SC to examine if assets can be considered for liquidation to settle dues

The Supreme Court Thursday said it would examine whether assets of a company which have been attached by the authorities following legal proceedings can be considered for liquidation to settle financial liabilities.

A bench of Justices U U Lalit and Vineet Saran was informed by senior advocate C S Vaidyanathan, appearing for liquor baron Vijay Mallya's United Breweries (Holding) Ltd (UBHL), that company's assets in totality are far greater than its liabilities.

UBHL has challenged the March 6 order of the Karnataka High Court upholding the decision of a single judge to wind up the company.

Vaidyanathan told the bench that the court should not uphold winding up of the company as it has far more access assets than its liabilities.

He said the high court erred in not accepting its offer of settlement and gave its finding of upholding the decision to wind up the company.

The bench asked about the attachment of the company's properties by the Enforcement Directorate under the Prevention of Money Laundering Act (PMLA) proceedings against the fugitive businessman, who is in the UK.

Tell us whether these properties which have been attached under the PMLA can be considered for liquidation instead of directing for winding up of the company, the bench said.

The bench, which was initially inclined to issue notice on the appeal of United Breweries, was told by Solicitor General Tushar Mehta, appearing for a consortium of banks led by State Bank of India, the notice not be issued in the matter.

He said that proceedings before the courts in India are being misused by Mallya in extradition proceedings against him in the UK and he does not deserve any indulgence of the court in the matter.

The bench reminded Mehta that he was appearing for the banks and not the government and said that this is not the PMLA proceedings.

Mehta replied that he was aware of the fact but his duty will not diminish in a matter of national interests only because he was appearing for the banks.

The bench then told Mehta, What is bothering us is that Mr Vaidyanathan is saying that some assets of the company are lying under attachment while proceedings have been initiated for winding up of the company."

Mehta said the proceedings under PMLA are completely different and that the assets attached under the provision would only be sold after the conviction of an accused.

He said the attached properties under PMLA cannot be considered for liquidation as in the event of attached properties being found to be proceeds of crime, they are liable to be confiscated and cannot be used for settlement.

The bench said the assets are only attached and not confiscated since there is no conviction as on date.

So the question remains, why the assets attached cannot be considered for liquidation to pay the liabilities," it said, and asked whether the company should be wound up without the properties already under attachment being taken into consideration.

The bench said, "Once assets are attached, does that mean these assets cannot be considered to be part of proceedings when the company is considered for winding up?"

The bench observed that normally, winding up of a company is avoided as much as possible.

The solicitor general said the court has to keep in mind that it is dealing with a fugitive offender and not an innocent man.

The bench told Mehta, We are dealing with the company, not the man". It told Mehta that if he wanted to make these submissions then he has to wear two hats and observed, Only one hat will not do.

The bench posted the matter for further hearing on September 8 and told the parties that it needed an answer to the question whether the properties under attachment can be considered for liquidation to pay off the liabilities of the company.

On March 6, the high court had rejected the offer of Mallya for settlement of debts of now-defunct Kingfisher Airlines terming it as not bona fide and made in good faith and dismissed the appeal of UBHL against the order of winding up of the company.

UBHL had claimed that the market value of the company's assets is more than the debts.

The high court said that many of the assets proposed by the UBHL in the offer of settlement were attached either by the ED under PMLA or by the Debt Recovery Tribunal and it cannot prohibit the statutory authorities from discharging their functions and order sale of assets.

UBHL owes over Rs 6,000 crore and compound interest to SBI-led consortium of banks and the lenders have moved the courts and debt recovery tribunal with winding-up petitions to recover their dues.

The lenders to Kingfisher Airlines had filed the case against UBHL seeking dues from the now-defunct airline.

UBHL had given corporate guarantees for loans to run Kingfisher, which has virtually caused the collapse of Mallya's liquor empire. Mallya owns a 52.34 per cent in United Breweries Holdings Limited.

Earlier, the Debt Recovery Tribunal here had ordered the SBI-led consortium of banks to start the process of recovering over Rs 6,203 crore, at 11.5 per cent annual interest rate, from the embattled tycoon and his companies in another Kingfisher Airlines case.