1990 (4) TMI 259 - HC - Companies Law

Winding up Commencement of, Overriding preferential payments, Avoidance of certain attachments, executions, etc.

Issues Involved:
1. Whether RIICO, as a secured creditor, can opt to remain outside the winding-up proceedings.
2. Whether RIICO can proceed to realize its dues by selling the mortgaged properties without the court's leave, given the winding-up proceedings.
3. The applicability of Section 529A of the Companies Act regarding preferential payments to workmen.
4. The interaction between the Companies Act and the State Financial Corporations Act.
5. The potential reference to the Board for Industrial and Financial Reconstruction (BIFR).

Detailed Analysis:

1. RIICO's Right to Remain Outside Winding-Up Proceedings:

The court examined whether RIICO, as a secured creditor, could opt to remain outside the winding-up proceedings. RIICO, a government company under Section 617 of the Companies Act, had taken possession of the respondent company's assets under Section 29 of the State Financial Corporations Act due to defaults in loan payments. The court noted that under the settled law, secured creditors could opt to remain outside the winding-up proceedings and realize their security without the court's intervention. This principle was affirmed in cases like *M.K. Ranganathan v. Government of Madras* and *State Industrial and Investment Corporation of Maharashtra Ltd. v. Maharashtra State Financial Corporation*.

2. Realization of Dues by Selling Mortgaged Properties Without Court's Leave:

The court addressed whether RIICO needed the court's leave to sell the mortgaged properties under Section 537 of the Companies Act. The court held that Section 537, which voids any sale or attachment without the court's leave during winding-up proceedings, did not apply to statutory powers exercised by bodies like RIICO under Section 29 of the Financial Corporations Act. The court emphasized that the need for leave arises only if the court's intervention is required for the sale or attachment. Since RIICO was acting under statutory powers without the court's help, no leave was necessary.

3. Applicability of Section 529A of the Companies Act:

Section 529A of the Companies Act, which provides for preferential payments to workmen and ranks their dues pari passu with secured creditors, was discussed. The court noted that while Section 529A ensures workers' dues are paid, the Financial Corporations Act's provisions, being special provisions, have an overriding effect due to Section 46B. RIICO assured that it would consider workers' interests and pay their wages pari passu with its dues if the property were sold.

4. Interaction Between the Companies Act and the State Financial Corporations Act:

The court highlighted that the Financial Corporations Act, being a special Act, overrides the general provisions of the Companies Act. Section 46B of the Financial Corporations Act ensures its provisions prevail over any inconsistent laws. The court cited *Damji Valji Shah v. Life Insurance Corporation of India*, affirming that special Act provisions override general Act provisions.

5. Potential Reference to BIFR:

The petitioner suggested referring the matter to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985. The court clarified that only the board of directors, the Central Government, the Reserve Bank of India, or public financial institutions could make such a reference. Since RIICO had taken over the management and had not appointed new directors, it was up to RIICO to decide whether to refer the matter to BIFR. The court itself could not make the reference.

Conclusion:

The application filed by RIICO to opt to remain outside the winding-up proceedings was allowed. The court held that no leave was necessary under Section 537 of the Companies Act for RIICO to sell the properties charged with it, as it was exercising its statutory powers under the Financial Corporations Act. RIICO could proceed to realize its dues under Section 29 of the Financial Corporations Act, and the court's jurisdiction to interfere would only arise if the sale were challenged as not bona fide.

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