LAXMI FIBRES LTD.versusAP. INDUSTRIAL DEV. CORPN. LTD. & ORS.

                    [2015) 8 S.C.R. 829


                   LAXMI FIBRES LTD.                          A
                             v.
      AP. INDUSTRIAL DEV. CORPN. LTD. & ORS.
              (Civil Appeal No.5805 of 2005)
                    AUGUST 07, 2015                           B

   [VIKRAMAJIT SEN AND SHIVA KIRT! SINGH, JJ.]

     State Financial Corporations Act, 1959 - s. 29 - Power
of Official Liquidator- To adjudicate and quantify the claim C
of statutory corporations who have been permitted by the
Company Judge to stand outside the liquidation proceeding
subject to certain conditions - Held: Official Liquidator cannot
assume jurisdiction to sit in adjudication and decide
entitlement of the financial corporation when it has opted to D
stand outside the liquidation proceeding as a secured creditor
- They will not.be reduced to the status of unsecured creditors
and equally will not be required to prove their debt which they
are entitled to realize under the provisions of the SFC Act
subject to right of the workers to receive their wages also as E
secured creditors on pari passu basis.

    Dismissing the appeals, the Court

    HELD: The rights ofa financial corporation available F
under the provisions of the State Financial Corporations
Act, 1959 have been compromised or impeded by the
amendment of 1985 in the Companies Act, particularly
the proviso added to Section 529(1) and Section 529A,
only to a limited extent and for the limited purpose of G
securing the right of the workers for distribution of their
wages as pari passu charge. But such limited
impediment to their rights under the SFC Act will not alter
the status of State financial corporations as secured
                           829                              H
830      SUPREME COURT REPORTS                [2015] 8 S.C.R.


A  creditors and they will not be required to prove their debt
   which they are entitled to realize under the provisions
   of the SFC Act subject to right of the workers to receive
   their wages also as secured creditors on pari passu
 · basis. The control of the Company Judge and the Official
B Liquidator if authorized, can extend only to ensure that
   the said purpose of Section 529A is effectively achieved.
   Like any other affected person, if the Company
   represented by the Official Liquidator has reasons to be
   aggrieved by claims made by a financial corporation
C under the SFC Act, its remedy would be to initiate
   appropriate civil proceedings to challenge such claim
   or debt of a State financial corporation before an
   appropriate forum and not to assume jurisdiction to sit
D in adjudication and decide entitlement of the financial
   corporation when it has opted to stand outside the
   liquidation proceeding as a secured creditor. The
   statutory powers of SFCs have "suffered only a limited
   impediment only to serve the purpose of protecting
E workers' dues. After ensuring that this purpose is
   achieved or ensured, the State Financial Corporations
   can continue to enjoy their statutory rights as secured
   creditors. They will not be reduced to the status of
   unsecured creditors and equally will not be required to
F prove their debts nor will be required to stand in line with
   other unsecured creditors. Thus, there is no error in the
   order of the Division Bench.[Para 10,8, 11] [836-B, F-H;
   837-A-D]

G     A.P State Financial Corporation v. Official Liquidator
  2000 (2) Suppl. SCR 288: (2000) 7 SCC 291; International
  Coach Builders Ltd. v. Karnataka Slate Financial Corpn.
  2003 (2) SCR 631: (2003) 10 SCC 482; Rajasthan State
  Financial Corpn. v. Official Liquidator 2005 (3) Suppl. SCR
H 1073: (~005) 8 SCC 190- referred to.
  LAXMI FIBRES LTD. v. A.P. INDUSTRIAL DEV CORPN.                     831
                          LTD.

                     Case Law Reference ·                              A

   2000 (2) Suppl. SCR 288          referred to.      Para 5, 6

   2003 (2) SCR 631                 referred to.      Para 5, 7

   2005 (3) Suppl. SCR 1073 referred to.              Para 5, 9        B

   CIVIL APPELLATE JURISDICTION: Civil Appeal No.
5805 of 2005.

    From the Judgment and Order dated 07.01.2004 of the                C
High Court of Judicature of Andhra Pradesh at Hyderabad in
Original Side Appeal No. 85 of.2003.

                                 With

     C.A. NOS. 5803AND 5804 OF 2005.                                   D

   G. Ramakrishna Prasad, Suyodhan Byrapaneni, Filza
Moonis for the Appellant.

   A.V. Rangam, Buddy A. Ranganadhan, D.V. Raghu                       E
Vamsy, T.V. Ratnam, Y. Prabhakara Rao for the Respondents.

     The Judgment of the Court was delivered by

     SHIVA KIRTI SINGH, J.
                                                                       F
     Civil Appeal No.5805 of 2005

     1. In this appeal preferred by the appellant-company under
liquidation represented by the Official Liquidator the question
of law arising for consideration is whether the Official Liquidator    G
can claim any power or jurisdiction in itself to adjudicate and
quantify the claim of statutory corporations such as respondent
no.1, A.P. Industrial Development Corporation and respondent
no.2, A.P. State Financial Corporation when the Company
Judge has permitted them to stand outside the liquidation              H
832          SUPREME COURT REPORTS                      [2015] 8 S.C.R.


A     proceeding subject to certain conditions under which the
      respondent Corporations may pursue the powers available to
      them under Section 29 of the State Financial Corporations
      Act, 1959 (for brevity referred to as 'the SFC Act').

B          2. The relevant facts are not at all under dispute and to
       answer the issue of law indicated above it is not necessary to
      delve deeper into facts. It would suffice to notice that the Official
       Liquidator has taken over the charge of the company by virtue
      of Section 445 of the Companies Act and the property of the
C     company is also seized by the first respondent (the
      Corporation) under Section 29 of the SFCAct. The sale of the
      assets of the company was conducted by first respondent as
      per conditions imposed by the High Court. To comply with one
      of the conditions the corporation was required to obtain
D     permission of the High Court for finalizing/confirming the sale.
      The Official Liquidator had already .been allowed to inspect
      the properties and assets of the company and to take inventory
      as and when required. The valuer's report was also placed
      before the court before the properties covered under the
E     mortgage deeds in favour of Corporation were put to sale.
      The respondent-corporation had also submitted to the order
      of the Company Judge requiring the corporation to undertake
      to deposit workmen's dues with the Official Liquidator as and
F     when quantified by him as per the provisions of Section 529A
      of the Indian Companies Act with interest at the bank rate and
      whatever surplus would remain after the sale and realization
      of the dues of the secured creditors and the workmen, as per
      law, the balance sale proceeds could be made available to
G     the Official Liquidator for being dealt with as per the provisions
      of the Companies Act and the Rules.

        3. On the application filed by the respondent-corporation
    seeking confirmation of sale of the mortgage assets of the
H · company, the learned Single Judge vide order dated
    19.11.2003 noted the contention of all the parties and finding
  LAXMI FIBRES LTD. v.A.P. INDUSTRIALDEV. CORPN. 833
             LTD. [SHIVAKIRTI SINGH, J.]

that there was no objection to sale of the properties either by A
the second charge holder or by the Official Liquidator,
confirmed the sale of land, buildings, plant and machinery in
favour of Mis. Sri Venkata~wara Industries represented by Sri
Adarsha Gupta for a sum of Rs.86 Lacs and carding machine
in favour of M/s. Supreme Associates, Coimbatore for a sum B
of Rs.2.45 Lacs. However, the learned Single Judge made
the order of confirmation subject to the following conditions :

    "Before the applicant and 2nd respondent seek to
    appropriate the sale proceeds for themselves, they should    C
    prove their claim before the Official Liquidator. The
    proceeds realised through the sale of the properties shall
                                                                  •
    be kept by the applicant-Corporation in interest earning
    deposits till the Official Liquidator adjudicates and
    quan_tifies the claim of the applicant and 2nd respondent    D
    Corporations. The applicant and 2nd respondent shall
    deposit 1/4'h of the sale proceeds with the Official
    Liquidator to enable him to proceed with the adjudication
    of the claims of the workmen and for distribution among
    themselves. They shall make over the excess sale             E
    proceeds, if any, to the Official Liquidator.

    After receiving the entire sale consideration only, the
    petitioner is directed to hand over possession of the
    properties to the highest bidders and execute necessary      F
    sale papers in theirfavour."

     4. Aggrieved only with the condition extracted above, the
respondent no.1 preferred an intra-court appeal bearing OSA
No.85 of 2003. The learned Division Bench disposed of the G
appeal by order impugned dated 07.01.2004 directing that
the confirmation of sale of the properties in favour of the highest
bidder would be subject to only one condition that the Official
Liquidator shall quantify the amounts liable to be paid to the
workmen. The Division Bench accepted the objection raised H
                                   .
834          SUPREME COURT REPORTS                   [2015] 8 S.C.R.


A     by respondent-corporation that there could be no question of
      establishing the claim of the corporation before the Official
      Liquidator as the corporation was a secured creditor.

        5. The Division Bench in our view came to a correct
B conclusion that the Official Liquidator does not have jurisdiction
  to ascertain or adjudicate the claim of a secured creditor who
  has been permitted by the Company Judge to stand outside
  the liquidation proceeding with liberty to pursue its remedy as
  per statutory rights available under the SFC Act, subject only
C to the conditions imposed by the court. The reasons for such
  a view are apparent on a perusal of the following three
  judgments of this Court :

        1.    A. P. State Financial Corporation v. Official Liquidator
o             (2000) 7 sec 291;

        2.    International Coach Builders Ltd. v. Karnataka State
              Financial Corpn. (2003) 10 SCC 482; and

        3.    Rajasthan State Financial Corpn. v. Official Liquidator
E             (2005) 8 sec 190

       6. In A.P. State Financial Corporation this Court had
  the occasion to examine the extent of powers available to a
  Financial Corporation under Sections 29 and 46 of the SFC
F Act in the light of later amendments to the Companies Act
  incorporating proviso to Section 529( 1) and Section 529A of
  the CompaniesActthroughAmendmentAct 35 01 1985. The
  object of the amendment was to protect the dues of the
  workmen. This Court held that the power available to a
G corporation under Section 29 to sell the property of a ctebtor
  company under liquidation is not absolute but is subject to the
  proviso to Section 529(1) and non obstante clause in Section
  529A of the Companies Act providing for pari passu charge
  of the workmen.
H
  LAXMI FIBRES LTD. v. A.P. INDUSTRIAL DEV. CORPN. 835
             LTD. [SHIVAKIRTI SINGH, J.]

     7. In International Coach Builders. Ltd. this Court not A
only followed the view taken in A. P. State Financial Corporation
case but went on to explain in paragraph 31 as to how the
view adopted would not obliterate the difference between a
creditor opting to stay outside winding up and one who opts to
prove his debt in winding up. Para 31 of the judgment provides B
thus:

    "31. Finally, counsel for SFCs urge that the view we are to
    take would obliterate the difference between a credifor
    opting to stay outside winding-up and one who opts to C
    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, SFCs as secured creditors,
    must seek leave of the Company Court for the limited
    purpose of ensuring that the pari passu charge in favour D
    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 parliamentary intendment, according
    to us. This impediment is of a limited nature for the specific E
    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 F
    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."

    8. It is clear from the aforesaid judgment that no doubt the G
changes brought about in the Companies Act through
amendments of 1985 impede even the statutory powers
available to a secured creditor like SFCs under Section 29
and the other relevant sections of the SFC Act but the            H
836         SUPREME COURT REPORTS                   [2015] 8 S.C.R.


A     impediment is indeed of a limited nature; its specific purpose
      being to protect the pari passu charge of the workmen's dues.
      After ensuring that this purpose is achieved or ensured, the
      State Financial Corporations can continue to enjoy their
      statutory rights as secured creditors. They will not be reduced
B     to the status of unsecured creditors and equally will not be
      requ"ired to prove their debts nor will be required to stand in
      line with other unsecured creditors.

        9. A three Judges' Bench in the case of Rajasthan State
C Financial Corporation (supra) approved and followed the
  earlier views in A.P. State Financial Corporation and in
  International Coach Builders Ltd. In paragraph 17 of this
  judgment it was again clarified that the "right of a financial
  institution or of the Recovering Tribunal or that of a financial
D corporation or the Court which has been approached under
  Section 31 of the SFC Act to sell the assets may not be taken
  away, but the same stands restricted by the requirement of the
  Official Liquidator being associated with it, giving the Company
  Court the right to ensure that the distribution of the assets in
E terms of Section 529A of the Companies Act takes place".
  (emphasis added)

       10. In our considered view, the rights of a financial
  corporation available under the provisions of the SFC Act have
F been compromised or impeded by the amendment of 1985 in
  the Companies Act, particularly the proviso added to Section
  529(1) and Section 529A, only to a limited extent and for the
  limited purpose of securing the right of the workers for
  distribution of their wages as pari passu charge. But such
G limited impediment to their rights under the SFC Act will not
  alter the status of State financial corporations as secured
  creditors and they will not be required to prove their debt which
  they are entitled to realize· under the provisions of the SFC Act
H subject to right of the workers to recPive their wages also as
  secured creditors on pari passu basis. The control of the
  LAXMI FIBRES LTD. v.A.P. INDUSTRIALDEV. CORPN. 837
             LTD. [SHIVAKIRTI SINGH, J.]

 Company Judge and the Official Liquidator if authorized, can A
 extend only to ensure that the aforesaid purpose of Section
 529A is effectively achieved. Like any other affected person,
 if the Company represenied by the Official Liquidator has
 reasons to be aggrieved by claims made by a financial
 corporation under the SFCAct, its remedy would be to initiate B
 appropriate civil proceedings to challenge such claim or debt
 of a State financial corporation before an appropriate forum
·and not to assume jurisdiction to sit in adjudication and decide
 entitlement of the financial coq::>oration _when it has opted to
 stand outside the liquidation proceeding as a secured creditor. C
 As noted earlier, the statutory powers of SF Cs have suffered
 only a limited impediment only to serve the purpose of
 protecting workers' dues.

    11. In view of law noticed above, we find no error in the    D
impugned order of the Division Bench. The appeal is,
therefore, dismissed but without any order as to costs.

     Civil Appeal Nos.5803 and 5804 of 2005
                                                                 E
     12. The orders under appeal dated 07'" January 2004 in
O.S.A.No.74 and 86 of 2003 respectively simply follow the
reasons recorded by the Division Bench in another judgment
of a same date, i.e., 07'" January 2004 passed in O.S.A.No.85
of 2003. In the connected appeal bearing C.A.No.5805 of          F
2005 we have passed a reasoned order to uphold that order
of the Division Bench. Following the said judgment and for
the same very reasons these appeals are also dismissed but
without any order as to costs.
                                                                 G
NidhiJain                                   Appeals dismissed.