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
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.
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.
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
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.
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.
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