HC refuses to stop banks from taking over Kingfisher House

In yet another blow to Vijay Mallya's grounded Kingfisher Airlines Ltd (KAL), the Karnataka High Court on Wednesday refused to interfere with the action initiated by the SBI-led consortium of lender banks for taking possession of 'Kingfisher House', a prime property housing the airlines' offices in Mumbai. The property has a multi-floor structure with built-up area of around 17,074 sq. ft.

Justice Anand Byrareddy passed the order while rejecting KAL's plea challenging the application filed by the SBICAP Trustee Company Ltd on behalf of the consortium before the chief metropolitan magistrate, Esplanade, Mumbai, to take possession of the property. The application was filed invoking Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, to realise part of the debts due to the banks from KAL.

KAL had contended that the banks deemed to have relinquished all security interests on the assets pledged by the company, after they filed a winding up petition before the high court, which exercises jurisdiction as a Company Court as per the Companies Act, 1956, in the winding up petition, and hence, banks cannot invoke the provisions of the SARFAESI Act to realise their outstanding dues.

Rejecting KAL's contention, Justice Byrareddy said that Section 34 and 35 of the SARFAESI Act bars the company court from exercising its power when the banks invoke provisions under this Act for taking possession of the pledged assets.

Pointing out that the SARFAESI Act was enacted after a series of studies and recommendations made by various committees to enable the Indian banks and financial institutions to take possession of securities and sell them without the intervention of the courts for recovering loans without delay, the high court said that any intervention by it while acting as a company court would 'defeat the object of the Act'.

Hence, the company court cannot interfere in the action taken by the banks to take possession of the property in question, the court said while making it clear that the company can only take recourse under the SARFAESI Act and not under the Companies Act.

Justice Byrareddy also ruled that the banks could chose to stand outside the winding up process in seeking to enforce the secured interests, and simultaneously prefer a company petition also seeking winding up of the company in respect of the balance of the debt not covered by such security.

The court upheld the contention of the banks that attachment of 'Kingfisher House' by the service tax authorities in July, 2012, and the income tax authorities in August, 2013, would not come in the way as this property was pledged with the banks much earlier.

While refusing to stay the operation of this order to enable KAL to appeal against it, the court said that banks could take over the property as per law while also providing an opportunity to the company to withdraw from the property.