Research › Search › Judgment

Karnataka High Court · body

2004 DIGILAW 415 (KAR)

TITAN SPRINGS LIMITED (IN LIQUIDATION) v. NIL

2004-07-02

D.V.SHYLENDRA KUMAR

body2004
( 1 ) THIS is report placed before the Court by the Official Liquidator in charge of the winding up proceedings of M/s. Titan Springs Ltd. , a company in the process of being wound up pursuant to the order passed by this Court on 29. 8. 1990, is in the context of C. A. 38/98 filed in the two Co. P. 23 and 24 of 1999 and for the purpose of apprising the Court about the factual position for the purpose of apprising the Court about the factual position for the purpose of sharing and distributing of the available assets of the company under liquidation, amongst the secured creditors of the company. M/s Karnataka State Financial Corporation, a secured creditor had filed an application in C. A. 38/98 praying for permission to sell some of the assets of the company which it had taken over in exercise of its statutory powers under Section 29 of the State Financial Corporations Act (the Act for short ). ( 2 ) IN the context of the various claims that had been put for forth by the secured creditors who are three in number namely M/s. Karnataka State Financial corporation (K. S. F. C. for short), M/s Karnataka State Industrial Investment Development Corporation (M/s. KSIIDC for short) and M/s Canara Bank. This Court, while considering the C. A. 38/98 filed by M/s Karnataka State Financial Corporation, had vide order dated 10. 6. 2002 directed the Official Liquidator to call a joint meeting of al the creditors at his Office and to take a joint decision in the matter of disposal of the assets of the company under liquidation and also regarding the distribution of the amount realized amongst the secured creditors of the company under liquidation. The Official Liquidator through his report has sought permission to place before the Court the outcome of the meetings that had taken place, wherein the Official Liquidator and the secured creditors participated and have submitted a joint report. It is for further orders on the joint report that the Official Liquidator has filed this report before this Court. A copy of the minutes and the joint report prepared at the meeting held on 3. 7. It is for further orders on the joint report that the Official Liquidator has filed this report before this Court. A copy of the minutes and the joint report prepared at the meeting held on 3. 7. 2002 at the Office of the Official Liquidator wherein, a part from the Official Liquidator the representatives of the three secured creditors were present is produced as Annexure-A to the report of the Official Liquidator. ( 3 ) THE joint report interalia indicates the manner in which the parties have agreed to share the realization from the sale of the assets of the company, of course subject to approval and further orders by this court and it interalia indicates that the fee payable under Rule 291 of The Company Court Rules, 1959 (the Rules for short) to the Central Government may be paid from out of the amounts accrued to be distributed to the secured creditors and at the rate as stipulated in sub-Rule (4) of Rule 291 of the Rules. ( 4 ) A joint report of this nature would have been as a matter of course accepted by this Court and ordered upon. In fact the Official Liquidator is only seeking to place on record the joint report indicating the consensus of the parties at the meetings and has sought for permission to act further in the matter. ( 5 ) SIGNIFICANTLY, while on the question of distribution of the amount amongst the various secured creditors, there is no dispute or disagreement, Sri Ashok, B. Hinchigeri, learned Counsel appearing on behalf of M/s KSIIDC has raised an objection only on the question of permitting the Official Liquidator for deducting the fee payable to the Central Government under Rule 291 of the Rules and at the rate stipulated therein from out of the amounts payable to M/s KSIIDC. What is sought to be urged is that Rule 291 of the Rules speaks of a fee and the normal connotation and the understanding of the word fee is that it is an exaction or levy in respect of certain service rendered that the amount is sought to believed. A fee should be commensurate to the service rendered, for which purpose alone the fee is levied. A fee should be commensurate to the service rendered, for which purpose alone the fee is levied. The submission of Sri Ashoik B. Hinchigeri is that in the instant case, the Official Liquidator has not rendered any service at all in favour of M/s KSIIDC; that when Official Liquidator has rendered no service, there is no question of calculating any fee at all from his client as what is levied under Rule 291 of the Rules is only a fee and in the absence of any service forthcoming from the Official Liquidator in favour of his client, the question of the Official Liquidator seeking to mulct M/s. KSIIDC any fee does not arise at all. ( 6 ) IN this regard learned Counsel has sought to point out the distinction between a tax and a fee. That the concept and connotation of the fee is always that it is for a specific service and commensurate to the quantity and quality of services, that where there is no service, there cannot be any fee. Learned Counsel, by relying upon the definition of fee; as enunciated in enunciated in various dictionaries and Law Lexicons submits that this Court should nor order permitting the Official Liquidator to debit any amount by way of fee payable to Central Government from out of the amounts due and payable to M/s KSIIDC and in terms of the joint report and consensus arrived amongst the secured creditors and Official Liquidator at the meeting held on 3. 7. 2002. 7. 2002. ( 7 ) SRI K. Gopal Hegde, learned Counsel appearing for another secured creditor namely M/s K. S. F. C, and on whose behalf objections have been filed in the context of the report of the Official Liquidator and wherein it has been indicated that M/s K. S. F. C, has no objection for payment of fee payable to Central Government so long as the fee payable to Central Government is being shared amongst all the secured creditors namely M/s KSIIDC and M/s. Canara Bank also, has nevertheless submitted, that though in the instant case, on facts, the K. S. F. C has not made out an issue for paying the fee to the Central Government and in terms of Rule 291 of the Rules, the actual fee leviable and payable by a secured creditor in terms of sub-Rule 4 of Rule 291 of the Rules is only in a situation where the Official Liquidator realizes property for secured creditors and other debenture holders. Sri K. Gopal Hegde submits that the words realize should be understood as indicative of an effort on the part of the Official Liquidator for realizing the assets of the company under liquidation in the sense that the Official Liquidator should have taken some legal proceedings by instituting a suit or filing an application before the competent authority or forum or such other proceeding for the purpose of getting back the asset to the company and if any amounts are paid from out of the proceeds of such realization, then only the Official Liquidator can seek to collect the fee payable as contemplated under Rule 291 (4) of the Rules. In other words, the submission of Sri K. Gopal Hegde is that the fee that can be collected from a secured creditor is not always necessarily at the percentage as mentioned in this sub-Rule in respect of the entire payment to the secured creditor, but only in respect of that portion of the payment attributable to a property which had been realized by the Official Liquidator through a proceeding. The argument is that in respect of such of the assets which come into the hands of the Official Liquidator, automatically or without any other effort and particularly if they are already mortgaged in favour of the secured creditor and no other step has been taken by the Official Liquidator except to bring to sale such property, such an activity does not amount to a realization as contemplated in sub-Rule 4 of Rule 291 of the Rules and as such the question of levying and collecting a fee from a secured creditor does not arise. ( 8 ) COUNTERING such submission, Sri Deepak, learned Counsel for the Official Liquidator has submitted that in the first instance, the amount sought to be collected is a statutory levy, that the fee is fixed in terms of Rule 291 of the Rules, that no exception can be taken in respect of such a levy; that it is not an amount that is in any way to the credit of the Official Liquidator nor as a claim put forth by the Official Liquidator, but it is a statutory levy made payable to the Central Government. Learned Counsel submits that the Rule by itself implies that there is certain service rendered by the Central Government through the agency of Official Liquidator and as such a fee is sought to be levied. Learned Counsel submits that the Rule by itself implies that there is certain service rendered by the Central Government through the agency of Official Liquidator and as such a fee is sought to be levied. Learned Counsel points out that the fee so payable differs from situation to situation; that while in a situation where the Official Liquidator acts only as a provisional liquidator, the fee payable is left entirely to the discretion of the Court, the fee payable when the Official Liquidator acts as the Liquidator on the company being ordered to be wound up has been statutorily fixed and that different rates are mentioned in different situations namely the fee payable in respect of distribution of the assets; that different rates of fees are contemplated indifferent situations; that a discretion has been allowed in respect of the amounts payable to persons who have rendered some special services; that while in a case of the fee required to be realized on the amounts due to a secured creditor the fee is statutorily fixed and there is no discretion for variation in the fee and likewise in the respect of the balance amount remaining with the Official Liquidator, after meeting the claims of the secured creditors and after realizing the fee from them, again a fixed fee is stipulated which is slightly, though on a lower scale, in respect of many other situations where several services are rendered either by the Official Liquidator or any other person appointed by the Court, the fee payable is left to the discretion of the Court and the fee payable under sub-Rule (2) being indicated to be the ceiling within which such fee can be fixed by the Court in its discretion. ( 9 ) LEARNED Counsel for the Official Liquidator submits that whenever a company is wound up, the Official Liquidator is put in charge. It is the responsibility of the Official Liquidator to realize the assets of the Company and ensure its distribution, albeit under the supervision of the Court, amongst the various creditors secured and unsecured and thereafter the remaining amount, amongst the shareholders. The Official Liquidator is enjoined a duty to act in the interest of the creditors and other stake holders in the company. The Official Liquidator is enjoined a duty to act in the interest of the creditors and other stake holders in the company. The Official Liquidator steps in to ensure there is no uneven or unfair distribution of the assets of the company under liquidation in any preferential manner in favor of any creditor or class of creditors except in accordance with the preference statutorily provided. The submission of the learned Counsel for the Official Liquidator is that the concept of service by the Official Liquidator is that the official Liquidator acts as an arm of the Court which oversees the liquidation proceedings and the fee payable to the Central Government is for the service of foreseeing the liquidation proceeding and not allowing the company to mange or mismanage its own affairs. Learned Counsel submits that in a situation of this nature, the fee payable is for the overall service of liquidation proceedings and it is only fair that the Rule has stipulated that the fee payable by different persons such as secured creditors, other creditors or recipients of other services is commensurate to the amount that they receive from out of the assets of the company under liquidation. Learned Counsel submits that neither can it be contended that there is no service rendered in a situation where the Court permits a secured creditor who is already in possession of some of the assets of the company, to sell such asset by itself subsequent to the passing of the winding up order; that the mere fact a secured creditor is permitted to sell a secured item belonging to the company under liquidation does not mean that no service is rendered by the Official Liquidator as the Official Liquidator is never absolved of his obligations and duty to over-see the over all winding up proceedings and to keep a watch and control over even the sale proceedings conducted by a secured creditor in whose favour the Court has granted a permission; that it can never be said that the Official Liquidator has not performed any function nor has rendered any service in such a situation. ( 10 ) IT is also the submission of the learned Counsel for the Official Liquidator that in the present case the parties themselves were aware that there is such service rendered and have in fact agreed about the fee payable to the Central Government in terms of the Resolution at the meeting of parties on 3. 7. 2002 and that the secured creditors are virtually estopped from contending to the contrary. It is also the submission of the learned Counsel for the Official Liquidator that the concept of realision occurring in sub-Rule 4 of Rule 291 of the Rules cannot be construed as one which indicated that there should be some positive action through a legal proceeding or other proceeding by the Official Liquidator for realization of the amount. Learned Counsel submits that al such funds which come to the hands of the Official Liquidator from out of the assets of the company under liquidation and which become available for distribution amongst the various stake holders including the secured creditors and other creditors are amounts realized in the hands of the Official Liquidator and the commensurate fee stipulated in terms of Rule 291 of the Rules should be paid to the Central Government as statutorily fixed, while such payments are made and it is the duty of the Official Liquidator to ensure that necessary deductions are made from out of the amounts payable to the secured creditors and other persons, so that the amount can be remitted to the credit of Public Account of India/of the Central Government with the Reserve Bank of India and there cannot be an order to prevent or restrain the Official Liquidator in so doing. Learned Counsel submits that the report should be accepted and the Official Liquidator permitted to deduct the requisite amounts from out of the amounts payable to the secured creditors and for remitting it to the account of the central Government. ( 11 ) MR. Hinchigeri has placed reliance on the following decisions to drive home his point that fee is payable only in respect of services rendered to the person who has to pay the fee and not otherwise. (a) Commissioner of Income Tax Vs. Dr. Mrs. Usha Verma [254 ITR 404] (b) M/s BPL Limited and Another Vs. ( 11 ) MR. Hinchigeri has placed reliance on the following decisions to drive home his point that fee is payable only in respect of services rendered to the person who has to pay the fee and not otherwise. (a) Commissioner of Income Tax Vs. Dr. Mrs. Usha Verma [254 ITR 404] (b) M/s BPL Limited and Another Vs. M/s Inter Modal Transport Technology Systems (KAR) Ltd. , (In Liquidation) and Others [ilr 2001 KAR 5373] (c) The Chief Commissioner, Delhi and Another Vs. The Delhi Cloth and General Mills Co. , Ltd. , and Others [air 1978 SC1181] ( 12 ) WHILE decisions relied upon by Mr. Hinchigeri and the ratio therein have no direct bearing on the issue in question before the Court, in as much as there is no gain saying the fact that a fee is always for a service, the question is as to whether there is any service at al and if there is service, whether there is a broad correlation to the fee levied and collected and the service rendered. It is nor necessary that the fee levied in respect of any person should be commensurate to the service rendered to the particular person. The strict view of the concept of fee has given way to a more liberal view in recent times and the accepted principle now is that if there is a broad correlation to the total extent of expenditure incurred for rendering the service vis--vis the total fee collected from the entire class of persons who may receive such service, nothing more is required to be demonstrated for the sustenance of fee [see AIR 1983 SC 417 (Delhi Municipality Vs. Mohamed Yasin)] ( 13 ) IN the instant case, the challenge to the levy of fee is not on such grounds but on the ground that no specific service for a particular secured creditor is rendered. Even here the requirement of law is not that fee should be shared uniformly by all service receivers, but even in the exercise of delegated legislation, levy and collection can be from identified group or class of persons within such body of service receivers. ( 14 ) THE substantial provisions which enables levy of such fee is provisions of Section 448 and Sub-Section (2) of section 451. Section 451 (2) reads as under; 452. ( 14 ) THE substantial provisions which enables levy of such fee is provisions of Section 448 and Sub-Section (2) of section 451. Section 451 (2) reads as under; 452. (2) : Where the [official Liquidator referred to in clause (c) of sub-section (1) of Section 448] becomes or acts as liquidator, there shall be paid to the Central Government out of the assets of the company such fees as maybe prescribed. ( 15 ) A perusal of sub-section (2) to Section 451 indicates that the fee payable to the Central Government out of the assets of the company under liquidation is when the Official Liquidator becomes or acts as Liquidator of the company. A Charge is created under this section. The manner of collection is as prescribed under the rule. A prescribed percentage of payments to secured creditors, promoters from the realization of the assets of the company is the measure to levy and collect fee from the class of secured creditors who receive payments from the Official Liquidator. Therefore, so long as the Official Liquidator is appointed as a Liquidator in charge of winding up proceedings and amounts on behalf of such company is coming to the hands of the Liquidator which amount is available for distribution amongst different stake holders, it is inevitable that fee is to be levied and collected and remitted to the account of the Central Government as provided under sub-section (2) to Section 451 and as prescribed under Rule -291 of the Company Court Rules, 1959. It is therefore not possible to accept the submission of Sri Hinchigeri that M/s. KSIIDC did not receive the service of the Official Liquidator and therefore was not liable to pay any fee. ( 16 ) NEITHER on facts nor in law the submission is tenable. It is no doubt true that the amount sought to be collected is called as a fee; to be credited to the central Government, but the fee is in the context of a winding up proceeding and wherein the Official Liquidator acts as a provisional Liquidator or as a Liquidator of the company being wound up. It is rather obvious that the fee is in the context of the winding up proceeding and not in the limited context of the service rendered vis--vis a secured creditor or an unsecured creditor. It is rather obvious that the fee is in the context of the winding up proceeding and not in the limited context of the service rendered vis--vis a secured creditor or an unsecured creditor. The broad concept is there is service to all classes of stake holders who derive benefit from out of a winding up proceeding. It is also significant to note that the liability for payment falls on those who actually benefit from the winding up proceeding and to the extent to such persons derive benefit. The argument that in respect of certain property which had been mortgaged in favour of M/s KSIIDC and in which M/s KSIIDC had taken over in exercise of its power under Section 29 of the Act and which had been sold by the Corporation itself, is a situation where it can be said that the Official Liquidator has not rendered any service and as such cannot claim any fee in terms of sub-Rule 4 of Rule 291 of the Rules, necessarily fails and is rejected. ( 17 ) NOW, with regard to the submission of Sri K. Gopal Hegde about the meaning and understanding of the word realization as it occurs in sub-Rule 4 of Rule 291 of the Rules. [it is a cardinal principal of interpretation that the word should be understood in the context in which it occurs and if it is indicative of any particular type of action and if similar type of action has been referred to in the earlier provisions of the same Rule or section, it should be so understood in the same context and not in different ways. While sub-Rule 2 of Rule 291 of the Rules contemplates of a situation where the Official Liquidator is enabled to realize a fee unless it is mentioned in this sub-Rule in respect of the total assets realized or brought to credit by the Official Liquidator which is indicative that the fee chargeable is on the value of the overall assets that comes into the hands of the Official Liquidator and realized form different types of persons at different rates indicated in the sub-Rule itself and at the stipulated percentage of such payments which clearly indicates that the levy is not restricted to a situation where the asset has come in the hands of the Official Liquidator through realization in the sense that it is through any legal proceeding and the only distinction that is being made either within sub-Rule 2 or in comparison to sub-Rule 4 is that different rates of fee are stipulated in respect of different classes of persons. Attributing a different concept to the word realization as it occurs in sub-Rule 4 would be in derogation of such principle of interpretation]. The word realization occurring in sub-Rule 4 should be understood in harmony with similar situations contemplated in sub-Rule 2 and if so understood, it cannot be restricted to situation wherein the Official Liquidator has instituted certain legal proceedings or other proceedings for realization of the asset. If the provision of all sub-Rules of Rule 291 are to be reconciled or understood in a harmonized manned and particularly having regard to the object of levy of fee payable to the Central Government in every winding up proceeding, then it can only be understood that in respect of al such distributions or payments that go out of the hands of the Official Liquidator, attributable to the amount received, realized collected by the official Liquidator on behalf of the company under liquidation, a fee as indicated in each sub-Rule should necessarily be levied and collected. No other interpretation is possible in such a situation. No other interpretation is possible in such a situation. ( 18 ) THOUGH in the present situation, as is rightly pointed out by the learned counsel for the Official Liquidator, the secured creditors could not have raised any objection to the payment of fee to the Central Government in terms of Rule 291 of the Rules, particularly after they having agreed to pay the same and after due deliberations, I have nevertheless examined the position of law as the learned Counsel appearing for the different secured creditors submitted that it is a question which will keep occurring in all winding up proceedings and a ruling on this position is imminently desirable. ( 19 ) IN the circumstances, it is held that the fee as is provided for under Rule 291 of the Rules and as had been agreed to amongst the parties, is payable by the secured creditors. The report of the Official Liquidator is accepted. Permission is granted for doing the needful in terms of Rule 291 of the Rules. --- *** --- .