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TMI Blog1992 (1) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... s remedies under Section 29 of the State Financial Corporations Act, 1951, subject to payment of the workmen's dues as undertaken. 2. As the contentions raised before us in support of the appeal require their examination with reference to the facts which led the company court to make the order under appeal, it would be advantageous to refer to such facts at the very outset. 3. Globe Detective Agency Pvt. Ltd., which was rendering security services to the company, presented on November 2, 1988, before the company court, Company Petition No. 131 of 1988, purporting to be under Sections 433(e), 433(f) and 434 of the Act seeking the winding up of the company. There were similar petitions presented before the company court, earlier as well as later, the earliest of such petitions having been presented on May 23, 1988, and the latest of them having been presented on April 22, 1989. The company court, by a common order made in them on November 30, 1990, while ordering the winding up of the company as sought in the petition and appointing the official liquidator as its liquidator, directed the liquidator to take charge of all the assets of the company other than those the posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y selling the assets of the company wound up even if the secured creditor of such assets opted to stand outside the winding up proceeding to realise its security ; (iii) that since the winding up order of the company court though made on November 30, 1990, related back to the date of presentation of the petition for winding up, the taking of possession of the assets of the company by the Karnataka State Financial Corporation purporting to be for sale, under Section 29 of the State Financial Corporations Act, subsequent to the date of such presentation, cannot empower it to sell the same ; and (iv) that the official liquidator not being aware of the fact that the Karnataka State Industrial Investment and Development Corporation and the Karnataka State Financial Corporation had acted in consortium in giving financial assistance to the company, enforcement of the security by the Karnataka State Financial Corporation--one secured creditor alone, was violative of Section 531 of the Act. The company court which examined the said objections raised in the objection statement filed respecting the company application found that none of those objections could come in the way of grant of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment and Development Corporation of the company in liquidation ; and (v) that the application under Section 446 read with Section 537 of the Act or which the order under appeal is made was unmaintainable in the absence of determination of the amounts of debts owed by the company either by the company court or by any authority constituted under the State Financial Corporations Act. 7. The question which arises from the said contentions and needs our consideration and decision in this appeal, therefore, is whether the company court, in making the order under appeal, permitting the Karnataka State Financial Corporation to sell the assets of the company in liquidation, in exercise of its powers under Section 29 of the State Financial Corporations Act by denying to the official liquidator the carrying out of such sale, has not acted according to law. 8. The Karnataka State Financial Corporation is a financial corporation established for the State of Karnataka under the State Financial Corporations Act. Its object is the rendering of financial assistance to industrial concerns which might have been engaged or may be engaged in the manufacturing, preservation or processing of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Corporation, and the residue of the money so received shall be paid to the person entitled thereto. (5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of Sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern. 9. A company under the Act (Companies Act) which is an industrial concern under the State Financial Corporations Act, cannot cease to be an industrial concern either because the company ceases to carry on its activity or because it becomes the subject of winding-up under the Act, as urged on behalf of the appellant. It would be so particularly for the reason that the industrial concern as defined under definition Clause (c) of Section 2 of the State Financial Corporations Act, covers an industrial concern which has not even commenced its activity. That the Karnataka State Financial Corporation, a secured creditor of the industrial concern--the company now wound up by an order of the company court, had taken possession of the assets of the company which were the subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, the official liquidator in order to realise and recover the claims and subsisting debts owed to the company had the unenviable fate of filing suits. These suits, as is not unknown, dragged on through the trial court and courts of appeal resulting not only in multiplicity of proceedings but in holding up the progress of the winding up proceedings. To save the company which is ordered to be wound up from this prolix and expensive litigation and to accelerate the disposal of winding up proceedings, Parliament devised a cheap and summary remedy by conferring jurisdiction on the court winding up the company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2) and, therefore, it must receive such construction at the hands of the court as would advance the object and at any rate not thwart it. 12. The said observation makes it obvious that the company court which is winding up the company under the Act is conferred jurisdiction under Clause (b) of Section 446(2) of the Act to entertain applications in respect of claims for and against the company. That the contours of its jurisdiction under Sub-section (2) cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act, when it has permitted the Karnataka State Financial Corporation to stand outside the winding up of that company (ICBL) and realise its security by selling the assets which were in its possession and constituted the security, in exercise of the Karnataka State Financial Corporation's power conferred under the statutory provision in Section 29 of the State Financial Corporations Act itself, making, however, the Karnataka State Financial Corporation liable to pay the workmen's dues of the company in winding up as undertaken by it. But, the contentions advanced on behalf of the appellant-official liquidator, in sum and substance, being that though the permission accorded or leave granted by the company court by its order under appeal to the Karnataka State Financial Corporation, a secured creditor of the company (ICBL) in winding up, to effect sale of the properties of that company in its possession, by standing outside the winding up proceeding, could have been done before the amendment of Section 529 of the Companies Act and insertion of Section 529A into the Companies Act, by the Amendment Act 35 of 1985, such thing could not have been done after the said amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole of the expenses less an amount which bears to such expenses the same proportion as the workmen's portion in relation to the security bears to the value of the security. (3) For the purposes of this section, Section 529A and Section 530,-- (a) 'workmen', in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947) ; (b) 'workmen's dues', in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely :-- (i) all wages or salary including wages payable for time or piece-work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947) ; (ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution ; (iii) unless the company is being wound up voluntarily merely f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed insolvent as regards--(a) debts provable ; (b) the valuation of annuities and future and contingent liabilities ; and the respective rights of secured and unsecured creditors [Sub-section (1)]. Sub-section (2) thereof which enabled persons entitled to prove for and receive dividends out of the assets of the company under the winding up, to make claims in that regard, by its proviso, made the secured creditor who realised his security by standing outside such winding up, liable to pay to the official liquidator the whole expenses incurred by him for preservation of the security before its realisation by the secured creditor. 16. By the insertion of the proviso below Clause (c) of Sub-section (1) by Act 35 of 1985, what has been done is, first, by a legal fiction, to make the security of every creditor subject to pari passu charge for the workmen's dues owed by the company under winding up ; and, second, when the secured creditor opts to realise his security by standing outside the winding up, to entitle the liquidator to join the secured creditor to realise the pari passu charge for workmen's dues created on the very security of the secured creditor, needed for dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that, when from the security of the secured creditor respecting which the statutory pari passu charge for workmen's dues is created, the whole of the debt due to the secured creditor is not realised or the whole of the amount of workmen's dues is not realised, under the foregoing provisions in the proviso, the lesser of the two shall rank pari passu with the workmen's dues for the purposes of Section 529A. Thus, none of the said provisions in Section 529 or Section 529A, as found from their detailed examination, can even remotely suggest that a secured creditor of a company in winding up cannot stand outside such winding up to enforce his security. On the contrary, some of the said provisions --the proviso to Sub-section (1) and the proviso to Sub-section (2) of Section 529, by which the secured creditor's security is subjected to a pari passu charge for workman's dues and expenses for preservation of the security by the liquidator till its realisation, in unequivocal language, advert to a secured creditor who, instead of relinquishing his security and proving his debt, opts (proceeds) to realise his security, which cannot happen as before, except when the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which such company owed to them, on top priority being ranked with the dues to the secured creditors, but the right expressly conferred on the secured creditor of the company under winding up under the very provisions in the matter of realisation of his security opting to stand outside the winding up subject to sharing of such security with workmen and payment of his portion of the expenses to the liquidator for preserving the security cannot be taken away by any court in its endeavour or anxiety to place a construction on such provisions as could benefit the workmen. 19. For the foregoing reasons, we are not left in doubt that the permission granted to the Karnataka State Financial Corporation, a secured creditor of the company (ICBL) in winding up, to sell that company's assets, which are already in its possession and constitute security for repayment of the loan, and realise its security subject to payment of workmen's dues as undertaken by it by standing outside such winding up, is well in accordance with the provisions of Section 529, as amended, and Section 529A, as inserted in the Companies Act and Section 29 and Section 46B of the State Financial Corporations A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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