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C.A.No.3646/2011 etc.  

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3646 OF 2011

Pegasus Assets Reconstruction P. Ltd.        …..Appellant   

Versus

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

  With

Civil Appeal No. 14736 of 2015 (Arising out of SLP(C) No. 7074 of 2010)

Civil Appeal Nos.14737-14738 of 2015 (Arising out of SLP(C) Nos. 117-118 of 2011) and

Civil Appeal Nos. 9293-94 of 2014

J U D G M E N T

SHIVA KIRTI SINGH, J.

1. A common issue of law: Whether a Company Court, directly

or through an Official Liquidator, can wield any control in respect

of  sale  of  a  secured  asset  by  a  secured  creditor  in  exercise  of

powers  available  to  such  creditor  under  the  Securitization  and

Reconstruction  of  Financial  Assets  and  Enforcement  of  Security

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

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C.A.No.3646/2011 etc.  

these  matters  which  have  been  heard  together  and  shall  be

governed by this common judgment.

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

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

2011 preferred by Pegasus Assets Reconstruction Private Limited

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

arises out of a Division Bench judgment of Punjab and Haryana

High Court dated 15.12.2009 whereby the Division Bench upheld

the judgment of  Company Court  and approved of  certain fetters

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

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

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

Since  the  judgment  of  Division  Bench  disallowed  the  appeal  of

Haryana  State  Infrastructure  and  Industrial  Development

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

Judge allowing Pegasus to stay outside the winding up proceeding

of the respondent Haryana Concast Limited, HSIIDC is also before

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

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

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

in association and collaboration with the Official Liquidator as per

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C.A.No.3646/2011 etc.  

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

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

Rajaliwala challenged the orders of the company judge confirming

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

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

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

have  been  challenged  by  Mr.  Vinod  Rajaliwala  through  Special

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

indicated above thus relate to secured assets of the same company

under Liquidation, M/s. Haryana Concast Limited.   

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

Megnostar  Telecommunications  Private  Limited  (for  brevity,

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

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

differed  with  the  views  taken  by  the  Punjab  and  Haryana  High

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

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

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

by the secured creditors under the SARFAESI Act.   The Companies

Act  cannot  be  used  to  put  any  fetters  on  the  sale  by  secured

creditors  because  a  secured  creditor  under  Section  13  of  the

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C.A.No.3646/2011 etc.  

SARFAESI  Act  has  been  granted  a  right  to  enforce  the  security

interest  “without  the  intervention  of  the  court  or  tribunal”  in

accordance  with  the  provisions  of  the  SARFAESI  Act.   It  goes

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

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

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

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

will have to be allowed.

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

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

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

for appreciation of  rival  submissions in respect  of  these matters

have been taken note of.

C.A.No.3646 of 2011

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

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

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

obtained a  recovery  certificate  against  respondent  no.1 from the

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

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

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

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C.A.No.3646/2011 etc.  

Court  allowed  the  Official  Liquidator  to  sell  the  assets  of  the

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

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

dues upto 30th June 2004, the sale could not be effected for one

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

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

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

raw materials  of  the  company.   Accordingly  it  was  substituted/

subrogated  in  place  of  the  three  banks.   As  a  registered

securitization  company,  Pegasus  entered  into  an  assignment

agreement  with  the  sole  secured  creditor,  Bank  of  India  on

27.8.2008 and soon informed the Official Liquidator that it intends

to remain outside the winding up process, to enforce its security as

per the provisions of  SARFAESI Act,  subject to the rights of  the

erstwhile workmen of the company, respondent no.1 as per Section

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

by filing an application before the Company Judge for recalling an

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

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

In this petition dated 22.09.2008, Pegasus also sought directions to

the  Official  Liquidator  to  hand  over  the  secured  assets  of  the

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C.A.No.3646/2011 etc.  

company in its favour.   The Company Judge allowed Pegasus to

proceed under the SARFAESI Act for enforcing its security by an

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

earlier  in  the  winding  up  proceedings  the  Company  Judge  laid

down certain terms and conditions for permitting Pegasus to stay

outside the winding up proceedings and bring about sale of secured

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

and 9 of  Security  Interest  Enforcement  Rules,  2002 (hereinafter

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

paragraph 19 of the judgment of the learned Company Judge are

extracted  hereinbelow  because  these  have  been  objected  to  by

Pegasus  as  fetters  which  the  Company  Judge  could  not  have

obtained and therefore Pegasus preferred Company Appeal No.28 of

2009 which has been dismissed by the order under appeal dated

15.12.2009.  Para 19 is as follows :  

“19. If  any attempt to harmonize the provisions of  the SARFAESI Act and the Companies Act could be made, in the context of orders for sale having already been made by  the  Company  Court  and  the  participation  of  the assignor of the applicant at several steps for the conduct of sale through the Company Court, it will be inexpedient unyoke the proceeding that  were put through the O.L. While upholding the claim that the procedure laid down under the SARFAESI Act would enable the provisions of the Security Enforcement Rules to be applied for conduct

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C.A.No.3646/2011 etc.  

and  confirmation  of  the  sale,  the  dispensation  in  this case would be  

(a)  to  permit  the  applicant  to  stay  outside  the winding up proceedings and take action to bring to sale the secured assets under Section 13 of the SARFAESI Act read with Rules 8 and 9 of Security Interest Enforcement Rules, 2002.

(b)  The  applicant-Reconstruction  Company  shall keep all the steps taken under the SARFAESI Act and the relevant rules transparent and submit all the proposals for sale to the O.L. and the details of valuation obtained for the conduct of the sale for the purpose of determining the used price.

(c) Sale shall be advertised with a specific clause that the winding up proceedings are pending before the Company  Court,  with  details  of  case  number  and  the Court of adjudication.

(d) The expenses already incurred for the conduct of the sale by O.L. shall be deducted from out of the sale proceeds before any appropriation or disbursement and deposited with O.L.

(e) The  Reconstruction  Company  shall  place before the Company Court the details of its claim and all expenses  incurred  before  the  Company  Court  before making any appropriation to himself and disbursed.

(f) The  surplus  proceeds  over  what  is  lawfully due to it shall be deposited to the credit of the Company (in liquidation) before the O.L.”

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

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

the  appellant  as  an  asset  reconstruction  company  had  to  be

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

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

accepted the order including the terms and conditions and finalized

the  sale  of  the  secured  asset  in  collaboration  with  the  Official

Liquidator,  learned  counsel  for  Pegasus  fairly  accepted  that

Pegasus  was  not  against  the  sale  of  secured  asset  already

concluded but  the appeal  is  being pursued for  getting  the legal

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

reconstruction company the appellant shall be facing similar fetters

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

winding up.

8. Learned counsels representing the company respondent no.1

which is represented by the Official Liquidator and learned counsel

for  respondent  no.2  HSIIDC  have  advanced  submissions  to  the

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

supervised by the Official Liquidator as per orders of the Company

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

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

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

protected and governed by provisions of the Companies Act which

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

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

ascertaining  their  dues  which  have  highest  priority  and  require

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

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

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

proceedings before the Company Judge, Pegasus should not have

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

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

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

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

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

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

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

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

has stepped into shoes of any secured creditor.

C.A.Nos.9293-9294 of 2014

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

mortgaged its property bearing Plot No.1297 admeasuring 502.33

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

structures,  present  and  future,  with  respondent-bank  through

Memo of Deposit of Title Deeds dated 29.04.2008 for securing loans

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obtained  from  the  bank.   In  December  2008  respondent-bank

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

Megnostar  on  account  of  persistent  defaults  in  making  timely

payment of amounts due to the bank.  On 05.02.2009 Megnostar

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

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

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

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

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

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

obtained directions from the District Magistrate concerned under

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

secured  asset  on  16.06.2010  and  a  notice  to  that  effect  was

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

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

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

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

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

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

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

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

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SARFAESI  Act.   In  the  public  auction  held  on  24.08.2011

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

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

the  possession  and  title  deed  of  the  mortgaged  property.   On

28.08.2011  this  property  at  Bahadurgarh  was  visited  by  4-5

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

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

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

whereby the Company Judge had appointed the Official Liquidator

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

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

Official Liquidator were apprised of developments and sale under

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

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

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

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

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

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

Mohan  Tractors.   The  Company  Judge  appointed  a  valuer  who

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

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

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

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

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

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

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

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

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

Division Bench as per order under appeal dated 17.09.2012.

10. The  case  of  Mr.  Vinod  Rajaliwala  requires  separate

consideration  but  only  after  an  adjudication  on  the  main  issue

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

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

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

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

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

noticing the Statement of Objects & Reasons for enactment of the

SARFAESI Act as discussed by the Company Judge, the Division

Bench  took  note  of  detailed  arguments  advanced  on  behalf  of

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

Act provides for acquisition of rights or interest in financial assets

of any bank or financial institution by any securitization company

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C.A.No.3646/2011 etc.  

or  reconstruction  company,  inter  alia,  by  entering  into  an

agreement  and  this  Section  begins  with  a  non  obstante clause.

Section 9 enumerates various measures which can be adopted by a

securitization company or reconstruction company, including the

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

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

consists of 7 sections providing for enforcement of security interest

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

begins  with  a  non  obstante clause  of  a  limited  nature  for

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

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

enforce any security interest in its favour without the intervention

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

The detailed scheme for enforcement of the secured assets under

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

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

provisions are not only a complete code for enforcement of secured

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

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

other statutes enumerated in Section 37 can play a supplemental

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

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the Companies Act but obviously only till they are consistent with

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

cited  and considered.   The  rival  contention and case  laws  were

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

-

“Whether the Company Court enjoys jurisdiction to issue

supervisory  direction  to  a  securitization  company/

secured  creditor  in  connection  with  a  company  in

liquidation or under winding up in the face of Section 13

of the SARFAESI Act or securitization company opting to

stand outside the winding up is absolutely free to utilise

the  sale  proceeds  of  assets  of  the  company  in

liquidation?”

11. The  Division  Bench  of  Punjab  &  Haryana  High  Court

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

4 SCC 311;  Rajasthan State Financial  Corporation v.  Official

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

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

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

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

coming to a conclusion in paragraph 34 that the Company Court

enjoys  the  jurisdiction  to  issue  directions  to  a  securitization

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

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

Act.

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

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

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

because of various reasons some of which we shall enumerate and

explain hereinafter.

13. The  relevant  case  laws  discussed  in  the  two  conflicting

judgments are virtually the same but the error committed by the

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

conclusion that there is no inconsistency between the Companies

Act  and  the  SARFAESI  Act  if  the  Company  Judge  issues

supervisory directions to achieve the object of Section 529A which

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

SARFAESI Act.  This view is unacceptable for the reasons detailed

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

commend themselves to us also.  We are particularly in agreement

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

“26. If it were to be held that the Official Liquidator (who acts under the dictates of the Company Court) is to be also associated with the sale, it will naturally open up the

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fora of the Company Court also for entertaining matters relating to such sale and which as aforesaid is not only likely to lead to conflicts but is also contrary to the spirit of  the  SARFAESI  Act  of  sale  being  without  the intervention of the Court.”

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

Court which need further elucidation and clarification.  For that it

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

and peculiarities of Statutes like the State Financial Corporations

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

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

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

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

the issues.  

15. All  the  aforesaid  Acts  are  Central  legislations  enacted  for

specific purposes.  The SFC Act enables the State Governments to

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

Industrial  Finance Corporation set  up under Act  XV of  1948 to

provide medium and long term credit to industrial undertakings,

somewhat  outside  the  normal  lending  activities  of  Commercial

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

Financial Corporations in the matter of enforcement of its claims

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

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

required to be taken by moving appropriate application before the

concerned  District  Judge  as  per  procedure  prescribed  under

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

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

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

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

State Financial Corporation can at best be a secured creditor who

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

subject  to  orders  passed  in  accordance  with  law  under  the

Companies Act.

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

avowed object is to provide for the establishment of Tribunals for

expeditious adjudication and recovery of debts due to banks and

financial  institutions  and  for  matters  connected  therewith  or

incidental thereto.  This Act creates a special machinery for speedy

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

amendment  of  2004  now  include  a  registered  securitization

company  or  reconstruction  company  envisaged  under  the

SARFAESI Act.  Section 18 bars the jurisdiction of ordinary courts

or authority in respect of matters falling within the jurisdiction of

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Tribunal  as  specified  in  Section  17.   An  Appellate  Tribunal  is

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

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

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

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

regulate securitization and reconstruction of financial assets and

enforcement  of  security  interest  and  for  matters  connected

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

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

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

significant  provisions  have  been  noted  in  detail  in  Mardia

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

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

manner of  doubt  that  for  enforcement  of  its  security  interest,  a

secured creditor  has been not only vested with powers to do so

without  the  intervention  of  the  court  or  tribunal  but  detailed

procedure  has  also  been  prescribed  to  take  care  of  various

eventualities  such  as  when  the  borrower  company  is  under

liquidation  for  which  proviso  to  sub-section  (9)  of  Section  13

contains clear mandate keeping in view the provisions of Section

529  and  529A  of  the  Companies  Act,  1956.   Since  significant

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C.A.No.3646/2011 etc.  

amendments  were  introduced  in  Section  529  while  inserting

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

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

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

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

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

judgments has upheld the proceedings under the RDB Act as it

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

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

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

permitting,  wherever  necessary,  association  of  the  Official

Liquidator with the proceedings before the Debts Recovery Tribunal

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

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

additional reason that Section 13 requires notice to the borrower at

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

being a borrower would mean requirement of notice to the Official

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

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

also  require  notice  upon  the  borrower  or  his  agent  at  different

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

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C.A.No.3646/2011 etc.  

authorized officer can take possession by delivering a Possession

Notice to  the borrower and by affixing Possession Notice on the

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

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

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

Official  Liquidator  is  in  knowledge of  the proceedings under  the

SARFAESI  Act  in  case  the  borrower  happens  to  be  a  company

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

opportunity to get the details of the workers dues as ascertained

under the Companies Act, placed before the authorized officer and

seek proper distribution of  the amount realised from the sale of

secured  assets  in  accordance  with  various  provisos  under

sub-section (9) of Section 13 of the SARFAESI Act.

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

Court  that  no  order  is  required  by  the  Company  Judge  for

association of the Official Liquidator in order to protect the interest

of  workers  and to  realize  their  dues.   Sufficient  provisions have

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

framed thereunder.

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

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

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C.A.No.3646/2011 etc.  

secured creditor or the authorized officer, at appropriate stage it

has sufficient opportunity to avail right of appeal under Section 17

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

a  right  of  further  appeal  under  Section  18 before  the  Appellate

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

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

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

right and liberty to realize their secured interest in accordance with

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

rights and liability of the Official Liquidator acting under the orders

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

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

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

scenario, we respectfully agree with the Delhi view and disapprove

that of the Punjab & Haryana High Court.

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

was assailed by placing reliance upon Rajasthan State Financial

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

examined the grievance of Rajasthan State Financial Corporation in

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

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

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C.A.No.3646/2011 etc.  

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

International Coach Builders Ltd. v. Karnataka State Financial

Corporation (2003)  10  SCC  482;  Industrial  Credit  and

Investment  Corporation  of  India  Ltd. v.  Srinivas  Agencies

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

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

financial corporation has the right to proceed under Section 29 of

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

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

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

Companies  Act  would  affect  the  rights  of  financial  corporations

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

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

be accepted as their representative.

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

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

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

wherein this Court held that the Debts Recovery Tribunal is not

empowered  to  adjudicate/  determine  dues  of  workmen  of

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

dues can be determined only by the liquidator under supervision of

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C.A.No.3646/2011 etc.  

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

considering  Rajasthan  State  Financial  Corporation decided  by

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

proceeding has commenced, the distribution of the proceeds of the

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

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

the association of the Official Liquidator and under the supervision

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

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

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

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

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

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

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

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

Employees Provident Fund Commissioner v. Official Liquidator

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

payable  by  an  employer  under  Section  11  of  the  Employees

Provident Fund and Miscellaneous Provisions Act,  1952 and the

question  was  whether  in  granting  priority,  such  dues  would  be

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

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C.A.No.3646/2011 etc.  

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

its field as there is no situation of conflict.

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

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

Rajasthan State Financial Corporation (supra) was distinguished

by placing reliance upon factual and legal situation prevailing in

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

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

that if liquidation proceedings have commenced in respect of the

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

Section 31,  the financial  corporation will  not  get  any preference

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

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

Act  and  all  developments  had  taken  place  in  the  liquidation

proceeding.  Rajasthan State Financial Corporation was therefore

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

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

take advantage  of  any enactment  without  any act  done towards

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

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

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

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C.A.No.3646/2011 etc.  

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

Court.   We are in agreement with the submissions advanced on

behalf of respondent Kotak Mahindra Bank as well as respondent

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

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

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

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

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

SARFAESI Act. There is nothing lacking in the Act so as to borrow

anything from the Companies Act till the stage the secured assets

are sold by the secured creditors in accordance with the provisions

in the SARFAESI Act and the Rules.  At the post sale stage, the

rights  of  the  persons  or  parties  having  any  stake  in  the  sale

proceeds are also taken care of by sub-section (9) of Section 13 and

its  five  provisos  (not  numbered).   It  is  significant  that  as  per

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

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

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

liquidation, the sale proceeds have to be distributed in accordance

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

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

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C.A.No.3646/2011 etc.  

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

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

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

dues  with  the  liquidator  in  accordance  with  the  provisions  of

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

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

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

communication of estimate of such dues by the liquidator to the

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

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

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

liquidator  to  discharge  his  duties  and  obligations  arising  under

Section 529A of the Companies Act.  Thus, it is evident that the

required provisions of the Companies Act have been incorporated in

the SARFAESI Act for harmonizing this Act with the Companies Act

in respect of dues of workmen and their protection under Section

529A of the Companies Act.  In view of such exercise already done

by the legislature, there is no plausible reason as to take recourse

to any provisions of the Companies Act and permit interference in

the proceedings under the SARFAESI Act either by the Company

Judge or the liquidator.  As noted earlier, the Official Liquidator as

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C.A.No.3646/2011 etc.  

a representative of the borrower company under winding up has to

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

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

Hence the exercise of harmonizing that this Court had to undertake

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

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

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

clear  intention of  the Parliament expressed in Section 13 of  the

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

security interest  without the intervention of the court or tribunal.

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

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

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

Sections 17 and 18 of the SARFAESI Act.

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

judgment of the Punjab and Haryana High Court under challenge

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

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

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

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

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

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C.A.No.3646/2011 etc.  

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

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

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

outside  the  winding  up  proceeding  in  view  of  provisions  of

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

to  exercise  its  rights  without  any  fetters  that  were  erroneously

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

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

Pegasus  should  not  have  been  permitted  to  stay  outside  the

winding up proceeding is found meritless.  Consequently its appeal

has to be dismissed.   

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

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

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

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

as to costs.  

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

indicated earlier that approximately 36 acres of land of  Haryana

Concast  Limited  was  put  to  auction  and  sale  by  Pegasus  in

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

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

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C.A.No.3646/2011 etc.  

Rajaliwala challenged the orders of the company Judge confirming

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

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

Division  Bench  of  Punjab  and  Haryana  High  Court  by  orders

passed  on  23.9.2010.   These  orders  in  company  appeal  No.

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

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

Nos. 117-118 of 2011.

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

of  Punjab  and  Haryana  High  Court  and  Delhi  High  Court  has

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

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

the Company Judge and approved by the Division Bench in favour

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

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

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

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

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

consideration  money  does  not  reflect  the  correct  value  of  the

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

to  substantiate  this  claim,  Mr.  Rajaliwala  was  granted  an

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C.A.No.3646/2011 etc.  

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

M/s. ACHASTES Promoters Private Limited through an application

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

crores  but  later  withdrew the  same.   Thereafter,  another  buyer

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

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

Division  Bench dismissed  company appeal  on  23.9.2010.   As  a

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

Court, the petitioner claimed that the property was worth hundred

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

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

company  was  allowed  to  intervene  and  be  impleaded,  and  it

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

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

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

Himalayan Infra Projects Private Limited is that this Court should

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

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

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

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

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

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C.A.No.3646/2011 etc.  

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

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

from materials on record that the valuation of property has been

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

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

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

different  valuation  reports.  The  valuation  of  Rs.75  crores

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

communication from the Collector said to be based upon valuation

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

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

Developers  Private  Limited  for  Rs.29  crores  approximately  for  a

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

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

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

allegations  made  by  Mr.  Rajaliwala  the  Company  Judge  on

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

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

advertisement  pursuant  to  which  no  bidder,  including  Mr.

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

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

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C.A.No.3646/2011 etc.  

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

Pegasus and HSIIDC.

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

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

does not  require  any interference particularly  at  the instance of

Petitioner-Vinod Rajaliwala.  There was no illegality or irregularity

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

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

conducted  fairly  and  the  offer  has  been  accepted  and  the  sale

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

value  of  such  auction  sale  conducted  not  only  by  the  secured

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

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

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

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

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

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

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

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

following words:

“If it is held that every confirmed sale can be set aside the  result  would  be that  no  auction-sale  will  ever  be

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C.A.No.3646/2011 etc.  

complete because always somebody can come after the auction or its confirmation offering a higher amount.  It could have been a different matter  if  the auction had been  held  without  adequate  publicity  in  well-known newspapers  having  wide  circulation,  but  where  the auction-sale was done after wide publicity, then setting aside  the  sale  after  its  confirmation  will  create  huge problems.   When  an  auction-sale  is  advertised  in well-known  newspapers  having  wide  circulation,  all eligible  persons  can come and bid  for  the  same,  and they are themselves to be blamed if they do not come forward to bid at the time of the auction.  They cannot ordinarily  later  on  be  allowed  after  the  bidding  (or confirmation) is over to offer a higher price.  Of course, the  situation  may  be  different  if  an  auction-sale  is finalized,  say  for  Rs.1  crore,  and  subsequently somebody  turns  up  offering  Rs.10  crores.   In  this situation it is possible to infer that there was some fraud because if somebody subsequently offers Rs.10 crores, then an inference can be drawn that  an attempt had been made to acquire that property/asset at a grossly inadequate  price.   This  situation  itself  may  indicate fraud or some collusion.  However, if the price offered after the auction is over which is only a little over the auction  price,  that  cannot  by  itself  suggest  that  any fraud has been done.”   

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

noticed and after considering many judgments in Paragraph 39, the

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

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

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

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

Company  Court  is  satisfied  that  the  price  is  adequate,  the

subsequent  higher  offer  cannot  be  a  ground  for  refusing

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C.A.No.3646/2011 etc.  

confirmation.  The price of immoveable property keeps on varying

depending upon the market conditions and availability of a buyer.

Such  fluctuations  may  attract  fresh  higher  offers  but  normally

such offers cannot be made the basis for reopening the confirmed

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

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

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

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

interest etc. and possession which was delivered to Venus Realcon

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

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

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

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

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

Limited  should  be  refunded  to  it  forthwith  along  with  interest

accrued thereupon.

34. The views expressed and the orders passed hereinabove may

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

of 2011 is allowed only for declaration of law without interfering

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

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

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C.A.No.3646/2011 etc.  

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

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

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

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

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

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

Delhi  High  Court  is  affirmed  by  holding  that  powers  under  the

Companies  Act  cannot  be  wielded  by  the  Company  Judge  to

interfere  with  proceedings  by  a  secured  creditor  to  realize  its

secured interests as per provisions of the SARFAESI Act.    

35. There shall be no order as to costs.

     ………………………………..…….J.       [VIKRAMAJIT SEN]

      ………………………………….…..J.                  [SHIVA KIRTI SINGH]

New Delhi. December 29, 2015.

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