TMI Blog1993 (7) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... , on January 28, 1980. The charge in favour of the appellants is also registered with the Registrar of Companies on November 3, 1980, under section 125 of the Companies Act, 1956. The company was also sanctioned another loan of ₹ 2 lakhs by the appellants. This loan was secured by a deed of further charge dated June 16, 1981, executed by the company. The charge is also registered with the sub-registrar of assurances at Bombay, on June 16, 1981. The charge is also registered with the Registrar of Companies on September 16, 1983, under section 125 of the Companies Act, 1956. Under an order of this court dated-July 31, 1987, the company has been ordered to be wound up. The official liquidator has been appointed liquidator of the company. Under the terms of the mortgage deeds, the appellants have a right to take possession of and sell the mortgaged properties of the company without the intervention of the court. Moreover, under section 29 of the State Financial Corporations Act, 1951, also, the appellants have a statutory right, inter alia , to take possession of and realise the mortgaged property in case the industrial concern to whom the loan is advanced makes a defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the debenture holders. The receiver of the debenture holders sold the properties taken charge of by him without obtaining any leave of the court. The official liquidator made an application to set aside the sale so effected on the ground that no leave was obtained from the court for the sale. The Supreme Court held that a secured creditor is outside the winding up and he can realise the security without the intervention of the court by effecting a sale of the mortgaged properties by private treaty or by public auction. It is only when intervention of the court is sought either by putting in force any attachment, distress or execution within the meaning of section 232(1) of the Indian Companies Act, 1913, or proceeding with or commencing a suit or other legal proceedings against the company that leave of the court is necessary. The Supreme Court considered the words any sale held without leave of the court of any of the properties in section 232 of the Indian Companies Act, 1913, which provisions are equivalent to the provisions of the present section 537 of the Companies Act, 1956. The court held that these words refer only to sales held through the intervention of the court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A. As a result, where any property of the company is given to a creditor as a security for loans/debts of the company, a charge is deemed to be created in favour of the workmen for the recovery of their dues which charge runs pari passu with the charge in favour of the secured creditor. Now, under the Insolvency Act, a secured creditor may rely on his security and enforce it in the ordinary course by a suit and execution and he need not go in insolvency to prove his claim. If the security is sufficient to pay his claim in full, a secured creditor will hardly come under insolvency. It is only when the security is insufficient that he comes in under the insolvency to prove in respect of the balance. In such a case, he has the following three courses open to him: ( i ) He may realise the security and then prove for the balance; ( ii ) he may surrender his security and prove for the whole debt; ( iii ) he may state in his proof the value at which he assessed the security and prove for the bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment in winding up along with workmen's dues. Therefore, because of the proviso to section 529, the secured creditor is not the only mortgagee entitled to sell the security. He has a co-mortgagee (in the form of the workmen) with an equivalent charge on the same security. These workmen are to be represented by the official liquidator. Therefore, when a secured creditor seeks to realise his security, he has also to contend with the official liquidator. The official liquidator is an interested party in the sale of the security in two capacities in such a situation-(1) as a representative of the pari passu chargeholders; and (2) as an officer of the court in the custody of the company's properties, who is responsible for the sale and distribution of the assets of the company in winding up. In both these capacities, he has an interest in the sale of the mortgaged security by the secured creditor. What are the rights of a pari passu chargeholder? Can a mortgagee exercise his power of sale without the consent of a pari passu charge-holder? The meaning of the word pari passu is defined in Jowitt's Dictionary of English Law, Volume II, 1959 Edition, pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir dues. It may be that unlike a co-mortgagee, a pari passu chargehdlder can receive payment of his mortgage debt from the mortgagor and release his charge independently. But when it comes to realising the security, both the pari passu chargeholders must join or realise the security simultaneously. The sale proceeds are required to be divided proportionately between them in the same proportion as their dues. Hence, when a sale takes place, it is for the simultaneous recovery of claims of all pari passu chargeholders. Mr. Tulzapurkar, learned counsel for the appellants, however, contends that the appellants have a right to sell without the intervention of the court. They also have a right to stand outside the winding up proceedings and these rights are not taken away in any manner by the provisions of section 529 or section 529A of the Companies Act. He relies, in this connection, on a decision of the Bombay High Court in the case of Govindram Bros. Ltd. v. Official Assignee, AIR 1950 Bom. 49. In that case, the court was required to construe the provisions of the Dekkhan Agriculturists' Relief Act, 1879, as affecting the power of sale without the intervention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the court for consenting to the sale by the mortgagee. A notice of such application should be given to the mortgagee; so that while granting such a sanction, the court may direct the official liquidator to ascertain the exact dues of the workmen if he has not done so; it may give appropriate directions relating to the manner of holding the sale; fix a reserve bid and give directions regarding distribution of the sale proceeds. By virtue of section 457(1) of the Companies Act, the official liquidator has the power to sell the property of the company in winding up. Of course, this cannot affect the mortgagee's interest in such property. The official liquidator, as a pari passu chargeholder under section 529, also has a power to sell the said properties with the sanction of the court to realise the charge after notice to the secured creditor or with the consent of the secured creditor. Since the official liquidator represents both the chargeholder and the mortgagor, he need not file a suit against the mortgagor company through himself, to enforce the charge. But, like the secured creditor, the official liquidator as a pari passu chargeholder also cannot sell the secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply to the company court for permission to conduct the sale on behalf of both the mortgagees after giving notice to the secured creditor, when the company court, after hearing all concerned parties, will give appropriate directions. The statutory duty cast upon the official liquidator to enforce his charge when a secured creditor opts to realise his security cannot be construed as taking away a right of a secured creditor to realise his security. Both the pari passu chargeholders are required to co-operate in the conduct of the sale, and if such cooperation is not possible, both have to abide by the directions which the company court may give in this behalf. It is in this context that we have to consider the provisions of section 537 of the Companies Act under which leave was asked for by the appellants for conducting the sale. The decision of the Supreme Court in the case of M.K. Ranganathan v. Government of Madras [1955] 25 Comp. Cas. 344 dealt with a situation where there was no pari passu charge and the secured creditor had obtained possession of the property of the company before the company went into liquidation. In such a situation, the Supreme Court upheld the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he is not right in proceeding on the footing that the property of a company in winding up vests in the official liquidator. He has only the custody of the property of the company. Under section 456 of the Companies Act, the official liquidator is required to take into his custody and control all the properties of the company in winding up. The property of the company does not vest in him as in the case of insolvency. The property remains the property of the company ( vide Ramaiya' Guide to the Companies Act, Twelfth Edition, page 1014). Therefore, the official liquidator cannot demand possession of the property from a mortgagee lawfully in possession of it. Also, the rights conferred on a financial corporation as a mortgagee under section 29 of the State Financial Corporations Act are not obliterated when the company is in winding up. It may have to exercise its right to take possession with the permission of the court. Also, the statutory right which is given to a financial corporation under section 29 to sell the property has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclined to grant permission to the financial corporation to sell the properties. We respectfully differ from the learned judge in so far as he has held that a mortgagee in possession of the property of a company must hand over the property to the official liquidator when the company is wound up. This judgment also seems to proceed on the basis that on winding up, the properties of the company vest in the court. As stated earlier, this is not so. The decision does not deal with the rights of a mortgagee in possession with power to sell without the intervention of the court and the impact of the proviso to section 529 on this power. It is, therefore, in any case, not of much assistance to us. Our attention is also drawn to a decision of this court in the case of State Industrial and Investment Corporation of Maharashtra Limited v. Maharashtra State Financial Corporation [1988] 64 Comp. Cas. 102. The Division Bench, in that case, has held that the Maharashtra State Financial Corporation, a duly secured creditor, was outside the winding up and it was entitled to sell the mortgaged property without obtaining leave of the company court under section 537 of the Companies Act. The D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide. In the present case, the claim of the workmen for their dues is likely to be very small. According to the official liquidator, the claim of the workmen for their dues is likely to be to the tune of ₹ 30,000 to ₹ 40,000 only since the company was a private limited company with only about 22 workmen. The official liquidator has no funds to advertise the sale or conduct it. In these circumstances, leave is granted to the appellants under section 537 of the Companies Act, 1956, to sell the said properties, viz ., land and building, plant and machinery situate at Tarapur and secured by the indenture of mortgage dated January 28, 1980, and deed of further charge dated June 16, 1981, on the following conditions : ( i )The property shall be valued by a valuer on the panel of valuers of the appellants to be approved by the appellants as well as the official liquidator. ( ii ) The valuation report shall be submitted by the official liquidator and the appellants jointly before the company judge and the learned company judge shall fix a reserve bid in respect of the said property and shall give appropriate directions regarding the manner of conducting the sale and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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