2004 (12) TMI 392 - HC - Companies Law

Issues Involved:
1. Rights of a secured creditor in winding up proceedings.
2. Distinction between secured creditors under the State Financial Corporations Act and other secured creditors.
3. Impact of non-notification of claims by secured creditors to the Official Liquidator.
4. Obligation of the Official Liquidator to consider claims notified by secured creditors.
5. Role of the Official Liquidator in verifying the claims of secured creditors.

Issue-wise Analysis:

1. Rights of a Secured Creditor in Winding Up Proceedings:
The court examined the rights of secured creditors under sections 529A and 457 of the Companies Act, 1956, and relevant rules. It concluded that while secured creditors have the right to realize their security, they must notify the Official Liquidator of their claims. The secured creditor's rights are not diminished by the winding up order, but they are subject to the supervision of the Company Court. The secured creditor must share the proceeds pari passu with workmen's dues as per section 529A.

2. Distinction Between Secured Creditors Under the State Financial Corporations Act and Other Secured Creditors:
The court noted that while State Financial Corporations (SFCs) like KSIIDC have additional statutory rights under section 29 of the SFC Act, these rights are still subject to the supervision of the Company Court once a winding up order is passed. The SFCs can take over and manage the industrial unit but must comply with the winding up proceedings and coordinate with the Official Liquidator.

3. Impact of Non-Notification of Claims by Secured Creditors to the Official Liquidator:
Non-notification of claims does not affect the secured creditor's right, but it is crucial for the Official Liquidator to be aware of all claims for proper distribution of assets. The secured creditor must notify the Official Liquidator to facilitate the equitable distribution of proceeds among all secured creditors and workmen.

4. Obligation of the Official Liquidator to Consider Claims Notified by Secured Creditors:
The Official Liquidator must take note of the claims notified by secured creditors even if they are submitted late, provided the distribution of dividends has not been concluded. This ensures that the secured creditor's rights are protected, and the distribution process is fair and comprehensive.

5. Role of the Official Liquidator in Verifying the Claims of Secured Creditors:
The Official Liquidator is not a passive entity and must verify the correctness and bona fides of the claims notified by secured creditors. The Official Liquidator's duty includes ensuring that the claims are legitimate and accurately reflect the amounts due. Disputes regarding claims must be resolved by the Company Court.

Additional Observations:
- The court highlighted the exclusive jurisdiction of the Debt Recovery Tribunal (DRT) for determining the entitlement of financial institutions under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
- The court permitted KSIIDC to retain the amount representing the value of its security but required it to share the proceeds with workmen pari passu.
- The court directed that the balance amount after satisfying secured creditors and workmen's dues be distributed according to the priorities under sections 529A and 530 of the Companies Act.

Conclusion:
The court provided a comprehensive framework for handling the claims of secured creditors in winding up proceedings, emphasizing the need for coordination with the Official Liquidator and compliance with statutory provisions to ensure fair and equitable distribution of the company's assets.

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