Case Note & Summary
The matter arose from multiple writ petitions filed before the Bombay High Court (Aurangabad Bench) concerning the assets of Shankar Sahakari Sakhar Karkhana Ltd., a co-operative sugar factory. The petitions were filed by Marathwada Gramin Bank, Bank of Maharashtra (creditor banks that had extended loans to harvesting labour contractors guaranteed by the factory), four employees of the factory, a union representing permanent and seasonal workers, and four sugarcane grower members of the society. The common grievance was against the Maharashtra State Co-operative Bank (MSCB), which had issued a notice on 28 July 2006 proposing to lease out the factory's premises and machinery. MSCB claimed to have taken possession of the assets on 18 March 2006 under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, after advancing various loans to the factory. Meanwhile, the Commissioner of Sugar had appointed a liquidator under Section 105 of the Maharashtra Co-operative Societies Act, 1960, first on interim basis on 21 March 2006 and finally on 21 July 2006, to wind up the society. The petitioner banks argued that MSCB's action under the Securitisation Act was illegal and that only the liquidator could deal with the assets; they had filed numerous civil suits and obtained decrees. The employees and union claimed unpaid wages from March 2002 to December 2003 and beyond, seeking payment from the liquidation proceeds. The sugarcane growers, who had invested in crops for the 2005-2006 crushing season, sought that the factory be started or its leasing completed to enable crushing. MSCB opposed the petitions, contending that as a secured creditor it was entitled to invoke the Securitisation Act and that its action was valid. The common questions of law were whether a co-operative bank qualifies as a 'bank' under the Securitisation Act, whether the measures under Section 13(4) could be taken by MSCB, and the interplay with the MCS Act liquidation provisions. The court heard the petitions together and reserved judgment on 4 December 2006, pronouncing it on 19 December 2006. The provided judgment excerpt, however, ends before recording the court's analysis, reasoning, and final decision; thus, the actual holding and operative directions are not available in the text.
Issue of Consideration
Whether the Maharashtra State Cooperative Bank, being a co-operative bank, can invoke the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and take measures under Section 13(4); whether the liquidator appointed under Section 105 of the Maharashtra Co-operative Societies Act, 1960 has exclusive right over the assets; whether the claims of workers and other creditors must be dealt with by the liquidator as per statutory priority
Law Points
- Interpretation of 'bank' under Section 2(1)(c) of Securitisation Act
- 2002
- Scope of Section 13(4) enforcement by co-operative banks
- Conflict between MCS Act
- 1960 and Securitisation Act
- Liquidator's role under Section 105
- Priority of workers' dues in winding up
Case Details
2006 LawText (BOM) (12) 16
Writ Petition Nos. 5632, 5633, 6039, 6674, 7020 of 2006
Mr. S.V. Adwant, Mr. M.V. Deshpande, Mr. P.M. Shah, Mr. M.S. Kulkarni, Mr. S.S. Choudhari, Mr. N.B. Khandare, Mr. K.M. Suryawanshi, Mr. N.B. Patil, Mr. R.N. Dhorde, Mr. K.J. Suryawanshi, Mr. D.N. Suryawanshi
Marathwada Gramin Bank, Bank of Maharashtra, Nagbhushan Gangaram Varni and others, Rashtriya Sakhar Kamgar Sangh, Ganeshrao Sarse and others
Maharashtra State Cooperative Bank Ltd., The Authorised Officer MSCB, Director of Sugar Maharashtra, Shankar Sahakari Sakhar Karkhana Ltd. (through liquidator), State of Maharashtra, Registrar Co-operative Societies, Commissioner for Sugar, and others
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Nature of Litigation
Writ petitions challenging the action of the Maharashtra State Co-operative Bank in taking possession of and proposing to lease out the assets of a co-operative sugar factory under the Securitisation Act, 2002, and seeking directions for the liquidator appointed under the MCS Act to wind up the factory and pay creditors.
Remedy Sought
In WP 5632/2006 and 5633/2006: declaration that measures under Section 13(4) of Securitisation Act are illegal, handover of property to liquidator. In WP 6039/2006: employees sought wages from liquidation proceeds. In WP 6674/2006: union sought compensation for unpaid wages. In WP 7020/2006: sugarcane growers sought that the Karkhana be started or leased out to enable crushing of their crop.
Filing Reason
MSCB issued notice dated 28.7.2006 for leasing out the factory premises and machineries. Banks had granted loans to harvesting labour contractors guaranteed by the factory and had filed suits. Employees and workers had unpaid wages. Sugarcane growers had invested in crop expecting crushing. MSCB claimed possession on 18.3.2006 under Section 13(4). The Commissioner of Sugar appointed a liquidator first interim on 21.3.2006 and final on 21.7.2006.
Previous Decisions
Some suits filed by the banks were decreed and execution proceedings were initiated with attachment orders on 2.8.2006. The Commissioner of Sugar passed orders appointing a liquidator.
Issues
Whether the Maharashtra State Co-operative Bank, being a co-operative bank, can invoke the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and take measures under Section 13(4) thereof?
Whether the action of MSCB in taking possession of the sugar factory assets and proposing to lease them is valid?
Whether the liquidator appointed under Section 105 of the Maharashtra Co-operative Societies Act, 1960, has the exclusive right to deal with the assets of the society?
Whether the claims of workers and other creditors should be dealt with by the liquidator as per the statutory priority under the MCS Act?
Submissions/Arguments
Petitioner banks contended that MSCB's invocation of the Securitisation Act was without jurisdiction as it is a co-operative bank not covered by the Act, and that the liquidator's appointment superseded any private enforcement action.
The employees and union asserted preferential right to unpaid wages from the liquidation proceeds.
The sugarcane growers argued that their livelihood depended on the factory's operation and that the leasing out should proceed to enable cane crushing.
MSCB opposed the petitions, contending that it was entitled to take possession under Section 13(4) of the Securitisation Act as a secured creditor and that its action was legal and necessary for recovery of its dues.
Judgment Excerpts
Rule in all the Petitions. Rule with the consent of the parties in all the Petitions made returnable forthwith and heard.
The subject matter of the above Petitions are the assets of the Shankar Sahakari Sakhar Karkhana Ltd. Waghalwada Tq. Umari District Nanded.
The said Petitions therefore raise common question of fact and law which according to us can be conveniently dealt with together and disposed of.
It appears that on default committed by the said harvesting contractors and the said Karkhana the Banks proceeded against the Karkhana by way of filing Civil Suits for recovery of the amounts disbursed to the said harvesting contractors.
According to the Petitioner Banks MSCB claims to have taken possession of the assets of the said Karkhana on 18.3.2006 pursuant to the notice issued under Section 13(4) of the Securitisation Act, 2002.
It is further stated by the Petitioner Banks that interim order of appointment of liquidator has been issued by the Commissioner of Sugar on 21.3.2006 and a final order of appointment of liquidator to facilitate the winding up of the said Karkhana came to be issued on 21.7.2006.
Procedural History
Multiple writ petitions were filed in 2006 challenging MSCB's action. The court issued rule and, with consent of parties, made it returnable forthwith. The petitions were heard together. Judgment was reserved on 04.12.2006 and pronounced on 19.12.2006.
Acts & Sections
- Maharashtra Co-operative Societies Act, 1960: 105
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: 13(4)
- Recovery of Debts Due to Banks and Financial Institutions Act, 1993:
- Regional Rural Banks Act, 1976:
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970:
