1997 (3) TMI 474 - HC - Companies Law

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

Issues Involved:
1. Winding up of the company
2. Rights of secured creditors under section 29 of the State Financial Corporations Act, 1951
3. Applicability of section 537 of the Companies Act, 1956
4. Pari passu charge and rights of workmen under sections 529 and 529A of the Companies Act, 1956
5. Validity of the sale conducted by KSIIDC in favor of respondent No. 7
6. Role of the official liquidator in the sale process

Detailed Analysis:

1. Winding Up of the Company:
The company, Shivmoni Steel Tubes Limited, became a sick unit and was referred to the Board for Industrial and Financial Reconstruction (BIFR). The BIFR ordered the winding up of the company, which was upheld by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). Consequently, Company Petition No. 157 of 1992 and Company Petition No. 49 of 1994 were registered, leading to the winding up order passed on September 8, 1995.

2. Rights of Secured Creditors under Section 29 of the State Financial Corporations Act, 1951:
The Karnataka State Industrial Investment and Development Corporation Limited (KSIIDC), acting under section 29 of the SFC Act, took possession of the company's assets and advertised for their sale. KSIIDC received an offer from respondent No. 7, Insotex (India) Limited, which was eventually recommended for acceptance after further negotiations.

3. Applicability of Section 537 of the Companies Act, 1956:
Section 537(1)(b) of the Companies Act states that any sale of the company's properties after the commencement of winding up without the court's leave is void. The sale by KSIIDC to respondent No. 7 was completed on September 30, 1995, after the winding up order on September 8, 1995, thus rendering it void under section 537(1)(b).

4. Pari Passu Charge and Rights of Workmen under Sections 529 and 529A of the Companies Act, 1956:
The court emphasized that the provisions of sections 529 and 529A create a pari passu charge in favor of workmen's dues, which must be considered alongside the rights of secured creditors. The official liquidator, representing the workmen, must be involved in the sale process to ensure their interests are protected.

5. Validity of the Sale Conducted by KSIIDC in Favor of Respondent No. 7:
The court found that the sale conducted by KSIIDC was void as it was completed after the winding up order without the court's leave. The learned company judge's order to associate the official liquidator in the resale process and make it subject to court confirmation was upheld.

6. Role of the Official Liquidator in the Sale Process:
The official liquidator, representing the workmen's interests, must be involved in the sale process. The court directed that the sale should be conducted jointly by KSIIDC and the official liquidator, with the terms of advertisement settled together and the sale subject to court confirmation.

Conclusion:
The appeal by KSIIDC was dismissed, and the court upheld the learned company judge's order to associate the official liquidator in the resale process. The first bid in the resale would be that of respondent No. 7 at Rs. 496 lakhs, with the process to be completed by May 30, 1997. The court emphasized the necessity of protecting the workmen's dues and ensuring the sale process is conducted transparently and fairly.

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