2018 (6) TMI 1773 - HC - Companies Law

Seeking grant of leave to the Applicant to auction and sell the immovable property - exclusive charge over the properties or not - pari passu charge - Section 446 r/w. Section 537 of the Companies Act, 1956 - HELD THAT - The control of the Company Judge and the Official Liquidator, if authorized, can be only to ensure that the purpose of Section 529A is effectively achieved i.e. only to a limited extent and for the limited purpose of securing the right of the workers for distribution of their wages as pari passu charge. Learned advocate for the applicant has fairly stated before the Court that the Official Liquidator could be associated with the applicant in sale of the properties and that the applicant has no objection or reluctance in depositing the sale proceeds on completion of the sale of the mortgaged properties with the official liquidator reserving its right to claim that except the pari passu charge of the works for recovery of their dues from the sale proceeds, the applicant shall have the exclusive right to the sale proceeds. The applicant being Financial Corporation and entitled to exercise the power under Section 29 of the Act could be granted permission to auction and sale the properties mentioned in schedule at Annexure A, however, with certain directions to safeguard the interest of the workers of the company, if any - applicant is permitted to auction and sell the properties mentioned in the schedule at Annexure A in exercise of the power under Section 29 of the Act - Application disposed off.

Summary

Issues Involved:
1. Permission to auction and sell immovable property.
2. Entitlement to exercise powers under Section 29 of the State Financial Corporations Act, 1951.
3. Association of the Official Liquidator in auction proceedings.
4. Protection of workers' dues under Section 529A of the Companies Act.
5. Formation of a sale committee.
6. Distribution of sale proceeds.

Issue-wise Detailed Analysis:

1. Permission to auction and sell immovable property:
The applicant sought leave under Section 446 read with Section 537 of the Companies Act, 1956, to auction and sell the immovable property described in Annexure "B" and appropriate the proceeds towards the discharge of the respondent company's liability. The court granted permission to auction and sell the properties mentioned in the schedule at Annexure A in exercise of the power under Section 29 of the Act, with specific directions to safeguard the interest of the workers.

2. Entitlement to exercise powers under Section 29 of the State Financial Corporations Act, 1951:
The applicant, a financial corporation, asserted its entitlement to exercise powers under Section 29 of the Act. The court acknowledged that the applicant is deemed to be a Financial Corporation as defined in Section 2 of the Act and is entitled to exercise the powers under Section 29. There was no dispute regarding this entitlement from the opponents.

3. Association of the Official Liquidator in auction proceedings:
The court emphasized that while the applicant has the right to sell the mortgaged properties, it must associate the Official Liquidator in the auction proceedings. The applicant agreed to this condition to protect the interest of the workers and other secured creditors. The court directed that the Official Liquidator should be involved in the valuation, fixing the upset price, conducting the auction, and confirming the sale.

4. Protection of workers' dues under Section 529A of the Companies Act:
The court referred to the Supreme Court's judgments, which clarified that the statutory powers of financial corporations under the SFC Act are subject to the proviso to Section 529(1) and Section 529A of the Companies Act, which protect the pari passu charge of the workers' dues. The court reiterated that the control of the Company Judge and the Official Liquidator is limited to ensuring the effective distribution of workers' wages as pari passu charge.

5. Formation of a sale committee:
The Official Liquidator and one of the creditors suggested forming a sale committee comprising the applicant, Official Liquidator, and representatives of the secured creditors to ensure that the properties fetch an adequate sale price. The court did not explicitly order the formation of such a committee but directed the applicant to associate the Official Liquidator in the auction process.

6. Distribution of sale proceeds:
The court ordered that the applicant must deposit the entire amount of sale proceeds with the Official Liquidator within two weeks of receipt. The Official Liquidator is then required to invite claims from the workmen and apply the sale proceeds for payments upon final adjudication of the claims. The court clarified that the applicant's agreement to deposit the sale proceeds with the Official Liquidator does not mean it is participating in the winding-up proceedings but is enforcing its security to recover its dues while remaining outside the winding-up process.

Conclusion:
The application was disposed of with specific orders to ensure the protection of workers' dues and the involvement of the Official Liquidator in the auction process. The applicant was permitted to auction and sell the properties, with conditions to safeguard the interest of the workers and other secured creditors.