2000 (3) TMI 934 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the sale of assets by the Andhra Pradesh State Financial Corporation (APSFC) during the pendency of winding-up proceedings.
2. Requirement for APSFC to deposit the sale proceeds with the Official Liquidator.
3. Obligation of APSFC to provide documentation of the sale and remaining assets.
4. Rights of secured creditors and the implications of Sections 529 and 529A of the Companies Act.
5. The impact of Section 29 of the State Financial Corporation Act (SFC Act) on the sale of assets during winding-up proceedings.

Detailed Analysis:

1. Validity of the Sale of Assets by APSFC:
The Official Liquidator argued that the sale of the company's assets by APSFC during the pendency of winding-up proceedings is illegal and void under Section 537 of the Companies Act. This section states that any sale of the properties of the company without the leave of the Court during winding-up proceedings is void. The sale in question took place on 30-4-1997, and the winding-up order was passed on 23-7-1998. The sale was conducted under Section 29 of the SFC Act, which allows Financial Corporations to sell assets without court intervention. However, the Court held that the sale by APSFC without the leave of the Court is void under Section 537 of the Companies Act.

2. Requirement for APSFC to Deposit Sale Proceeds:
The Court directed APSFC to make the sale proceeds of Rs. 50.50 lakhs available for the claims of the workmen and other secured creditors. This is in line with the decision in A.P.S. Financial Corpn's case, where it was held that the sale proceeds must be kept ready for the claims of the workmen and other secured creditors until the Court orders otherwise.

3. Obligation of APSFC to Provide Documentation:
The Court directed APSFC to furnish a copy of the panchanama prepared at the time of taking possession of the assets, a list of assets disposed of, and a list of assets remaining unsold. This is to ensure transparency and accountability in the sale process.

4. Rights of Secured Creditors and Implications of Sections 529 and 529A:
Sections 529 and 529A of the Companies Act provide that workmen's dues and debts due to secured creditors have priority over other debts. The Court noted that the rights of the Financial Corporation under Section 29 of the SFC Act are circumscribed by the pari passu charge in favor of workmen's dues. The Court held that any sale by a Financial Corporation must be conducted in association with the Official Liquidator to ensure that the workmen's dues are protected.

5. Impact of Section 29 of the SFC Act:
Section 29 of the SFC Act allows Financial Corporations to sell assets of a defaulting industrial concern without court intervention. However, the Court held that this right is not absolute and must be exercised in association with the Official Liquidator when there are workmen's dues or multiple secured creditors. The Court emphasized that the statutory rights of workmen under Sections 529 and 529A take precedence over the rights conferred by Section 29 of the SFC Act.

Conclusion:
The Court concluded that any sale of the property of a company in liquidation by a secured creditor without the leave of the Court is void under Section 537 of the Companies Act. The sale proceeds must be made available for the claims of workmen and other secured creditors. APSFC is directed to comply with these requirements and provide the necessary documentation. The Court also declared that Financial Corporations must seek the leave of the Court before selling assets of a debtor industrial concern once winding-up proceedings are initiated. The petition was disposed of accordingly.