1999 (10) TMI 634 - HC - Companies Law

Issues Involved:
1. Whether APSFC, as a secured creditor, is entitled to stay outside liquidation and obtain possession of the property.
2. Whether APSFC is liable to share the expenses incurred by the Official Liquidator for the preservation of the security.
3. The applicability of Section 46B of the State Financial Corporation Act, 1951 in relation to Section 529A of the Companies Act, 1956.
4. The role and powers of the Official Liquidator in the sale of the company's assets.

Issue-wise Detailed Analysis:

1. Entitlement of APSFC to Stay Outside Liquidation and Obtain Possession of Property:
The APSFC, a secured creditor of the company in liquidation, filed an application to stay outside liquidation and obtain possession of the property. The Official Liquidator resisted this application, but the court allowed it on the condition that APSFC informs the Liquidator about the stage of the proceedings, does not dispose of the assets without prior court permission, and undertakes to discharge liabilities under section 529A of the Companies Act, 1956. The court emphasized that the Official Liquidator must be involved in the finalization of the sale of the properties.

2. Liability of APSFC to Share Expenses for Preservation of Security:
The Official Liquidator filed an application for APSFC to pay salaries and incidental charges for the watchmen preserving the company's properties. The court directed APSFC to pay Rs. 4,800 for the period from 6-11-1998 to 31-3-1999 and Rs. 2,300 per month from 1-4-1999 until possession is delivered to APSFC. The court held that APSFC, as a secured creditor, is liable to share the expenses incurred by the Official Liquidator for the preservation of the security.

3. Applicability of Section 46B of the SFC Act in Relation to Section 529A of the Companies Act:
The APSFC argued that Section 46B of the SFC Act prevails over Section 446 of the Companies Act, allowing them to stay outside liquidation. However, the court, relying on previous judgments, held that the provisions of the Companies Act, particularly Section 529A, which prioritizes the claims of workmen and secured creditors pari passu, are applicable. The court concluded that Section 46B of the SFC Act does not have an overriding effect on the provisions of the Companies Act.

4. Role and Powers of the Official Liquidator in the Sale of the Company's Assets:
The court highlighted that the Official Liquidator has the custody and control of the company's properties post-winding up order. The Official Liquidator must be involved in the sale of the company's assets, ensuring transparency and fairness. The APSFC must conduct sale proceedings in consultation with the Official Liquidator and deposit the workmen dues and debts of other secured creditors as per the provisions of Section 529A of the Companies Act.

Conclusion:
The court directed APSFC to pay the required amounts for the preservation of the properties and, upon payment, the Official Liquidator would hand over possession of the mortgaged property to APSFC. The APSFC must involve the Official Liquidator in the sale proceedings, ensuring the dues of workmen and other secured creditors are settled as per the law. The court emphasized the necessity of adhering to the provisions of the Companies Act, particularly Section 529A, in dealing with the assets and liabilities of the company in liquidation. Both applications were disposed of accordingly.

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