# PEGASUSASSETS RECONSTRUCTION P. LTD v. M/S. HARYANACONCAST LIMITED &ANR

- **Citation:** [2015] 15 S.C.R. 102
- **Court:** Supreme Court of India
- **Decided:** 2015-12-29
- **Case number:** Civil Appeal No. 3646 of 2011
- **Bench:** Vikramajit Sen, Shiva Kirti Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/pegasusassets-reconstruction-p-ltd-v-m-s-haryanaconcast-limited-anr-30631
- **Pages:** 29

## Headnote

Securitization and Reconstruction of Financial Assets
C and Enforcement of Security Interest Act, 2002 - ss. 9, 13,
17 and 18 - Sale of secured asset by a secured creditor under
the SARFAESI Act- Whether can be controlled by company
court either directly or through an official liquidator - Held:
There is no lacuna or ambiguity in the SARFAESI Act so as
D to borrow anything from Companies Act -
The required
provisions of the Companies Act have been incorporated in
the SARFAESI Act for harmonizing this Act with the
Companies Act -
Therefore, there is no reason to take
recourse to any provisions of the Companies Act and permit
E interference in the proceedings under the SARFAESI Act
either by the Company Judge or the liquidator:- Companies
Act, 1956 - Security & Interest (Enforcement) Rules, 2002.
Auction -
Auction-sale -
Of secured asset -
Confirmation of, by the court - Challenged on the ground
F that the consideration money did not reflect the correct value
of secured assets - Held: No illegality or irregularity was
established against the conduct of auction - Once it is found
that the offer was fair in a competitive bid conducted fairly
and the same was accepted and sale confirmed, it would not
G be proper for Supreme Court to undermine the value of such
auction sale ..
H
Disposing of the appeals, the Court
HELD: 1.1 There is no lacuna or ambiguity in the
102
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
103
MIS. HARYANACONCAST LTD.
SARFAESI Act to warrant reading something more into A
it. For the purpose it has been enacted, it is a complete
code. 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 B
. 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). As per sub-section (9) a
sort of consensus is required amongst the secured C
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 D
529A of the Companies Act even where the company is
being wound up after coming into force of 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 E
depositing the workmen's dues with the liquidator in
accordance with the provi~ions of Section 529A of the
Companies A9t. [Para 24] [123-G-H; 124-A-D]
1.2 Thus, it is evid~t that the required provisions F
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, G
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. [Para 24] [124-FH]
H
104
SUPREME COURT REPORTS
[2015] 15S.C.R.
.
A
1.3 The Official Liquidator as a representative of the
B
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. [Para 24] (124-H; 125-A]
1.4 The clear intention of the Parliament is
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.
C 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

## Text

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[2015] 15 S.C.R. 102
A
PEGASUSASSETS RECONSTRUCTION P. LTD.
B
v.
M/S. HARYANACONCAST LIMITED &ANR.
(Civil Appeal No. 3646 of 2011)
DECEMBER 29, 2015
[VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]
Securitization and Reconstruction of Financial Assets
C and Enforcement of Security Interest Act, 2002 - ss. 9, 13,
17 and 18 - Sale of secured asset by a secured creditor under
the SARFAESI Act- Whether can be controlled by company
court either directly or through an official liquidator - Held:
There is no lacuna or ambiguity in the SARFAESI Act so as
D to borrow anything from Companies Act -
The required
provisions of the Companies Act have been incorporated in
the SARFAESI Act for harmonizing this Act with the
Companies Act -
Therefore, there is no reason to take
recourse to any provisions of the Companies Act and permit
E interference in the proceedings under the SARFAESI Act
either by the Company Judge or the liquidator:- Companies
Act, 1956 - Security & Interest (Enforcement) Rules, 2002.
Auction -
Auction-sale -
Of secured asset -
Confirmation of, by the court - Challenged on the ground
F that the consideration money did not reflect the correct value
of secured assets - Held: No illegality or irregularity was
established against the conduct of auction - Once it is found
that the offer was fair in a competitive bid conducted fairly
and the same was accepted and sale confirmed, it would not
G be proper for Supreme Court to undermine the value of such
auction sale ..
H
Disposing of the appeals, the Court
HELD: 1.1 There is no lacuna or ambiguity in the
102
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
103
MIS. HARYANACONCAST LTD.
SARFAESI Act to warrant reading something more into A
it. For the purpose it has been enacted, it is a complete
code. 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 B
. 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). As per sub-section (9) a
sort of consensus is required amongst the secured C
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 D
529A of the Companies Act even where the company is
being wound up after coming into force of 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 E
depositing the workmen's dues with the liquidator in
accordance with the provi~ions of Section 529A of the
Companies A9t. [Para 24] [123-G-H; 124-A-D]
1.2 Thus, it is evid~t that the required provisions F
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, G
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. [Para 24] [124-FH]
H
104
SUPREME COURT REPORTS
[2015] 15S.C.R.
.
A
1.3 The Official Liquidator as a representative of the
B
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. [Para 24] (124-H; 125-A]
1.4 The clear intention of the Parliament is
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.
C 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 SARFAESl.Act. [Para 25] (125-C·D]
D
1.5 The appellant 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
E were erroneously placed upon it by the company Judge
and were approved also by the Division Bench. [Para
27] (125-G-H]
F
G
H
Rajasthan State Financial Corporation v. Official
Liquidator2005 (3) Suppl. SCR 1073 =AIR 2006
SC 755 = (2005) 8 SCC 190; Bank of Maharashtra
v. Pandurang Keshav Gorwardkar 2013 (3) SCR
269 = (2013) 7 SCC 754; Employees Provident
Fund Commissioner v. Official Liquidator 2011
(15) SCR 336 = (2011) 10 sec 121 - held
inapplicable.
Mardia Chemicals v. Union of India 2004 (3) SCR
982 = (2004) 4 SCC 311; Rajasthan State
Financial Corporation v. Official Liquidator 2005
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
M/S. HARYANACONCASTLTD ..
(3) Suppl. SCR 1073 =AIR 2006 SC 755 = (2005)
8 SCC 190; Bakemans Industries v. New
Cawnpore (2008) 144 Company Cases 71 (SC);
Ram Kripa/ Singh v. State of Uttar Pradesh 2007
(6) SCR 1187 = (2007) 11 SCC 22; and Central
Bank of India v. State of Kera/a 2009 (3) SCR 735
= (2009) 4 SCC 94; Allahabad Bank v. Canara
Bank 2000 (2) SCR 1102 = (2000) 4 sec 406;
International Coach Builders Ltd. v. Karnataka
State Financial Corporation 2003 (2) SCR 631 =
(2003) 10 SCC 482; Industrial Credit and
Investment Corporation of India Ltd. v. Srinivas
Agencies 1996 (2) SCR 960 = (1996) 4 sec 165;
and A.P. State Financial Corporation v. Official
Liquidator 2000 (2) Suppl. SCR 288 = (2000) 7
SCC 291; Arun Kumar Agrawal vs. Union of India
2014 (3)SCR 861 =2014(2)SCC609-referredto.
105
A
B
c
D
2.1 The sale confirmed in favour of auction
purchaser for Rs.32 crores does not require any
interference particularly at the instance of Petitioner. E
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 F
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 we.II as the G
conduct of sale. [Para 32) [128-D-F]
Va/ji Khimji & Co. v. Official Liquidator of
Hindustan Nitro Product (Gujarat) Ltd. 2008 (9)
SCC 299 and Vedica Procon Private Limited v.
Ba/leshwar Greens P. Ltd. 2015 (8) SCALE 713;
H
106
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
Nava/kha and Sons v. Sri Ramanya Das & Ors.
1970 (3) SCR1 = 1969 (3) SCC 537 - relied on.
· 2.2 The price of immoveable property keeps on
varying depending upon the market conditions and
8
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, the sale made
in favour of auction purchaser does f!Ot require any
c interference. There is no good reason why the full price
paid by the auction purchaser should be ordered to be
refunded with interest etc. and possession which was
delivered to it at the time of sale should be disturbed after
passage of so much time. [Para 33] [129-H; 130-A-C]
D
Case Law Reference
2004 (3) SCR 982
2005 (3) Suppl. SCR 1073
referred to Para 11
referred to · Para 11
E (2008) 144 Company Cases 71 (SC)referred to Para 11
2007 (6) SCR 1187
referred to Para 11
F
2009 (3) SCR 735
2000 (2) SCR 1102
2003 (2) SCR 631
1996 (2) SCR 960
2000 (2) Suppl. SCR 288
G 2013 (3) SCR 269
2011 (15) SCR 336
2014 (3) SCR 861
2008 (9) sec 299
H
referred to Para 11
referred to Para 20
referred to Para 20
referred to Para 20
referred to Para 20
held inapplicable Para 21
held inapplicable Para 21
referred to Para 31
relied on
Para 32
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
107
M/S. HARYANA CONCAST LTD.
2015 (8) SCALE 713
1970 (3) SCR 1
relied on
relied on
Para 32
A
Para 33
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3646 of 2015
From the Judgment and Order dated 15.12.2009 of the
Division Bench of the High Court of Punjab and Haryana at
Chandigarh in CAPP No. 28 of 2009.
WITH
C.A. Nos.14736, 14737& 14738of2015
C.A. Nos. 9293-9294 of 2014.
B
c
C. U. Singh, V. K. Garg, Yashank Adhyaru, Rana
Mukherjee, Dr. Rajeev Dhawan, Dhruv Mehta, Sr. Advs., Arun
D
BhardwajAAG,Anupam LasDas,Anirudh Singh, Sahil Monga,
Saran Suri, Ms. Divya Roy, Yash Pal Dhingra, Ravindra Bana,
Manish K. Bishnoi, Navindu Verma, Rajesh Sharma, Ms ..
Noopur Dubey, Ms. Shalu Sharma, Vikramjit Banerjee, Piyush
Gaur, Ronak Karanpuria, Ms. Madhavi Divan, Ms. Sushma
E
Suri, Ms. B. Sunita Rao, Deeptakirti Verma, Ms. Neha Sharma,
Ms.Aparna Iyer, Ms. Uttara Babbar, Vinod Kapoor, Chandra
Shekhar Ashri, Ms. Sushma Suri, Saurabh Kirpal, Karan
Bharioke, SanjayAgarwal, Wattan Sharma, GautamAwasthi,
F
Rishi Malhotra, Gunjan Kumar,Advs., for the appearing parties.
The Judgment of the Court was delivered by
SHIVA KIRTI SINGH, J. 1. A common issue of law:
Whether a Company Court, directly or through an Official
G
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 Enforcem~nt of Security Interest Act, 2002
H
108
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
(for brevity 'the SARFAESI Act'), arises in all 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
B
each of the matters, it may be useful to notice that Civil Appeal
No. 3646 of2011 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
C 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
D judgment of Division Bench disallowed the appeal of Haryana
State Infrastructure and Industrial Development Corporation
(for brevity 'HSllDC') against the order of Company Judge
allowing Pegasus to stay outside the winding up proceeding
of the respondent Haryana Concast Limited, HSllDC is also
E
before this ·court through SLP (C) No. 707 4 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
F
Liquidator as per 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
G 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.117118 of 2011. The three matters indicated above thus relate to
H secured assets of the same coμipany under Liquidation, M/s.
Haryana Concast Limited.
·
·
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
109
M/S. HARYANA CON CAST LTD. [SHIVA KIRTI SINGH, J.]
4. The fourth matter, C.A. No. 9293-94 of 2014 preferred
A
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
B
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 C
creditor under Section 13 of the 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 SAR FAE SI Act. It goes without saying that if D
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
E
of Pegasus or to that of Megnostar. Only the broad features
necessary for appreciation of rival submissions in respect of F
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 G
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
H
110
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A realization. Although the High 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 1h
June 2004, the sale could not be effected for one reason or
B the other. Being a guarantor, the HSllDC 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
C 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
0
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
E 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
company in its favour. The Company Judge allowed Pegasus
F 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
G 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
H herein below because these have been objected to by Pegasus
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
111
M/S. HARYANA CON CAST LTD. [SHIVA KIRTI SINGH, J.]
as fetters which the Company Judge could not have obtained A
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
8
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 c
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 and confirmation of the sale, the
D
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 E
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
F
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 G
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
112
A
B
SUPREME COURT REPORTS
[2015] 15S.C.R.
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."
.
C
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 governed by and within the four corners of the SARFAESI
Act and not by or under the Companies Act. On a pointed
D 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
E 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.
F
8. Learned counsels representing the company
respondent no.1 which is represented by the Official Liquidator
and learned counsel for respondent no.2 HSllDC have
advanced submissions to the contrary. According to them a
G 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
H and governed by provisions of the Companies Act which are
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
113
M/S. HARYANA CON CAST LTD. [SHIVA KIRTI SINGH, J.]
meant not only to serve the interest of secured creditor like
A
Pegasus but also to take care of interest of the workmen and
by ascertaining their dues which have highes~ priority and
require protection as per Section 529Aofthe 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
B
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.
HSllDC had also preferred a cross appeal bearing No. 23 of
2009 before the Division Bench against order of the Company C
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 HSllDC is neither D
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,
E
which mortgaged its property bearing Plot No.1297
ad measuring 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 obtained from the bank.
F
In December 2008 respondent-bank issued a notice under
Section 13(2) of the SARFAESI Act upon Megnostar on account
. of persistent defaults in makir19 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 G
making part payment of dues of the bank. A Company Petition
No.359 of 2009 was filed by an unsecured creditor M/s.
Magicon lmpex Pvt. Ltd. for winding up of Megnostar but the
bank was not made aware of this proceeding till visit of some
H
114
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
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
B
18.06.2010. O.A. No.38 of 2009 filed by the bank against
Megnostarwas allowed by DRT-11, 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
C
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 SARFAESI
Act. In the public auction held on 24.08.2011 respondent, M/
D 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 o.f the Official Liquidator.
E
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
F
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
G 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
H was valued at Rs.77.44 lacs approx. arid the construction
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
115
M/S. HARYANA CON CAST LTD. [SHIVA KIRTI SINGH, J.]
existing on the land was valued at Rs.40.65 lacs, the total value A
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
B
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 C
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 D
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
E
to the following effect. Section 5 of the SAR FAE SI Act provides
for acquisition of rights or interest in financial assets of any
bank or financial institution by any securitization company or
reconstruction company, inter alia, by entering into an
agreement and this Section begins with a non obstante clause.
F
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
G
non obstante clause. Chapter Ill 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 69Aof the Transfer of Property H
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SUPREME COURT REPORTS
[2015] 15S.C.R.
A 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
B
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
C in Section 37 can play a supplemental role along with any other
law for the time being in force including 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
D
E
F
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;
G 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
H to issue directions to a securitization company or a secured
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
117
M/S. HARYANA CON CAST LTD. [SHIVA KIRTI SINGH, J.]
creditor who has opted to stay outside the winding up and
A
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
B
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 C
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 D
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:
E
"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
F
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
G
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
H
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SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
Institutions Act, 1993 (for brevity the 'ROB 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
B 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
C 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,
throu.gh sections such as 29, 30, 31 and 32. Coercive steps
including sale of.secured property is, vide Section 31 required
D 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
E 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
F with law under the Companies Act.
16. The RDBAct is of 1993, i.e. laterto 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
G 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
H
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
119
M/S. HARYANACONCAST LTD. [SHIVAKIRTI SINGH, J.]
bars the jurisdiction of ordinary courts or authority in respect A
of matters falling within the jurisdiction of 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.
B
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. lnter-alia, one of the main objects C
· 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 SAR FAES I Act leaves D
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 E
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 amendments were introduced in Section 529 while
F
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 G
apparent conflict, this Court through various judgments has
upheld the proceedings under the RDS 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
H
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SUPREME COURT REPORTS
[2015] 15S.C.R.
A
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
B 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
C require notice upon the borrower or his agent at different
stages. For sale of immovable secured assets, as per Rule
8, the authorized officer can take possession by delivering a
Possession Notice to the borrower and by affixing Possession
D 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
E 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
F 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
G 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
H Liquidator is not satisfied with the decisions or steps taken by
PEGASUS ASSETS RECONSTRUCTION P. LTD. v.
121
M/S. HARYANACONCAST LTD. [SHIVAKIRTI SINGH, J.]
the secured creditor or the authorized officer, at appropriate
A
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,
B
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 C
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
D
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
E
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 case of Allahabad Bank
v. Canara Bank (2000) 4 SCC 406; International Coach
Builders Ltd. v. Karnataka State Financial Corporation
F
(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
G
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
529Aofth~ CompaniesActwould affect the rights of financial
H
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SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
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 ROB Act, reliance was placed upon
B 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
C winding up workmen's dues can be determined only by the
liquidator under supervision of 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
D commenced, the distribution of the proceeds of the sale of the
assets at the instance of the banks or financial institutions
coming under the ROB 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
E
recognized to lie in Section 529Aofthe 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 ORT would be competent because the ROB Act of 1993
F 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
G Liquidator (2011) 10 SCC 727.