Important point
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 State Financial Corporation Act, can only be with the association of the Official Liquidator and under the supervision of the company court.

Judgment

P.K. Balasubramanyan, J.—Appellant No.1, The Rajasthan Financial Corporation, is a corporation constituted under Section 3 of The State Financial Corporations Act, 1951 (hereinafter referred to as “the SFC Act”). Appellant No.2, the Rajasthan State Industrial Development and Investment Corporation Limited, is a deemed financial institution by virtue 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 to take charge of the assets of the company-in-liquidation. On 18.4.1995, the Official Liquidator applied for directions to the company court. He sought permission to get the property valued by a valuer from the panel for 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 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 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 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 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 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.1, to invite offers for sale of the properties and directed it to finalize the same in consultation with the Official Liquidator. 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 the claims of the workmen and was to assess the extent of the claim of the workmen under Section 529 of the Companies Act. 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 Vs. Official Liquidator [AIR 1993