The rights of a secured creditor under section 29 of the State Financial Corporations Act, 1951, are subject to the provisions of section 446 of the Companies Act, 1956, which requires the leave of the court for any legal proceedings against a company in liquidation. However, the secured creditor can exercise its rights under section 29 without obtaining the leave of the court, but the rights of workmen and other secured creditors must be protected by ensuring a pari passu distribution of assets.

( 1 ) ELECTROTHERMIC Private Limited (hereinafter referred to as "the company") is in liquidation and an order to wind it up has already been passed by the learned company judge on 2/12/1993. The State Bank of Hyderabad is a secured creditor. The Andhra Pradesh State Financial Corporation (for short "apsfc"), however, is another secured creditor and has proceeded against the assets of the company under section 29 of the State Financial Corporations Act, 1951 (63 of 1951) (for short "the Act" ). The learned company judge, it appears, on a petition in this behalf, passed an order of stay and directed the APSFC to see that none of the assets of the company were handed over to any one pending further directions or orders. The APSFC moved a petition seeking vacation of the said order. The learned company judge has vacated the stay and ordered as follows :"the sale of secured property of the company, by respondent No. 1, which are in its possession, shall be held only after a notice of seven days to the official liquidator. The amount of sale if realised and if it exceeds the amount of Rs. 26. 83 lakhs then the excess amount shall be deposited in court and shall be invested in Government security. The amount shall be so invested by the Registrar of the court as to bring maximum return. Even otherwise respondent No. 1 shall be liable to pay so much dues of workmen as are permitted by the court and/or directed by the court on application of the official liquidator as a pari passu charge holder under section 529a of the Companies Act. "

( 2 ) IT has transpired, however, that the State Bank of Hyderabad has filed O. S. No. 547 of 1993 in the court of the Subordinate Judge, Ranga Reddy District, against the company for realisation of dues of Rs. 2,17,06,301. The APSFC had sanctioned a term loan to the company. The company committed default in matter of repayment. The APSFC issued a notice, accordingly, under section 29 of the Act to bring to sale the properties of the company for realising its loan. The company challenged the said notice by filing Writ Petition No. 9533 of 1992, in this court and the court granted interim stay on condition of payment of Rs. 5,00,000 to APSFC. Although the company paid the said amount of Rs. 5,00,000, finally the writ petition was dismissed on 26/04/1994, as not pressed. The company addressed a letter dated 15/12/1993, to the APSFC that it was ready to hand over the unit to the APSFC. The State Bank of Hyderabad, however, got an order in C. A. Nos. 5 and 6 of 1994 that such assets of the company on which there was a charge of the bank be not taken over by the APSFC.

( 3 ) ALTHOUGH the case of APSFC appears to be simple, as has been shown to us in the light of some of the provisions of Act 63 of 1951, we have been persuaded to examine whether there is any incompatibility between the provisions of this Act and the Companies Act, 1956.

( 4 ) SECTION 3 of the Act empowers the State Government to establish a financial corporation for the State by notification in the Official Gazette and it is not in dispute that the APSFC has been so established by the State Government. Section 25 of the Act provides for the financial corporation carrying on and transacting any of the following kinds of business :" (G) granting loans or advances to, or subscribing to debentures of, an industrial concern, repayable within a period not exceeding 20 years from the date on which they are granted or subscribed to, as the case may be : Provided that the financial corporation may, with the prior approval of the Development Bank, exceed the said limit of twenty years up to a further period of ten years : Provided further that nothing contained in this clause shall be deemed to preclude the financial corporation from granting loans or advances to, or subscribing to debentures of, an industrial concern to which may attached an option to convert such debentures or loans into stock or shares of the industrial concern : Pro