2009 (4) TMI 454 - HC - Companies Law

Winding up - Overriding preferential payment - Held that - We are not persuaded to accept the thesis propounded by Mr. Ashok Aggarwal, learned Senior Counsel, that the appellant-Reconstruction Company is a completely free bird . A perusal of section 13(9) of the SARFAESI Act would show that labour dues as contemplated by section 529A of the Companies Act have to be paid by the appellant-Reconstruction Company. At this stage it would be the duty of the learned Company Judge to ensure that provisions of section 13(9) are complied with. It is worthwhile to notice that the appellant-Reconstruction Company is already kept outside the winding up and is required to give information to the Official Liquidator with regard to the proposal of sale etc. The sale notice to the public has to contain clause that winding up proceedings are pending before the Company Court. These directions are merely supervisory in character and do not put such fetters so as to conclude that the Appellant Reconstruction Company cannot conduct its function properly. The appeal does not warrant admission and the same is dismissed.

Summary

Issues:
1. Challenge to order under Companies Act, 1956
2. Application under Sick Industries (Special Provisions) Act, 1985
3. Harmonization of SARFAESI Act and Companies Act
4. Modification of directions regarding asset alienation
5. Discretion of Reconstruction Company under section 13(7) of SARFAESI Act

Analysis:
1. The appeal challenged an order under the Companies Act, 1956, related to a winding-up petition filed by a company. The reconstruction company, impleaded as a party respondent, sought to take over assets under the SARFAESI Act, leading to the rejection of an application under the Sick Industries (Special Provisions) Act, 1985. The Company Judge dismissed the application, noting the takeover of assets by the Reconstruction Company.

2. The Reconstruction Company applied for modification of directions prohibiting asset sales without court permission. The Company Judge, referring to a previous case, attempted to harmonize the SARFAESI Act and the Companies Act. The judge allowed the Reconstruction Company to proceed under the SARFAESI Act but maintained supervision pending the outcome of the winding-up petition.

3. The Reconstruction Company contested the limitations imposed by the court, arguing that such fetters hindered its functioning under section 13(7) of the SARFAESI Act. The court, after considering arguments, upheld the Company Judge's directions, emphasizing the need to ensure dues payment and supervisory control over asset sales.

4. The court concluded that the Company Judge's directions did not impede the Reconstruction Company's operations but aimed to ensure compliance with legal provisions, particularly regarding labor dues. The court dismissed the appeal, emphasizing the supervisory nature of the directions and the necessity to comply with statutory requirements, including payment of labor dues under the SARFAESI Act.

This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the court's decision and the reasoning behind it.