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TMI Blog2005 (10) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as "the company-in-liquidation"). By an order dated 14-6-1994, the Company Judge of the High Court of Bombay ordered the company-in-liquidation to be wound up. The Official Liquidator was directed to take charge of the assets of the company-in-liquidation. On 18-4-1995, the Official Liquidator applied for directions to the company court. He sought permission to get the property valued by a valuer from the panel of valuers of the Official Liquidator, and to sell the properties by public auction. He sought the issue of a direction to the appellants, the secured creditors, to advance Rs. 25,000 each to the Official Liquidator to meet the expenses for selling the assets of the company-in-liquidation on condition that the amounts would be reimbursed to the appellants on priority basis from the sale proceeds. The information about the filing of this application was conveyed by the Official Liquidator to the appellants by communication dated 21-4-1995. Apparently, the appellants had no notice of the proceedings in liquidation and they, as secured creditors, now say that they want to stand outside the winding up. In their reply to the Official Liquidator, the appellants indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal by special leave before this court. 2. It has to be noticed that even though the appellants could have proceeded under section 29 or under section 31 of the SFC Act, neither of the appellants has chosen to actually invoke those provisions or to approach the concerned District Court under section 31 of the SFC Act. In other words, no proceeding under the SFC Act has been set in motion by the appellants even now. In this situation, it is seen straightaway that section 32(10) of the SFC Act has application. The said sub-section reads:- "32(10). Where proceedings for liquidation in respect of an industrial concern have commenced before an application is made under sub-section (1) of section 31, nothing in this section shall be construed as giving to the Financial Corporation any preference over the other creditors of the industrial concern not conferred on it by any other law." On the face of it, it is apparent that no right is acquired by the appellants or no right has accrued to them or can accrue to them under section 32 of the Act, unless any such right is conferred on the appellants by any other law in force. There is no plea that other than the SFC Act, any other law co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties independent of the Official Liquidator, therefore, deserves to be accepted. Learned counsel for the Official Liquidator, on the other hand, submitted that on the facts and in the circumstances of the case, the High Court was justified in directing the sale to be held under the supervision of the Official Liquidator and in directing the Official Liquidator to hold the sale proceeds until further orders from the company court and that the proceeds have to be distributed only in terms of section 529A of the Companies Act. Learned counsel further submitted that no interference was called for with the decision of the High Court. 6. There is no doubt that the appellants are financial corporations within the meaning of the SFC Act conferred with the right to proceed under that Act, to take over the management and possession of the assets of the debtor, here the company-in-liquidation, or to enforce their claims by resort to section 31 of the SFC Act by approaching the concerned District Court. The appellants not having invoked the provisions of the SFC Act, stand only in the shoes of secured creditors entitled to enforce their security. A liquidation of the company, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er debts. (2) The debts payable under clause (a ) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions." A combined reading of sections 529 and 529A indicates that notwithstanding anything contained in any other law for the time being in force or in the Companies Act itself, there is a preferential payment provided for workmen's dues and debts due to the secured creditors to the extent such debts rank under clause (c) of the proviso to section 529(1) pari passu with such dues. Therefore, when the assets of the company are sold and the proceeds realized, the debts by way of workmen's dues and that of the secured creditors have to be paid in full if the assets are sufficient to meet them and if they are not sufficient, in equal proportions. 8. In Karnataka State Financial Corpn. v. Patil Dyes & Chemicals (P.) Ltd. [1991] 70 Comp. Cas. 38 , the Karnataka High Court held that rights under section 29(1) of the SFC Act were available to the corporation only when the company is in charge and control of its assets and not when the company has lost control over its assets by the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court and is required to act under the directions of the court while exercising his powers on behalf of the workers. The court held that there was no inconsistency between the SFC Act and section 529 read with section 529A of the Companies Act and hence section 46B of the SFC Act was not attracted. 11. In International Coach Builders Ltd. (In Liquidation) v. Karnataka State Financial Corpn. [1994] 81 Comp. Cas. 19, a Division Bench of the Karnataka High Court held that the right of a secured creditor of a company-in-liquidation, there the Karnataka State Financial Corporation, to realize its security by taking possession of properties of the company subjected to security and selling them by standing outside the winding up, cannot be said even remotely to be affected by the amendment of section 529 and the insertion of section 529A of the Companies Act, 1956 by Act 35 of 1985. It was held that the permission granted to the Karnataka State Financial Corporation, a secured creditor of the company-in-liquidation, to sell the assets of the company which constituted security for repayment of loans advanced by the Corporation to the Company and which the Corporation had already take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of jurisdiction of the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, vis-a-vis the company court arose for decision. This Court held that even where a winding up petition is pending, or a winding up order has been passed against the debtor company, the adjudication of liability and execution of the certificate in respect of debts payable to banks and financial institutions, are respectively within the exclusive jurisdiction of the Debts Recovery Tribunal and the Recovery Officer under that Act and in such a case, the company court's jurisdiction under sections 442, 537 and 446 of the Companies Act stood ousted. Hence, no leave of the company court was necessary for initiating proceedings under the Recovery of Debts Act. Even the priorities among various creditors, could be decided only by the Debts Recovery Tribunal in accordance with section 19(19) of the Recovery of Debts Act read with section 529A of the Companies Act and in no other manner. The Court took into account the fact that Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was a legislation subsequent in point of time to the introduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the SFC Act. 16. In International Coach Builders Ltd.'s case (supra), this Court consi-dered the correctness of the views expressed by the Karnataka High Court and the Gujarat High Court. This Court held that a right is available to a Financial Corporation under section 29 of the SFC Act against a debtor, if a company, only so long as there is no order of winding up. When the debtor is a company in winding up, the rights of Financial Corporations are affected by the provisions in sections 529 and 529A of the Companies Act. It was also held that the proviso to section 529 of the Companies Act creates a pari passu charge in favour of the workmen to the extent of their dues and makes the liquidator the representative of the workmen to enforce such a charge. The decision of the Bombay High Court in Maharashtra State Financial Corpn.'s case (supra) was approved. The reference to a larger bench was occasioned by the fact that the decision in Allahabad Bank's case (supra) was not adverted to in this decision. This decision recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of section 529 of the Companies A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of section 529A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion, any proceeding under the SFC Act. What we have is only a liquidation proceeding pending and the secured creditors, the Financial Corporations approaching the company court for permission to stand outside the winding up and to sell the properties of the company-in-liquidation. The company court has rightly directed that the sale be held in association with the Official Liquidator representing the workmen and that the proceeds will be held by the Official Liquidator until they are distributed in terms of section 529A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this Court in the decisions referred to above. In this situation, we find no reason to interfere with the decision of the High Court. We clarify that there is no inconsistency between the decisions in Allahabad Bank's case (supra) and in International Coach Builders Ltd.'s case (supra) in respect of the applicability of sections 529 and 529A of the Companies Act in the matter of dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the company court and acting in terms of the directions issued by that court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of section 529A and section 529 of the Companies Act. (iv)In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the concerned creditor is to approach the company court for appropriate directions regarding the realization of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation. 19. Now reverting back to the case on hand, we find that the directions issued by the company court are in the interest of all the creditors and are well within its jurisdiction. But we find merit in the submission that the company court was not justified i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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