Supreme Court of India

RAJASTHAN FINANCIAL CORPORATION AND ANR.versusTHE OFFICIAL LIQUIDATOR AND ANR.

Citation: 2005 INSC 481
Decided: 5 October 2005
Disposal: Disposed off
Bench: S N VARIAVA

Holding

When a winding‑up has commenced, any sale of a debtor company's assets by a financial corporation must be carried out in association with the Official Liquidator and under the supervision of the company court, with distribution of proceeds governed by Sections 529 and 529A of the Companies Act.

Summary

The Rajasthan Financial Corporation and the Rajasthan State Industrial Development and Investment Corporation, as secured creditors of Vikas Woolen Mills Ltd., sought to sell the company's assets outside the winding‑up proceeding under Section 29 of the State Financial Corporations Act and to distribute the net proceeds among themselves and another secured creditor, while paying workmen's dues. The Bombay High Court, acting as the company court, ordered that any sale must be conducted in consultation with the Official Liquidator, who would hold the proceeds and distribute them according to Sections 529 and 529A of the Companies Act. The Supreme Court held that once a winding‑up is underway, the sale of assets by financial corporations can be exercised only with the Official Liquidator’s association and under the company court’s supervision, and that the distribution of proceeds must follow the Companies Act provisions, rendering the SFC Act’s Section 29 subordinate. The Court affirmed the High Court’s directions but directed a fresh valuation of the assets. The appeal was dismissed, confirming the lower court’s order with the valuation modification.

Issues considered

The extent to which secured creditors (financial corporations) standing outside a winding‑up can exercise rights under Section 29 of the State Financial Corporations Act to sell assets.
Whether the rights under the SFC Act override the pari‑passu and preferential payment provisions of Sections 529 and 529A of the Companies Act.
Whether the company court’s direction to associate the Official Liquidator in the sale and distribution process is legally valid.
Whether a fresh valuation of the company's assets is required before sale.
The appropriate forum and procedure for sale of assets when winding‑up proceedings are pending.

Legislation cited

Companies Act, 1956s. 442, s. 446, s. 528, s. 529, s. 529A, s. 530, s. 537
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 19(19)
State Financial Corporations Act, 1951s. 29, s. 3, s. 31, s. 32, s. 46

Subjects

winding upsecured creditorsofficial liquidatorState Financial Corporations ActCompanies ActSection 529Section 529Asale of assetsvaluationpari passuworkmen's duesfinancial corporationcompany courtdistribution of proceeds

Judgment

RAJASTHAN FINANCIAL CORPORATION AND ANR. A
v.
THE OFFICIAL LIQUIDATOR AND ANR.

OCTOBER 5, 2005

[S.N. VARIAVA, TARUN CHATTERJEE AND P.K. B
BALASUBRAMANYAN, JJ.)

State Financial Corporation Act, 1951: Sections 3, 29, 31, 32 and 46.

Company-in-liquidation-Rights of secured creditors to sell properties C
of-Company-in-liquidation ordered to be wound up-Official Liquidator
directed to take charge of assets ofsaid company-Secured creditors standing
outside the winding up filed an application praying for permission to realize
the securities and apportion net sale proceeds between them and another
secured creditor-Undertaking given to pay over dues of workmen on the D
same being adjudicated by the Official Liquidator out of the net sale proceeds
of the properties of the said company-High Court rejected application on the
ground that right available under s.29 had to be exercised consistently with
the right of workmen represented by the Official Liquidator who was a charge- •
holder-Secured creditors permitted to invite offers for .sale ofproperties and
directed them to finalize the same in consultation with the Official Liquidator- E
Correctness of-Held: Once a winding up proceeding has commenced and the
liquidator is put in charge of the assets of the company being wound up, the
distribution of the proceeds of the sale of the assets held at the instance of the
financial institutions coming under the Recovery of Debts Act or offinancial
corporations coming under the SFC Act, can only be with the association of F
the Official Liquidator and under the supervision of the company court-
Hence, the company Court rightly directed that the sale be held in association
with the Official Liquidator representing the workmen and that the proceeds
would be held by the Official Liquidator until they are distributed in terms of
Section 529-A of the Companies Act under its supervision.

The appellants were the secured creditors of the company-in-
G
Iiquidation. The High Court ordered the company-in-liquidation to be
wound up. The Official Liquidator was directed to take charge of the assets
of the company-in-liquidation. The appellants filed an application praying
.. 1073
H
1074 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A that as the secured creditors standing outside the winding up, they might
be permitted to realize the securities and apportion the net sale proceeds
between them and another secured creditor. The appellant undertook to
pay over the dues of the workmen on the same being adjudicated by the
Official Liquidator to the extent of availability of the funds out of the net
B sale proceeds of the properties of the company in accordance with Section
529-A of the Coll!panies Act, 1956. The company court rejected the
application of the appellants on the ground that the right available under
Section 29 of the State Financial Corporations Act, 1951 had to be
exercised consistently with the right of the workmen represented by the
Official Liquidator who was a charge-holder. The company court
C permitted the appellant to invite offers for sale of the properties and
directed it to finalize the same in consultation with the Official Liquidator.
The Division Bench of the High Court dismissed the appellant's appeal.
Hence the appeal.

Disposing of the appeal, the Court
D
HELD: I.I. Once a winding up proceeding has commenced and the
liquidator is put in charge of.the assets of the company being wound up,
the distribution ofthe proceeds of the sale of the assets held at the instance
of the financial institutions coming under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 or of financial corporations
E coming under the State Financial Corporation Act, 1951, can only be with
the association of the Official Liquidator and under the supervision of the
company court. The right of a financial institution or of the Recovery
Tribunal or that of a financial corporation or the Court which has been
approached under Section 31 of the SFC Act to sell the assets may not be
p 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 terms of Section 529A
of the Companies Act, 1956 takes place. In the case on hand, admittedly,
the appellants have not set in motion any proceeding under the SFC Act.
Only a liquidation proceeding is pending and the secured creditors and
G the financial corporations approaching the company court for permission
to stand outside the winding up and to sell the properties of the company-
in-liquidation. The company court has rightly directed that the sale be held
in association with the Official Liquidator, representing the workmen and
that the proceeds will be held by the Official Liquidator until they are
H distributed in terms of Section 529A of the Companies Act under its ...
RAJASTHAN FINANCIAL CORPN. v. OFFICIAL LIQUIDATOR 1075
supervision. A
1.2. The right to sell under the SFC Act or under the Recovery of
Debts Act by a creditor coming within those Acts and standing outside·
the winding up, is different from the distribution of the proceeds of the
sale of the security and the distribution in a case where the debtor is a
company in the process of being wound up that can only be in terms of B
Section 529-A read with Section 529 of the Companies Act. After all, the
liquidator represents the entire body of creditors and also holds a right
on behalf of the workers to have a distribution pari passu with the secured
creditors and the duty for further distribution of the proceeds on the basis
of the preferences contained in Section 530 of the Companies Act under C
the directions of the company court. In other words, the distribution of
the sale proceeds under the direction of the company court is his
responsibility. To ensure the proper working out of the scheme of
distribution, it is necessary to associate the Official Liquidator with the
process of sale so that he can ensure, in the light of the directions of the
company court, that a proper price is fetched for the assets of the D
company-in-liquidation.

Allahabad Bank v. Canara Bpnk, [2000] 4 SCC 406, International
Coach Builders ltd v. Karnataka State Financial Corporation, [2003J to SCC
482, Industrial Credit and Investment Corporation of India ltd v. Srinivas
Agencies, [19961 4 SCC 165, A.P. State Financial Corporation v. Official E
Liquidator, 120001 7 SCC 291, Maharashtra State Financial Corporation v.
Official Liquidator, AIR .(1993) Born 392, Karnataka State Financial
Corporation v. Patil Dyes and Chemicals (P) ltd., (1991) 70 Comp. Cas. 38,
Kera/a Financial Corporation v. Official Liquidator, (1991) 71 Comp. Cas.
324, Gujarat State Financial Corporation, v. Official Liquidator (1996) 87 F
Comp. Cas. 658 and Abbot v. Minister of land, (1895) AC 425, referred
to.

2. The legal position is summed up thus:-

(i) A Debt Recovery Tribunal acting under the Recovery of Debts G
Due to Banks and Financial Institutions Act, 1993 would be entitled to
order the sale and to sell the properties of the debtor even if a company-
in-Iiquidation, through its Recovery Officer but only after notice to the
Official Liquidator or the liquidator appointed by the Company Court and
after hearing him.
H
1076 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A (ii) A District Court entertaining an application under Section 31 of
the SFC Act will have the power to order sale of the assets of a borrower
company-in-liquidation, but only after notice to the Official Liquidator
or the liquidator appointed by the Company Court and after hearing him.

B (iii) If a financial corporation acting under Section 29 of the SFC
Act seeks to' sell or otherwise transfer the assets of a debtor company-in-
liquidation, the said power could be exercised by it only after obtaining
the appropriate permission from the company court and acting in terms
of the directions issued by that court as regards associating the Official
C Liquidator with the sale, the fixing of the upset price or the reserve price,
confirmation of the sale, holding of the sale proceeds and the distribution
thereof among the creditors in terms of Sections 529-A and 529 of the
Companies Act.

(iv) In a case where proceedings under the Recovery of Debts Due
D to Banks and Financial Institutions Act, 1993 or the SFC Act are not set
in motion, the concerned creditor is to approach the company court for
appropriate directions regarding the realization of its securities consistent
with the relevant provisions of the Companies Act regarding distribution
of the assets of the company-in-liquidation. 11087-E-F-G-H; 1088-A-B-q

E CIVIL APPELLATE JURlSDICTION : Civil Appeal No. 4055 of 1998.

From the Judgment and Order dated 2.4.97 of the Bombay High Court
in A. No. 184/97 in Company Petition No. 696 of 1990.

Altaf Ahmad, Sushi! Kumar Jain, Pradeep Agarwal, A.P. Dhamija, Sarad
F Singhania and H.D. Thanvi with him for the Appellants.

A.K. Chitale, Niraj Sharma, Vikrant Sharma, Vikrant Singh Bais and
M. Mannan with him for the Respondent No. I. ,,-
Sudharsh Menon, Raj Nathan and Manendra Pratap Singh for the
Respondent No. 2.
G
The Judgment of the Court was delivered by

P.K. BALASUBRAMANY AN, J. l. Appellant No. I, The Rajasthan
Financial Corporation, is a corporation constituted under Section 3 of The
State Financial Corporations Act, 1951 (hereinafter referred to as "the SFC
H Act"). Appellant No. 2, the Rajasthan State Industrial Development and
RAJASTHAN FINANCIAL CORPN. r. OFFICIAL LIQUIDATOR [BALASUBRAMANYAN,J.] ] 077

Investment Corporation Limited, is a deemed financial institution by virtue A
of exercise of power by the Central Government under Section 46 of the SFC
Act. The appellants are the secured creditors of M/s Vikas Woolen Mills Ltd.
(hereinafter referred to as, "the company-in-liquidation"), By an order dated
14.6.1994, the company judge of the High Court of Bombay ordered the
company-in-liquidation to be wound up. The Official Liquidator was directed B
to take charge of the assets of the company-in-liquidation. On 18.4. I995, the
Official Liquidator applied for directions to the company court. He sought
pennission to get the property valued by a valuer from the panel of valuers
of the Official Liquidator, and to sell the properties by public auction. He
sought the issue of a direction to the appellants, the secured creditors, to
advance Rs. 25,000/- each to the Official Liquidator to meet the expenses for C
selling the assets of the company-in-liquidation on condition that the amounts
would be reimbursed to the appellants on priority basis from the sale proceeds.
The information about the filing of this application was conveyed by the.
Official Liquidator to the appellants by communication dated 21.4.1995.
Apparently, the appellants had no notice of the proceedings in liquidation
and they, as secured creditors, now say that they want to stand outside the D
winding up. In their reply to the Official Liquidator, the appellants indicated
that they proposed to pursue the remedies available to them under Section 29
of the SFC Act. The appellants had obtained a valuation of the properties of
the company-in-liquidation and according to the valuers, the value of the
assets came to Rs. 92,56,000/-. In addition to opposing the report of the E
Official Liquidator, the appellants also filed an application praying that as
secured creditors standing outside the winding up, they may be permitted to
realize the securities and apportion the net sale proceeds between them and
the Bank of Baroda, another secured creditor, who was also entitled to payment
pari passu with them. They undertook to pay over the dues of the workmen
on the same being adjudicated by the Official Liquidator to the extent of the F
availability of the funds out of the net sale proceeds of the properties of the
company, in accordance with Section 529-A of the Companies Act. The
company court rejected the application of the appellants. The company court
took the view that the right available under Section 29 of the SFC Act had
to be exercised consistently with the right of the workmen represented by the G
Official Liquidator who was a charge-holder and ranked pari passu with the
secured creditors, even if they stood outside the winding up. The company
court held that in view of a valuation report already available, it was not
necessary to have a fresh valuation. The Court permitted the Rajasthan State
Financial Corporation, Appellant No. I, to invite offers for sale of the properties
and directed it to finalize the same in consultation with the Official Liquidator. H
1078 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A It was directed that the reserve price would be fixed by the Company Judge
on the report of the Official Liquidator. The sale proceeds were to be retained
by the Official Liquidator until further orders. The Official Liquidator, in the
meantime, was to invite th.e claims of the workmen and was to assess the
extent of the claim of the workmen under Section 529 of the Companies Act.
B Challenging this order, the appellants filed an appeal before the Division
Bench of the High Court of Bombay. The High Court dismissed the appeal
preferring to follow the earlier decision of that Court in Maharashtra State
Financial Corporation v. Official Liquidator, AIR (1993) Bombay 392. It is
feeling aggrieved by the dismissal of their appeal by the Division Bench, that
the appellants have filed this appeal by special leave before this Court.
c 2. It has to be noticed that even though the appellants could have
proceeded under Section 29 or under Section 31 of the SFC Act, neither of
the appellants has chosen to actually invoke those provisions or to approach
the concerned District Court under Section 31 of the SFC Act. In other
words, no proceeding under the SFC Act has been set in motion by the
D appellants even now. In this situation, it is seen straightaway that Section 32
(I 0) of the. SFC Act has application. The said sub-Section reads:-

"32(10). Where proceedings for liquidation in respect of an industrial
concern have commenced before an application is made under sub-
section ( 1) of section 32, nothing in this section shall be construed as
E giving to the Financial Corporation any preference over the other
creditors of the industrial concern not conferred on it by any other
law."

On the face of it, it is apparent that no right is acquired by the appellants or
F no right has accrued to them or can accrue to them under Se<.:tion 32 of the
Act, unless any such right is conferred on the appellants by any other law in
force. There is no plea that other than the SFC Act, any other law confers any
addition.al right on the appellants. A mere right to take advantage of an
enactment without any act done towards availing of that right cannot be
deemed a right accrued. [See Abbot v. Minister of land, (1895) AC 425)
G
3. On the facts of this case, the position is that proceedings in liquidation
of the debtor company are going on and two secured creditors who could
have had recourse to the SFC Act to proceed against its assets, but who did
not, are standing outside the winding up and are claiming rights under the
SFC Act by approaching the company court. The rights so claimed have to
H be considered in the light of Section 529-A of the Companies Act read with
RAJASTHAN F!NANCIALCORPN. v. OFFICIAL LIQUIDATOR [BALASUBRAMANYANJ] J079
•
Section 529 of that Act. A
4. When this appeal came up for hearing before two learned Judges, it
was submitted that there was a conflict between the decisions in Allahabad
Bank v. Canara Bank and Anr., [2000] 4 SCC 406 and in International
Coach Builders limited v. Karna/aka State Financial Corporation, [2003]
I0 SCC 482. The two learned Judges taking note of this submission and B
taking note of the importance of the question of law involved, placed the
matter before a larger bench. That is how the matter has come up before us.

5. Learned Senior Counsel appearing for the appellants submitted that
the appellants had special rights under the SFC Act and since there was no C
notice to them of the proceedings in liquidation and they were not parties to
the order of winding up, they were entitled to proceed with the enforcement
of their rights under the SFC Act and the company court was not justified in
not permitting the appellants to sell the securities on their own and in directing
them to associate the Official Liquidator in the matter of sale and in the
matter of disbursement of the proceeds among the creditors. Learned counsel D
submitted that Allahabad Bank v. Canara Bank and Anr, (supra) was an
authority in support of the proposition that the SFC Act would prevail over
the Companies Act, it being general law as against the special law protecting
corporations, like the appellants, namely, the SFC Act. Learned counsel
submitted that the decision in International Coach Builders limited v.
Karna/aka State Financial Corporation, (supra) has not adverted to the earlier E
decision and had not properly understood the effect of the provisions of the
SFC Act. Section 468 of the SFC Act gave the provisions of that Act,
overriding effect. The claim of the appellants that they are entitled to sell the
properties independent of the Official Liquidator, therefore, deserves to be
accepted. Learned counsel for the Official Liquidator, on the other hand, p
submitted that on the facts and in the circumstances of the case, the High
Court was justified in directing the sale to be held under the supervision of
the Official Liquidator and in directing the Official Liquidator to hold the
sale proceeds until further orders from the company court and that the proceeds
have to be distributed only in terms of Section 529-A of the Companies Act.
Learned counsel further submitted that no interference was called for with G
the decision of the High Court.

6. There is no doubt that the appellants are financial corporations within
the meaning of the SFC Act conferred with the right to proceed under that
Act, to take over the management and possession of the assets of the debtor, H
1080 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A here the company-in-liquidation, or to enforce their claims by resort to Section
31 of the SFC Act by approaching the concerned District Court. The appellants
not having invoked the provisions of the SFC Act, stand only in the shoes of
secured creditors entitled to enforce their security. A liquidation of the
company, the debtor, has intervened and what are the consequences of the
B order for winding up is the question to be considered. Once winding up of
a company is resorted to, Sections 529 and 529-A of the Companies Act get
attracted. Section 528 provides for debts of all descriptions to be admitted to
proof. Section 529 makes applicable the rules of insolvency in the winding
up of insolvent companies. The rules with regard to debts provable, the
valuation of annuities and future and contingent liabilities, and the respective
C rights of secured and unsecured creditors; as are in force for the time being
under the law of insolvency with respect to the estates of persons adjudged
insolvent apply. Section 529(l)(c) of the Act deals with the rights of creditors.
The same reads :

"529(l)(c). the respective rights of secured and unsecured creditors;
D as are in force for the time being under the law of insolvency with
respect to the estates of persons adjudged insolvent:

Provided that the security of every secured creditor shall be deemed
to be subject to a pari passu charge in favour of the workmen to the
extent of the workmen's portion therein, and, where a secured creditor,
E instead of relinquishing his security and proving his debt, opts to
realize his security, -
(a) the liquidator shall be entitled to represent the workmen and
enforce such charge;
(b) any amount realized by the liquidator by way of enforcement of
F such charge shall be applied rateably for the discharge of
workmen's dues; and
(c) so much of the debt due to such secured creditor as could not be
realized by him by virtue of the foregoing provisions of this
proviso or the amount of the workmen's portion in his security,
G whichever is less, shall rank pari passu with the workmen's dues
for the purposes of Section 529A"

7. The proviso above quoted and Section 529-A of the Act were
inserted by Amendment Act 35 of 1985 with effect from 24.5.1985. Section
H 529-A also can be set out conveniently at this stage. It reads :
RAJASTI-IANFINANCIALCORPN. v. OFFICIAL LIQUIDATOR [BALASUBRAMANYAN,J.] 108 J

"529A. Overriding preferential payment. - Notwithstanding anything A
contained in any other provision of this Act or any other law for the
time being in force, in the winding up of a company -

(a) workmen's dues; and

(b) debts due to secured creditors to the extent such debts rank under B
clause (c) of the proviso to sub-section (I) of Section 529 pari
passu with such dues,

shall be paid in priority to all other debts.

(2) The debts payable under clause (a) and clause (b) of sub-section
(I) shall be paid in full, unless the assets are insufficient to meet C
them, in which case they shall abate in equal proportions.

A combined reading of Section 529-A and 529 indicates that
notwithstanding anything contained in any other law for the time being in
force or in the Companies Act itself, there is a preferential payment provided
for workmen's dues and debts due to the secured creditors to the extent such D
debts rank under clause (c) of the proviso to Section 529(1) pari passu with
such dues. Therefore, when the assets of the company are sold and the proceeds
realized, the debts by way of workmen's dues and that of the secured creditors
have to be paid in full if the assets are sufficient to meet them and if they
are not sufficient, in equal proportions. E
8. In Karnataka State Financial Corporation v. Patil Dyes and
Chemicals (P) Ltd and Ors., [1991] 70 Comp. Cas. 38, the Kamataka High
Court held that rights under Section 29( I) of the SFC Act were available to
the corporation only when the company is in charge and control of its assets
and not when the company has lost control over its assets by the intervention F
of the company court and the Official Liquidator. Section 29 of the SFC Act
did not justify a contention that where the creditor is a financial corporation,
the assets of the company-in-liquidation pursuant to the order of the company
court are taken outside the purview of the jurisdiction of the company court.
On a proper construction of Sections 529 and 529A of the Companies Act, G
the workmen's dues and the debts due to the secured creditors to the extent
of clause (c) of sub-Section (I) of Section 529, should be worked out in the
light of the illustration given under Section 529 and that could be ordered
only by the company court in exercise of his powers under Section 446(2)(b)
and (d) of the Companies Act.
H
1082 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A 9. In Kera/a Financial Corporation v. Official Liquidator and Anr.,
(1991) 71 Comp. Cas. 324, the Kerala High Court held that Section 529A of
the Act prevailed over Section 29 of the SFC Act in case of a conflict and
since the workmen's dues which rankpari passu with the dues of the secured
creditors will have to be paid from the proceeds of the assets of the company
B including the security given to the secured creditors, any dispute as to the
apportionment of workmen's dues and the amount due to the financial
corporation and other related questions could not be left to be decided by the
financial corporation. Therefore, in the best interests of all concerned, the
sale of the assets had to be conducted by the Official Liquidator under the
supervision of the company court. It may be noted that in that case, the
C financial corporation had sought permission of the company court to initiate
proceedings under Section 29 of the SFC Act.

I0. In Maharashtra State Financial Corporation, Bombay v. The Official
Liquidator, AIR (1993) BOMBAY 392, the Bombay High Court took the
view that rights conferred on a financial corporation as a mortgagee under
D Section 29 of the SFC Act are not obliterated when the company is in winding
up. The statutory right under Section 29 to sell the property, had to l;>e
exercised consistently with the rights of a pari passu chargeholder in wholl) ->
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
E 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. The Court held that there was no inconsistency between the
SfC Act and Section 529 read with Section 529A of the Companies Act and
F hence Section 46B of the SFC Act was not attracted.

11. In International Coach Builders Ltd (In Liquidation) v. Karnataka .,..
State Financial Corporation, (1994) 81 Comp.Cas.19, a Division Bench of
the Karnataka High Court held that the right of a secured creditor of a •·
company-in-liquidation, there the Karnataka State Financial Corporation, to
G realize its security by taking possession of properties of the company subjected
to security and selling them by standing outside the winding up, cannot be
said even remotely to be affected by the amendment of Section 529 and the
insertion of Section 529-A of the Companies Act, 1956 by Act 35 of 1985.
It was held that the permission granted to the Karnataka State Financial
H Corporation, a secured creditor of the company-in-liquidation, to sell the
...
RNASlllAN FINANCIALCORPN. v. OFFICIAL LIQUIDATOR [BALASUBRAMANYAN, J.] J083
assets of the company which constituted security for repayment of loans A
advanced by the Corporation to the Company and which the Corporation had
already taken into possession before the winding up was ordered, and the
_pennission to realize the dues of the Corporation subject to payment of the
workmen's dues as undertaken by it, by standing outside the winding up, was
well in accordance with the provisions of Section 529, as amended, and B
Section 529-A as inserted in the Companies Act, 1956, and Section 29 and
Section 46B of the SFC Act.

12. In Gujarat State Financial Corporation v. Official Liquidator and
'> Ors., (1996) 87 Comp. Cas. 658, the Gujarat High Court doubted the
.. correctness of the decision of the Kerala High Court in Kera/a Financial C
Corporation v. Official Liquidator and Anr., (supra) and followed the decision
of the Karnataka High Court in International Coach Builders Ltd. (In
Liquidation) v. Karnataka State Financial Corporation, (supra). The Court
held that the right of the secured creditor to deal with his security and realize
the same without intervention of the court, remains unaffected notwithstanding
such vesting, or property coming in the custody of the company court. To the D
extent of the charge or mortgage, the property does not come to the court and
is not available for distribution of dividends generally unless the mortgagee
relinquishes it or the surplus, if any, comes to the court. Enforcement of such
right remains outside the insolvency proceedings or winding up proceedings.
It was held that the power ofrecovery of loans by State Financial Corporations E
under Section 29 of the SFC Act was not in conflict with Section 529A of
the Companies Act, 1956.

13. In Industrial Credit and Investment Corporation of India Ltd. v.
Srinivas Agencies and Ors., [ 1996] 4 SCC 165, while considering_ the question
as to when should a company court grant leave to a secured creditor to F
proceed with his suit against the company .after an order of winding up was
made, and on what conditions the permission should be granted, this Court
---· held that in the case of conflict in power between the Official Liquidator
appointed by the company court and the Receiver appointed by the Civil
Court in a suit filed by the secured creditor, the interest of the Official G
Liquidator should have precedence. The Court observed that the liquidator
looks after the interests of a large segment of creditors along with that of
workmen, whereas the Receiver appointed in a creditor's suit confines his
concern to the interest of the particular secured creditor at whose instance,
the Receiver had been appointed.
H
1084 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A 14. In Allahabad Bank v. Canara Bank and Anr., (supra), the question
•
of jurisdiction of the Debts Recovery Tribunal under the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993, vis-a-vis the company
court arose for decision. This Court held that even where a winding up
petition is pending, or a winding up order has been passed against the debtor
Company, the adjudication of liability and execution of the certificate in
B respect of debts payable to banks and financial institutions, are respectively
within the exclusive jurisdiction of the Debts Recovery Tribunal and the
Recovery Officer under that Act and in such a case, the company court's
jurisdiction under Sections 442, 537 and 446 of the Companies Act stood
ousted. Hence, no leave of the company court was necessary for initiating
C proceedings under the Recovery of Debts Act. Even the priorities among .-
various creditors, could be decided only by the Debts Recovery Tribunal in
accordance with Section 19(19) of the Recovery of Debts Act read with
Section 529-A of the Companies Act and in no other manner. The Court took
into account the fact that Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 was a legislation subsequent in point of time to the
D introduction of Section 529A of the Companies Act by Act 35 of 1985 and
it had overriding effect. But it noticed that by virtue of Section 19(19) of the
Recovery of Debts Act, the priorities among various creditors had to be
decided by the Recovery Tribunal only in terms of Section 529A of the
Companies Act and Section 19(19) did not give priority to all secured creditors.
E Hence, it was necessary to identify the limited class of secured creditors who
have priority over all others in accordance with Section 529-A of the
Companies Act. The Court also held that the occasion for a claim by a
secured creditor against the realization by other creditors of the debtor under
Section 529A read with proviso (c) to Section 529(1) of the Companies Act
could arise before the Debts Recovery Tribunal only if the concerned creditor
F had stood outside the winding up and realized amounts and if it is shown that
out of the amounts privately realized by it, some portion had been rateably
taken away by the liquidator under clauses (a) and (b) of the proviso to ·r
Section 529(1 ). The Court has not held that Section 529-A of the Companies
Act will have no application in a case where a proceeding under the Recovery
G of Debts Act has been set in motion by a financial institution. The Court here
was essentially dealing with the jurisdiction of the Debts Recovery Tribunal
in the face of Sections 442, 537 and 466 of the Companies Act.

15. In A.P. State Financial Corporation v. Official liquidator, [2000]
7 SCC 291, this Court held that the Company Judge, while permitting the
H financial Corporation to stay outside the liquidation proceedings, rightly
RAJASTHANFINANCIALCORPN. v. OFFICIAL LIQUIDATOR [BALASUBRAMANYAN,J.] J085
• imposed conditions to ensure that the Corporation would : (i) discharge its A
liability due to workers under Section 529-A of the Companies Act, (ii)
inform the Official Liquidator in advance about the proposed sale of properties
of the indebted companies, and (iii) would obtain the Court's permission
before finalizing the tenders. This Court specifically overruled the view taken
by the High Court that it was not necessary for the Financial Corporations to B
seek permission of the company court to stay outside the winding-up
proceedings. It was held that Sections 529(1) and 529-A of the Companies
Act had overriding effect and the 1985 amendment being later in point of
time, the non-obstante clause therein would prevail over the non-obstante
clause contained in Section 46B of the SFC Act.

16. In International Coach Builders Limitedv. Karnataka State Financial
c
Corporation, [2003) IO SCC 482, this Court considered the correctness of
the views expressed by the Karnataka High Court and the Gujarat High
Court. This Court held that a right is available to a financial corporation
under Section 29 of the SFC Act against a debtor, if a company, only so long
as there is no order of winding up. When the debtor is a company in winding D
up, the rights of financial corporations are affected by the provisions in
Sections 529 and 529-A of the Companies Act. It was also held that the
proviso to Section 529 of the Companies Act creates a "pari passu' charge
in favour of the workmen to the extent of their dues and makes the liquidator
the representative of the workmen to enforce such a charge. The decision of E
the Bombay High Court in Maharashtra State Financial Corpn. v. Ballarpur
Industries Ltd, AIR (1993) Born 392 was approved. The reference to a larger
bench was occasioned by the fact that the decision in Allahabad Bank v.
Canara Bank and Anr., (supra) was not adverted to in this decision. This
decision recognizes that, whether a creditor is standing outside the winding
up or not, the distribution of the proceeds has to be in terms of Section 529 F
of the Companies Act read with Section 529A of that Act in a case where the
debtor is a company-in-liquidation. As far as we can see, there is no conflict
on the question of the applicability of Section 529A read with Section 529
of the Companies Act to cases where the debtor is a company and is in
liquidation. The conflict, if any, is in the view that the Debts Recovery G
Tribunal could sell the properties of the Company in terms of the Recovery
of Debts Act. This view was taken in Allahabad Bank v. Canara Bank and
Anr.. (supra) in view of Recovery of Debts Act being a subsequent legislation
and being a special law would prevail over the general law, the Companies
Act. This argument is not available as far as the SFC Act is concerned, since
Section 529A was introduced by Act 35 of 1985 and the overriding provision H
1086 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A therein would prevail over the SFC Act of 1951 as amended in 1956 and
notwithstanding Section 468 of the SFC Act. As regards distribution of assets,
there is no conflict. It seems to us that whether the assets are realized by a
secured creditor even if it be by proceeding under the SFC Act or under the
Recovery of Debts Act, the distribution of the assets could only be in terms
of Section 529A of the Act and by recognizing the right of the liquidator to
B calculate the workmen's dues and collect it for distribution among them pari
passu with the secured creditors. The Official Liquidator representing a ranked
secured creditor working under the control of the company court cannot,
therefore, be kept out of the process.

c proceeding
17. Thus, on the authorities what emerges is that once a winding up
has commenced and the liquidator is put in charge of the assets
of the company being wound up, the distribution of the proceeds of the sale
of the assets held at the instance of the financial institutions coming under the
Recovery of Debts Act or of financial corporations coming under the SFC
Act, can only be with the association of the Official Liquidator and under the
D supervision of the company court. The right of a financial institution or of the
Recovery Tribunal or that of a financial 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
E right to ensure that the distribution of the assets in terms of Section 529A of
the Companies Act takes place. In the case on hand, admittedly, the appellants
have not set in motion, any proceeding under the SFC Act. What we have is
only a liquidation proceeding pending and the secured creditors, the financial
corporations approaching the company court for permission to stand outside
the winding up and to sell the properties of the company-in-liquidation. The
F company court has rightly directed that the sale be held in association with
the Official Liquidator representing the workmen and that the proceeds will
be held by the Official Liquidator until they are distributed in terms of Section
529A of the Companies Act under its supervision. The directions thus, made,
clearly are .consistent with the provisions of the relevant Acts and the views
G expressed by this Court in the decisions referred to above. In this situation,
we find no reason to interfere with the decision of the High Court. We clarify
that there is no inconsistency between the decisions in Allahabad Bank v.
Canara Bank and Anr (supra) and in International Coach Builders Limited
v. Karnataka State Financial Corporation., (supra) in respect of the
applicability of Sections 529 and 529A of the Companies Act in the matter
H of distribution among the creditors. The rig,ht to sell under the SFC Act or
RAJASTHAN f!NANCIALCORPN. V. OFFICIAL LIQUIDATOR [llALASUBRAMANYAN, J.] I 087
•
under the Recovery of Debts Act by a creditor coming within those Acts and A
standing outside the winding up, is different from the distribution of the
proceeds of the sale of the security and the distribution in a case where the
debtor is a company in the process of being wound up, can only be in terms
of Section 529-A read with Section 529 of the Companies Act. After all, the
liquidator represents the entire body of creditors and also holds a right on B
behalf of the workers to have a distribution pari passu with the secured
creditors and the duty for further distribution of the proceeds on the basis of
the preferences contained in Section 530 of the Companies Act under the
directions of the company court. In other words, the distribution of the sale
proceeds under the direction of the company court is his responsibility. To
" ensure the proper working out of the scheme of distribution, it is necessary C
to associate the Official Liquidator with the process of sale so that he can
ensure, in the light of the directions of the company court, that a proper price
is fetched for the assets of the company in liquidation. It was in that context
that the rights of the Official Liquidator were discussed in International
Coach Builders Limited, (supra). The Debt Recovery Tribunal and the District
court entertaining an application under Section 31 of the SFC Act should D
issue notice to the liquidator and hear him before ordering a. sale, as the
representative of the creditors in general.

18. In the light of the discussion as above, we think it proper to sum
· up the legal position thus:- E
(i) A Debt Recovery Tribunal acting under the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 would be
entitled to order the sale and to sell the properties of the debtor,
even if a company-in-liquidation, through its Recovery Officer
but only after notice to the Official Liquidator or the liquidator F
appointed by the Company Court and after hearing him.
(ii) A District Court entertaining an application under Section 31 of
the SFC Act will have the power to order sale of the assets of a
borrower company-in-liquidation, but only after notice to the
Official Liquidator or the liquidator appointed by the Company G
Court and after hearing him.
(iii) If a financial corporation acting under Section 29 of the SFC Act
seeks to sell or otherwise transfer the assets of a debtor company-
in-liquidation, the said power could be exercised by it only after
obtaining the appropriate permission from the company court and H
1088 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A acting in tenns of the directions issued by that court as regards
associating the Official Liquidator with the sale, the fixing of the
upset price or the reserve price, confinnation of the sale, holding
of the sale proceeds and the distribution thereof among the
creditors in terms of Section 529A and Section 529 of the
Companies Act.
B
(iv) In a case where proceedings under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 or the SFC Act are not
set in motion, the concerned creditor is to approach the company
.court for appropriate directions regarding the realization of its
securities consistent with the relevant provisions of the Companies
c Act regarding distribution of the assets of the company-in-
liquidation.

19. Now reverting back to the case on hand, we find that the directions
issued by the company court are in the interest of all the creditors and are
D well within its jurisdiction. But we find merit in the submission that the
company court was not justified in not ordering a fresh valuation of the ·
properties. Having regard to the lapse of time, we are satisfied that a fresh
valuation is necessary. We direct the company court to get a fresh valuation
done by a valuer from the panel of valuers of the High Court. The other
directions issued by the company court are affirmed.
E
21. The appeal is thus disposed of affinning the directions issued by
the company court, but with a modified direction for getting a fresh valuation
of the properties as indicated in the earlier paragraph.

22. We make no order as to costs.
F
v.s.s. Appeal disposed of.

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