# Janta Chini Mill Mazdoor Sangh & Anr v. Industrial Finance Corporation Of India & Ors

- **Citation:** (2016) 8 ILRA 225
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2016-08-23
- **Bench:** V.K. Shukla, Mahesh Chandra Tripathi
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/janta-chini-mill-mazdoor-sangh-anr-v-industrial-finance-corporation-of-india-ors-44239
- **Pages:** 24

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8 All. Janta Chini Mill Mazdoor Sangh & Anr. Vs Industrial Finance Corporation Of India
 & Ors.
225
(2016) 8 ILRA 225
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 23.08.2016

BEFORE

THE HON'BLE V.K. SHUKLA, J.
THE HON'BLE MAHESH CHANDRA TRIPATHI, J.

Writ C No.- 20805 Of 2011

Janta Chini Mill Mazdoor Sangh & Anr. ...Petitioners
Versus
Industrial Finance Corporation Of India & Ors. ...Respondents

Counsel for Petitioners:
Manish Kumar Nigam, Arun Kumar Gupta, Ashok Kumar

Counsel for Respondents:
SC, Anoop Trivedi, Chandan Sharma, Gyan Prakash, O.P.Misra, Praveen Shukla, Ravindra Singh, Santosh
Kumar Singh, Santosh Kumar Srivastava, Satish Chaturvedi,Vr Tiwari
Held

SARFAESI Act is a complete code for enforcement of security interest, and secured creditors can enforce
rights without court intervention.
Section 13(9) SARFAESI Act already incorporates Sections 529 & 529A of the Companies Act,
thereby protecting workmen's dues in cases of liquidation.
Workmen and cane growers cannot claim pari passu distribution of sale proceeds under SARFAESI
proceedings unless the company is in liquidation.
Where no winding up proceedings are pending, workmen and other claimants do not attain status of
secured creditors and cannot seek distribution from SARFAESI sale proceeds.
In absence of liquidation, workmen and cane growers are treated as unsecured creditors, and their
dues must be recovered through statutory mechanisms provided under respective laws.
The High Court cannot expand statutory provisions or legislate by extending Companies Act provisions
(Sections 529, 529A) to SARFAESI proceedings beyond what is expressly provided.
Remedy against SARFAESI proceedings lies under Section 17 of the SARFAESI Act, not by invoking writ
jurisdiction directly in such disputes.
Sale proceedings under SARFAESI Act cannot be quashed merely to protect workmen's dues
when statutory framework already governs distribution.
Secured creditors are entitled to utilize sale proceeds, subject to statutory provisions; courts cannot
impose additional distribution mechanisms.
Workmen and cane growers are free to recover dues through appropriate statutory forums, such as
recovery as arrears of land revenue.
Court may issue equitable directions (e.g., asking company to frame scheme for payment of dues), but
cannot override statutory scheme.

CASE LAW CITED

Transcore v. Union of India, (2008) 1 SCC 125
226 INDIAN LAW REPORTS ALLAHABAD SERIES

Pegasus Assets Reconstruction Pvt. Ltd. v. Haryana Concast Ltd., (2016) 4 SCC 47
United Bank of India v. Satyawati Tandon, (2010) 8 SCC 110
Bank of Maharashtra v. Pandurang Keshav Gorwardkar, (2013) 7 SCC 754
Central Bank of India v. Siriguppa Sugars & Chemicals Ltd., (2007) 8 SCC 353
Union of India v. Deoki Nandan Aggarwal, AIR 1992 SC 96
District Mining Officer v. Tata Iron & Steel Co., (2001) 7 SCC 358
State of M.P. v. Jaora Sugar Mills Ltd.

(Delivered by Hon'ble V.K. Shukla, J.
&
Hon'ble Mahesh Chandra Tripathi, J.)

1. Janta Chini Mill Mazdoor Sangh Gauri Bazar, Deoria through its Secretary is before this
Court, assailing the validity of the proceedings so undertaken under SARFAESI Act, 2002 wherein
steps have been undertaken for sale of two Units of the Company i.e. Gauri Bazar, District Deoria
and Kathkuiyan, District Kushi Nagar in following terms:-

"(I) Issue a writ, order or direction in the nature of certiorari quashing the notice
dated 13.01.2011 published in newspaper (Annexure No.4 to this writ petition), notice dated
03.03.2011 published in Hindi Daily Dainik Jagaran dated 08.03.2011 (Annexure-5 to this writ
petition) and notice dated 15.03.2011 published in Hindi Daily Dainik Jagaran dated 16.03.2011
(Annexure-6 to this writ petition).

(II) Issue a writ, order or direction in the nature of mandamus commanding the
respondent no.1 to restrain from proceedings under the provision of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for realization
of its alleged dues against the company.

(II-A) Issue a writ, order or direction in the nature of mandamus commanding the
respondent no.1 to make the payment of the worker dues which has already been quantified and
adjudicated and finally decide amounting of Rs. 14.9034.

(II-B) Issue a writ, order or direction n the nature of mandamus directing the
Deputy Labour Commissioner, Gorakhpur to realise (execute) and distribute the amount which has
already been adjudicated by him in different cases to the workers.

(III) Issue any other suitable writ, order or direction which this Hon'ble Court may
deem fit and proper in the circumstances of the case.

(IV) to award costs of the writ petition to the petitioners".

2. Brief background of the litigation in question is that M/s Kanpur Sugar Works Ltd was
incorporated in the year 1894 as Joint Stock Company and in 1896 a Sugar Refinery Unit was also
set up at Kanpur by M/s Beg Sutherland and Company Ltd. Later on M/s Beg Sutherland and
8 All. Janta Chini Mill Mazdoor Sangh & Anr. Vs Industrial Finance Corporation Of India
 & Ors.
227
Company Ltd. merged with M/s British India Corporation Ltd. on 14.08.1960 referred to
hereinafter as B.I.C. B.I.C. was having control over the Company in question. M/s Kanpur Sugar
Works Ltd (hereinafter referred to as the Company) was having four units viz. Marhowrah (Bihar),
Padrauna, Gauri Bazar and Kathkuiyan (U.P.). The financial condition of the Company was bad
and in this background company was registered with the Board for Industrial and Financial
Reconstruction, New Delhi (hereinafter referred as BIFR) bearing Case No. 99/92 under Sick
Industrial Companies (Special Provisions) Act 1985 (hereinafter after referred to as SICA). The
BIFR in its turn proceeded to sanction 1st scheme viz. SS-98 under which the management of all
the four units was to be transferred in favour of M/s Gangotri Enterprises Ltd. (GEL). On account
of non-infusion of funds, SS-98 was declared as "Failed" by BIFR in the year 2000 and BIFR
directed OA/MA(IFCI) to re-advertise for change of Management of the Company. Subsequently,
BIFR sanctioned another revival scheme viz sanctioned scheme-2003 (SS-03) under which
management of only two units viz Mahrowarh (Bihar) and Padrauna (U.P.) was transferred in the
name of M/s JHV Distilleries and Sugar Mills Ltd (JDSML). Therefore, possession of these two
units was handed over by M/s Gangotri Enterprises Ltd to M/s JHV Distilleries and as far as Gauri
Bazar and Kathkuiyan units are concerned, BIFR directed that the assets of these units be sold for
the payment of balance liabilities of company. In the year 2008, due to non -implementation of SS03 fully, BIFR vide order dated 08.08.2008, declared the SS-03 as failed.

3. Petitioners are submitting that two units namely Khatkuniya and Padrauna have already
been sold and given to JHVD SML and JVH and they have taken possession of the Company and
dues of IFCI and other secured creditors have already been settled on OTS basis and secured
creditors including IFCI have acknowledged of payment being made.

4. This much fact is also reflected that IFCI who was secured creditor proceeded to initiate
proceeding under SARFAESI Act for sale of two units of the company i.e. Gauri Bazar and
Kathkuiyan. Petitioners' at this juncture came to this Court, complaining therein that large scale
workers dues is outstanding against the Company in question and their interest would be seriously
prejudiced, if the amount in question fetched from the sale is permitted to be lifted, without settling
the workers dues. The aforementioned writ petition was heard by this Court on 16.04.2011.
Relevant extract of order passed is as follows:-

"Heard Shri Manish Kumar Nigam for the petitioners. Shri O.P. Misra appears for
Industrial Finance Corporation of India (IFCI).

The petitioners are the workmen of Gauri Bazar Unit of Kanpur Sugar Works Ltd.
By this writ petition they have challenged the sale of the mortgaged assets of the Gauri Bazar Unit
pursued by IFCI, as secured creditor for realisation of their secured loans under SARFAESI Act,
2002.
A preliminary objection has been raised by Shri O. P. Misra appearing for IFCI, on
the maintainability of the writ petition in view of the alternative remedy of filing an appeal under
Section 17 of the SARFAESI Act. He relies upon judgments in Mardia Chemicals Ltd. Vs. Union
of India, (2004) 4 SCC 311, and Union Bank of India Vs. Satyawati Tandon, (2010) 8 SCC 110. He
228 INDIAN LAW REPORTS ALLAHABAD SERIES

submits that the Supreme Court had taken objection to the interference of the High Court in
recoveries initiated under the SARFAESI Act, 2002 as special act for realisation of the dues from
the mortgaged assets without taking recourse to the Court. It was held that any objection to the
recovery under the SARFAESI Act, 2002 may be taken in appeal under Section 17. Any person
interested in the mortgaged property can take recourse to the provisions of the appeal under the
SARFAESI Act, 2002.

Shri Manish Kumar Nigam, learned counsel for the petitioner submits that Kanpur
Sugar Works Ltd. has four units. The company fell into losses and was declared as sick industrial
company under the Sick Industrial Companies (Special Provisions) Act, 1985. The IFCI was
appointed as operating agency. The IFCI prepared a rehabilitation scheme in terms of which two of
the units of the company were rehabilitated by providing OTS of the dues of the secured creditors
and also providing for the dues of the workmen and other dues. The rehabilitation scheme in
respect of remaining two units namely Gauri Bazar and Kathkuiyan did not succeed. It is submitted
that the proceedings are still pending in BIFR. Shri Om Prakash Misra submits that the proceedings
have since abated in pursuance to the amendment in Section 51 (1) of the Sick Industrial Company
(Special Provisions) Act, 1985.

The IFCI is proceeding to sell the mortgaged assets of the two remaining units
under the SARFAESI Act purportedly with the consent of majority of the secured creditors.

Shri Manish Kumar Nigam submits that in none of the cases decided by the
Supreme Court the question of workmen's interest in sale of assets of the company even if they are
mortgaged under the SARFAESI Act has been considered in terms of Sections 529, 530, 531 and
531A of the Companies Act, 1956 by which right of the workmen to realise their dues has been
recognised to be at par with secured creditors and that amount received by sale of the assets have to
be shared pari pasu between the secured creditors and the workmen and thereafter the Government
dues are to be realised. He submits that in the present case the workmen of two units of which dues
were worked out in the Draft Rehabilitation Scheme approved in the order of BIFR dated 28.1.2003
to be Rs.483.90 lacs for Gauri Bazar Unit and 325.26 lacs for Kathkuiyan Unit, and cane arrears at
Rs.161.30 lacs for Gauri Bazar Unit and Rs.569.55 lacs for Kathkuiyan unit, as against secured
loans of IFCI, IDBI, ICICI of Rs.3277.20 lacs of all the four units, Rs.473 lacs of SBI and
Rs.220.60 of Sugar Development Fund. Shri Manish Kumar Nigam further submits that the State
Government is also under statutory liability under the U.P. Sugarcane (Supply) Act for realisation
of the arrears of sugarcane dues and commission of the Cane Cooperative Unions.

The sale of the two units has been advertised and fixed for 18th April, 2011.

In this writ petition the other secured creditors, workmen of the Kathkuiyan unit
and the State Government through the Cane Commissioner and the Cane Development Societies
are not parties. Since there is nothing to show that they have also challenged the sale, while
directing that they should be impleaded as parties, we propose to protect the interest of all the
secured creditors, workmen and Government dues.
8 All. Janta Chini Mill Mazdoor Sangh & Anr. Vs Industrial Finance Corporation Of India
 & Ors.
229

Shri O. P. Misra states that IFCI has written to Shri Rama Shankar Singh,
Secretary, Janta Chini Mill Mazdoor Sangh, Gouri Bazar, Deoria, U.P. (the petitioner) on
18.3.2011 that after sale of the assets of the two units the dues of secured creditors, workmen and
other statutory dues will be settled as per the provisions of law.

Shri Manish Nigam objects and states that the assurance is entirely vague, and that
the secured creditors even if they are proceeding to sell two units, treating the proceedings in BIFR
to have abated, must provide for workmen's dues to be paid.

Prima facie we find substance in the contention of the workmen that even after sale
under the SARFAESI Act, 2002 the amount realised has to be given same treatment, which is
provided under the Companies Act, 1956, which is Central Act and is the general act governing the
field recognising the rights of the workers in terms of Part IV of the Constitution of India.

Section 37 of the SARFAESI Act, 2002 provides that application of other laws
shall not be barred and that the provisions of the Act shall be in addition to and not in derogation to
the Acts specified in Section 37 and any other laws for the time being enforced. These other laws
will include the Companies Act, 1956.

Let Shri Manish Nigam implead all the concerned parties including other secured
creditors, workmen of the Kathkuiyan unit and the State of U.P. through the Secretary, Sugarcane;
Commissioner of Sugarcane, Government of U.P. and the concerned Cane Development Societies
within ten days.

In the meantime, the sale under the SARFAESI Act, 2002 may be held; the entire
amount realised from sale may be retained by IFCI, and will be kept in no lien account to be
disbursed in accordance with the orders to be passed by the Court.

All the respondents will file their reply in three weeks.

List on May 10th, 2011".

5. Thereafter, again this Court has considered the matter on 09.05.2012 and has passed
following order.

"The two units of the company, which is subsidiary of British India Corporation
Ltd. have since been sold to consortium of the secured creditors with IFCI Ltd. as lead creditor for
a sum of Rs.17.26 crores and Rs.7 crores and odd respectively. The entire amount under the orders
of the Court passed on 16th April, 2011 has been deposited in no lien account with IFCI to await its
distribution.
230 INDIAN LAW REPORTS ALLAHABAD SERIES

The impleadment application of Rajendra Ispat Pvt. Ltd., the highest bidder of both
the units, which has deposited the amount is allowed.

The intervention applications of Cooperative Cane Development Union Ltd.,
Dudhai, Baitalpur and Katkuian, Distt. Kushi Nagar filed through Shri Ravindra Singh dated
4.8.2011 are allowed.

The application filed by Rajendra Ispat Pvt. Ltd. shows that both the units of the
company at Gauri Bazar, and Kathkuiyan, Distt. Deoria are under attachment for recovery of the
workmen's dues. Due to these attachment orders the sale deed of the property has not been
executed in its favour.

Prima facie we find that as only two units of the company namely Kanpur Sugar
Works Ltd., which is subsidiary of these BIC have been sold, some arrangements should be made
to protect the interest of the secured creditors and workmen, who have pari passu charge, as well as
the EPF Commissioner and Cane Unions, who have first charge over the assets.

We are informed that the workmen have not allowed Rajendra Ispat Pvt. Ltd. to
enter the units of which sale deeds have not been executed as yet. We are also informed that the
Deputy Labour Commissioner has sent orders for recovery of the workmen's dues, to the IFCI.

The amount realised from the sale of the units under the SARFAESI Act, 2002 has
to be distributed in accordance with the provisions of Section 13 (9) of the Act. The distribution,
however, has to be made in accordance with the principles of distributing the dividend under
Companies Act, 1956 for which the dues of all stake holders have to be ascertained.

In order to pass any further orders, it is necessary to implead the British India
Corporation, which is the promoter of the unit. Let the petitoner implead British India Corporation
(BIC) as party respondent and take steps to serve it. Notices will be sent by registered post as well
as by Dasti summons, returnable on 29th May, 2012.

In the meantime, we direct that the amount realised by the IFCI from sale under the
Securitisation Act, 2002, kept in no lien account will be deposited in an interest bearing fix deposit,
subject to same condition that the account will continue to be a no lien account.

List on 29.5.2012".

6. Matter has once again been considered by this Court on 07.09.2012 and following order
has been passed.

"Shri Satish Chaturvedi has filed an application on behalf of the British India
Corporation Ltd. for recalling the order dated 9.5.2012 by which the Court directed the British
India Corporation Ltd. to be impleaded as party respondent as the promotor in majority shareholder
8 All. Janta Chini Mill Mazdoor Sangh & Anr. Vs Industrial Finance Corporation Of India
 & Ors.
231
in Kanpur Textile Ltd. of which two units have been sold under the SARFAESI Act giving rise to
this writ petition by the workmen claiming their dues.

From the proceedings of BIFR we find that the first scheme in which British India
Corporation was required to divest its shareholding failed; the second scheme also failed. In the
third scheme shares were to be sold to JSV Sugar of JSL Group. The sale has not yet materialised
as 38.43% of the total shares of 47.10% held by British India Corporation in Kanpur Textiles Ltd.
are pledged with the State Bank of India.

From the order of BIFR dated 23rd April, 2012 filed along with the application
filed by British India Corporation, we find that BIFR was unable to find out (para 12) as to who
was the Chairman of the Company at the relevant period and his address. The IFCI was required to
file reply within two weeks. The BIFR issued notice to the Controller of Accounts, Ministry of
Textiles, New Delhi, and had fixed 9.8.2012 for hearing.

We are unable to appreciate as to why the BIFR is keeping the proceedings
pending, when two schemes have already failed and that two out of four sugar units have been sold
under the SARFAESI Act. Without entering into the merits of the case, we may observe that the
BIFR must consider the facts stated in its orders to make up its mind and to consider to recommend
the company for winding up under Section 20 of the Sick Industrial Companies (Special
Provisions) Act, 1985 to the High Court.

In the facts and circumstances, we reject the application of British India
Corporation Ltd. to recall the order dated 9.5.2012 by which it was directed to be impleaded as
party respondent and direct it to file detailed counter affidavit considering that the assets of the two
units, have been sold under the SARFAESI Act to IFCI.

Shri Manish Nigam appearing for the petitioner will give details of the workmen's
dues. Shri Ravindra Singh appearing for the cane unions is also required to give details of the dues
of the Cane Unions. We also direct the State respondents to give details of its dues vis-a-vis the two
units, which have been sold.

List for orders on 8th October, 2012.

Shri Chandan Sharma representing M/s Rajindra Ispat Pvt. Ltd., the purchaser of
the two units states that sale deed has not been executed by the IFCI so far, and that workmen are
not allowing them to enter the premises.

We do not propose to enter into the issue with regard to the execution of the sale
deed as it is the matter between the secured creditor and purchaser. We have been informed that the
auction has not been challenged and that amount is still lying in no lien account with the IFCI
under the interim orders passed in this writ petition.
232 INDIAN LAW REPORTS ALLAHABAD SERIES

So far as obstructions created by the workmen are concerned, we are prima facie of
the opinion that at this stage, if the attachment orders have been passed on the orders of the Labour
Commissioner regarding workmen's dues and the purchaser has no intention to run the sugar mills,
no directions are required to be issued, regarding possession".

7. Before this Court, by means of amendment application, details of workers dues as
quantified has been specified and further intervention application has been moved on behalf of Cooperative Cane Development Union giving therein full details of the fact in reference of
outstanding cane dues i.e. required to be realised by the Company in question. This is accepted
position that the property that has been put to sale under the SARFAESI Act, qua the same, sale
deed has been executed and as workmen on the spot are not permitting the auction purchaser to
enter into the units of which sale deeds have been executed for lifting of the scrap etc, they have
moved an application for giving protection for lifting of scrap in question.

8. On the basis of pleadings that have come forward, present writ petition has been taken
up for final hearing/disposal with the consent of the parties.

9. Sri Arun Kumar Gupta, learned counsel for the petitioners submitted with vehemence
that in the present case interest of the workers should be protected by this Court in all eventuality
and all the dues of secured creditors including IFCI and other Banks have already been paid and
settled, then there is no occasion/reason for proceeding under SARFAESI Act, 2002, in this
background workers interest be protected and workers be treated as secured creditor and dues
should be ensured to be paid in consonance with the provision as contained under Sections 529-A
of the Companies Act.

10. Sri Ravindra Singh, learned counsel for the Cooperative Cane Development Union Ltd.
Baitalpur, Deoria submitted with vehemence that in view of the judgement of Apex Court rendered
in the case State of Madhya Pradesh Vs Jaora Sugar Milkls Ltd and others ( 1996) INSC 1285
interest of sugar cane grower be protected by all means and entire outstanding sugarcane dues be
ensured by asking IFCI to release the outstanding cane dues payment from the realised amount of
M/S. Kanpur Sugar Works.

11. Sri O.P. Mishra, learned counsel for the I.F.C.I Ltd. and the Asset Reconstruction
Company submitted before this Court that as far as rights of secured creditor is concerned, once
there is no liquidation proceeding pending and two of the units are still in operation, then recovery
in question as claimed by the petitioners as well as intervenors should be pressed and brought to its
logical conclusion in accordance with law and in proceeding under SARFAESI Act prayer that has
been so made, cannot be accorded and it is wrong to say that entire amount under OTS stands paid,
accordingly writ petition be dismissed as it has been framed and drawn and petitioner as well as
intervener should avail the remedy as is provided for under the relevant statutory forum.

12. Sri Anurag Khanna, Senior Advocate, assisted by Sri Syed Fahim Ahmad, Advocate
submitted that relief as asked for cannot be accorded by this Court, the petitioners as well as
8 All. Janta Chini Mill Mazdoor Sangh & Anr. Vs Industrial Finance Corporation Of India
 & Ors.
233
intervenor for recovery of their dues will have to invoke the remedial forum provided for under the
statutory provision holding the field. Apart from this he submitted that in the garb of pendency of
proceedings, on the spot they are not being permitted to remove the scrap and accordingly on this
aspect of the matter this Court should intervene and proceed to issue requisite directives.

13. After respective arguments have been advanced, issue that is engaging our attention is
as to when proceeding under SARFAESI Act, 2002 have been undertaken, can in such proceeding
dues of the workmen as well as sugar cane grower from debtors company can be directed to be
discharged from the sale proceeds so realised under the SARFAESI Act, 2002.

14. Here undisputed factual situation that is so emerging in the present case is that initially
company in question has been subjected to the proceeding under the provision of SICA, 1985 and
thereafter scheme in question for making the company viable has been framed from time to time
and as scheme in question framed was not found viable time and again, same has been dropped and
ultimately this much fact is reflected that on initiation of proceedings under SARFAESI Act, 2002
in terms of the provision as contained under the proviso to Section 15 of SARFAESI Act, 2002,
proceedings have abated.

15. Thus, situation as of now on the ground is there are no proceedings pending either
under Company Act or under the provision of SICA, 1985 and proceedings under SARFAESI Act,
2002 have been undertaken by putting the property to auction wherein M/s Rajendra Ispat Pvt. Ltd.
has participated in the auction proceeding and its bid has been accepted and transaction/document
has also been executed in its favour. The issue as already mentioned above is that once proceedings
under SARFAESI Act, 2002 have been undertaken, can in such proceeding dues claimed by the
workers as well as of sugar cane grower be adjusted from the sale proceeds in question, said issues
can be more conveniently answered in the light of statutory provisions, namely Recovery of Debts
Due to Bank and Financial Institutions Act 1993; Companies Act 1956; SARFAESI Act, 2002,
keeping in view of the fact that as far as claim of workmen is concerned, their claim have been
settled by the competent authority under U.P. Industrial Peace (Timely Payment of Wages) Act,
1978 and as far as claim of Sugar Cane grower are concerned, their claim has been settled under
U.P. Sugarcane (Regulation of Supply and Purchase) Act, 1953 and under both the provisions, once
there are dues outstanding that has been so determined, said amount can be recovered by taking
recourse to coercive measures by way of arrears of land revenue. Relevant provisions are being
looked into:-
DRT Act 1993

Section 2(d) of the 1993 Act, defines ''bank', which, inter alia, means a banking
company. Under Section 2(e) ''banking company' has the meaning assigned to it in clause (c) of
Section 5 of the Banking Regulation Act, 1949. ''Financial institution' is defined in Section 2(h).
The ''tribunal' established under Section 3 is known as Debts Recovery Tribunal. Under Section 17,
the tribunal (DRT) has been conferred jurisdiction, powers and authority to entertain and decide
applications from the banks and financial institutions for recovery of debts due to such banks and
financial institutions. Section 18 bars the jurisdiction of all other courts and other authorities except
234 INDIAN LAW REPORTS ALLAHABAD SERIES

the Supreme Court and High Court exercising jurisdiction under Articles 226 and 227 of the
Constitution in relation to the matters specified in Section 17.

Section 19 provides a comprehensive procedure before the DRT for making an
application where a bank or a financial institution has to recover any debt from any person. It also
enables DRT to issue certificate of recovery, its execution and all such orders and directions as may
be necessary to give effect to its orders or to prevent abuse of its process or to secure the ends of
justice. Section 19 is reproduced as under:

"Section 19. Application to the Tribunal.--(1) Where a bank or a financial
institution has to recover any debt from any person, it may make an application to the Tribunal
within the local limits of whose jurisdiction--

Where a certificate of recovery is issued against a company registered under the
Companies Act, 1956 (1 of 1956) the Tribunal may order the sale proceeds of such company to be
distributed among its secured creditors in accordance with the provisions of section 529A of the
Companies Act, 1956 and to pay the surplus, if any, to the company.

The Presiding Officer shall issue a certificate under his signature on the basis of
the order of the Tribunal to the Recovery Officer for recovery of the amount of debt specified in the
certificate.

The Tribunal may make such orders and give such directions as may be necessary
or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of
justice."

Section 22, inter alia, empowers the DRT to regulate its own procedure. It is not
bound by the procedure laid down by the Code of Civil Procedure, 1908 (''CPC') but is guided by
the principles of natural justice and subject to the provisions of the 1993 Act and the rules framed
thereunder. It has same powers as are vested in a civil court under the CPC in respect of the matters
set out in Section 22(2).

Section 25 provides the modes of recovery of debts. The Recovery Officer on
receipt of the copy of the recovery certificate is required to proceed to recover the amount of debt
specified in the certificate by one or more of the modes set out in that Section which includes
attachment and sale of the movable or immovable property/properties of the certificate debtor.
Under Section 28, the Recovery Officer may recover the amount of debt under the certificate by
one or more of the modes provided thereunder without prejudice to the modes of recovery specified
in Section 25. Section 28(4) provides that the Recovery Officer may apply to the court in whose
custody there is money belonging to the certificate debtor for payment to him of the entire amount
of such money, or if it is more than the amount of debt due an amount sufficient to discharge the
amount of debt so due.
8 All. Janta Chini Mill Mazdoor Sangh & Anr. Vs Industrial Finance Corporation Of India
 & Ors.
235
Section 34 gives the 1993 Act overriding effect. Sub-section(1) thereof provides
that the provisions of the 1993 Act shall have the effect notwithstanding anything inconsistent
therewith contained in any other law or in any instrument having effect by virtue of any law. Subsection (2) of Section 34 provides that the provisions of the 1993 Act or the rules made thereunder
shall be in addition to and not in derogation of the enactments stated therein.

Section 36 empowers the central government to make rules to carry out the
provisions of the 1993 Act. In exercise of the powers conferred under Section 36, the central
government has framed the Debts Recovery Tribunal (Procedure) Rules, 1993.

Companies Act, 1956

The Companies Act has undergone substantial amendments by the Companies
(Second Amendment) Act 2002 (11 of 2003) but no notification has been issued so far bringing Act
11 of 2003 into effect. Though Section 441 has been substituted by Section 56 of the above
Amendment Act but since it has not come into force, we reproduce Section
441 as it stood prior to amendment:

"441. Commencement of winding up by Court-( 1 ) Where, before the presentation
of a petition for the winding up of a company by the Court, a resolution has been passed by the
company for voluntary winding up, the winding up of the company shall be deemed to have
commenced at the time of the passing of the resolution, and unless the Court, on proof of fraud or
mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be
deemed to have been validly taken.

( 2 ) In any other case, the winding up of a company by the Court shall be deemed
to commence at the time of the presentation of the petition for the winding up."

Section 443 provides for powers of Court on hearing petition which, inter alia,
enables it to make an order for winding up the company and also make an interim order that it
thinks fit.

The effect of the winding up order is provided in Section 447. Accordingly, an
order for winding up a company operates in favour of all the creditors and all the contributories of
the company as if it has been made on the joint petition, of a creditor and of a contributory.

The appointment of official liquidator so far as it relates to winding up of a
company is dealt with in Section 448. Section 451 deals with general provisions as to liquidators.
Inter alia, it provides that the liquidator shall conduct the proceedings in winding up the company
and perform such duties in reference thereto as the court may impose.

Section 456 provides that where a winding up order has been made or where a
provisional liquidator has been appointed the liquidator or the provisional liquidator, as the case
236 INDIAN LAW REPORTS ALLAHABAD SERIES

may be, shall take into his custody or under his control all the properties, effects and actionable
claims to which
the company is or appears to be entitled.

Section 457 empowers the liquidator to do acts stated in paragraphs (a) to (e) of
sub-section (1) with the sanction of the court. In a winding up by the court, the liquidator has power
to do all acts set out in clauses (i) to (v) of sub-section (2).

Section 529, to the extent it is relevant, reads as follows:

"Section 529 - Application of insolvency rules in winding up of insolvent
companies. (1) In the winding up of an insolvent company, the same rules shall prevail and be
observed with regard to-

(c) the respective rights of secured and unsecured creditors; as are in force for the
time being under the law of insolvency with respect to the estates of persons adjudged insolvent:

Provided that the security of every secured creditor shall be deemed to be subject
to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein, and,
where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise
his security,- (a) the liquidator shall be entitled to represent the workmen and enforce such charge;

(b) any amount realised by the liquidator by way of enforcement of such charge
shall be applied rateably for the discharge of workmen's dues; and

(c) so much of the debt due to such secured creditor as could not be realised by him
by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his
security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of
section 529A.]

(2) . . . . . . . .

(3) For the purposes of this section, section 529A and section 530.

(a) "workmen", in relation to a company, means the employees of the company,
being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947);

(b) "workmen's dues", in relation to a company, means the aggregate of the
following sums due from the company to its workmen, namely:-

(i) to (iv) . . . . . . . .
8 All. Janta Chini Mill Mazdoor Sangh & Anr. Vs Industrial Finance Corporation Of India
 & Ors.
237
(c) "workmen's portion", in relation to the security of any secured creditor of a
company, means the amount which bears to the value of the security the same proportion as the
amount of the workmen's dues bears to the aggregate
of-

(i) the amount of workmen's dues; and

(ii) the amounts of the debts due to the secured creditors.

SARFAESI Act, 2002

The SARFAESI Act, which came into force from 21.06.2002, was enacted to
provide procedures to the Banks to recover their security interest from the debtors and their
collateral security assets as provided under the provisions of the Act. The scope of the Act was
explained by Apex Court in the case of Transcore vs. Union of India & another 2008(1) SCC 125
as under:

"12. The NPA Act, 2002 is enacted to regulate securitization and reconstruction of
financial assets and enforcement of security interest and for matters connected therewith. The NPA
Act enables the banks and FIs to realize long-term assets, manage problems of liquidity, assetliability mismatch and to improve recovery of debts by exercising powers to take possession of
securities, sell them and thereby reduce non-performing assets by adopting measures for recovery
and reconstruction. The NPA Act further provides for setting up of asset reconstruction companies
which are empowered to take possession of secured assets of the borrower including the right to
transfer by way of lease; assignment or sale. The said Act also empowers the said asset
reconstruction companies to take over the management of the business of the borrower....

13. Non-performing assets (NPA) are a cost to the economy. When the Act was
enacted in 2002, the NPA stood at Rs1.10 lakh crores. This was a drag on the economy.
Basically,NPA is an account which becomes non-viable and non-performing in terms of the
guidelines given by RBI. As stated in the Statement of Objects and Reasons, NPA arises on
account of mismatch between asset and liability. The NPA account is an asset in the hands of the
bank or FI. It represents an amount receivable and realizable by the banks or FIs. In that sense, it is
an asset in the hands of the secured creditor. Therefore, the NPA Act, 2002 was primarily enacted
to reduce the nonperforming assets by adopting measures not only for recovery but also for
reconstruction. Therefore, the Act provides for setting up of asset reconstruction companies, special
purpose vehicles, asset management companies, etc. which are empowered to take possession of
secured assets of the borrower including the right to transfer by way of lease, assignment or sale. It
also provides for realization of the secured assets. It also provides for takeover of the management
of the borrower company.

24." Thus, it becomes clear that the SARFAESI Act is meant to operate as a tool
for banks and ensures a smooth debt recovery process. The provisions of SARFAESI Act make its
238 INDIAN LAW REPORTS ALLAHABAD SERIES

purport amply clear, specifically under the provisions of Sections 13(2) and 13(4) of the Act, which
read as under:

13. Enforcement of security interest

(1) Notwithstanding anything contained in section 69 or section 69A of the
Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured
creditor may be enforced, without the intervention of court or tribunal, by such creditor in
accordance with the provisions of this Act.

(2) Where any borrower, who is under a liability to a secured creditor under a
security agreement, makes any default in repayment of secured debt or any instalment thereof, and
his account in respect of such debt is classified by the secured creditor as non-performing asset,
then, the secured creditor may require the borrower by notice in writing to discharge in full his
liabilities to the secured creditor within sixty days from the date of notice failing which the secured
creditor shall be entitled to exercise all or any of the rights under subsection (4).

(3) The notice referred to in sub-section (2) shall give details of the amount
payable by the borrower and the secured assets intended to be enforced by the secured creditor in
the event of non-payment of secured debts by the borrower.

(3A) If, on receipt of the notice under sub-section (2), the borrower makes any
representation or raises any objection, the secured creditor shall consider such representation or
objection and if the secured creditor comes to the conclusion that such representation or objection
is not acceptable or tenable, he shall communicate within one week of receipt of such
representation or objection the reasons for non-acceptance of the representation or objection to the
borrower: