1993 (7) TMI 268 - HC - Companies Law

Winding up - Powers of liquidator, Application of insolvency rules, Overriding preferential payments, Avoidance of certain attachments, executions, etc.

Issues Involved
1. Necessity of leave under Section 537 of the Companies Act, 1956, for secured creditors to sell mortgaged property.
2. Impact of Sections 529 and 529A of the Companies Act, 1956, on the rights of secured creditors.
3. Rights and obligations of the official liquidator representing workmen's dues.
4. Jurisdiction and powers of the company court in the context of winding up and sale of mortgaged property.

Detailed Analysis

1. Necessity of Leave under Section 537 of the Companies Act, 1956
The appellants contended that as secured creditors, they are outside the winding-up proceedings and can exercise their rights under the mortgage without the intervention of the court, relying on the Supreme Court judgment in M.K. Ranganathan v. Government of Madras. The court noted that while the Supreme Court's decision supports the appellants, it was made under the Indian Companies Act, 1913, which did not have provisions equivalent to the amended Sections 529 and 529A of the Companies Act, 1956. Therefore, the court had to consider the impact of these provisions on Section 537.

2. Impact of Sections 529 and 529A of the Companies Act, 1956
Section 529(1) and its proviso, added by the Companies (Amendment) Act, 1985, create a pari passu charge in favor of workmen on the security held by secured creditors. This means that the security of every secured creditor is subject to a charge in favor of the workmen, and the liquidator can enforce this charge. Section 529A provides for overriding preferential payments to workmen's dues and the debts of secured creditors to the extent they could not realize their security due to the pari passu charge. Consequently, secured creditors are not the sole mortgagees entitled to sell the security; they must join the official liquidator, who represents the workmen, in the sale.

3. Rights and Obligations of the Official Liquidator Representing Workmen's Dues
The official liquidator, representing the workmen, has an interest in the sale of the mortgaged property both as a representative of the pari passu chargeholders and as an officer responsible for the sale and distribution of the company's assets. The court emphasized that both the secured creditor and the official liquidator must cooperate in the sale or abide by the court's directions if cooperation is not possible. The official liquidator cannot consent to the sale without the court's permission, ensuring the proper representation of workmen's interests.

4. Jurisdiction and Powers of the Company Court
The company court has jurisdiction under Section 446 of the Companies Act to entertain and dispose of any claims or questions arising in the course of the winding up, including granting permission for the sale of mortgaged property. The court noted that the official liquidator must obtain the court's sanction before consenting to the sale by the secured creditor. The court can direct the manner of conducting the sale, fix a reserve bid, and give directions regarding the distribution of sale proceeds.

Conclusion
The court concluded that in cases where there is a pari passu charge over the company's property, leave of the court is necessary for the sale of the property. The appeal was allowed, and the order of the learned single judge refusing to grant permission to the appellants to sell the security was set aside. The court granted leave to the appellants to sell the mortgaged properties under specific conditions, including obtaining a valuation, submitting a valuation report, fixing a reserve bid, depositing sale proceeds in court, and ascertaining the workmen's claims.

Conditions for Sale
1. The property shall be valued by an approved valuer.
2. The valuation report shall be submitted jointly by the official liquidator and the appellants.
3. The company judge shall fix a reserve bid and give directions for the sale.
4. Sale proceeds shall be deposited in court.
5. The appellants shall apply for withdrawal of their share of the sale proceeds after notice to the official liquidator.
6. The official liquidator shall invite claims from the workmen and ascertain the extent of their claims.

The appeal was allowed with no order as to costs, and the official liquidator was directed to act on a certified copy of the minutes of the order.

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