Document Fragment View

Matching Fragments

13. In A.P. State Financial Corporation v. Official Liquidator , 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 his 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 Rajasthan High Court in the case of Boolani Engineering Corporation v. Asup Synthetics and Chemicals Ltd. [1994] 81 Comp Cas 872 in which the court has held that the option of a State Financial Corporation, as a secured creditor of a company, to remain outside the winding up of the company was not affected by the insertion of section 529A of the Companies Act, 1956. Despite the fact that winding up had commenced, the financial corporation having taken possession of properties charged to it, in exercise of the powers under section 29 of the State Financial Corporations Act, 1951, and the charge having been registered by the Registrar of Companies, the corporation was entitled to put the properties to sale for realisation of its dues and that section 537 of the Companies Act would not apply, as the sale was not through the intervention of the court. There could be no two opinions about the fact that the financial corporation was entitled to put the properties to sale for realisation of its dues under section 29 of the State Financial Corporation Act, 1951, and that section 537 of the Companies Act would not apply. However, the amendment to section 529 of the Companies Act and the insertion of new section 529A by the Amendment Act 35 of 1985, made it obligatory upon the liquidator to represent the workmen and enforce the pari passu charge in favour of the workmen and to ensure that the amount realised was applied rateably for the discharge of workmen's dues which made it necessary for the court to intervene and impose conditions which may be found necessary for the realisation of the pari passu charge in favour of the workers. In that view of the matter, in spite of the fact that the right of the financial corporation to realise its dues under section 29 of the State Financial Corporations Act, 1951, could not be interfered with, the imposition of conditions to be observed by the financial corporation could not be dispensed with and could not be treated as an illegal encroachment on the right of the financial corporation."

14. The judgment of the Karnataka High Court in International Coach Builders Ltd. v. Karnataka State Financial Corporation [1994] 81 Comp Cas 19 is referred to and the Bench of this court has said as follows (at page 356 supra) :

"We have no dispute in the present case with the proposition of law that the secured creditor was entitled 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 rateable distribution. Under the amended portion of section 529 of the Companies Act, the following factors are required to be taken care of (a) that the liquidator should be enabled to enforce the charge of the workmen; (b) that the amount realised by the liquidator by way of enforcement of such charge should be applied rateably for the discharge of the workmen's dues; and that (c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the provisions of new proviso to sub-section (1) of section 529 of the Companies Act or the amount of workmen's portion in his security, whichever is less is held to rank pari passu with the workmen's dues for the purpose of section 529A.'Workmen's portion', in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of - (i) the amount of workmen's dues, and (ii) the amounts of the debts due to the secured creditors, as defined in clause (c) of sub-section (3) of section 529 of the Companies Act."

17. The learned single judge has proceeded, however, on the footing that the official liquidator is required to represent the workmen and realise from the assets of the company their claim in full. The court, in the case of A.P. State Financial Corporation v. Official Liquidator has also proceeded almost with the same presumption although a clear mention is made therein of the proviso to section 529(1) and it is stated, "under section 29 of the State Financial Corporations Act, 1951, a statutory right to sell the properly 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 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 corporation, their claims. The same, on principle, being pari passu with the dues of the financial corporation, has to be applied to the claims of any other secured creditor provided, of course, when the assets of the company are insufficient to meet all pari passu claims.