Kerala High Court
Titus Daniel And Ors. vs South Indian Parenterals Pvt. Ltd. And ... on 18 February, 1998
Equivalent citations: AIR1998KER205, [2000]101COMPCAS117(KER), AIR 1998 KERALA 205, 2000 (6) COM LJ 129 KER, 1998 KERLJ(TAX) 296, ILR(KER) 1998 (3) KER 207, (1999) 32 CORLA 211, (2000) 101 COMCAS 117
ORDER K.A. Mohamed Shafi, J.
1. This Company Petition is filed by the petitioners who are the shareholders of the Company seeking winding up of the Company under Sections 433(f) and 439 of the Companies Act, alleging mismanagement, misappropriation of large amounts belonging to the Company, falsification of the Company's accounts and fabrication and forgery of documents for the illegal and unlawful acts of respondents 2 and 3.
2. The 2nd respondent who is the Managing Director of the 1st respondent-Company has filed a counter-affidavit on behalf of respondents 1 and 2 denying the allegations of mismanagement, misappropriation of the funds of the Company, falsification of the accounts etc. In the affidavit it is further stated that the respondents have no objection in passing an order of winding up of the Company under Section 433(f) of the Companies Act.
3. The 4th respondent-Kerala Financial Corporation who is the creditor of the Company has filed a counter-affidavit contending that the above petition is not maintainable and is liable to be dismissed on merits also. According to them, the above petition is filed in collusion between the petitioners and respondents 2 and 3 with deliberate intention to delay and obstruct the recovery proceedings initiated by the 4th respondent against the 1st respondent and its Directors and their assets for the amounts due from the Company by availing loan of Rs. 19.1 lakhs. They have also contended that since the 1st respondent had committed default of payment of instalments of principal and interest due to them as agreed and as on 1-1-1996 a sum of Rs. 39,29,537/- was due from the 1st respondent. They have initiated proceedings under Section 29 of the State Financial Corporations Act for realisation of the entire amount due under the loan account and according to them, a notice dated 1-2-96 was issued by the 4th respondent to the 1st respondent and its Directors demanding payment of the entire amount. Since the 1st respondent and its Directors failed to comply with the demand made by them in the notice, the assets of the 1st respondent mortgaged and hypothecated in favour of the 4th respondent were taken possession of by the 4th respondent in exercise of the powers under Section 29 of the State Financial Corporations Act. According to them, the proceedings initiated by the 4th respondent is not liable to be interfered with and in the event of the 1st respondent-Company ordered to be wound up, the 4th respondent should be permitted to proceed with the sale of the assets of the 1st respondent-Company for realisation of the amounts due to the 4th respondent.
4. In the additional counter-affidavit filed by the 4th respondent it is contended that the State Financial Corporations Act, 1951 is a special statute enacted for the purpose of constituting the State level financial Corporation and thereby to augment industrialisation by extending financial assistance to certain industrial concerns and the Companies Act is a general statute dealing with the law relating to the Companies and certain associations and therefore, the State Financial Corporations Act being a special statute will prevail over the provisions of the Companies Act. It is also contended that the 4th respondent-Corporation is entitled to exercise the powers under the provisions of the State Financial Corporations Act notwithstanding the pendency of the petition for winding up of the Company in question and the intention of the petitioners in filing the above petition is for the purpose of obstructing the proceedings initiated under Section 29 of the State Financial Corporations Act.
5. The petitioners have filed a reply-affidavit contending that there is no collusion between the petitioners and respondents 2 and 3 and that once the proceedings under Section 433(f) of the Companies Act are initiated every other proceedings including the proceedings, under Section 29 of the State Financial Corporations Act will be regulated and subjected to the proceedings under the Companies Act. It is also contended that if this Court orders the winding up of the Company, all inevitable consequences and results emanating thereto under the Companies Act shall ensue in accordance with law to which the 4th respondent also will be subjected.
6. The only point to be considered in this case is whether the 4th respondent--Kerala Financial Corporation is entitled to proceed against the assets of the 1st respondent-Company under Section 29 of the State Financial Corporations Act for realisation of the debt due from the Company in spite of the initiation of the above proceedings under Sections 433(f) and 439 of the Companies Act and whether the provisions under Section 29 of the State Financial Corporations Act override the provisions of the Companies Act in view of Section 46B of the State Financial Corporations Act.
7. At the outset it is to be noted that though the 4th respondent has contended that it has taken over possession of the assets of the 1st respondent-Company mortgaged and hypothecated to the 4th respondent after the issuance of the demand notice dated 1-2-1996, it is nowhere stated either in the original counter-affidavit dated 5-8-1996 filed on 19-8-1996 or in the additional counter-affidavit dated 6-11-1997 filed on 11-11-1997, the date on which the 4th respondent has taken possession of the assets of the 1st respondent under Section 29 of the State Financial Corporations Act, nor the 4th respondent has adduced any evidence in support of the averments made in the counter-affidavits that possession of the assets of the Company is in fact taken by the 4th respondent.
8. The petitioners have vehemently contended that the 4th respondent -- Kerala Financial Corporation has not taken possession of the assets of the Company. They further contended that even if the 4th respondent has taken possession of the assets of the Company as provided in Section 29 of the State Financial Corporations Act, once the proceedings for winding up of the Company are initiated under the provisions of the Companies Act, the 4th respondent cannot proceed with the sale of the property for realisation of debts due to the 4th respondent and the rights of the 4th respondent are governed by the winding up order that may be passed by this Court. Therefore, according to them, the right of the 4th respondent for realisation of the debt due from the company under liquidation is subject to the order that may be passed by this Court in the above petition. In the absence of any evidence adduced by the 4th respondent to establish that they have in fact taken possession of the assets of the Company, the contention of the 4th respondent that they have taken possession of the assets of the Company as provided under Section 29 of the State Financial Corporations Act cannot be accepted and the contention of the petitioners that the assets of the Company are not taken possession of by the 4th respondent under Section 29 of the State Financial Corporations Act has to be accepted.
9. The 4th respondent vehemently contended that the Companies Act being a general statute dealing with the law relating to companies and certain associations and the State Financial Corporations Act being a special statute, the provisions of the State Financial Corporations Act will prevail upon the provisions of the Companies Act. They also contended that under Section 46B of the State Financial Corporations Act, the provisions of the Act and the rules and the orders made thereunder have overriding effect over any law for the time being in force or the memorandum or articles of association of an industrial concern or any other instrument having effect by virtue of any law inconsistent with the provisions of the Act and the provisions of the Act shall be in addition to, and not in derogation of any other law for the time being applicable to an industrial concern. In support of this contention the counsel for the 4th respondent relies upon the decisions in Kerala State Financial Corporation v. Sivasankara Panicker 1977 Ker LT 935 and Aryavarta Plywood Ltd. v. Rajasthan State Industrial and Investments Corporation Ltd. (1991) 72 Comp Cas 5 (Del). In both these cases a single Judge of this Court as well as a single Judge of the Delhi High Court respectively held that the State Financial Corporation was within its legal rights under Section 29 of the State Financial Corporations Act to sell the assets of the Company mortgaged in its favour irrespective of the proceedings for winding up of the Company under the Companies Act. I am afraid that both these decisions relied upon by the counsel for the 4th respondent have no application to the facts of the case.
10. In the decision reported in 1977 K.L.T. 935 in C. P. 1/1973 Sreeramavilasom Press and Publications Private Limited, Quilon was ordered to be wound up. During the pendency of that petition for winding up the petitioner therein filed C.A. 197/75 seeking an order of injunction to restrain Sreeramavilasom Press and Publications Private Ltd. and also Malayalarajyam Private Limited from alienating any of their assets. During that period the Kerala Financial Corporation had initiated steps to sell a Plamag Rotary Press and other machinery of Malayalarajyam Private Limited in O. P. No. 54/ 71 on the file of the District Court, Quilon. This Court ordered that the proceedings for sale of the Press can be proceeded with but the release of the press to the purchaser should not be made without the sanction of this Court. In C. A. 254/75 this Court directed the Provisional Liquidator to take possession of the assets of the S. R. V. Press and Publications Private Limited, The winding up petitioner filed C. A. 515/75 to direct the Provisional Liquidator to defer taking possession of the Plamag Rotary Press and the Block Studio euipments advertised for sale by the District Court in O. P. 54/71 since the above order passed by this Court was likely to affect the proceedings for sale of the Rotary Press ordered to be proceeded with in C. A. 197/75. Subsequently the winding up petitioner also filed C. A. 550/75 to stay the sale proceedings in O. P. 54/71 of the District Court under Section 446 of the Companies Act and this Court stayed the proceedings of sale. At that stage the Kerala Financial Corporation filed C. A. 88/76 to vacate the order staying the sale of the Plamag Rotary Press and Block Studio passed by this Court and also filed C. A. 189/77 to grant leave to proceed with the sale of the press. In that case after elaborate consideration of the contentions raised by the parties this Court observed that :
"In the light of Section 46-B of the State Financial Corporations Act the charge created by the order of the District Court under Section 32 of the said Act will not be affected by Section 125 of the Companies Act inasmuch as the latter section is inconsistent with the right created in favour of the creditor by Section 32 of the Act. Hence I hold that the effect of the order of the District Court in O. P. 54/71 supersedes the provisions of Section 125 of the Companies Act. In this view also I hold that the applicant can stand outside the winding up and realise his security created under the orders passed by the District Court in terms of the State Financial Corporations Act."
11. It is clear from the facts and circumstances of the above case and the observations made in the judgment that the Financial Corporation had obtained a decree by resorting to Section 32 of the State Financial Corporations Act and it was not a case pertaining to Section 29 of the Slate Financial Corporations Act. Under the circumstances of the case this Court found that by virtue of Section 46-B of the State Financial Corporations Act the Kerala Financial Corporation can stand outside the winding up proceedings and realise its security created under the orders passed by the District Court in terms of the State Financial Corporations Act. Therefore that decision is of no help to the 4th respondent or applicable to the facts of this case.
12. In the decision reported in (1991) 72 Comp Cas 5 (Delhi) (Aryavarta Playwood Ltd. v. R.S.I. & I. Corpn. Ltd.) a winding up order of the company was passed and the official liquidator was appointed as the liquidator of the company by order dated 19-7-1988. When the official liquidator attempted to take possession of the assets of the company it was contended by the Rajasthan State Industrial Development and Investment Corporation Limited that the assets of the company were taken possession of by them by virtue of the provisions of Section 29 of the State Financial Corporations Act on 15-9-1984. Therefore, the Official Liquidator filed application under Sections 456 and 457 of the Companies Act for necessary reliefs. In that case after detailed consideration of the facts and circumstances of the case and various decisions of other courts the single Judge of the Delhi High Court has observed as follows :
"Thus, following the dictum of the Supreme Court in M. K. Ranganathan (1955) 25 Comp Cas 344 : (AIR 1955 SC 604), taking into consideration the provisions of Section 29 of the State Financial Corporations Act, 1951, and the facts and circumstances of the present case, I hold that the Corporation was justified in taking over possession of the assets of the company, during the pendency of the winding up proceedings, without the permission of the court. I further hold that, as the Corporation did not take the aid of the Court for realising its dues or for enforcing its right, and as it was already in possession and control of the assets of the company, prior to the passing of the winding up order, the Corporation was within its legal rights under Section 29 of the said Act, to sell the assets of the company to Zoravar Vanaspati Limited, without seeking the permission of the court. In my view, Section 537 of the Act is not applicable to the present case."
13. It is clear from the facts noted that the Rajasthan State Industrial and Investments Corporation Ltd. had taken possession of the properties as provided under Section 29 of the State Financial Corporations Act before the order of winding up was passed, though during the pendency of the winding up proceedings. In this case there is nothing on record to show that the 4th respondent has in fact, taken possession of the assets of the Company either before the commencement or during the pendency of the above winding up proceedings. Therefore in that reported case though the Delhi High Court relying upon the decision of the S. C. reported in AIR 1955 SC 604 has held that the Rajasthan State Industrial and Investments Corporation Ltd. was in its legal rights under Section 29 of the State Financial Corporations Act to sell the assets of the Company taken over possession without seeking the permission of the Court, that decision is not applicable to the facts of this case.
14. In the decision in Maharashtra State Financial Corpn. v, Official Liquidator, Bombay H. C., AIR 1993 Bom 392 a Division Bench of the Bombay High Court considered the provisions of Sections 29 and 46B of the State Financial Corporations Act and Sections 529, 529-A and 537 of the Companies Act and held that there is no inconsistency between Section 29 of the State Financial Corporations Act and Section 529 of the Companies Act and leave of the winding up Court to sell the property of the Company under liquidation is necessary.
15. In that case the company was ordered to be wound up by the order of the company court dated 31-7-1987 and the Official Liquidator was appointed as the liquidator of the company. The company had borrowed large amounts from the Maharashtra State Financial Corporation, the appellant therein and had mortgaged the land, building, plant and machinery etc. situated at Tarapur in favour of the Maharashtra State Financial Corporation. Since the company defaulted repayment of the loan, the Maharashtra State Financial Corporation moved the company court seeking leave under Section 537 of the Companies Act to proceed with the sale of the land, building, plant and machinery of the company situated at Tarapur by exercising their right under Section 29 of the State Financial Corporations Act. The Company Court declined to grant permission and therefore, the appeal was preferred by the Maharashtra State Financial Corporation (AIR 1993 Bombay 392) before the Division Bench of the Bombay High Court. In that case after finding that in the decision reported in AIR 1955 SC 604 the Supreme Court had dealt with the question at a time when the Companies Act, 1913 was in force which did not have any provision equivalent to the amended Section 529 or 529A of the Companies Act and hence the impact of those provisions on Section 538 of the Companies Act 1956 which is similar to Section 232 of the Companies Act. 1913 could not have been considered by the Supreme Court, the Division Bench of the Bombay High Court has observed as follows :
"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 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.................
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26. It was also urged by Mr. Tulzapurkar, learned counsel for the appellants, that under Section 56B of the State Financial Corporations Act, the provisions of that Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force but save as aforesaid, the provisions of that Act shall be in addition to and not in derogation of any other law for the time being applicable to an industrial concern. He submitted that because of Section 46-B, the provisions of Section 29 of the said Act would prevail over the provisions of Section 529 of the Companies Act. We, however, do not see any inconsistency between the provisions of Section 29 of the State Financial Corporations Act and Section 529 of the Companies Act. Section 29 of the State Financial Corporations Act merely confers certain powers on the mortgagee. It does not cover a situation where there is a pari passu chargeholder. Therefore, the power to sell which is given to a financial corporation under Section 29 has to be exercised consistently with the right of a pari passu chargeholder. Such a right can be exercised with the consent of the pari passu chargeholder or on orders of the Court after making him a party to the proceedings to enforce the security. Since the chargeholder is the Official Liquidator, his power to consent is subject to the sanction of the Court."
In the above case the Division Bench has also held that whenever there is pari passu charge over any property of a company in winding up by virtue of the proviso to Section 529, leave of the Court is necessary for the sale of the property as the chargeholder is the Official Liquidator, and granted leave to the Maharashtra State Financial Corporation under Section 527 of the Companies Act, 1956 to sell the properties on the conditions imposed by the Court. I find that the above proposition of law laid by the Division Bench of the Bombay High Court is correct and has to be followed by this Court also.
16. In the decision in Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd. (1993) 2 SCC 144 : (1993 AIR SCW 991) the apex court after construing the provisions of Sections 29 and 31 of the State Financial Corporations Act and Sections 16, 17, 22 (1), 25 and 32 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 held that when there is conflict between the provisions of those two Acts, both being special statutes dealing with different situations, the provisions of the subsequent Act will ordinarily prevail over the provisions of the earlier enactment. The question canvassed in that judgment before the Supreme Court was whether in a case where an industrial concern makes any default in repayment of any loan or advance or any instalment thereof or otherwise fails to meet its obligations under the terms of an agreement with the Financial Corporation, can the Financial Corporation take recourse to Section 29 or 31 of the State Financial Corporations Act, 1951 notwithstanding the bar of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. After elaborately considering the various provisions of both the enactments the apex Court has observed as follows :
"Both the statutes have competing non obstante provisions. Section 46-B of the 1951 Act provides that the provision of that statute and of any rule or order made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force whereas Section 32(1) of the 1985 Act also provides that the provisions of the said Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. Section 22 (1) also carries a non obstante clause and says that the said provision shall apply notwithstanding anything contained in Companies Act, 1956 or any other law. The 1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obstante clause found in Section 46-B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one. In that event the maxim generalia specialibus non derogant would apply. But in the present case on a consideration of the relevant provisions of the two statutes we have come to the conclusion that the 1951 Act deals with pre-sickness situation whereas the 1985 Act deals with the post-sickness situation. It is, therefore, not possible to agree that the 1951 Act is a special statute vis-a-vis the 1985 Act which is ageneral statute. Both are special statutes dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situations. We must, therefore, hold that in cases of sick industrial undertakings the provisions contained in the 1985 Act would ordinarily prevail and govern."
Therefore, the above observations made by the apex Court lay down that if there is conflict between the provisions of two similar statutes, the provisions of the subsequent enactment will ordinarily prevail over the earlier enactment.
17. In the decision in In the matter of : M/s. Disco Electronics Ltd. (in Liquidation), AIR 1997 Delhi 251 a single Judge of the Delhi High Court held that Sections 537, 443 and 442 of the Companies Act are special law and therefore, the provisions of State Financial Corporations Act would be deemed to be general law in cases of companies under winding up. In that case the Delhi Financial Corporation took overpossession of the assets of the Company--Disco Electronics Ltd. for realisation of the debt due to the Corporation under Section 29 of the State Financial Corporations Act by enforcing mortgage in respect of the assets of the said Company executed in favour of the Corporation after issuing notices demanding to pay the amounts and the properties were put up for sale and the sale was conducted on 22-6-1992 and the highest offer was accepted by the Corporation on 23-9-1992. In the meanwhile a petition for winding up was filed on 3-3-1992 before the Delhi High Court and an order of injunction was passed on 4-8-1992 restraining the Company from disposing of any of its assets. The winding up petition was admitted on 29-9-1992 and a Provisional Liquidator was appointed on the same day. Subsequently an order to maintain status quo was passed on 19-10-1992 and a specific injunction was granted on 5-11-1992 with regard to possession of those properties. The Delhi Financial Corporation contended that the action taken by the Corporation was under Section 29 of the State Financial Corporations Act and the provisions of State Financial Corporations Act will override the provisions of the Companies Act by virtue of the provisions contained in Section 46-B of the Financial Corporations Act. With regard to the right conferred upon the State Financial Corporation on taking over possession under Section 29 of the State Financial Corporations Act, the Delhi High Court has observed as follows:
"In my view, in the taking over of the possession under Section 29 of the State Financial Corporations Act, the owner always retains the right of ownership of the property does not pass on to thefinancial corporation, but it is only for certain purposes of affecting recovery of its dues by the sale and to remove any impediments in their way that the statute by a deeming provision has granted to the financial corporation powers of the owner for the limited purpose of realising the security, to convey good marketable title to the purchaser, and to defend any legal action, but the property does not absolutely vest in it."
It is further observed as follows :
"32. In case, there are two Acts, each having a non obstante clause, then the safer course will be to presume that the legislature intended the latter. Act to prevail in case there arose any conflict in the provisions of the two Acts and such conflict could not be resolved by construing the provisions of two Acts harmoniously. The legislature in the present case was aware of the earlier Act, i.e., State Financial Corporations Act, while enacting the non obstante clause such as Section 529-A of the Companies Act, it should be assumed that the legislature did not intend the provisions of Section 529-A of the Companies Act to be ignored by the Financial Corporation as a new category of creditor ranking pari passu with secured creditors had been created."
18. In that case the Delhi High Court ultimately set aside the sale effected by the D.P.C. on the ground that the sale was for inadequate consideration and contrary to the subsisting injunction order of the Court and the property was delivered after the order of appointment of the provisional liquidator, and granted leave to the D.F.C. to sell the property in auction afresh by associating the Official Liquidator with settlement of proclamation of auction and the auction, subject to the confirmation by the Company. Court and also imposing certain conditions.
19. In the decision in Karnataka State Industrial Investment and Development Corporation Limited v. Shivmoni Steel Tubes Limited, AIR 1997 Kant 280 a Division Bench of the Karnataka High Court upheld the order passed by the Company Court declining to approve the sale of the properties of the Company by the Karnataka State Industrial Investment and Development Corporation Ltd. by invoking Section 29 of the State Financial Corporations Act after the passing of the winding up order against the Company and directing the Corporation to sell the property by standing outside the winding up proceedings in association with the Official Liquidator. In that case on the basis of the order passed by the Board for Industrial and Financial Reconstruction C. P. No. 157/92 was registered for winding up the Company and subsequently after the disposal of the appeal by the appellate authority for Industrial and Financial Reconstruction against the order passed by the B.I.F.R., another C. P. No. 49/1994 was registered and both the petitions were clubbed together and tried. A winding up order was passed by the Company Court on 8-9-1994 in view of the orders passed by the B.I.F.R. and A.A.I.F.R. There were several secured creditors for the Company including various banks and the Karnataka State Industrial Investment and Development Corporation Ltd. The KSIIDC by invoking Section 29 of the State Financial Corporations Act, 1951 took over possession of the assets of the Company in liquidation on 29-7- 1994 and advertised for sale in the Deccan Herald and Economic Times on 1-11-1994: The KSIIDC accepted the highest tender and after negotiation the sale price was finalised and on 26-10-1995 the KSIIDC filed Company Application No. 535/ 1995 before the Company Court to recognise and record the rights of the secured creditor to stand outside the winding up proceedings in enforcement of its security for realisation of the amount due to it, and to approve the sale held by them and to appropriate the sale proceeds towards dues on pan passu basis. Another Company Application No. 786/95 was filed by one party offering total price of Rs. 5.02 crores. The Official Liquidator filed Company Application No. 2/ 1996 under Sections 456 and 457 of the Companies Act for declaration that the sale conducted by the KSIIDC was void under Section 537 of the Act, Since it was finalised after the winding up order was passed and without the leave of the Court, and to direct the KSIIDC to reauction the property in association with the Official Liquidator and subject to confirmation of the sale by the Company Court.
20. In that case after noting that KSIIDC had taken over possession of the assets of the Company under liquidation on 29-7-1994 invoking the provisions of Section 29 of the State Financial Corporations Act at a time when no Provisional Liquidator was appointed under Section 450 of the Act and subsequently before the sale transaction was completed on 30-9-1995 the winding up order was passed on 8-9-1995 and the Official Liquidator was appointed as the Liquidator of the company under Section 449 of the Act, the Division Bench has observed as follows :
"There were workmen's dues to the tune of Rs. 80 lakhs. Because of the proviso to Subsection (1) of Section 529 of the Act, KSIIDC is not the only secured creditor entitled to sell the security by invoking Section 29 of the SFC Act, KSIIDC has to contend with the pari passu charge in favour of the workmen's dues, the workmen being represented by the Official Liquidator. Official Liquidator would thus be an interested party in the sale of security. The Proviso to Sub-section (1) of Section 529 as also Section 529A of the Act, having created pari passu charge in favour of the workmen, same would affect the right of the appellant KSIIDC to sell the security directly by itself by invoking Section 29 of the SFC Act. The appellant is required to join the Official Liquidator in the sale, and, the property cannot be sold ignoring pari passu charge holder. Similarly, though the Official Liquidator by virtue of Section 457 (1) of the Act has the power to sell the property of the company in winding up, and as a pari passu charge holder under Section 529 of the Act, he has the power to sell the said property with the sanction of the court to realise the charge, he cannot sell the property all by himself ignoring the secured creditors like KSIIDC. Thus both the secured creditor namely KSIIDC as also the Official Liquidator as the representative of the workmen, are to exercise the power to sell under the directions of the Court. ............................................................
Therefore, the statutory right given to the appellant KSIIDC under Section 29 of the SFC Act being required to be exercised consistently with the right of pari passu charge holder in whose favour statutory charge is created by the proviso to Subsection (1) of Section 529 of the Act when the company is in liquidation, and the said pari passu charge holder being Official Liquidator who is required to act under the directions of the Court, leave of the Court would be necessary, and, any sale without such leave would be void under Section 537 of the Act. Learned Company Judge was therefore, right in declining to approve the sale in favour of Respondent No. 7 and giving fresh directions for resale of the property by the appellant KSIIDC by standing outside the winding up in association with the Official Liquidator right from the time of settling the terms of advertisement, and making the said resale subject to confirmation by the Court."
In the judgment the Division Bench of the Karnataka High Court has quoted with approval the observations made by the Division Bench of the Bombay High Court reported in AIR 1993 Bombay 392 already referred to above by me.
21. Therefore, it is clear that even though the 4th respondent -- K.F.C. is entitled to stand outside the winding up proceedings and enforce their right to sell the assets of the Company mortgaged in their favour by invoking Section 29 of the S.F.C. Act, once the winding up proceedings is initiated for the winding up of the Company before the Company Court and a Provisional Liquidator is appointed by the Court, the K.F.C. can sell the property only in association with the Official Liquidator and the property cannot be sold ignoring the pari passu charge holder represented by the Official Liquidator. Therefore, the contention of the 4th respondent that the above Company Petition filed by the petitioners is intended to defeat the rights of the K.F.C. to sell the mortgaged assets of the Company in favour of the K.F.C. for realisation of the dues due from the Company and therefore the C.P. is liable to be dismissed, is not sustainable. Likewise the contention of the 4th respondent that the provisions of S.F.C. Act being a special statute will prevail upon the provisions of the Companies Act which is a general statute is also not sustainable in view of the fact that the provisions of Sections 529, 529A and 537 of the Companies Act are incorporated into the Companies Act, 1913 by the amending Act of 1956 while the provisions of Section 29 and 46A of the State Financial Corporations Act, 1951 were in force and therefore, the subsequent enactment will prevail upon the earlier enactment. Hence the contention of the 4th respondent that they are entitled to put up the mortgaged property of the Company for sale by invoking the provisions of Section 29 of the State Financial Corporations Act standing outside the winding up proceedings on the strength of Section 46A of the State Financial Corporations Act irrespective of the above winding up proceedings, is not sustainable. Of course, the 4th respondent can put up the mortgaged property of the Company for sale standing outside the winding up proceedings being the secured creditor by invoking Section 29 of the State Financial Corporations Act by involving the Liquidator to be appointed in this case in the necessary formalities of the sale and subject to confirmation of sale by this Court.
22. In view of what is stated above, this Company Petition is allowed and the Company is ordered to be wound up. The Official Liquidator is appointed as the Liquidator of the Company. The 4th respondent-Kerala Financial Corporation is entitled to sell the mortgaged property of the Company mortgaged in their favour by standing outside the winding up proceedings as provided under Section 29 of the State Financial Corporations Act with the involvement of the Liquidator appointed in this case in the necessary formalities of sale and the sale subject to the rights of the pari passu charge-holder, if any, and confirmation of sale by this Court.
The petitioners are directed to advertise the winding up order in one issue of Mathrubhoomi daily, Cochin edition and in one issue of Indian Express, Cochin edition, Petitioners are further directed to deposit an amount of Rs. 2,500/- with the Official Liquidator for initial expenses. Registry will draw up the winding up order in Form No. 52 and communicate the same to the Official Liquidator.