1998 (10) TMI 442 - HC - Companies Law

Issues Involved:
1. Validity of the sale of assets by secured creditors during winding-up proceedings.
2. Applicability of sections 536(2) and 537 of the Companies Act, 1956.
3. Pari passu charge of workmen's dues under sections 529 and 529A of the Companies Act, 1956.
4. Requirement of court approval for the sale of assets by secured creditors.
5. Bona fide nature of the sale and protection of interests of the applicant and workmen.

Detailed Analysis:

1. Validity of the sale of assets by secured creditors during winding-up proceedings:
The applicant sought a declaration that the respondent, through the official liquidator, had no claim on the factory premises. The applicant contended that the sale was conducted by the secured creditors, MSFC and SICOM, outside the winding-up proceedings, and thus no permission was required under section 537. The sale was completed before the winding-up order was passed, and the applicant had paid the entire consideration.

2. Applicability of sections 536(2) and 537 of the Companies Act, 1956:
Section 536(2) states that any disposition of the property of the company made after the commencement of the winding-up shall be void unless the court orders otherwise. Section 537(1)(b) provides that any sale held without the leave of the court after the commencement of the winding-up shall be void. The court noted that the winding-up is deemed to commence at the time of the presentation of the petition for winding-up, as per section 441(2). Therefore, the sale held by the secured creditors after the presentation of the winding-up petition was subject to the court's approval.

3. Pari passu charge of workmen's dues under sections 529 and 529A of the Companies Act, 1956:
The amendments introduced by the Companies (Amendment) Act, 1985, created a pari passu charge in favor of the workmen over the assets secured by the secured creditors. This charge arises from the date of the winding-up order. The court emphasized that the secured creditors no longer have an absolute right to the security but must consider the pari passu charge in favor of the workmen. The court referred to the Division Bench judgment in Maharashtra State Financial Corpn. v. Ballarpur Industries Ltd., which held that the secured creditors must obtain the court's permission before disposing of the assets.

4. Requirement of court approval for the sale of assets by secured creditors:
The court held that the secured creditors could not dispose of the property without the court's permission due to the pari passu charge in favor of the workmen. The court rejected the contention that the pari passu charge arises only upon the appointment of a provisional liquidator or the passing of a winding-up order. The court stated that accepting such a contention would defeat the purpose of the amendments introduced by the Companies (Amendment) Act, 1985, which aimed to protect the interests of the workmen.

5. Bona fide nature of the sale and protection of interests of the applicant and workmen:
The court found that the sale was conducted by public auction and the price obtained was reasonable, indicating that the sale was bona fide. The applicant had paid the entire consideration and made changes to the property, and was carrying on activities therein. The court decided to protect the interests of the applicant by confirming the sale, subject to certain conditions to protect the interests of the workmen.

Order:
The court confirmed the sale in favor of the applicant, subject to the secured creditors (Respondent Nos. 2 and 3) filing undertakings to deposit the amounts due to the workmen with the official liquidator. The undertakings must include a clause to deposit the sums within four weeks of the claims being ascertained by the official liquidator, along with simple interest at 12% per annum from the date of winding-up. The secured creditors were also directed to advance sums to the official liquidator for ascertaining the claims of the workmen. The judge's summons was disposed of accordingly, with parties bearing their own costs.

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