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TMI Blog1998 (2) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... company under section 433( f ). 3. The 4th respondent Kerala Financial Corpn. who is the creditor of the company has filed a counter-affidavit contending that the above petition is not maintainable and is liable to be dismissed on merits also. According to them, the above petition is filed in collusion between the petitioners and respondent Nos. 2 and 3 with deliberate intention to delay and obstruct the recovery proceedings initiated by the 4th respondent against the 1st respondent and its directors and their assets for the amounts due from the company by availing a loan of Rs. 19.1 lakhs. They have also contended that since the 1st respondent had committed default of pay- ment of instalments of principal and interest due to them as agreed and as on 1-1-1996 a sum of Rs. 39,29,537 was due from the 1st respondent, they have initiated proceedings under section 29 of the State Financial Corporations Act, 1951 (the SFC Act) for realisation of the entire amount due under the loan account and according to them, a notice dated 1-2-1996 was issued by the 4th respondent to the 1st respondent and its directors demanding payment of the entire amount. Since, the 1st respon-dent and its d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 439 and whether the provisions under section 29 override the provisions of the Act in view of section 46B of the SFC Act. 7. At the outset it is to be noted that though the 4th respondent has contended that it has taken over possession of the assets of the 1st respondent-company mortgaged and hypothecated to the 4th respondent after the issuance of the demand notice dated 1-2-1996, it is nowhere stated either in the original counter-affidavit dated 5-8-1996 filed on 19-8-1996 or in the additional counter-affidavit dated 6-11-1997 filed on 11-11-1997, the date on which the 4th respondent has taken possession of the assets of the 1st respondent under section 29, nor the 4th respondent has adduced any evidence in support of the averments made in the counter-affidavits that possession of the assets of the company is in fact taken by the 4th respondent. 8. The petitioners have vehemently contended that the 4th respondent - Kerala Financial Corporation has not taken possession of the assets of the company. They further contended that even if the 4th respondent has taken possession of the assets of the company as provided in section 29, once the proceedings for winding-up of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent have no application to the facts of this case. 10. In the decision in Kerala State Financial Corpn.'s case ( supra ) in C.P. 1/1973 Sreeramavilasom Press and Publications (P.) Ltd., Quilon was ordered to be wound up. During the pendency of that petition for winding up the petitioner therein filed C.A. 197 of 1975 seeking an order of injunction to restrain Sreeramavilason Press Publications (P.) Ltd. and also Malayalarajyam (P.) Ltd. from alienating any of their assets. During that period the Kerala Financial Corporation had initiated steps to sell a Plamag Rotary Press and other machinery of Malayalarajyam (P.) Ltd. in O.P. No. 54 of 1971 on the file of the District Court, Quilon. This Court ordered that the proceedings for sale of the press can be proceeded with but the release of the press to the purchaser should not be made without the sanction of this Court. In C.A. 254 of 1975 this Court directed the provisional liquidator to take possession of the assets of the S.R.V. Press and Publications Private Ltd. The winding up petitioner filed C.A. 515 of 1975 to direct the provisional liquidator to defer taking possession of the Plamag Rotary Press and the block studio e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the Rajasthan State Industrial Develop- ment and Investment Corporation Ltd. that the assets of the company were taken possession of by them by virtue of the provision of section 29 on 15-9-1984. Therefore, the official liquidator filed application under sections 456 and 457 for necessary reliefs. In that case after detailed consideration of the facts and circumstances of the case and various decisions of the other courts the single Judge of the Delhi High Court has observed as follows: "Thus, following the dictum of the Supreme Court in M.K. Ranganathan [1955] 25 Comp. Cas. 344 , taking into consideration the provisions of section 29 of the State Financial Corporations Act, 1951, and the facts and circumstances of the present case, I hold that the Corporation was justified in taking over possession of the assets of the company, during the pendency of the winding proceedings, without the permission of the court. I further hold that, as the Corporation did not take the aid of the court for realising its dues or for enforcing its right, and as it was already in possession and control of the assets of the company, prior to the passing of the winding up order, the Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the appeal was preferred by the Maharashtra State Financial Corporation before the Division Bench of the Bombay High Court. In that case after finding that in the decision in M.K. Ranganathan's case ( supra ) the Supreme Court had dealt with the question at a time when the Companies Act, 1913 was in force which did not have any provision equivalent to the amended section 529 or 529A of the Companies Act, and, hence, the impact of those provisions of section 538 of the Companies Act, 1956 which is similar to section 232 of the Companies Act, 1913 could not have been considered by the Supreme Court, the Division Bench of the Bombay High Court has observed as follows: "Therefore, the Official Liquidator cannot demand possession of the property from a mortgagee lawfully in possession of it. Also, the rights conferred on a financial corporation as a mortgagee under section 29 of the State Financial Corporations Act are not obliterated when the company is in winding up. It may have to exercise its right to take possession with the permission of the Court. Also, the statutory right which is given to a financial corporation under section 29 to sell the property has to be exercised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions imposed by the Court. I find that the above proposition of law laid by the Division Bench of the Bombay High Court is correct and has to be followed by this Court also. 16. In the decision in Maharashtra Tubes Ltd. v. State Industrial Investment Corporation of Maharashtra Ltd. [1993] 2 SCC 144 the Apex court after construing the provisions of sections 29 and 31 and sections 16, 17, 22(1), 25 and 32(1) of the Sick Industrial Companies (Special Provi-sions) Act, 1985 held that when there is conflict between the provisions of those two Acts, both being special statutes dealing with different situa-tions, the provisions of the subsequent Act will ordinarily prevail over the provisions of the earlier enactment. The question canvassed in that judgment before the Supreme Court was whether in a case where an industrial concern makes any default in repayment of any loan or advance or any instalment thereof or otherwise fails to meet its obliga- tions under the terms of an agreement with the Financial Corporation, can the Financial Corporation take recourse to section 29 or 31 of the State Financial Corporations Act, 1951 notwithstanding the bar of section 22 of the Sick I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Financial Corporation Act would be deemed to be general law in cases of companies under winding-up. In that case the Delhi Financial Corporation took over possession of the assets of the company Disco Electronics Ltd. for realisation of the debt due to the Corporation under section 29 by enforcing mortgage in respect of the assets of the said company executed in favour of the Corporation after issuing notices demanding to pay the amounts and the properties were put up for sale and the sale was conducted on 22-6-1992 and the highest offer was accepted by the Corporation on 23-9-1992. In the meanwhile a petition for winding-up was filed on 3-3-1992 before the Delhi High Court and an order of injunction was passed on 4-8-1992 restraining the company from disposing of any of its assets. The winding-up petition was admitted on 29-9-1992 and a provisional liquidator was appointed on the same day. Subsequently, an order to maintain status quo was passed on 19-10-1992 and a specific injunction was granted on 5-11-1992 with regard to possession of those properties. The Delhi Financial Corporation contended that the action taken by the Corporation was under section 29 and the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lop-ment Corpn. Ltd. v. Shivmoni Steel Tubes Ltd. AIR 1997 Kar. 280 a Division Bench of the Karnataka High Court upheld the order passed by the company court declining to approve the sale of the properties of the company by the Karnataka State Industrial Investment Development Corporation Ltd. by invoking section 29 after the passing of the winding- up order against the company and directing the corporation to sell the property by standing outside the winding-up proceedings in association with the official liquidator. In that case on the basis of the order passed by the Board for Industrial and Financial Reconstruction C.P. No. 157 of 1992 was registered for winding-up the company and subsequently after the disposal of the appeal by the appellate authority for Industrial and Financial Reconstruction against the order passed by the B.I.F.R., another C.P. No. 49 of 1994 was registered and both the petitions were clubbed together and tried. A winding-up order was passed by the company court on 8-9-1995 in view of the orders passed by the B.I.F.R. and A.A.I.F.R. There were several secured creditors for the company including various banks and the Karnataka State Industrial Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity directly by itself by invoking section 29 of the SFC Act. The appellant is required to join the Official Liquidator in the sale, and, the property cannot be sold ignoring pari passu charge holder. Similarly, though the Official Liquidator by virtue of section 457(1) of the Act has the power to sell the property of the company in winding-up, and as a pari passu charge holder under section 529 of the Act, he has the power to sell the said property with the sanction of the court to realise the charge, he cannot sell the property all by himself ignoring the secured creditors like KSIIDC. Thus both the secured creditors namely KSIIDC as also the Official Liquidator as the representative of the workmen, are to exercise the power to sell under the directions of the Court. . . . Therefore, the statutory right given to the appellant KSIIDC under section 29 of the SFC Act being required to be exercised consistently with the right of pari passu charge holder in whose favour statutory charge is created by the proviso to sub-section (1) of section 529 of the Act when the company is in liquidation, and the said pari passu chargeholder being Official Liquidator who is required to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he strength of section 46A of the SFC Act irrespective of the above winding-up proceedings, is not sustainable. Of course, the 4th respondent can put up the mortgaged property of the company for sale standing outside the winding-up proceedings being the secured creditor by invoking section 29 by involving the liquidator to be appointed in this case in the necessary formalities of the sale and subject to confirmation of sale by this Court. 22. In view of what is stated above, this company petition is allowed and the company is ordered to be wound up. The official liquidator is appointed as the liquidator of the company. The 4th respondent - Kerala Financial Corporation - is entitled to sell the mortgaged property of the company mortgaged in their favour by standing outside the winding-up proceedings as provided under section 29 with the involvement of the liquidator appointed in this case in the necessary formalities of sale and the sale subject to the rights of the pari passu chargeholder if any, and confirmation of sale by this Court. The petitioners are directed to advertise the winding-up order in one issue of Mathrubhoomi daily , Cochin edition and in one issue of I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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