1994 (10) TMI 249 - HC - Companies Law

Summary

Issues Involved:
1. Whether the secured creditor can realize its security without the leave of the company court after a winding-up order is passed.
2. The effect of the insertion of proviso to sections 529(1) and 529A of the Companies Act, 1956, on the status of secured creditors.
3. The applicability of section 446(1) of the Companies Act to the actions under section 29 of the State Financial Corporations Act.

Summary:

Issue 1: Secured Creditor's Right to Realize Security without Leave of the Court
The Corporation, a secured creditor, contended that it could realize its security without the leave of the court, citing section 29 of the State Financial Corporations Act and section 529 of the Companies Act. The court reaffirmed the principle from M.K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344; AIR 1955 SC 604, stating that a secured creditor can realize its security without the leave of the court if it does not seek the court's intervention. This principle is rooted in the notion that the secured creditor's right to the mortgaged property is independent of the winding-up proceedings.

Issue 2: Effect of Proviso to Sections 529(1) and 529A
The insertion of the proviso to sections 529(1) and 529A by Act No. 35 of 1985 created a pari passu charge in favor of workmen on the security of secured creditors. The court clarified that this charge does not make workmen secured creditors of the company but allows them to share in the realization of the secured creditor's security. If the secured creditor opts to realize the security, the liquidator can enforce the charge on behalf of the workmen. The court concluded that the amendments do not alter the secured creditor's right to stand outside the winding-up proceedings and realize the security.

Issue 3: Applicability of Section 446(1) to Actions under Section 29 of the State Financial Corporations Act
The court examined whether actions under section 29 of the State Financial Corporations Act constitute "other legal proceedings" under section 446(1) of the Companies Act, which would require the leave of the court. The court held that the secured creditor's right to realize the security without court intervention is not a "legal proceeding" within the meaning of section 446(1). The court distinguished this from the broader interpretation of "proceedings" in Maharashtra Tubes' case [1993] 78 Comp Cas 803 (SC), which dealt with the Sick Industrial Companies (Special Provisions) Act, 1985.

Conclusion:
The court allowed the appeal, setting aside the company judge's order. It held that the secured creditor, the Corporation, could realize its security without the leave of the court, provided it does not seek the court's intervention. The Corporation was directed to ensure the workmen's dues are realized from the sale proceeds, and any disputes regarding the workmen's proportion would be determined by the company judge.