1993 (7) TMI 356 - HC - Companies Law

Issues Involved:
1. Necessity of leave under Section 537 of the Companies Act, 1956 for a secured creditor to sell mortgaged property.
2. Impact of Sections 529 and 529A of the Companies Act, 1956 on the rights of secured creditors.
3. Role of the Official Liquidator in the sale of mortgaged property with a pari passu charge.
4. Jurisdiction and duties of the Company Court regarding the sale of mortgaged property in winding-up proceedings.
5. Applicability of Section 29 of the State Financial Corporations Act, 1951 in the context of winding-up proceedings.

Issue-wise Detailed Analysis:

1. Necessity of Leave under Section 537 of the Companies Act, 1956:
The appellants contended that as secured creditors, they were outside the winding-up proceedings and could sell the mortgaged property without the intervention of the Court, relying on the Supreme Court's judgment in M.K. Ranganathan v. Govt. of Madras. However, the Court noted that the Supreme Court's decision was based on the Companies Act, 1913, which did not have provisions equivalent to Sections 529 and 529A of the Companies Act, 1956. The Court held that due to the pari passu charge created under Section 529, leave under Section 537 was necessary for the sale of the mortgaged property.

2. Impact of Sections 529 and 529A of the Companies Act, 1956:
Section 529 provides that in the winding-up of an insolvent company, the rights of secured and unsecured creditors shall be observed as per insolvency laws. The Proviso to Section 529(1) creates a pari passu charge in favor of workmen. Section 529A provides for overriding preferential payments to workmen's dues and the debt of secured creditors to the extent they could not realize their security due to the workmen's charge. The Court emphasized that the secured creditor is not the sole mortgagee and must contend with the Official Liquidator, who represents the workmen.

3. Role of the Official Liquidator:
The Official Liquidator, representing the workmen's pari passu charge, must join in the sale of the mortgaged property. The Court held that the Official Liquidator, as a pari passu chargeholder, has an interest in the sale and must either consent to the sale by the secured creditor or seek the Court's sanction. The Official Liquidator must act under the directions of the Court while exercising powers on behalf of the workmen.

4. Jurisdiction and Duties of the Company Court:
The Company Court has jurisdiction under Section 446 to entertain and dispose of any claim made by or against the company and any question of priorities or other questions arising in the course of winding up. The Court must grant sanction for the sale of the mortgaged property, ensuring proper valuation, fixing a reserve bid, and directing the distribution of sale proceeds. The Court's intervention is necessary to protect the interests of all parties, including secured creditors, workmen, and unsecured creditors.

5. Applicability of Section 29 of the State Financial Corporations Act, 1951:
The Court held that the rights conferred on a financial corporation under Section 29 of the State Financial Corporations Act are not obliterated in winding-up proceedings but must be exercised consistently with the rights of the pari passu chargeholder. The financial corporation must seek the concurrence of the Official Liquidator, who in turn requires the Court's sanction.

Conclusion:
The appeal was allowed, and the order refusing permission to sell the security was set aside. The Court granted leave to the appellants to sell the property under specific conditions, including valuation by an approved valuer, submission of the valuation report to the Company Judge, deposit of sale proceeds in Court, and the Official Liquidator's duty to ascertain workmen's claims. The Official Liquidator was directed to act on a certified copy of the order, and the appeal was allowed with no order as to costs.

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