2000 (8) TMI 986 - SC - Companies Law

Whether section 29 can override provisions of the proviso to sub-section (1) of section 529 and section 529A? Whether the Corporation can exercise its rights under above section 29 ignoring a pari passu charge of the workmen? Held that Appeal dismissed. It was not at all necessary for the Financial Corporation to approach this Court for permission to stay outside the winding up proceedings.

Summary

Issues:
1. Interpretation of provisions under The State Financial Corporations Act, 1951 and Companies Act in the context of liquidation proceedings.
2. Legality of conditions imposed by the High Court on the Corporation.
3. Priority of workmen's dues and rights of secured creditors in winding up proceedings.

Analysis:

Issue 1:
The appellant, a Corporation under The State Financial Corporations Act, invoked section 29 to recover dues from two companies under liquidation. The High Court imposed conditions, raising the question of the Corporation's absolute power under the Act of 1951. The Companies Act provisions, including section 529 and 529A, were crucial in determining the legality of the Corporation's actions.

Issue 2:
The High Court's conditions were challenged, arguing that the Corporation's powers under section 29 should not be restricted. However, the Court highlighted the importance of the proviso to section 529 and section 529A, inserted by the Companies (Amendment) Act, 1985. These provisions ensured a pari passu charge in favor of workmen and prioritized their dues in winding up proceedings.

Issue 3:
The Court analyzed the interplay between section 29 of the Act of 1951 and the subsequent provisions of the Companies Act, emphasizing the priority of workmen's dues as per section 529A. The judgment clarified that the Corporation's rights under section 29 must align with the workmen's pari passu charge. The conditions imposed by the High Court were deemed lawful to safeguard the workmen's rights and prevent secured creditors from undermining their priority.

In conclusion, the Supreme Court upheld the legality of the conditions imposed by the High Court, emphasizing the need to protect workmen's dues in line with the provisions of the Companies Act. The judgment clarified the hierarchy of dues in winding up proceedings and affirmed the Corporation's obligation to respect the rights of workmen in such situations.