9911796707
TMI Blog2000 (3) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... in their hands unsold. 2. The facts leading to filing of the present application are : The company called as Sporolac Laboratories (P.) Ltd. was directed to be wound up by this Court by order dated 23-7-1998 in Company Petition No. 22 of 1996, which was filed by Biotech Pharms (P.) Ltd. The Official Liquidator attached to this Court has been appointed as Official Liquidator of the said company. When the Official Liquidator proceeded to take custody of the assets of the said company, he was informed that the company in liquidation was purchased by Biotech Pharms (P.) Ltd. (R3) from the Andhra Pradesh State Financial Corporation. The said sale, effected by the State Financial Corporation, is in exercise of its powers conferred under section 29 of the State Financial Corporation Act, 1951 ( the SFC Act ). Incidentally, it is to be mentioned that the State Financial Corporation sold the assets of the company in liquidation for consideration of Rs. 50.50 lakhs. 3. In the background of the above facts, the present application with the prayer as extracted above came to be filed. 4. Company Application No. 698 of 1998 is filed by the second respondent herein, State Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings for the recovery of any tax or impost or any dues payable to the Government." From the language of the section, it appears that, whether, the company which is sought to be wound up is actually wound up by the order of the High Court, or the necessary proceedings for securing such order are pending, any attachment, distress or execution put in force against the estate or effects, or any sale of the properties of such company without the leave of the Court are void. 9. The legal implications of section 232 of the Companies Act (1913), which was the corresponding section to section 537 of the 1956 Act were considered by the Supreme Court, in M.K. Ranganathan s case ( supra ). Their Lordships, while interpreting that section, held that during the course of winding up of the company, any secured creditor of the company is entitled to stay out of the winding up proceedings and enforce, the security for the purpose of securing the payment of the debt due to him, but, however, declared that if such secured creditor seeks enforcement of security, through intervention of the Court, then section 232 comes into operation and if he enforces the security, by bringing the securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a security for the payment, the mortgagee is required to seek the aid of the Court for bringing the mortgaged property to sale for the purpose of realizing the debt due to the mortgagee. The only exception to the general rule is that in the case of pledge, the pledge is entitled to put the property under pledge to sale directly without intervention of the Court. In one more class of cases, recognized under section 69 of the Transfer of Property Act, the mortgagee is authorized by law to bring the mortgaged property to sale without intervention of the Court. The details of the class of cases contemplated under section 69 may not be relevant for the purpose of this case, except to say that section 69 is an exception to the general principles of law. 13. In the modern industrial economy, the State or its instrumentalities, finance private enterprise, as a matter of industrial policy. The Parliament thought that, such financial institutions under the control of the State should not be driven to the civil courts for the propose of recovery of loans advanced to the industrial concerns. Some of these institutions were authorized, by law, to directly deal with the property given as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e debtors without the intervention of the Court. Therefore, the principle laid down in M.K. Ranganathan s case ( supra ) should normally apply to the sales effected by the Financial Corporations without the intervention of the Court. However, the learned counsel for the applicant submitted that in view of the provisions contained in sections 529 and 529A of the Companies Act, the principle laid down in M.K. Ranganathan s case ( supra ) would still govern the field or not - is a matter to be considered by this Court, as, such provisions did not fall for the consideration of the Supreme Court when their Lordships decided M.K. Ranganathan s case ( supra ). 14. Section 529 of the Companies Act provides for the rules by which the claims of various classes of persons who are entitled to receive payments from a company when such a company is wound up. Workmen s dues and debts due to secured radiators are declared to be paid on priority over other creditors. 15. Section 529A introduced by way of amendments in the year 1985 in the Companies Act which reads as follows : "Overriding preferential payments - (1) Notwithstanding anything contained in any other provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SIIDC as also the Official Liquidator as the representative of the workmen, are to exercise the power to sell under the Directions of the Court . . . . The power to sell which has been given to KSIIDC under section 29 of the SFC Act has to be exercised consistently with the right of pari passu charge holder who, in the case of a company under liquidation, would be Official Liquidator, whose consent can be subject to sanction 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 charge holder being Official Liquidator who is required to act under the directions of the Court, leave of the Court would be necessary, and, any sale without such leave would be void under section 537 of the Act. Learned Company Judge was therefore, right in declining to approve the sale in favour of respondent No. 7 and giving fresh directions for resale of the property by the appellant KSIIDC by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso to sub-section (1) of section 529 pari pasu with such dues, on the same priority and in the case of an insolvent company, when assets are going to be subjected to the claim of the creditors, it is indeed necessary to reckon that a secured creditor who does not have the advantage of a provision like section 29 of the Act cannot be thrown out and all assets , subject, of course, to the change of the workmen, will be left for the benefit of the Financial Corporation . Once it comes to the notice, as rightly held in the case of A.P. State Financial Corporation v. Official Liquidator ( 3 supra ) that the workmen s claims are unpaid, the liquidator has a duty to realize from the assets which are under a debt charge of the financial corporation, their claims. The same, on principle, being pari passu with the dues of the financial corporation, has to be applied to the claims of any other secured creditor provided, of course, when the assets of the company are insufficient to meet all pari passu claims". [Emphasis supplied] In view of the above two judgments of this Court of two Division Benches and the judgment of the Karnataka High Court, the legal position appears to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpreted by the High Courts. 22. The logical sequel to such a conclusion is that, any sale of the property of a company in liquidation by the secured creditor, without the leave of the Court , would be hit by section 537 and void in view of section 529A, if such a sale were to be held before the Official Liquidator determines, the question whether there are workmen s dues or not. 23. Equally such sales would be void and hit by section 537 if held without the leave of the Court when there are more than one secured creditor. 24. However, in view of the fact that the sale of the assets of the company in liquidation in the present case took place almost two years back and the third respondent purchaser was put in possession of the assets on 5-5-1997. To declare the sale illegal in the instant case would result in undue hardship to the third respondent purchaser and in view of the decision of the Division Bench in A.P.S. Financial Corpn s case ( supra ) in similar situation where the Division Bench directed : ". . . We are, however, informed that the assets of the company which were under the charge of the APSFC have been disposed of. It will not be possible to pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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