Document Fragment View

Matching Fragments

24. It may be noticed whether the condition, requiring the Corporation to place the Valuation Report before the Court, before proceeding to put the properties to sale, was required to be complied with or not. Condition No. 2, of the said order, which required the Corporation to place the Valuation Report before the Court, read "the applicant shall file the valuer's report in this Court before the properties covered under the mortgage deeds are put to sale". From a reading of the said condition, there can be no manner of doubt, that before putting the properties covered by the mortgage deeds to sale, the Corporation was required to place the Valuation Report before the Court. By imposing such a condition, the Court obviously meant that the valuation of the properties covered by the Valuation Report, should be subjected to its assessment and scrutiny, so as to enable the Court to consider whether assessment and valuation of the properties covered by the Valuation Report, were done properly, as also the objections, if any, that may be raised by the other secured creditors, to whom the company in liquidation was liable to pay their dues. In the instant case, apart from the charge of the Corporation over the properties covered by the Valuation Report, there is charge of another secured creditor and pari passu charge of the workers of the company in liquidation, and by reason of non-placement of the Valuation Report, the other secured creditor as well as the Official Liquidator, who represents the interest of the workers, was affected, for they had no opportunity to file their objections to the Valuation Report, if any. It should be noted that the conditions imposed in a judicial order, cannot be taken lightly or for granted, for they are mandatory in nature and are binding on the parties concerned, and they have to be honoured in letter and spirit. It should be further noted that the Courts while disposing of the matters before them impose conditions having regard to the facts situation and circumstances appearing in the case, and if the interests of justice demand imposition of conditions. A reading of the conditions imposed by this Court in its order dated 30-9-1999, while allowing the application C.A. No. 464 of 1998, filed by the Corporation to remain outside the liquidation proceedings would disclose that the Court was very much conscious of the need to protect the interests of the other secured creditors and workers who have pari passu charge over the properties covered by the Valuation Report. When a particular condition had directed the applicant to place the Valuation Report before the Court before the properties covered thereby are put to sale, it was obligatory on the part of the Corporation to place the same before the Court, and the Corporation cannot assume for themselves that placing of such Valuation Report before the Court was an empty formality, and therefore, its non-placement before the Court, need not be viewed as a serious omission, disabling the Court from confirming the sale of the properties covered by the Valuation Report. Non-placing of the Valuation Report as directed by this Court in its earlier order, is certainly a violation of the orders of this Court, and any sale of the properties conducted without placing the Valuation Report before the Court, is vitiated, and cannot be confirmed, and more so when it is alleged by the Official Liquidator that the Valuation Report on the basis of which the properties covered thereby were put to sale, is fraught with discrepancies.

29. The apex Court further held thus:

Finally, counsel for the SFCs urge that the view we are to take would obliterate the difference between a creditor opting to stay outside winding up and one who opts to prove his debts in winding up. We are unable to accept it. As a result of the amendments made by the Act of 1985 in the Companies Act, 1956, the SFCs as secured creditors, must seek leave of the Company Court for the limited purpose of ensuring that the pari passu charge in favour of the workmen is safeguarded by imposition of suitable conditions under the supervision of the Company Court. If this amounts to impeding their hitherto unimpeded rights, so be it. Such is the Parliament intendment, according to us. This impediment is of a limited nature for the specific purpose of protecting the pari passu charge of the workmen's dues and subject thereto, SFCs can continue to exercise their statutory rights as secured creditors without being reduced to the status of unsecured creditors required to prove their debts in insolvency and stand in line with other unsecured creditors. Neither is the apprehension expressed justified, nor the contention sound.

30. The apex Court laid down the following principles:

1. The right unilaterally exercisable under Section 29 of the SFC Act is available against a debtor, to a company, only so long as there is no order of winding up;
2. The SFCs cannot unilaterally act to realize the mortgaged properties without the consent of the Official Liquidator representing workmen for the pari passu charge in their favour under the proviso to Section 529 of the Companies Act, 1956.
3. If the Official Liquidator does not consent, the SFCs have to move the Company Court for appropriate directions to the Official Liquidator who is the pari passu charge holder on behalf of the workmen. In any event, the Official Liquidator cannot act without seeking directions from the Company Court and under its supervision.

31. From the law, as laid down by the apex Court, in the aforementioned case, it would become clear that as long as a debtor company does not go into liquidation, the Corporation can exercise its unilateral power under Section 29 of the SFC Act for realization of its dues, but no sooner an order of winding up is passed, the Corporation loses its unilateral power to realize its debts by the sale of the properties mortgaged to it, and any realization of the dues, would only be with the consent of the Official Liquidator representing the workmen. In the instant case, after an order of winding up of the company was passed, the Corporation obtained permission of the Court to remain outside the liquidation proceedings, and having regard to the judgment of the apex Court in International Coach Builders Ltd. v. Karnataka Sate Financial Corpn., even on the date when the Corporation was permitted to remain outside the liquidation proceedings, the Corporation did not have the absolute superior right conferred upon it by Section 29 of the SFC Act over the properties hypothecated to it, for by then an order of winding up of the company had already been passed, and all the assets of the company in liquidation stood transferred to the custody of the Official Liquidator. Any superior right of the Corporation over the properties hypothecated to them, would be available to them only prior to the date of the company going into liquidation, and when once an order of winding up of a company is passed, whatever superior rights that were available to the Corporation under Section 29 of the SFC Act, became subjected to and were to operate in conjunction with the special rights given to the workmen under Sections 529 and 529-A of the Companies Act, who have pari passu charge over the properties of the company in liquidation. In that view of the matter, the Corporation cannot be allowed to contend that having regard to the power conferred upon them by Section 29 of the SFC Act, they can sell the properties hypothecated to them and appropriate the proceeds realized through the sale in their entirety for themselves nor can they be permitted to say that neither the Official Liquidator nor the secured creditors have any role to play, except to the extent of pari passu charge of the workmen over the properties of the company in liquidation.