter-alia, one of the main objects

of this Act is to clothe the banks and financial institutions in India

with power to take possession of securities and sell them. All its

significant provisions have been noted in detail in Mardia

Chemicals in which vires of this Act was examined and upheld. A

reading of Sections 9 and 13 of the SARFAESI Act leaves no

manner of 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. Since significant

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Page 19 C.A.No.3646/2011 etc.

amendments were introduced in Section 529 while inserting

Section 529A through Amendment Act 35 of 1985, effective from

24.5.1985 and with the aid of a non obstante clause in sub-section

(1) of Section 529A workmen’s dues were given preference over

other dues and made to stand pari passu with dues of the secured

creditors, in case of apparent conflict, this Court through various

judgments has upheld the proceedings under the RDB Act as it

happens to be a later Act with overriding effect over other laws. The

interest of the workmen in respect of dues payable to them as per

Section 529 and 529A of the Companies Act has been protected by

permitting, wherever necessary, association of the Official

Liquidator with the proceedings before the Debts Recovery Tribunal

under the RDB Act. In our considered judgment, the same view is

required to be taken in context of SARFAESI Act also, for the

additional reason that Section 13 requires notice to the borrower at

various stages which in the case of a company under winding up

being a borrower would mean requirement of notice to the Official

Liquidator. The Security Interest (Enforcement) Rules, 2002 (for

brevity, ‘the Rules’) framed under the provisions of SARFAESI Act

also require notice upon the borrower or his agent at different

stages. For sale of immovable secured assets, as per Rule 8, the

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Page 20 C.A.No.3646/2011 etc.

authorized officer can take possession by delivering a Possession

Notice to the borrower and by affixing Possession Notice on the

outer door or at some conspicuous place of the property. Before

the sale also, the authorized officer is required to serve to the

borrower a notice of 30 days. Thus the Rules also ensure that the

Official Liquidator is in knowledge of the proceedings under the

SARFAESI Act in case the borrower happens to be a company

under winding up. As a borrower, the Official Liquidator 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.

18.The above discussion supports the view taken by Delhi High

Court that no order is required by the Company Judge for

association of the Official Liquidator in order to protect the interest

of workers and to realize their dues. Sufficient provisions have

been made for this purpose under the SARFAESI Act and the Rules

framed thereunder.

19.In the event, in the capacity of a borrower the Official

Liquidator is not satisfied with the decisions or steps taken by the

20

Page 21 C.A.No.3646/2011 etc.

secured creditor or the authorized officer, at appropriate stage it

has sufficient opportunity to avail right of appeal under Section 17

of the SARFAESI Act before the Debts Recovery Tribunal. There is

a right of further appeal under Section 18 before the Appellate

Tribunal. On the other hand, if the view taken by Punjab &

Haryana High Court in Pegasus is accepted, there shall be a

conflict of rights and interest of the secured creditor who have the

right and liberty to realize their secured interest in accordance with

the provisions of the SARFAESI Act on one hand, and the statutory

rights and liability of the Official Liquidator acting under the orders

of the Company Judge as per provisions of the Companies Act, on

the other. The appellate fora shall also differ, leading to a situation

of uncertainty and conflict between the two Acts. In such a

scenario, we respectfully agree with the Delhi view and disapprove

that of the Punjab & Haryana High Court.

20.Coming to the case laws, on behalf of Megnostar, Delhi view

was assailed by placing reliance upon Rajasthan State Financial

Corporation. In this case decided by three Judges, this Court

examined the grievance of Rajasthan State Financial Corporation in

the context of conflict between the SFC Act and the Companies Act.

After taking note of various earlier judgments of this Court in the

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Page 22 C.A.No.3646/2011 etc.

case of Allahabad Bank v. Canara Bank (2000) 4 SCC 406;

International Coach Builders Ltd. v. Karnataka State Financial

Corporation (2003) 10 SCC 482; Industrial Credit and

Investment Corporation of India Ltd. v. Srinivas Agencies

(1996) 4 SCC 165; and A.P. State Financial Corporation v.

Official Liquidator (2000) 7 SCC 291, it was held in para 16 that a

financial corporation has the right to proceed under Section 29 of

the SFC Act against a debtor, if it is a company, only so long as

there is no order of winding up. When the debtor is a company in

winding up, the provisions of Sections 529 and 529A of the

Companies Act would affect the rights of financial corporations

because of a “pari passu” charge in favour of the workmen. In

respect of such dues of the workmen the Official Liquidator has to

be accepted as their representative.

21.In the context of RDB Act, reliance was placed upon another

judgment of this Court by three Judges in the case of Bank of

Maharashtra v. Pandurang Keshav Gorwardkar (2013) 7 SCC 754

wherein this Court held that the Debts Recovery Tribunal is not

empowered to adjudicate/ determine dues of workmen of

debtor-company. Once the company is in winding up workmen’s

dues can be determined only by the liquidator under supervision of

22

Page 23 C.A.No.3646/2011 etc.

Company Court and by no other authority. In para 53, while

considering Rajasthan State Financial Corporation decided by

three Judges’ Bench it was noticed that once a winding up

proceeding has commenced, the distribution of the proceeds of the

sale of the assets at the instance of the banks or financial

institutions coming under the RDB Act or SFC Act can only be with

the association of the Official Liquidator and under the supervision

of the Company Court. The reason for such a view was recognized

to lie in Section 529A of the Companies Act which governs the

distribution of assets as provided therein. But it was also noted

that since there was a conflict as to who would be competent to sell

the assets, it was held that for this purpose the DRT would be

competent because the RDB Act of 1993 being a later and special

law shall prevail over the Companies Act which is a general law.

22.Reliance was also placed upon this Court’s judgment in

Employees Provident Fund Commissioner v. Official Liquidator

(2011) 10 SCC 727. This case had arisen in the context of dues

payable by an employer under Section 11 of the Employees

Provident Fund and Miscellaneous Provisions Act, 1952 and the

question was whether in granting priority, such dues would be

subject to Section 529A of the Companies Act. The answer was in

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Page 24 C.A.No.3646/2011 etc.

the affirmative, i.e., the Companies Act would, in this matter hold

its field as there is no situation of conflict.

23.On behalf of respondent Bank, Kotak Mahindra as well as

Respondent No. 2, auction purchaser, the judgment in the case of

Rajasthan State Financial Corporation (supra) was distinguished

by placing reliance upon factual and legal situation prevailing in

that case as noted in Paragraph 2 of the judgment. It was pointed

out that Section 32 (10) of the SFC Act contains ample clarification

that if liquidation proceedings have commenced in respect of the

borrower before an application is made under sub-section (1) of

Section 31, the financial corporation will not get any preference

over the other creditors unless it is conferred on it by any other

law. In that case no proceeding had been initiated under the SFC

Act and all developments had taken place in the liquidation

proceeding. Rajasthan State Financial Corporation was therefore

unable to take any advantage of provisions under SFC Act. At the

end of paragraph 2, this Court rightly held that “a mere right to

take advantage of any enactment without any act done towards

availing of that right cannot be deemed a right accrued.”

24.Since we have held earlier in favour of views of Delhi High

Court, it is not necessary to burden this judgment with the case

24

Page 25 C.A.No.3646/2011 etc.

laws which support that view and have been noted by the High

Court. We are in agreement with the submissions advanced on

behalf of respondent Kotak Mahindra Bank as well as respondent

No.2 that there is no lacuna or ambiguity in the SARFAESI Act to

warrant reading something more into it. For the purpose it has

been enacted, it is a complete code and the earlier judgments

rendered in the context of SFC Act or RDB Act vis-à-vis the

Companies Act, cannot be held applicable on all force to the

SARFAESI Act. There is nothing lacking in the 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 (not numbered). It is significant that as per

sub-section (9) a sort of consensus is required amongst the secured

creditors, if they are more than one, for the exercise of rights

available under sub-section (4). If borrower is a company in

liquidation, the sale proceeds have to be distributed in accordance

with the provisions of Section 529A of the Companies Act even

where the company is being wound up after coming into force of

25

Page 26 C.A.No.3646/2011 etc.

the SARFAESI Act, if the secured creditor of such company opts to

stand out of the winding up proceedings, it is entitled to retain the

sale proceeds of its secured assets after depositing the workmen’s

dues with the liquidator in accordance with the provisions of

Section 529A of the Company Act. The third proviso is also meant

to work out the provisions of Section 529A of the Companies Act, in

case the workmen’s dues cannot be ascertained, by relying upon

communication of estimate of such dues by the liquidator to the

secured creditor, who has to deposit the amount of such estimated

dues with the liquidator and then it can retain the sale proceeds of

the secured assets. The other two provisos also are in aid of the

liquidator to discharge his duties and obligations arising under

Section 529A of the Companies Act. 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. 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 liquidator. As noted earlier, the Official Liquidator as

26

Page 27 C.A.No.3646/2011 etc.

a representative of the borrower company under winding up has to

be associated, not for supplying any omission in the SARFAESI Act

but because of express provisions therein as well as in the Rules.

Hence the exercise of harmonizing that this Court had to undertake

in the context of SFC Act or the RDB Act is no longer warranted in

respect of SARFAESI Act vis-à-vis the Companies Act.

25.The aforesaid view commends itself to us also because of

clear intention of the Parliament expressed in Section 13 of the

SARFAESI Act that a secured creditor has the right to enforce its

security interest without the intervention of the court or tribunal.

At the same time, this Act takes care that in case of grievance, the

borrower, which in the case of a company under liquidation would

mean the liquidator, will have the right of seeking redressal under

Sections 17 and 18 of the SARFAESI Act.

26.On account of the above discussions, the Division Bench

judgment of the Punjab and Haryana High Court under challenge

by Pegasus fails to meet our approval and is therefore, set aside

only for the purpose of clarifying the law. Since the sale already

made has not been assailed by Pegasus, therefore that issue will

abide by the views that we shall indicate hereinafter in respect of

SLP(C) Nos. 117-118 of 2011 preferred by Mr. Vinod Rajaliwala.

27

Page 28 C.A.No.3646/2011 etc.

27.We grant leave in SLP(C) No.7074 of 2010 preferred by

HSIIDC but only to dismiss this case as we have found the

grievance of Pegasus to be justified; it was entitled not only to stay

outside the winding up proceeding in view of provisions of

SARFAESI Act which is a special and later Act but was also entitled

to exercise its rights without any fetters that were erroneously

placed upon it by the company Judge and were approved also by

the Division Bench. Hence, the grievance of the HSIIDC that

Pegasus should not have been permitted to stay outside the

winding up proceeding is found meritless. Consequently its appeal

has to be dismissed.

28.As we have approved the judgment of the Division Bench of

Delhi High Court in the case of Megnostar, the appeals preferred

against the judgment in Civil Appeal Nos. 9293-94 of 2014 are

hereby dismissed. In the facts of the case there shall be no order

as to costs.

29.With respect to the case of Vinod Rajaliwala, it has been

indicated earlier that approximately 36 acres of land of Haryana

Concast Limited was put to auction and sale by Pegasus in

association with official liquidator and was ultimately sold for Rs.32

crores in favour of M/s. Venus Realcon Private Limited. Vinod

28

Page 29 C.A.No.3646/2011 etc.

Rajaliwala challenged the orders of the company Judge confirming

the sale by preferring a company appeal and also through a public

interest litigation (a writ petition). Both were dismissed by the

Division Bench of Punjab and Haryana High Court by orders

passed on 23.9.2010. These orders in company appeal No.

10/2010 and PIL being CWP No.8422 of 2010 are under challenge

at the instance of Mr. Rajaliwala through special leave petition (C)

Nos. 117-118 of 2011.

30.Since the larger issue arising out of the conflicting judgments

of Punjab and Haryana High Court and Delhi High Court has

already been addressed by us, the case of Mr. Rajaliwala requires

adjudication, mostly on facts as to whether the sale confirmed by

the Company Judge and approved by the Division Bench in favour

of M/s. Venus Realcon requires any interference. It is not at all

necessary to go into the facts which preceded the sale in favour of

M/s Venus Realcon for Rs.32 crores which till date stands

confirmed. It is against confirmation of sale that Mr. Rajaliwala

has preferred appeal as well as a PIL on the ground that the

consideration money does not reflect the correct value of the

secured assets, i.e., the land sold to M/s. Venus Realcon. In order

to substantiate this claim, Mr. Rajaliwala was granted an

29

Page 30 C.A.No.3646/2011 etc.

opportunity by the Division Bench to find out a higher bid. One

M/s. ACHASTES Promoters Private Limited through an application

in Company Appeal No. 10/2010 claimed to offer a bid of Rs.33

crores but later withdrew the same. Thereafter, another buyer

made an offer of Rs.37 crores but tendered a meagre amount of

Rs.1 crore only before the Division Bench. On these facts the

Division Bench dismissed company appeal on 23.9.2010. As a

consequence, the PIL was also dismissed on the same date. In this

Court, the petitioner claimed that the property was worth hundred

of crores but ultimately petitioner persuaded another entity M/s.

Himalayan Infra Projects Private Limited to offer a higher bid. This

company was allowed to intervene and be impleaded, and it

deposited 10 crores in January, 2011 and Rs. 40 crores in April,

2011. That money is lying in deposit in this Court.

31.The argument on behalf of Mr. Rajaliwala and the intervener

Himalayan Infra Projects Private Limited is that this Court should

take a practical view and allow the offer of Rs.50 crores in

comparison to Rs.32 crores deposited by the auction purchaser. In

reply, on behalf of Venus Realcon- respondent No. 3, it was pointed

out that Mr. Rajaliwala is himself a property dealer and a PIL at his

instance, in this matter, does not deserve any consideration for

30

Page 31 C.A.No.3646/2011 etc.

lack of good faith, in view of Judgment in the case of Arun Kumar

Agrawal vs. Union of India, 2014 (2) SCC 609. It was pointed out

from materials on record that the valuation of property has been

changing from 2002 when it was estimated to be Rs.10.13 crores.

In January 2010 its market value was around Rs.24-25 crores and

the distress value was Rs.18-20 crores approximately as per two

different valuation reports. The valuation of Rs.75 crores

approximately in 2008 was unrealistic, solely on the basis of oral

communication from the Collector said to be based upon valuation

for commercial plot and not for an industrial plot. It is pointed out

that one bid in 2005 by M/s. Radha Raman Builders and

Developers Private Limited for Rs.29 crores approximately for a

larger plot than the actual land, could not materialize. The first

offer by M/s. Venus Realcon on 9.4.2010 was Rs.26 crores which

on negotiation was raised to Rs.26.50 crores. Subsequently on

allegations made by Mr. Rajaliwala the Company Judge on

13.5.2010 held an open bid in Court, wherein M/s. Venus Realcon

raised its bid to Rs.32 crores. The Court then ordered for fresh

advertisement pursuant to which no bidder, including Mr.

Rajaliwala offered more than Rs.32 crores. Hence the Company

Court confirmed the sale in favour of M/s. Venus Realcon for Rs.32

31

Page 32 C.A.No.3646/2011 etc.

crores but it was made subject to Special Leave Petitions filed by

Pegasus and HSIIDC.

32.On considering the submissions of parties, we find that the

sale confirmed in favour of M/s. Venus Realcon for Rs.32 crores

does not require any interference particularly at the instance of

Petitioner-Vinod Rajaliwala. There was no illegality or irregularity

established against the conduct of auction and once it is found that

the offer of Rs.32 crores was a fair offer in a competitive bid

conducted fairly and the offer has been accepted and the sale

confirmed, it would not be proper for this court to undermine the

value of such auction sale conducted not only by the secured

creditor but also by the Official Liquidator who was permitted to be

associated with the whole process of finding out of valuation as well

as the conduct of sale. M/s. Venus Realcon has rightly placed

reliance upon the judgments of this court in the case of Valji

Khimji & Co. vs. Official Liquidator of Hindustan Nitro Product

(Gujarat) Ltd. 2008(9) SCC 299 and Vedica Procon Private

Limited vs. Balleshwar Greens P. Ltd., 2015(8) SCALE 713. In

Valji Khimji, the law was enunciated in Paragraph 28 in the

following words:

“If it is held that every confirmed sale can be set aside

the result would be that no auction-sale will ever be

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Page 33 C.A.No.3646/2011 etc.

complete because always somebody can come after the

auction or its confirmation offering a higher amount. It

could have been a different matter if the auction had

been held without adequate publicity in well-known

newspapers having wide circulation, but where the

auction-sale was done after wide publicity, then setting

aside the sale after its confirmation will create huge

problems. When an auction-sale is advertised in

well-known newspapers having wide circulation, all

eligible persons can come and bid for the same, and

they are themselves to be blamed if they do not come

forward to bid at the time of the auction. They cannot

ordinarily later on be allowed after the bidding (or

confirmation) is over to offer a higher price. Of course,

the situation may be different if an auction-sale is

finalized, say for Rs.1 crore, and subsequently

somebody turns up offering Rs.10 crores. In this

situation it is possible to infer that there was some fraud

because if somebody subsequently offers Rs.10 crores,

then an inference can be drawn that an attempt had

been made to acquire that property/asset at a grossly

inadequate price. This situation itself may indicate

fraud or some collusion. However, if the price offered

after the auction is over which is only a little over the

auction price, that cannot by itself suggest that any

fraud has been done.”

33.In Vedica Procon’s case (supra) the aforesaid view was

noticed and after considering many judgments in Paragraph 39, the

Court approved the view taken in Navalkha and Sons vs. Sri

Ramanya Das & Ors., 1969 (3) SCC 537 that there is a discretion

in the Company Court either to accept or reject the highest bid

before an order of confirmation of sale is made. However, once the

Company Court is satisfied that the price is adequate, the

subsequent higher offer cannot be a ground for refusing

33

Page 34 C.A.No.3646/2011 etc.

confirmation. The price of immoveable property keeps on varying

depending upon the market conditions and availability of a buyer.

Such fluctuations may attract fresh higher offers but normally

such offers cannot be made the basis for reopening the confirmed

sale which was otherwise valid. In the present case, we are

satisfied that the sale made in favour of M/s. Venus Realcon does

not require any interference. There is no good reason why the full

price paid by Venus Realcon should be ordered to be refunded with

interest etc. and possession which was delivered to Venus Realcon

at the time of sale should be disturbed after passage of so much

time. In such circumstances, while granting leave in SLP(C)

Nos.117-118, the consequent Civil Appeals are hereby dismissed

but without any order as to costs. The money deposited in this

case by the intervener M/s. Himalayan Infra Projects Private

Limited should be refunded to it forthwith along with interest

accrued thereupon.

34.The views expressed and the orders passed hereinabove may

once again be recapitulated as follows :- (1) Civil Appeal No. 3646

of 2011 is allowed only for declaration of law without interfering

with the sale of the secured assets which has not been challenged

by Pegasus. (2) Civil Appeal No.---------/2015 (Arising out of SLP(C)

34

Page 35 C.A.No.3646/2011 etc.

No. 7074 of 2010) is dismissed. (3) Civil Appeal Nos.

------------/2015 (Arising out of SLP(C) Nos. 117-118 of 2011) are

dismissed. The amount of Rs.50 crores deposited by the intervener

M/s. Himalayan Infra Projects Private Limited shall be refunded to

it forthwith alongwith interest accrued thereupon. (4) Civil Appeal

Nos. 9293-94 of 2014 are dismissed. The judgment and order of the

Delhi High Court is affirmed by holding that powers under the

Companies Act cannot be wielded by the Company Judge to

interfere with proceedings by a secured creditor to realize its

secured interests as per provisions of the SARFAESI Act.

35.There shall be no order as to costs.

………………………………..…….J.

[VIKRAMAJIT SEN]

………………………………….…..J.

[SHIVA KIRTI SINGH]

New Delhi.

December 29, 2015.

35