TMI Blog1995 (12) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... seeking vacation of the said order. The learned company judge has vacated the stay and ordered as follows: "The sale of secured property of the company, by respondent No. 1, which are in its possession, shall be held only after a notice of seven days to the official liquidator. The amount of sale if realised and if it exceeds the amount of Rs. 26.83 lakhs then the excess amount shall be deposited in court and shall be invested in Government security. The amount shall be so invested by the Registrar of the court as to bring maximum return. Even otherwise respondent No. 1 shall be liable to pay so much dues of workmen as are permitted by the court and/or directed by the court on application of the official liquidator as a pari passu charge holder under section 529A of the Companies Act." It has transpired, however, that the State Bank of Hyderabad has filed O.S. No. 547 of 1993 in the court of the Subordinate Judge, Ranga Reddy District, against the company for realisation of dues of Rs. 2,17,06,301. The APSFC had sanctioned a term loan to the company. The company committed default in matter of repayment. The APSFC issued a notice, accordingly, under section 29 of the Act to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and subject to, the provisions of section 81 of the Companies Act, 1956. Explanation. In this clause, the expression 'the amounts outstanding on such debentures or loans' shall mean the principal, interest and other charges payable on such debentures or loans as at the time when the amounts are sought to be converted into stock or shares..." Section 29 of the Act speaks of the rights of the financial corporation in the case of default of the borrower in these words: "29. (1) Where any industrial concern, which is under a liability to the financial corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the corporation or otherwise fails to comply with the terms of its agreement with the financial corporation, the financial corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the financial corporation. (2) Any transfer of property made by the financial corporation, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for the sale of the properties pledged, mortgaged, hypothecated or assigned to the financial corporation as security for the loan or advance or for enforcing the liability of any surety or for transferring the management of the industrial concern to the financial corporation or for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the board where such removal is apprehended. In a case, however, where a winding up order has been made in respect of a company or pending proceeding to wind up the company, section 446(1) of the Companies Act, 1956, creates a bar to any suit or other legal proceedings. It does not permit any suit or other legal proceedings to commence, or if pending at the date of the winding up order, to be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. It makes it obligatory upon any person suing the company under liquidation or the official liquidator in a suit or any other legal proceeding, to seek leave of the court, obviously the court which has ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (2) of section 446 confers jurisdiction on the court which is winding up the company to entertain and dispose of proceedings set out in clauses ( a ) to ( d ). The expression 'court which is winding up the company' will comprehend the court before which a winding up petition is pending or which has made an order for winding up of the company and further winding up proceedings are continued under its directions. Undoubtedly, a look at the language of section 446(1) and (2) and its setting in Part VII, which deals with winding up proceedings, would clearly show that the jurisdiction of the court to entertain and dispose of proceedings set out in clauses ( a ) to ( d ) of sub-section (2) can be invoked in the court which is winding up the company." After quoting the above, the Madras High Court judgment has proceeded to state as follows (at page 729 of 78 Comp Cas): "Clause ( a ) of sub-section (2) of this section makes, however, the court which is winding up the company, competent to entertain any suit or proceeding by or against the company. Clause ( b ) says, 'any claim made by or against the company' This clause extends the jurisdiction of the court which is windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt which is winding up the company. Nor are we required to decide whether there would be any difference between a matter which should be brought as a suit and a matter which should be brought by way of any other proceeding, for a procedure in this behalf shall always be in the hands of the court which is winding up the company. The provisions in sub-section (2) of section 446 put a stop to the proceedings by way of suit, execution or other process and remove all fetters of procedures in legal proceedings since they intend to provide a forum which on the one hand ensures that the properties and assets of the company under liquidation are fully protected, and, on the other hand, all suits and proceedings are expeditiously disposed of." Specifically, however, the issue with respect to the role of section 29 of the Act has been dealt with in quite a few cases, one being a judgment of a Bench of this court in A. P. State Financial Corporation v. Official Liquidator [1995] 2 ALT 406; [1996] 86 Comp. Cas. 341. Before, however, coming to the said judgment of the court, we may take notice of the expression in sub-section (1) of section 446 of the Companies Act, 1956, that "by leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'outside the winding up' is an intelligible phrase if used, as it often is, with reference to a secured creditor, say a mortgagee. The mortgagee of a company in liquidation is in a position to say 'the mortgaged property is to the extent of the mortgage my property'. It is immaterial to me whether my mortgage is in winding up or not. I remain outside the 'winding up' and shall enforce my rights as mortgagee. This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor...If so, he comes into the winding up." It is also summarised in Palmer's Company Precedents, Part II, page 415: "Sometimes the mortgagee sells, with or without the concurrence of the liquidator, in exercise of a power of sale vested in him by the mortgage. It is not necessary to obtain liberty to exercise the power of sale, although orders giving such liberty have sometimes been made." The secured creditor is thus outside the winding up and can realise his security without the leave of the winding up court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 231 (correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings, would clearly show that the jurisdiction of the court to entertain and dispose of proceedings set out in clauses ( a ) to ( d ) of sub-section (2) can be invoked in the court which is winding up the company.'" In A. P. State Financial Corporation v. Official Liquidator [1995] 2 ALT 406; [1996] 86 Comp. Cas. 341, 354, this court has categorically stated that a statutory right to sell the property under section 29 of the Act has to be exercised with the right of pari passu charge holder in whose favour the statutory charge is created by the proviso to section 529(1) of the Companies Act, 1956. When the company is in liquidation such a power can be exercised only with the concurrence of the liquidator and the official liquidator is required to take permission of the court before giving such concurrence since he is an officer of the court and is required to act under the direction of the court while exercising his powers on behalf of the workmen. The court has, in this judgment, observed as follows: "Referring to the arguments of Mr. Y. Shivarama Sastry, learned counsel for the appellant, during the course of his submissions, relied upon a decision of the Rajastha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to stay outside the liquidation proceedings and realise its dues even in a case where a pari passu charge of the workmen was found to exist. However, respectfully we are not in agreement with the view expressed in the aforesaid decision of the Karnataka High Court that the security could not be taken away by any court in its endeavour or anxiety to place a construction on such provisions as could benefit the workmen. We have held that reasonable conditions could be imposed simultaneously with allowing the financial corporation to realise its dues by staying outside the liquidation proceedings when the question of discharging the pari passu charge of the workmen emerges for consideration. It is not our intention to say that the conditions could be imposed for the benefit of the workmen, but our anxiety is to ensure that the dues of the workmen which stand, by a legal fiction, on par with the charge of the secured creditor should be allowed to be rateably apportioned and paid. For the purpose of determining the rateable portion of the workmen's dues even at the cost of repetition, we must recapitulate the factors to be taken into consideration for the purpose of arriving at such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, all amounts due, in respect of contributions payable during the twelve months next before the relevant date, by the company as the employer of any persons, under the Employees' State Insurance Act, 1948 (34 of 1948), or any other law for the time being in force; ( e )unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any employee of the company; ( f )all sums due to any employee from a provident fund, a pension fund, a gratuity fund, or any other fund for the welfare of the employees, maintained by the company; and ( g )the expenses of any investigation held in pursuance of section 235 or 237, in so far as they are payable by the company..." Sub-section (1) of section 529A of the Companies Act, 1956, provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Financial Corporations Act, 1951, a statutory right to sell the property has to be exercised with the rights of pari passu charge holder in whose favour the statutory charge is created by the proviso to section 529(1) of the Companies Act, 1956". Section 529A of the Companies Act has put the workmen's dues as well as 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 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 charge of the workmen, will be left for the benefit of the financial corporation. Once it comes to notice, as rightly held in the case of A . P. State Financial Corporation v. Official Liquidator [1995] 2 ALT 406; [1996] 86 Comp. Cas. 341 that the workmen's claims are unpaid, the liquidator has a duty to realise from the assets which are under a debt or charge of the financial corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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