1991 (1) TMI 347 - HC - Companies Law

Summary

Issues involved: Application for leave to initiate proceedings u/s 29 of the State Financial Corporations Act against a company in liquidation.

Summary:
The Kerala Financial Corporation (KFC) filed an application seeking permission to proceed against a company in liquidation u/s 29 of the State Financial Corporations Act. The company's assets were secured by various creditors, including KFC, State Bank of Travancore, and Small Industries Development and Employment Corporation. The liquidator representing the company contended that the company was not an industrial concern due to the ongoing liquidation process. The official liquidator also highlighted the importance of representing the workmen and enforcing their rights u/s 529 and 529A of the Companies Act. The dispute arose regarding the proper apportionment of dues to the creditors, including the workmen, and the sale of assets by KFC.

The additional second respondent, the holding company of the company in liquidation, raised concerns about KFC's application under section 29, alleging misuse of power and bias. They argued that KFC's actions could adversely affect the rights of the workers and other creditors. The additional second respondent emphasized the need for a fair and transparent process for the sale of assets to maximize the proceeds for all stakeholders.

The court considered the provisions of section 29 of the State Financial Corporations Act, granting financial corporations the right to take over and sell the assets of industrial concerns. However, the court also noted the overriding preferential payment status of workmen's dues u/s 529A of the Companies Act, which must be considered in case of any conflict with the rights of secured creditors. The court emphasized the need for a proper apportionment of proceeds from the sale of assets to safeguard the interests of all parties involved.

In the best interest of all stakeholders, the court directed that the sale of assets should be conducted by the official liquidator under the court's supervision to ensure a fair and transparent process. This approach would protect the interests of KFC, the workmen, and other creditors by ensuring proper apportionment of proceeds and transferring charges to the sale proceeds. Consequently, the court dismissed the application filed by KFC and instructed the liquidator to seek directions for the sale of immovable property.