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Company court and Companies Act not to apply to secured creditor before sale of asset

In Pegasus Assets Reconstruction P. Ltd. ..Appellant vs M/s. Haryana Concast Limited & Anr. ...Respondents

This matter raised 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 these matters which have been heard together and shall be governed by this common judgment.

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?

The Hon'ble Supreme Court held : -

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. 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 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. 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. 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, 3

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