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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 ..... ap Singh for the Respondent. JUDGMENT P.K. Balasubramanyan, J. - Appellant No. 1, The Rajasthan Financial Corporation, is a corporation constituted under section 3 of the State Financial Corporations Act, 1951 (hereinafter referred to as "the SFC Act"). Appellant No. 2, the Rajasthan State Industrial Development and Investment Corporation Limited, is a deemed financial institution by virtue of exercise of power by the Central Government under section 46 of the SFC Act. The appellants are the secured creditors of M/s. Vikas Woollen Mills Ltd. (hereinafter 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 Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liquidator, in the meantime, was to invite the claims of the workmen and was to assess the extent of the claim of the workmen under section 529 of the Companies Act. Challenging this order, the appellants filed an appeal before the Division Bench of the High Court of Bombay. The High Court dismissed the appeal preferring to follow the earlier decision of that court in Maharashtra State Financial Corporation v. Ballarpur Industries Ltd. AIR 1993 Bom. 392. It is feeling aggrieved by the dismissal of their appeal by the Division Bench, that the appellants have filed this 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 industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that Allahabad Bank ( supra ) was an authority in support of the proposition that the SFC Act would prevail over the Companies Act, it being general law as against the special law protecting corporations, like the appellants, namely, the SFC Act. Learned counsel submitted that the decision in International Coach Builders Ltd. s case ( supra ) has not adverted to the earlier decision and had not properly understood the effect of the provisions of the SFC Act. Section 46B of the SFC Act gave the provisions of that Act, overriding effect. The claim of the appellants that they are entitled to sell 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of section 529A" 7. The proviso above quoted and section 529A of the Act were inserted by Amendment Act, 35 of 1985 with effect from 24-5-1985. Section 529A also can be set out conveniently at this stage. It reads : "529A. Overriding preferential payment. Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company ( a )workmen s dues; and ( b )debts due to secured creditors to the extent such debts rank under clause ( c ) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( supra ), the Bombay High Court took the view that rights conferred on a Financial Corporation as a mortgagee under section 29 of the SFC Act are not obliterated when the company is in winding up. The statutory right under section 29 to sell the property, had to be exercised consistently with the rights of a pari passu chargeholder in whose favour a statutory charge is created by the proviso to section 529 of the Companies Act when the company is in liquidation. Therefore, such a power can be exercised only with the concurrence of the Official Liquidator and the Official Liquidator is required to take the permission of the court before giving such concurrence since he is an officer of 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the company after an order of winding up was made, and on what conditions the permission should be granted, this Court held that in the case of conflict in power between the Official Liquidator appointed by the company court and the Receiver appointed by the Civil Court in a suit filed by the secured creditor, the interest of the Official Liquidator should have precedence. The Court observed that the liquidator looks after the interests of a large segment of creditors along with that of workmen, whereas the Receiver appointed in a creditor s suit confines his concern to the interest of the particular secured creditor at whose instance, the Receiver had been appointed. 14. In Allahabad Bank s case ( supra ), the question 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Corporation would : ( i ) discharge its liability due to workers under section 529A of the Companies Act, ( ii ) inform the Official Liquidator in advance about the proposed sale of properties of the indebted companies, and ( iii ) would obtain the Court s permission before finalizing the tenders. This Court specifically overruled the view taken by the High Court that it was not necessary for the Financial Corporations to seek permission of the Company Court to stay outside the winding up proceedings. It was held that sections 529(1) and 529A of the Companies Act had overriding effect and the 1985 amendment being later in point of time, the non obstante clause therein would prevail over the non obstante clause contained in section 46B 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 Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of Financial Corporations coming under the SFC Act, can only be with the association of the Official Liquidator and under the supervision of the company court. The right of a financial institution or of the Recovery Tribunal or that of a Financial Corporation or the Court which has been approached under section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the Official Liquidator being associated with it, giving the company court the right to ensure that the distribution of the assets 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 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as above, we think it proper to sum up the legal position thus: ( i )A Debt Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company-in-liquidation, through its Recovery Officer but only after notice to the Official Liquidator or the liquidator appointed by the Company Court and after hearing him. ( ii )A District Court entertaining an application under section 31 of the SFC Act will have the power to order sale of the assets of a borrower company-in-liquidation, but only after notice to the Official Liquidator or the liquidator appointed by the Company Court and after hearing him. ( iii )If a Financial Corporation acting under section 29 of the SFC Act 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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