Case Note & Summary
The disputes arose from the winding up of M/s. Navinon Limited under the orders of the Bombay High Court, with the Official Liquidator appointed. The company had mortgaged its immovable properties to several financial institutions, including Industrial Development Bank of India (IDBI). The Stressed Assets Stabilisation Fund (SASF), a Government of India trust, acquired the stressed assets of IDBI and took possession of the properties under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). By six deeds, the debts were assigned to Punjab and Maharashtra Cooperative Bank Limited (PMC Bank). PMC Bank then initiated recovery proceedings, obtained valuation reports, and published a public notice for sale of three units located at Sahad, Tarapur, and Ranoli. The sale was concluded in favour of Housing Development and Infrastructure Limited (HDIL) for Rs. 180 crores, and the consideration was fully paid. Two trade unions representing the workers of the company in liquidation filed writ petitions challenging the assignment of debts and the subsequent sale, alleging that the assignment was illegal under Section 23 of the Indian Contract Act and that the property was undervalued. They also sought protection of workers’ dues under Section 529A of the Companies Act. The petitioners relied on a judgment of the Gujarat High Court in Kotak Mahindra Bank Ltd. v. Official Liquidator of APS Star Ind. Ltd., which had held similar assignments violative of Section 23. The respondents contended that the sale was conducted strictly as per the SARFAESI Act procedures and that the petitioners had an alternative remedy under Section 17 before the Debts Recovery Tribunal. The Court noted that earlier applications by the workers had been disposed of with liberty to approach the Tribunal. The Court held that the assignment of debts was not illegal and that the SARFAESI Act provided a complete code for enforcement of security interests. It found that no public law element was involved and that the writ petitions were not maintainable due to the availability of an efficacious alternative remedy. The petitions were dismissed, and directions were given to ensure that workers’ dues under Section 529A were paid out of the sale proceeds in accordance with law.
Headnote
A) Writ Jurisdiction – Alternative Remedy – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 17 – Petitions dismissed on ground of availability of efficacious alternative remedy under Section 17 before the Debts Recovery Tribunal; held that writ jurisdiction should not be exercised when statutory remedy exists (Paras 14-15). B) Securitisation Act – Assignment of Debts – Indian Contract Act, 1872, Section 23 – Validity – Assignment of debts by IDBI through SASF to PMC Bank held not violative of Section 23 of the Contract Act; reliance on Supreme Court proceedings against Gujarat High Court judgment; assignment is not illegal (Paras 3, 9, 14). C) Company Law – Winding Up – Secured Creditor’s Rights – Companies Act, 1956, Section 529A – Secured creditor can stand outside winding up and realize its security; workers’ dues have priority under Section 529A but that does not bar secured creditor from enforcing security interest under SARFAESI Act (Paras 6, 14). D) Securitisation Act – Sale of Property – Valuation Challenge – SARFAESI Act, 2002, Sections 13, 17 – Allegation of under-valuation of property not a ground to set aside sale when remedy under Section 17 is available; proper procedure followed including valuation and public notice (Paras 3, 5, 14). E) Writ Petition – Public Law Remedy – Securitisation Act – SARFAESI Act, 2002, Sections 13, 17 – No public law element involved in sale by secured creditor under SARFAESI Act to invoke writ jurisdiction; dispute is purely contractual/commercial (Para 14).
Issue of Consideration
Whether the assignment of debts by IDBI through SASF to PMC Bank was illegal and void under Section 23 of the Indian Contract Act, 1872, and whether the subsequent sale of the company’s properties under the SARFAESI Act was invalid; whether the writ petitions were maintainable given the availability of an alternative remedy under Section 17 of the SARFAESI Act.
Final Decision
Both writ petitions dismissed. The sale of properties by PMC Bank as secured creditor under the SARFAESI Act was upheld. The court held that the assignment of debts was not illegal, the petitioners had an alternative remedy under Section 17 of the SARFAESI Act which they had already availed, and no public law element was involved to invoke writ jurisdiction. Directions were given to ensure workers’ dues under Section 529A of the Companies Act were protected from the sale proceeds.
Law Points
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act
- 2002
- Sections 13 and 17
- Companies Act
- 1956
- Section 529A
- Priority of workers’ dues
- Secured creditor’s right to stand outside winding up
- Alternative remedy under SARFAESI Act
- Assignment of debts not violative of Section 23 of Indian Contract Act
- Writ jurisdiction not available when efficacious alternative remedy exists
