Official Liquidator's Report No.188 of 2014,Official Liquidator's Report No.254 of 2015,Company Petition No.719 of 2002

21st October, 2015.

Petitioner Counsel: Mr. J.P. SEN, Sr. Adv. i/b Mr. RAKESH REDDY, Dr. VIRENDRA V. TULZAPURKAR, Sr. Adv. a/w Mr. HIREN KAMOD and Mr. NIKHIL SHARMA i/b W.S. KANE & CO.
Respondent Counsel: Mr. CHETAN KAPADIA, i/b Mr. RAHUL KADAM for Mr. SHASHI GOPAL, Mr. AMIT JAMSANDEKAR a/w Mr. DHIRAJ MHETRE i/b DESAI & DIWANJI

Cases Cited:
ICICI Bank Ltd. Vs. Official Liquidator for APS Star Industries Ltd., 2011 ALL SCR 459=(2010) 10 SCC 1 [Para 19]
Vishwanath Namdeo Patil Vs. Official Liquidator of Swadeshi Mills & Ors., (2013) 181 Com. Cas. 133 [Para 19]
Bank of Maharashtra Vs. Pandurang Keshav Gorwadkar, 2013 (3) ILR 119 (SC) [Para 19]
Maharashtra State Financial Corporation Vs. Official Liquidator, AIR 1993 Bom 392 [Para 19]
International Coach Builders Ltd. Vs. Karnataka State Financial Corporation, (2003) 10 SCC 482 [Para 19,24,27,30,33]
Rajasthan State Financial Corporation Vs. Official Liquidator, 2006(2) ALL MR 212 (S.C.)=(2005) 8 SCC 190 [Para 19]
Kingfisher Airlines Vs. SBI, 2015 (1) Kar LJ 19 [Para 19]
Lallan Prasad Vs. Rahmat Ali & Anr., AIR 1967 SC 1322 [Para 19,31]
Jaya Singh Dnyanu Mhoprekar & Anr. Vs. Krishna Babaji Patil & Anr., AIR 1985 SC 1646 [Para 19,31]
Gajraj Jain Vs. State of Bihar & Ors., 2004(5) ALL MR 726 (S.C.)=(2004) 7 SCC 151 [Para 19,31]
Achi Thayar Ammal & Ors. Vs. Balkis Nachial, AIR 1931 PC 68 (70, col. 1) [Para 19]
L. Janakirama Iyer & Ors.Vs. P.M. Nilkanta Iyer & Ors., AIR 1962 SC 633 [Para 19]
BIFR Vs. M/s. Hindustan Transmission Products Ltd., 2013(4) ALL MR 797=OL Report/145/2011, dt.5.9.2012 [Para 19,34]
Sunita Vasudeo Warke Vs. Official Liquidator, 2014(4) ALL MR 308=2013 (2) Mh.L.J. 777 [Para 19,20,34]
Pankaj Mehra Vs. State of Maharashtra, 2000(2) ALL MR 461 (S.C.) : 2000 ALL MR (Cri) 736 (S.C.)=(2000) 2 SCC 756 [Para 20]
BNP Paribas Vs. United Breweries Holdings Ltd., ILR 2014 Kant. 779 [Para 20]
Monark Enterprises Vs. Kishan Tulpule & Ors., (1992) 74 Com. Cas. 89 (Bom) [Para 20]
Bank of Maharashtra Vs. Official Liquidator, Navjivan Trading Finance Pvt. Ltd., (1999) 96 Com. Cas. 234 (Guj) [Para . 20]
Gift Tax, Madras Vs. N. S. Getty Chettiar, 1971(2) SCC 741 [Para 20]
Empress Mills, Nagpur Vs. Municipal Committee, Wardha, AIR 1958 SC 341 [Para 20]
Union of India Vs. Sankalchand Himatlal Seth, AIR 1977 SC 2328 [Para 20]
Attorney General Vs. H.R.H. Prince Ernest Augustus of Hanover, [1957] 1 All E.R. 49, 53 [Para 20]
MSFC Vs. Official Liquidator, Bombay, AIR 1993 Bom 392 [Para 20]
Iftex Oil & Chemicals Pvt. Ltd. Vs. Official Liquidator of M/s. Dhake Dyes & Chemicals Pvt. Ltd., [1999] 101(2) Bom. L.R. 32 [Para 20]
SICOM Vs. MSFC, (1988) 64 Com. Cas. 102 (Bom) [Para 20]

JUDGMENT

JUDGMENT :- By the above reports, the Official Liquidator is seeking a declaration that a Deed of Assignment dated 14.03.2012 executed by Mr. Shashi Gopal, an exdirector of Magnasound India Ltd. ("MSIL"), the Company (In Liqn.), in favour of one Magnasound Media Pvt. Ltd. (hereinafter "MMPL") is illegal and void. The Official Liquidator is also seeking other consequential directions including, inter-alia, a direction to MMPL and Sony Music Entertainment Pvt. Ltd. (hereinafter "Sony Music") to hand over the documents and assets which were the subject matter of the purported Deed of Assignment and also for directions to restrain MMPL and Sony Music from dealing with these assets.

2. It is the Official Liquidator's case that Shashi Gopal, in purported exercise of his rights as a Subrogee, has after the winding up order sold assets belonging to the Company (In Liqn.) without the leave of this Court, without valuation and without inviting public offers to a related party at a price randomly fixed by the Assignor (Mr. Shashi Gopal) and the Assignee (MMPL). It is submitted on this basis that the Assignment is void as contrary to Sections 536(2) and 537(1)(b) of the Companies Act, 1956.

3. The Company in liquidation had sometime in the late 1990s, availed of certain facilities from Union Bank of India (hereinafter "UBI"). In this connection, the Company had executed Three Deeds of Hypothecation dated 12.8.1998, 30.7.1999 and 28.7.2000 in favour of UBI in respect of the copyright in recordings containing the original music compositions rendered by various artistes and which were owned by the Company. Each of the Deeds of Hypothecation contained a clause which permitted the Lender, in the event of the borrower committing default, to "sell all or any part of the hypothecated sound recording copyrights in such manner as the bank shall think fit, but by giving 15 days notice to the borrower and either by public auction, private Contract or tender..."

4. On 16.7.2002, the above Company Petition came to be filed by the Petitioner Asha Bhosle for winding up the company on account of its failure to discharge its payment obligations to the Petitioner. On 30.4.2003, the OL, High Court, Bombay came to be appointed as the Provisional Liquidator of the Company. Meanwhile, the Company also appears to have been in default of its obligations to UBI as a result of which UBI filed OA No.186 of 2004 before the DRT, Mumbai for recovery of their dues and enforcement of their securities including under the aforementioned deeds of Hypothecation.

5. On 23.4.2007, an order was passed by the DRT in terms of a compromise Memo filed by UBI and the guarantors of the Company in Liquidation. The compromise memo provided that the guarantors would submit to a decree on admission in a sum of Rs. 8,56,33,265/- in favour of UBI. The said memo also recorded an OTS offer that had been accepted by the Bank for payment of a sum of Rs. 520.06 lacs before September, 2006 by the Guarantors on which the claim of the Bank was to stand fully satisfied. The compromise memo further recorded that the guarantors were in a position only to pay Rs. 281.02 lacs and not the entire OTS amount. The guarantors were given an opportunity by the compromise memo to revive the lapsed OTS for a further period of one year on certain terms and conditions recorded in the compromise memo. The balance OTS amount of Rs.239.04 lacs was to be paid, inter alia, by the sale of the "Masters" belonging to the Company in Liquidation "after taking possession from the Official Liquidator and obtaining permission from the DRT". The Masters were to be brought to sale through DRT, with the Guarantors to arrange for buyers at a minimum price of Rs. 150 lakhs. In the event of there being a surplus over and above Rs. 150 Lakhs, the surplus was to go to the bank, while any shortfall was to be made good by the Guarantors.

6. The Compromise Decree does not seem to have been fully complied with as a result of which the Debt Recovery Tribunal directed issuance of a Recovery Certificate on 21.1.2008 for the balance amount of Rs. 212 lacs which remained unpaid. The Recovery Certificate in the sum of Rs.212 lacs was thereafter issued on 30.4.2008.

7. On 15.5.2008, Shashi Gopal (an Ex Director of the Company in Liquidation and a guarantor) filed a Misc. Application before the DRT, inter alia, for purchase of the assets of the Company in Liquidation. The OL filed a reply dated 27.5.2008 in this Misc. Application where he noted that the assets may be sold by" public auction" only in one lot after publication of necessary sale notice and not by way of private treaty at any cost. On 20.6.2008, the said Shashi Gopal filed an application for withdrawal of his Misc. Application. The Misc. Application was thereafter disposed of as withdrawn.

8. Meanwhile, on 24.3.2009, the DRT issued a Warrant of Attachment in respect of the hypothecated assets of the Company in Liquidation. Thereafter, Mr. Shashi Gopal appears to have entered into a bargain with UBI for payment of the balance dues of the bank. Accordingly, Shashi Gopal paid over to UBI the sum of Rs. 212 lakhs then outstanding. On this payment being made, a Deed of Subrogation dated 25.6.2009 was executed between UBI and Shashi Gopal under which the Bank purported to subrogate to Shashi Gopal "complete rights of Bank against MSIL in recovery of debt due under Consent Decree dated 23.4.2007 including enforcement and realization of mortgaged and hypothecated properties". The Deed of Subrogation also recorded, as it happens inaccurately, that "there appears to be no workers' claims lodged before the Official Liquidator and hence there is no pari passu charge in respect of the assets of the MSIL mentioned in the consent terms".

9. On the same day, UBI served upon the OL an application for leave to withdraw the recovery proceedings pending before the DRT. By his report dated 26.6.2009, the OL recorded that he had no objection if leave was granted to withdraw the recovery proceedings. The said proceedings were accordingly withdrawn.

10. Thereafter, by a letter dated 28.7.2009, UBI informed the OL of the Deed of Subrogation executed in favour of Shashi Gopal. The letter also recorded that the Bank had handed over possession of a Bungalow at Lonavala, one of the secured assets, alongwith the hypothecated assets lying therein. The letter also recorded that the Bank did not have any other claim with respect to the assets of the Company in Liquidation. In July 2009, Shashi Gopal filed a Misc. Application no.632 of 2009 before the DRT seeking a direction to the OL to hand over the "Masters/Artists Agreements/Stocks and other assets of the Defendant No.1 Company (now in Prov. Liqn) lying in various branches and which are hypothecated to the Applicant Bank." By his written submissions dated 4.8.2009, the OL recorded that he had no objection "if the properties in the custody of UBI , the secured creditor, are handed over to Mr. Shashi Gopal and kept under his custody" . Accordingly, an order came to be passed by the DRAT on 5.8.2009 directing that the hypothecated assets be handed over to Mr. Shashi Gopal. Pursuant to the said order, these assets were handed over to Mr. Shashi Gopal as recorded in two minutes dated 17.12.2009 and 18.1.2010.

11. Meanwhile, by a letter dated 6.1.2010 addressed to the OL, Mr. Shashi Gopal in his capacity as a subrogee claimed that "all royalties if any payable by music societies, Phonographic performance Ltd (PPL) and Indian Performing Rights Society LTD (IPRS) are payable to me from 1996 onwards in respect of the use of Masters of Magnasound India Ltd if they have not already been paid." By this letter, Mr. Shashi Gopal sought a no objection letter from the OL in this regard. By his reply dated 21.1.2010, the OL fixed a meeting on 25.1.2010 to discuss Mr. Shashi Gopal's role as a Subrogee and the issue regarding the collection of any royalties payable, towards the use of the Masters of the Company in Liquidation. By this letter, the Subrogee was expressly told to "maintain status quo". Mr. Shashi Gopal did not attend the meeting so fixed.

12. Consequently, the OL addressed another letter dated 28.1.2010 fixing a meeting on 9.2.2010. On 10.2.2010 the said Mr. Shashi Gopal addressed a letter to the OL noting that he wished to withdraw his letter dated 6.1.2010 along with a request that no meeting be fixed in this regard. On 9.7.2010, a winding up order was passed in respect of the Company in Liquidation. It is the case of Mr. Shashi Gopal that a letter dated 9.5.2011 was addressed by him to the OL in which he informed the OL that he would sell/assign all the copyrights in the sound recordings in the music/literary works and master and "all the rights in audio, video and cinematograph films owned by the Company to recover the monies paid by me to the UBI on account of the Company together with interest thereon at 18% p.a with monthly rests." It appears from the Inward Register maintained by the OL that the said letter dated 9.5.2011 was received by the office of the OL on 10.5.2011. It appears, however, that the said letter was overlooked by the Office of the Official Liquidator on account of it not having been placed in the file pertaining to the Company in Liquidation and not having been put up before the Deputy OL or OL for necessary action. The OL asserts that it is in these circumstances that no reply was sent to the said letter.

13. On 21.5.2011, a public notice was issued by one MMPL Pvt Ltd in the Free Press Journal and Navshakti in respect of its intention to acquire the entire copyright in the repertoire of the Company in Liquidation. The said notice did not come to the attention of the OL. Thereafter, a Deed of Assignment dated 14.3.2012 appears to have been entered into by the said Mr. Shashi Gopal and MMPL, a related party, transferring the entire repertoire of the Company in Liquidation. MMPL in turn appears immediately thereafter to have negotiated with Sony Music Entertainment Private Limited (Sony Music) for a license to be granted in favour of Sony in respect of a part of the repertoire of the Company in Liquidation. The Notices issued by Sony Music appear to have come to the attention of the Petitioner hereinabove who by a letter dated 13.4.2012 called upon the OL to file an objection in response to the aforesaid notice.

14. The OL, by a letter dated 20.4.2012 addressed to Sony Music recorded that the assets of the Company in Liquidation vested in him and that any rights in its repertoire could not be transferred or assigned without the permission of this Court. The OL also sought a copy of the documents on the basis of which the public notice had been issued. A meeting was thereafter held on 24.4.2012 in the office of the Deputy OL at which the representatives of Sony Music also remained present. At this meeting, these representatives undertook "not to deal with the proposed acquisition/ licence in respect of the assets mentioned in the public notice dated 11.4.2012".

15. This was followed, however, by an Advocates' letter dated 2.5.2012 where Sony Music purported to claim that it was "satisfied beyond reasonable doubt that the title of MMPL with respect to the assets mentioned in the public notice including the repertoire is free, clear and marketable as well as free from all encumbrances." The letter went on to assert that the Company in Liquidation was not the owner of the said repertoire and that the undertaking given by the representatives of Sony Music at the meeting held on 24.4.2012 was "wrongly taken and therefore stood withdrawn". By his reply dated 14.5.2012, the OL recorded that the attempt being made by Sony Music to withdraw their undertaking was ill conceived and called upon them to maintain status quo until the rights, if any, of MMPL in the catalogue/repertoire of the Company in Liquidation was ascertained.

16. By their Advocates' reply dated 6.6.2012, Sony Music claimed that UBI had disposed of the repertoire with the prior consent of the OL as recorded in an order of the DRAT and that in view of the entire repertoire being disposed of with prior consent as alleged, the Company in Liquidation was not the owner of the said Repertoire. The letter further claimed that the OL had travelled beyond his jurisdiction in taking an undertaking from Sony Music in relation to the said Repertoire and that the undertaking was invalid and bad in law. The letter also recorded that Sony Music had already entered into an agreement with MMPL under which Sony Music had been granted an exclusive license for the said Repertoire. By this letter however, Sony Music did not furnish to the OL copies of the agreements executed by them.

17. It is only in the course of the hearing of the above report that Sony Music furnished to the OL four agreements, being an exclusive license agreement dated 7.5.2012, an exclusive license agreement dated 15.6.2012, a Memorandum of Agreement dated 7.11.2012 and an addendum dated 5.3.2015. Under these agreements (which purport to create a license in respect of a part of the repertoire of the company in liquidation for a limited period) MMPL is entitled to payment of an aggregate minimum guaranteed amount of Rs.1.75 crores in addition to a share in revenue overflow. No material has been placed on record by Sony Music regarding the revenue generated by them under the said Agreements. It is significant, however that Sony Music entered into the said Agreements with full notice of the OL's claim.

18. On 18.7.2012, the Petitioner in the above company Petition filed Company Application No, 498 of 2012, inter alia, impugning the purported transfer by Shashi Gopal of the hypothecated assets in favour of MMPL. Subsequently, however, the Petitioner having reached a settlement with Shashi Gopal sought leave to withdraw the Company Application. This leave was granted by an order dated 12.6.2014. By this order, the OL was permitted to take out an independent application to challenge the legality of the purported transfer. It is in these circumstances that the present report under consideration came to be filed.

19. In the course of his oral submissions, Mr. Sen, learned Senior Advocate on behalf of the Official Liquidator, contended:

a) That while it has been contended on behalf of Mr. Shashi Gopal that he is entitled to the benefit of the Compromise Memo filed before the DRT, he cannot as a matter of law be so entitled. Any reference in the Deed of Subrogation to his being so entitled is clearly of no legal effect. This is on account of the fact that a Bank cannot assign its debt to a non banking entity nor can it assign a recovery certificate or the benefit of a consent decree to such an entity. In this behalf, he relied on the Judgment of the Hon'ble Supreme Court in ICICI Bank Ltd. v. Official Liquidator for APS Star Industries Ltd., (2010) 10 SCC 1 : [2011 ALL SCR 459] (paras 29, 30 to 40 and 41 to 44). ;

b) That in the present case, UBI does not appear to have done so. It has not assigned its debt, decretal or otherwise, to Mr. Shashi Gopal but has merely transferred in his favour the benefit of the securities held by them on account of his being a subrogee. This is a benefit to which Mr. Shashi Gopal would have been even otherwise entitled by operation of law on payment being made by him in his capacity as a guarantor of amounts due from the principal debtor to the secured creditor;

c) That Shashi Gopal is thus merely a Subrogee in respect of the amounts paid by him to UBI. He is in that capacity entitled to the benefit of any security that the bank held for recovery of the money paid by him. The principal debtor being a Company in liquidation, Mr Shashi Gopal is entitled as a subrogee only to the sum actually paid by him and not to any interest on the said amount unless there is an overflow after payment to all creditors. This is on account of the fact that the dues of the secured creditors and workers have to be determined as far as possible as on the date of the winding up order. He relied in this connection on the Judgment of this Court in Vishwanath Namdeo Patil v. Official Liquidator of Swadeshi Mills & Ors., (2013) 181 Com. Cas. 133, at 171 (paras 61-63), and the Judgment of the Hon'ble Supreme Court in Bank of Maharashtra v. Pandurang Keshav Gorwadkar 2013 (3) ILR 119 (SC) (para 64);.

d) That the Deeds of Hypothecation in the present case contain a power of sale. However, the Company being in liquidation, the power of sale is qualified by the pari passu charge of the workmen under Section 529-A. The Subrogee can therefore sell only in association with the OL. The earlier law that a secured creditor would be free to deal with his security without reference to the Official Liquidator is no longer good law. He relied in this behalf on the Judgments of this Court and of the Hon'ble Apex Court in Maharashtra State Financial Corporation v. Official Liquidator AIR 1993 Bom 392 (paras 18 to 20); International Coach Builders Ltd. v. Karnataka State Financial Corporation, (2003) 10 SCC 482 (paras 14-15, 24-25, 30, 32); Rajasthan State Financial Corporation v. Official Liquidator, (2005) 8 SCC 190 : [2006(2) ALL MR 212 (S.C.)] (para 17); Bank of Maharashtra v. Pandurang Keshav Gorwadkar, 2013 (3) ILR 119 (SC) (paras 62,63, 71, 72); Kingfisher Airlines v. SBI, 2015 (1) Kar LJ 19 (paras 16-18);

e) That the secured creditor cannot arrogate to himself the power to decide whether there are any workers' claims. If workers' claims have not yet been adjudicated, he must apply to the company court seeking directions for sale;

f ) That the fact that the OL has not objected to the subrogation in favour of Shashi Gopal does not constitute an admission of everything in the Deed of Subrogation particularly an incorrect recital that no workers' claims have been received. The OL has no obligation to object to such a recital and the absence of such an objection cannot, in any event, constitute a rejection of workers' claims which have in fact been made. That being so, the subrogee was not entitled to sell the hypothecated assets by private treaty without reference to the Company Court;

g) That even otherwise, a hypothecatee or pledgee is in a fiduciary position and is obligated to sell a security in such a manner as would fetch the best possible price. In support of this proposition, he relied on the Judgments of the Hon'ble Apex Court in Lallan Prasad v. Rahmat Ali & Anr., AIR 1967 SC 1322 (para 29); Jaya Singh Dnyanu Mhoprekar & Anr. v. Krishna Babaji Patil & Anr. AIR 1985 SC 1646 (para 9);

h) That the law requires him to adopt every precaution in this respect including obtaining a valuation and selling the property by public notice. In this connection, he placed reliance on the Judgments of the Hon'ble Apex Court in Gajraj Jain v. State of Bihar & Ors., (2004) 7 SCC 151 : [2004(5) ALL MR 726 (S.C.)] (paras 12, 14); FCS Software Solutions Ltd. v. LA Medical Devices Ltd. & Ors., (2008) 10 SCC 440 (paras 33, 36)

i) That any sale by a fiduciary to himself or a related party is in any event clearly void. In support of this contention, he relied on the Judgments of the Privy Council and the Apex Court in Achi Thayar Ammal & Ors. v. Balkis Nachial, AIR 1931 PC 68 (70, col. 1); L. Janakirama Iyer & Ors. v. P.M. Nilkanta Iyer & Ors., AIR 1962 SC 633 (para 29);

j) That any sale of the assets of a company in liquidation after the commencement of liquidation is void under Sections 536(2) and 537(1)(b) of the Companies Act, whether by the company itself or a third party. None of the Judgments cited by the subrogee raise the issue as to whether a sale by a third party would fall within the ambit of these sections. The plain language of the section would indicate that they would. That is certainly within the mischief sought to be remedied by the Sections;

k) That the sale in the present case of the hypothecated assets (without a valuation, a public auction or the leave of the company court) by private treaty at a price randomly fixed to a related party is liable to be set aside; and

l) That the burden is on the person seeking to maintain a sale under Sections 536(2) or 537(1)(b) to plead and prove that the sale was for the benefit of the company. He relies in this behalf on the Judgments of this Court in BIFR v. M/s. Hindustan Transmission Products Ltd., Unreported Judgment dated 5.9.2012 in OL Report No. 145 of 2011 : [2013(4) ALL MR 797]; Sunita Vasudeo Warke v. Official Liquidator, 2013 (2) Mh.L.J. 777 : [2014(4) ALL MR 308] (para 17). In the present case, that burden has not been discharged.

20. Dr. Tulzapurkar, Learned Senior Advocate for MMPL, submitted in reply:

a) That Section 536(2) of the Companies Act has no application to the sale by a third party of the assets of the company in liquidation and applies only to a sale by the company itself. He relied in this behalf on the Judgments in Pankaj Mehra v. State of Maharashtra, (2000) 2 SCC 756 : [2000(2) ALL MR 461 (S.C.) : 2000 ALL MR (Cri) 736 (S.C.)] (para 18); BNP Paribas v. United Breweries Holdings Ltd., ILR 2014 Kant. 779 (para 63); Sunita Vasudeo Warke v. Official Liquidator, 2014(4) ALL MR 308 (para 10); Monark Enterprises v. Kishan Tulpule & Ors., (1992) 74 Com. Cas. 89 (Bom); & Bank of Maharashtra v. Official Liquidator, Navjivan Trading Finance Pvt. Ltd., (1999) 96 Com. Cas. 234 (Guj). He submitted that the word "disposition" in Section 536(2) must necessarily refer to a voluntary disposition by the Company and that any disposition of the Company's assets was not within the mischief intended to be remedied by the Section. On the Mischief Rule of Interpretation and the meaning that ought to be attributed to the word "disposition", he relied on the Judgments of the Hon'ble Supreme Court in The Commissioner of Gift Tax, Madras v. N. S. Getty Chettiar, 1971(2) SCC 741, 746 (para 18); Empress Mills, Nagpur v. Municipal Committee, Wardha AIR 1958 SC 341, 348; Union of India v. Sankalchand Himatlal Seth AIR 1977 SC 2328, 2341, & Utkal Contractors and Joinery Pvt. Ltd. & Ors. v. State of Orissa and Ors. (1987) 3 SCC 279, 288-290; the Judgment of the House of Lords in Attorney General v. H.R.H. Prince Ernest Augustus of Hanover [1957] 1 All E.R. 49, 53 and the definition of the word "disposition" in Black's Law Dictionary (9th Ed. West 2009) and the New Oxford English Dictionary of English (Clarendon Press 1998);

b) That a secured creditor is entitled to stand outside the winding up and to enforce his security without the leave of the Company court. He relied in this behalf on the Judgments in M.K. Ranganathan & Anr. v. Government of Madras & Ors., [1955] SCR 374, 383-87, 390-91; MSFC v. Official Liquidator, Bombay, AIR 1993 Bom 392, paras 6-22; Iftex Oil & Chemicals Pvt. Ltd. v. Official Liquidator of M/s. Dhake Dyes & Chemicals Pvt. Ltd., [1999] 101(2) Bom. L.R. 32, and SICOM v. MSFC, (1988) 64 Com. Cas. 102 (Bom). Such a sale would not fall foul of Sections 536(2) or 537(1)(b);

c) That Shashi Gopal as a subrogee was only required to issue a notice, of his intention to sell the hypothecated securities, to the Official Liquidator under Section 176 of the Indian Contract Act which was done in the present case;

d) That in the absence of an adjudication by the Official Liquidator of the claims of the workmen, no pari passu charge in favour of the workmen could be said to exist which would limit the right of Shashi Gopal as a subrogee to stand outside the winding up and to sell the hypothecated securities. He also contended that some of the persons who had filed claims before the Official Liquidator performed managerial or administrative functions and their dues which are yet to be adjudicated are not entitled to priority or to a pari passu charge under Section 529-A of the Companies Act;

e) That in any event, Sections 536(2) and 537(1)(b) are not an absolute bar to a sale and protect any sale in the interest of the company. He relied on the Judgments of the Apex Court and of various High Courts in Pankaj Mehra v. State of Maharashtra (2000) 2 SCC 756 : [2000(2) ALL MR 461 (S.C.) : 2000 ALL MR (Cri) 736 (S.C.)] (para 18); BNP Paribas v. United Breweries (Holdings) Ltd., 2014 (2) AKR 129 (para 63) & Sunita Vasudeo Warke v. Official Liquidator & Ors., 2014 (4) ALL MR 308. The present sale by Shashi Gopal in exercise of his rights as a subrogee is one such;

f ) That Shashi Gopal, as a subrogee, did not stand in a fiduciary position qua the company and was only required to issue a notice to the Official Liquidator prior to the sale of the hypothecated securities even by private treaty without issuing a public notice;

g) That in any event, the Official Liquidator had alleged neither fraud nor an undervaluation in the Reports filed by him and that in the absence of either, the sale could not be held to be improper;

h) That his client was in any event willing to deposit a sum of Rs. 30,00,000/- to secure the pari passu share of the workmen (which is alleged to be Rs. 25,77,000/-) in the sum of Rs. 1.5 crores which had been received as consideration for the sale of the hypothecated securities by Shashi Gopal to Magnasound. It was submitted that on the pari passu claim of the workers in the said sum of Rs. 1.5 crores being fully secured, the challenge to the sale by Shashi Gopal would no longer survive;

21. Mr. Chetan Kapadia, Learned Counsel on behalf of Shashi Gopal, while adopting the arguments of Dr. Tulzapurkar, also contended, by way of written submissions, that the condition of the master tapes and the cassette/CD photo covers which were originally handed over to the Official Liquidator in good condition, were received by the subrogee in a poor condition. He further contended that the subrogee was therefore obliged to spend considerable time and money to restore the master tapes and photo cards to render them usable. He further contended that in any event, even if the hypothecated securities were capable of fetching more than Rs.1.5 crores and had been sold by UBI under the consent decree in its favour, such overflow would have enured to the benefit only of UBI and not the workmen.

22. Mr. Amit Jamsandekar, Learned Counsel for Sony Music, submitted that his client had bonafide acquired rights from MMPL. He further urged that after acquisition of the rights, Sony Music had invested "tremendous amount of money, skills, labour and resources to commercially exploit the copyright" acquired by them. On this basis, he contends that it would be inequitable to set aside the Agreements executed by MMPL in their favour.

23. Arguments in the above matter were concluded on 30th April, 2015. Thereafter Advocates for the parties except Sony Music Entertainment India filed their written submissions on 13th May, 2015 i.e. during court vacations. Sony Music Entertainment India filed its written submissions on 11th June, 2015. I have considered the oral as well as written submissions made/filed by the parties and the Judgments relied upon by them. The first issue that arises for consideration is as to whether Shashi Gopal, in his capacity as a subrogee, was entitled to sell any of the hypothecated securities without the leave of the Company Court. The contention advanced on behalf of the Official Liquidator that a recovery certificate issued by the Debt Recovery Tribunal or the benefit of a Consent Decree passed by it is incapable of assignment to a non banking entity reflects the true legal position. A non banking entity is not entitled under the provisions of the Recovery of Debts Act to file an Original Application in the Debt Recovery Tribunal for recovery of any amounts due to it. It follows that it would not be entitled to seek enforcement of a Recovery Certificate issued by the Debt Recovery Tribunal in favour of a bank or financial institution on the purported basis that the same has been assigned to it. Such an assignment appears to be legally impermissible.

24. In any event, in the present case, on a fair reading of the Deed of Subrogation dated 25.06.09, UBI does not appear to have assigned its debt, decretal or otherwise, to Mr. Shashi Gopal but has merely transferred in his favour the benefit of the securities held on account of his being a subrogee. This is a benefit to which Mr. Shashi Gopal would have been even otherwise entitled by operation of law on payment being made by him in his capacity as a guarantor of amounts due from the principal debtor to the secured creditor. That being so, Mr. Shashi Gopal can rely if at all only on the terms of the Deeds of Hypothecation that had been executed by the Company in Liquidation in favour of UBI. The Deeds of Hypothecation in the present case do contain a power of sale. However, the Company being in Liqn, the power of sale is qualified by the pari passu charge of the Workmen under Section 529-A of the Companies Act, 1956. The principle laid down by the Hon'ble Supreme Court in MK Ranganathan v. Govt. of Madras (supra) that a secured creditor is entitled to stand outside the winding up and enforce his security by sale without reference to the OL or the Company Court pre-dated the introduction of Section 529A which places workers on par with secured creditors and is no longer good law. This position has been recognized in the judgment of the Hon'ble Supreme Court in International Coach Builders (supra) and several judgments that follow it. As would be evident from the paragraphs reproduced hereinbelow, the Hon'ble Supreme Court in International Coach Builders (supra) has in no uncertain terms recognized that after introduction of Section 529A, a secured creditor would be entitled to enforce its security by sale only with the consent of the OL and under the directions of the Company Court:

"14. It is contended on behalf of the SFCs that they are secured creditors and as such entitled to exercise their rights under the mortgage as also the statutory rights conferred on them by Section 29 of SFC Act without interference of courts. Hence,it is urged that the SFCs can sell the mortgaged and charged properties without reference to any court, much less the Company Court. Reliance is placed on the judgement of this Court in M.K. Ranganathan and Anr. v. Government of Madras and Ors.MANU/SC/0007/1955: [1955]2SCR374. That was a case arising under Section 232 of the Companies Act, 1913. This Court was required to consider the meaning of the provision "any sale held without leave of the Court of any of the properties" used in Section 232(1) of the Companies Act, 1913 which rendered such sales void. It was held that these words refer only to sales held through the intervention of the court and not to sales effected by the secured creditor outside the winding up without intervention of the Court. This Court pointed out that the law in England, and the provisions of the Companies Act in India, was the name, namely, that the secured creditor had the right of realizing his security by standing outside the winding up, in which case he was not required to seek intervention of the Court.

15. The decision in Ranganathan (supra) held the field for considerable period, both under the Companies Act, 1913 and the Companies Act, 1956. However, by amending Act 35 of 1985, amendments were carried out in Section 529 and a new Section 529A was enacted. These developments, in our view, brought about a qualitative change in the legal situation. It is important to notice that M.K. Ranganathan (supra) was decided under the Companies Act, 1913 which did not have any provision corresponding to the proviso to Section 529 or Section 529A of the Companies Act, 1956. Obviously, therefore, Ranganathan could not have considered the impact of these amendments on the provisions of Section 232 of the Companies Act, 1913 (corresponding to Section 537 of the Companies Act, 1956) was enacted. These developments, in our view, brought about a qualitative change in the legal situation. It is important to notice that M.K. Ranganathan (supra) was decided under the Companies Act, 1913 which did not have any provision corresponding to the proviso to Section 529 or Section 529A of the Companies Act, 1956. Obviously, therefore, Ranganathan could not have considered the impact of these amendments on the provisions of Section 232 of the Companies Act, 1913 (corresponding to Section 537 of the Companies Act, 1956).

16. The Division Bench of the Bombay High Court has considered in detail the change in the legal situation brought about by these new legal provisions in Maharashtra State Financial Corporation v. Ballarpur Industries Limited MANU/MH/0061/1993 : AIR 1993 Bom 392.

17. As a result of the proviso added in Section 529, the security of every secured creditor is deemed to be subject to a 'pari passu' charge in favour of the workmen to the extent of the workmen's dues (called 'workmen's portion, as defined in Sub-section (3)(c) therein. It is further provided that, where the secured creditor, instead of relinquishing its mortgage and proving his debt, opts to stand outside the winding up proceedings and realise his security, the Official Liquidator shall be entitled to represent the workmen and enforce such charge and that any amount realised by enforcement of such charge shall be applied ratably by the Official Liquidator for the discharge of workmen's dues. It is true that even the amended proviso does not give the Liquidator an independent right of enforcing the charge by selling the security against which such charge is created. Nonetheless, it creates a 'pari passu' charge in favour of the workmen to the extent of their dues and makes the Liquidator the representative of the workmen to enforce such a charge. By reason of Clause (c) of the newly added proviso, so much of the debt due to the secured creditor opting to realise security as could not be realized because of the special created rights in favour of the workmen, or the amount of the workmen's portion in the security, whichever is less, shall rank pari passu with the workmen's dues under Section 529A. Section 529A provides for overriding preferential payments of workmen's dues and unrealised portion of the secured creditors dues, as provided in Clause (c) of the proviso to Section 529.

19. The decision of the Bombay High Court in Maharashtra State Financial Corporation case (supra) gives weighty reasons as to why when the company is under winding up the SFC to which the assets of the company are charged cannot proceed to realise the security without intervention of the Company Court. We have already noticed that as a result of the amendment to Section 529 a pari passu charge to the extent of the workmen's portion is created on the security of every secured creditor when he opts to realize a security by standing outside winding up. 'Pari Passu' means "with equal steps, equally, without preference" (Jowitt's Dictionary, Vol.II, 1959 Edition 1294). Black's Law Dictionary, 6th Edition, 115 defines it as "By an equal progress... Used especially of creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other." It is also defined as "With equal steps, that is to say, proceeding side by side at the same place" (Prem's Judicial Dictionary, Volume III, 1964 Edition, page 1217)

20. The rights of the pari passu charge holders would run equally, temporally and potently, with the rights of the secured creditors.

22. Since the Official Liquidator is in the position of a co-mortgage, the SFCs cannot act independently or by ignoring him for enforcing the security. It is established law that in case of co-mortgages, all of them should join in the suit for enforcing the security, but if some of them refuse to join, they have to be included as defendants, not merely as performa parties, but as necessary parties inasmuch as the mortgage right vests in them along with the plaintiffs-mortgagees. (See in this connection the judgment of the Privy Council in Sunitibala Debi v. Dharae Sundari Debi AIR 1919 PC 24. The same principle would be substantially true and applicable in the case of a mortgagee and a pari passu charge-holder over the same security for realising the security. The realization of the security can only be done by both the charge-holders joining and realising the security simultaneously. If a sale takes place, it can only be simultaneously for recovery of the claim of all pari passu charge-holders and sale proceeds are required to be divided proportionately in the same proportion as their dues.

23. In support of their respective contentions, parties have referred to and relied upon judgments of different High Courts. The view taken by the Bombay High Court commends itself to us. The Division Bench of the said High Court pointed out that, like a secured creditor, the official liquidator as a pari passu charge holder cannot independently bring the security to sale ignoring the secured creditor. He must, therefore, either obtain concurrence of the secured creditor for sale and take the Court's sanction, or he can apply for sanction of the Court after notice to the secured creditor. In either event, the Court while granting sanction may impose appropriate condition and give directions regarding the conduct of the sale, the fixing of the reserve bid, acceptance of the bid, confirmation of sale and distribution of sale proceeds.

24. We cannot be unmindful of the fact that every creditor is interested in realizing the security only for his benefit and to the extent necessary for recovery of his outstanding. Prior to 1985 it might have been possible for a secured creditor under Section 529 of the Companies Act, 1956, or its predecessor, Section 232 of the Companies Act, 1913 as interpreted by this Court in M.K. Ranganathan case (supra), to opt to stand outside the winding up and realise the security by bringing it to sale. This was possible because the secured creditor had unrestricted right of standing outside the winding up and proceeding against the property mortgaged to him.

25. Of course, even in such a situation, if the same property was mortgaged to more than one secured creditor, they had to either come to an agreement, or in the event of disagreement, there had to be a suit in which the dissenting mortgagee had to be sued as a necessary party defendant. No doubt Section 29 of the SFC Act was intended to place the SFCs on a better footing. But, in our view, this better footing is available only so long as the debtor is not a company or is a going company. The moment a winding up order is made in respect of a debtor company, the provisions of Section 529 and 529a come into play and whatever superior rights had been ensured to SFCs under the provision of the SFC Act are now subjected to and operate only in conjunction with the special rights given to the workmen, who as pari passu charge-holders are represented by the official liquidator. We are, therefore, of the view that the unhindered right hitherto available to the SFCs to realise their security, without recourse to the Court, no longer holds true as the right vested in the official liquidator is a statutory impediment to such exercise and has to be reckoned with. And since the official liquidator can do nothing without the leave or concurrence of the Court, all necessary applications must, therefore, come to the Company Court.

32. We, therefore, hold as under:

1. The right unilaterally exercisable under Section 29 of the SFC Act is available against a debtor, if a company, only so long as there is no order of winding up;

2. The SFCs cannot unilaterally act to realise the mortgaged properties without the consent of the official liquidator representing workmen for the pari passu charge in their favour under the proviso to Section 529 of the Companies Act, 1956.

3. If the official liquidator does not consent, the SFCs have to move the Company court for appropriate directions to the official liquidator who is the pari passu charge holder on behalf of the workmen. In any event, the official liquidator cannot act without seeking directions from the Company Court and under its supervision."

25. Thus, after the introduction of Section 529-A which gave workers a pari passu charge along with secured creditors in mortgaged or hypothecated securities in a winding up, it is no longer open for a secured creditor to contend that it is entitled to enforce its securities without reference to or the leave of the Company Court.

26. It was then contended on behalf of MMPL that the Official Liquidator having failed to adjudicate the claims of the workmen, no pari passu charge in their favour could be said to exist which would limit the right of the subrogee to deal with the hypothecated securities. This argument is clearly misconceived. The mere fact that the Official Liquidator has not yet adjudicated the claims of workmen would not disentitle them to a pari passu charge or leave a secured creditor free to deal with a security as he chooses.

27. In the present case, there is some controversy as to whether some of the employees of the company who have filed claims with the Official Liquidator are workmen entitled to priority under Section 529-A of the Companies Act. The Official Liquidator has furnished a list of persons who have filed claims as workmen. Their claims aggregate to Rs. 1,09,86,378.95/-. It has been argued on behalf of MMPL that "almost 50%" of these Claimants were employed in a managerial or administrative capacity and therefore are not workmen entitled to priority under Section 529-A. They have also contended that "almost 20%" of the claims are unsupported by any documentary evidence. These are issues to be determined by the Official Liquidator in the course of adjudication of the claims. However, there does not appear to be the slightest doubt that atleast some of the claims made before the Official Liquidator are by workmen of the Company in Liquidation and that these claims are outstanding. That being so, the ratio of the Judgment in International Coach Builders (supra) squarely applies and the subrogee was obliged to seek directions from this Court with regard to the sale of the hypothecated securities.

28. It was then contended on behalf of Magnasound that the OL not having objected to the recital in the Deed of Subrogation that no workers' claims had been received, Shashi Gopal was then free to deal with the hypothecated assets as he chose. This contention is misconceived. The secured creditor cannot arrogate to himself the right to decide whether there are any workers' claims. If workers' claims have been received and have not been adjudicated, he must perforce apply to the Company Court seeking directions for sale. The fact that the OL has not objected to the subrogation in favour of Shashi Gopal does not constitute an admission of everything in the Deed of Subrogation particularly an incorrect recital that no workers' claims have been received. The OL has no obligation to object to such a recital and the absence of such an objection cannot, in any event, constitute a rejection of the workers' claims which have in fact been made. That being so, the Subrogee was not entitled to sell the hypothecated assets by private treaty without reference to the Company Court.

29. The fact that the Official Liquidator did not reply to the letter dated 9.5.2011 by which Shashi Gopal purported to inform the OL that he intended to exercise a power of sale in respect of the hypothecated securities is also of no consequence. The Official Liquidator has adverted to the circumstances in which his Office failed to reply to the said letter. Even otherwise, a secured creditor is not entitled to rely on the silence of the Official Liquidator to exercise a unilateral right of sale without reference to the Company Court. The Official Liquidator is merely an officer of the Court and acts under its directions. If the letter dated 9.5.2011 had come to his notice at the time of its receipt, he would have had little choice but to place the matter before the Company Court by means of a report for further directions. On such a report being placed, this Court would have had the opportunity to consider the question and to issue appropriate directions to safeguard the interests of the workers and other creditors of the Company. In the absence of any response from the Official Liquidator, Shashi Gopal as the subrogee was duty bound to move this Court for appropriate directions in the matter of sale of the hypothecated securities. He certainly was not entitled to assume that he was free to deal with the securities in any manner that he pleased.

30. The argument urged on behalf of MMPL that Shashi Gopal as a subrogee was merely required to issue notice under Section 176 of the Contract Act to the Official Liquidator, prior to a sale in any manner of his choosing, is entirely devoid of merit. At the very outset, it is doubtful whether Section 176 of the Contract Act which governs the rights of a pledgee would have any application to the facts of the present case where the securities were hypothecated, not pledged. Even otherwise, the argument is misconceived for more reasons than one. The OL is not the owner of the hypothecated securities. He is merely a custodian of it as an officer of the Court. Further, it is clear from the law laid down in International Coach Builders (supra) that once a company is in winding up and the workers have a pari passu charge on the secured assets, no secured creditor would be entitled to exercise a unilateral right of sale without reference to the Company Court by merely issuing a notice of such proposed action to the OL.

31. Even otherwise, the manner in which the hypothecated assets were sold by Mr. Shashi Gopal leaves much to be desired. It was argued by Shashi Gopal and MMPL that a subrogee does not stand in a fiduciary position towards the principal debtor. This proposition is over broad. It appears to me clear from the Judgments of the Hon'ble Apex Court in Lallan Prasad (supra) and Jaya Singh Dnyanu Mhoprekar (supra) that a pledgee or hypothecate would stand in a fiduciary position qua the principal debtor to the limited extent that he has a duty to secure the best possible price while enforcing a security. It is on this account that the Apex Court in Gajraj Jain, [2004(5) ALL MR 726 (S.C.)] (supra) and FCS Software Solutions (supra) mandates that a secured creditor exercising a unilateral power of sale shall adopt every reasonable precaution including obtaining a valuation of the asset proposed to be sold and inviting offers by public notice. Further, any sale by a secured creditor would be open to scrutiny to determine whether the transaction is at arms length or with a related party. In a transaction of this nature, every suspicion of a secret profit must be dispelled. In the present case, it is an admitted position that there has been no valuation prior to sale nor were offers invited from the public. The sale was effected, without the leave of the Company Court, by private treaty in favour of a company which appears to belong to the same group as the Company in Liquidation. Mr. P.M. Sudheer, a director of MMPL who has sworn affidavits on its behalf, appears to have been employed as the Manager (Accounts) of the Company in Liquidation. He has in fact made a claim before the OL in that capacity for his outstanding dues. Given these facts, even if no leave were required to be obtained by the subrogee prior to the sale of the hypothecated securities, the sale in the present case was infirm and open to challenge by the OL.

32. The question then arises as to whether the sale is liable to be set aside under Section 536(2) or 537(1)(b) of the Companies Act. It has been contended on behalf of Mr. Shashi Gopal and MMPL that any sale of the assets of a Company in Liquidation by a third party would not fall within the ambit of Section 536(2) and that the section would apply only to cases of sale of its assets by the company itself after the commencement of winding up. However, none of the judgments cited in this behalf by the Subrogee involve cases where a third party sought to sell the assets of the company and the question arose as to whether such a sale would fall foul of Section 536(2). Any observations in these judgments have to be viewed in that context. The plain language of the Section would in fact indicate that even sales sought to be effected by third parties of the assets of a Company in Liquidation would fall within the prohibitive ambit of that section. A sale by a third party would certainly be within the mischief sought to be remedied by the Section, namely, the prevention of any interference with the assets of a company in liquidation, their sale in a manner to ensure the best possible price and the orderly distribution of the sale proceeds. The Judgments cited on behalf of the subrogee in respect of what is commonly referred to as the "mischief rule" in the interpretation of statutes would appear to support the construction of Section 536(2) canvassed on behalf of the Official Liquidator.

33. Even otherwise, this issue appears to me of limited relevance insofar as a sale by a third party would in any event fall within the ambit of Section 537(1) (b). The fact that the report of the OL has not made a reference to Section 537(1)(b) would by itself be of no consequence. If a secured creditor is required to obtain the leave of the Company Court to enforce a security by sale as held in International Coach Builders (supra) then it would necessarily follow that a sale effected without leave would be void under Sections 536(2) and/or 537(1) (b). In the present case, the Subrogee has made no application seeking the leave of this Court, even ex post facto, for the sale of the said asset. The sale would therefore be liable to be set aside.

34. In any event, the burden clearly lies on the person seeking to maintain a sale (which is not in the ordinary course of business) under Sections 536(2) and 537 (1) (b) to prove that the sale was for the benefit of the Company. This Court has so held on several occasions including in its Judgments in Hindustan Transmissions Ltd., [2013(4) ALL MR 797] (supra) and Sunita Vasudeo Warke, [2014(4) ALL MR 308] (supra). In the present case, neither Shashi Gopal nor MMPL have made any attempt to discharge that burden. In view of the burden being cast upon the person seeking leave to validate a transaction that is otherwise void, the contention advanced on behalf of Mr. Shashi Gopal that the OL has not alleged undervaluation in the sale is entirely misconceived. The burden does not lie upon the OL to do so. In any event, it is self evident that the assets have been undervalued. The agreements between MMPL and Sony Music belatedly disclosed in the course of the hearing would themselves show that the assets were undervalued. While the sale by Shashi Gopal in favour of MMPL of the entire repertoire was for a sum of Rs. 1.5 crores, the agreements executed by MMPL in favour of Sony Music for part of the repertoire for a limited period is for a sum of Rs. 1.75 crores without even taking into account any revenue overflow in which MMPL was entitled to share.

35. It has been urged on behalf of Shashi Gopal in his Written Submissions (though not on affidavit) that the Master tapes were handed over to the OL in good condition when he took over the assets of the Company in Liquidation while their condition was very poor when they were handed over to Shashi Gopal pursuant to directions of the DRT. He further claims that he was constrained to devote considerable time and money to repairing/reconstructing the Master tapes. Similarly, Sony Media has claimed to have expended considerable resources on rendering the Master tapes usable. Apart from the fact that the claims made by the two parties are somewhat at odds, no material or particulars in support of these allegations including the amounts alleged to have been expended have been furnished by either party.

36. Shashi Gopal has also contended, in support of his submission that the sale ought not to be set aside, that if the hypothecated securities had been sold by the DRT under the Consent Decree in favour of UBI, any overflow would have been appropriated by the bank and would not have enured to the benefit of the workers. This argument loses sight of the fact that the hypothecated securities were in fact not sold under the Consent Decree, but by the subrogee arrogating to himself illegally a unilateral power of sale.

37. In the course of the hearing, an offer was made by MMPL to secure an amount of Rs. 30,00,000/- by way of workers' claims pending adjudication thereof by the Official Liquidator. This was on the basis that the total of the workmens' claims was Rs. 1,09,86,378.95/-. If the claim were to be allowed in its entirety (which MMPL contends for various reasons is unlikely) it is claimed that the pari passu charge of the workmen would be to the extent of Rs. 25,77,000/- insofar as the total dues of Shashi Gopal as a secured creditor/subrogee is Rs. 5,29,54,857.99/-. It was contended that on such security being offered, the challenge to the sale must necessarily fail. The offer, however, proceeds on the premise that Rs. 1.5 crores is a fair price for the hypothecated securities. As I have already noted, Shashi Gopal and Magnasound have failed to discharge their burden of demonstrating that the consideration of Rs. 1.5 crores was in fact a fair value for the hypothecated securities. In the present case, there is some controversy as to the amount that Shashi Gopal would be entitled to recover from the Company in liquidation in his capacity as a subrogee. He would no doubt be entitled to recover such amounts as he has himself paid to UBI. These will require verification by the OL. These amounts having been paid after the commencement of winding up, he would not be entitled to any interest thereon unless there were a surplus after all creditors of the company were paid off. Apart from these considerations which make the offer unacceptable, it is also curious that the offer proceeds from MMPL rather than the subrogee. If anything, this itself is a tacit admission that the amount of Rs. 1.5 crores that was paid by MMPL for the hypothecated securities was an undervaluation.

38. That apart, the duty of the Official Liquidator and the Company Court is to ensure that the interest of all stakeholders including the workers and creditors, both secured and unsecured, are protected. Further, the Deed of Subrogation would appear to indicate that apart from the hypothecated securities, there are other securities as well including a bungalow at Lonavala which have been handed over to Shashi Gopal in his capacity as a subrogee. It is entirely conceivable that the amount to which the subrogee is entitled would not exceed the value of all of these securities. It is therefore imperative that each security fetch the best possible price. The manner in which the repertoire of the company in liquidation has been sold by the subrogee was however not designed to secure this outcome.

39. The circumstances of the present case leave little doubt that the sale itself, without the leave of the court and given the manner in which it was effected, was unlawful. However, this leaves open the question as to what order would meet the ends of justice in the present case. The Official Liquidator not having in his possession the masters or the agreements or indeed any documents in respect of the repertoire which constitutes the hypothecated security, a valuation exercise to determine what ought to have been the fair value of the hypothecated security at the time of its sale by Shashi Gopal appears impracticable. However, MMPL ought not to be permitted to profit from a sale that is clearly void. To the extent that the transaction between MMPL and Sony Music is at arms length, the two being unrelated, the consideration fixed in the Agreements between MMPL and Sony Music can be taken to represent the true market value of the rights transacted. The sale of the hypothecated securities by Shashi Gopal to MMPL being void, the consideration paid/payable by Sony Music ought to enure to the benefit of the Company in Liquidation and its various stakeholders including workers and creditors. In these circumstances, I pass the following Order which in my view would meet the ends of justice:

a) The Deed of Assignment dated 14.03.2012 between Shashi Gopal and MMPL in respect of the hypothecated securities is set aside as illegal and void.

b) MMPL shall on or before 2nd December,2015, deposit a sum of Rs. 25 lakhs with the Official Liquidator, being the difference between the amount already received by MMPL from Sony Music (Rs. 1.75 crores) and the amount paid by MMPL to Shashi Gopal (Rs. 1.5 crores).

c) The Official Liquidator shall complete the adjudication of the claims of the workmen of the Company in Liquidation within a period of sixteen weeks from today. In doing so, the Official Liquidator shall also consider whether the claims are in fact by persons who are entitled to priority as workmen under Section 529-A of the Companies Act. He shall also verify the amounts paid by Shashi Gopal to UBI to which he is entitled to credit as a subrogee.

d) On such adjudication and verification, the Official Liquidator shall place a report before this Court for a distribution pari passu of the amount so far generated from the hypothecated securities, i.e., Rs. 1.75 crores, between the workers and Shashi Gopal as subrogee. In that report, this Court shall consider the amount, if any, that Shashi Gopal would be liable to bring in to meet the amounts due to the workmen in such a distribution.

e) Sony Music shall render accounts to the Official Liquidator of the revenue generated by it from the exploitation of the rights which are the subject matter of the Agreements in its favour. Any overflow which was payable to MMPL under the terms of the said Agreements shall be distributed pari passu among Shashi Gopal as a subrogee and the workmen of the Company in liquidation.

f) On expiry of the tenure of the Agreements in favour of Sony Music; MMPL, Shashi Gopal and Sony Music shall hand over forthwith to the Official Liquidator all material and documents in respect of the repertoire which constitutes the hypothecated securities including but not limited to Masters, Link Agreements and publicity material. The Official Liquidator shall thereafter take steps under the directions and supervision of this Court to sell and/or license the rights which constitute the hypothecated securities. Any revenue generated by such sale/exploitation shall be distributed pari passu among Shashi Gopal and the workers of the company in liquidation. Any overflow shall be distributed in accordance with the Companies Act and the Company Court Rules.

The OL Reports are accordingly disposed of with costs.

Ordered accordingly.