VERY IMPORTANT POINT
The rights unilaterally exercisable under Section 29 of State Financial Corporation Act, 1951 by a SFC as secured creditor of a company after an order of winding up must be exercised with the consent of official liquidator, and if he does not consent, by reference to he Company Court.

Headnote:State Financial Corporation Act, 1951-Sections 29, 31, 32 and 46B-Companies Act, 1956-Sections 433, 529, 529A and 537-Whether the rights of the State Financial Corporation under Section 29 of SFC Act to sell and realise the security could be exercised without reference to the Company Court when a winding up order is made against a Company?-Conflicting views taken by different High Courts-Need to settle the law-Appeals accordingly disposed of-(Transfer of Property Act, 1882-Section 100-Charge.
       Held : We, therefore, hold as under:
        1. The right unilaterally exercisable under section 29 of the SFC Act is available against a debtor, if a company, only so long as there is no order of winding up;
        2. The SFCs cannot unilaterally act to realise 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. (Para 33)
       In the result, Civil Appeal No. 4702/1994 is allowed and the Karnataka State Finance Corporation is directed to move the Company Court to seek appropriate directions in the matter. The judgment of the Division Bench as well as the single Judge permitting the SFC to sell the assets of M/s Raheja Devlopment Corporation without the leave of the Company Court are set aside, with liberty to the KSFC to move the Company Court and seek appropriate directions in the matter of realization of its securities. Civil Appeal No.12928/1996 is dismissed. Civil Appeal Nos.6491/95 and 2007/97 are dismissed with the same liberty to the SFC to move the Company Court for further directions. Civil Appeal No.6303/ 1995 is allowed. The judgment of the Division Bench of the Gujarat High Court is set aside and the judgment of the Company Judge is upheld. The Gujarat State Finance Corporation has the same liberty for moving the learned Company Judge for appropriate directions for realisation of the sale proceeds of the assets. All the aforesaid appeals are accordingly disposed of with no order as to costs. (Paras 34 & 35)

JUDGTMENT

Srikrishna, J.-These appeals arising under different factual backgrounds raise the same question of law and can, therefore, conveniently be disposed of by a common judgment.

Facts

Civil Appeal Nos. 4702 and 4703 of 1994

2. On 23rd May, 1988 a winding up petition was filed under Section 433 of the Companies Act, 1956 seeking to wind up the company known as International Coach Builders Ltd. Another petition by another creditor was also filed on 2.11.88. On 10.11.89, during the pendency of the above petitions before the High Court of Karnataka, the respondent, a Corporation established under the State Financial Corporation Act. 1951 (SFC Act), which was the second charge holder on the assets of the said company, took possession of the mortgaged assets of the said company in purported exercise of its power under Section 29 of the SFC Act. On 30.11.1990 the High Court of Karnataka in Company Petition No. 131 of 1988 made an order of winding up of International Coach Builders Ltd and appointed the Official Liquidator as the Liquidator to take charge of the assets of the said company. On 30.11.90 the respondent-Corporation accepted a bid of Rs. 85 lakhs made by Raheja Development Corporation for sale of the mortgaged assets of the said company, although, to its knowledge, the assets charged were totally valued at an estimated value of Rs. 97 lakhs. Neither the Official Liquidator, nor the Company Court, was in any way involved with the negotiations held by the respondent-Corporation with the prospective purchaser. On 4.3.1991 the respondent filed an application under Section 446 (2) (b) read with Section 537 of the Companies Act, 1956 before the High Court of Karnataka praying for leave to stand outside the winding up proceedings and realize its securities by selling the assets mortgaged to it. As per the resolution passed in its Board meeting held on 30.11.1990, it was resolved to accept the bid of M/s. Raheja Development Corporation. On 8.10.1991 the Company Court allowed the application of the respondent-Corporation for standing outside the liquidation proceedings to work out its remedies under Section 29 of the SFC Act subject to an undertaking to discharge the workmen s dues. The Official Liquidator appealed against the order of the Company Judge praying that the sale of the assets of the company under liquidation should only be done by the Official Liquidator under the supervision of the Company Court. The appeal of the Official Liquidator (OSA No. 26/91) was dismissed by a Division Bench of the High Court of Karnataka. An application for review. Review Application No. 118/93, was also dismissed by the High Court of Karnataka. The Official Liquidator filed two Special Leave Petitions before this Court challenging the order of the Division Bench dated 23rd January, 1992 dismissing the appeal OSA No. 26/91, and the order dated 17th June, 1993 dismissing the Review Application No. 118/93. These are respectively Civil Appeal Nos. 4702 & 4703 of 1994.

3. When the Special Leave Petitions came up for admission this Court made the following order.

Special Leave Petition granted.

Meanwhile, it appears appropriate that the Respondent KSFC should sell the properties acting jointly with the Official Liquidator under the supervision and in accordance with the directions of the Learned Company Judge of the High Court and sale proceeds be deposited in the Court and then distributed in accordance with the directions of the Learned Company Judge."

Civil Appeal No. 12928 of 1996

4. As a sequel to the above order, M/s Raheja Development Corporation moved an application before the Company Judge, High Court of Karnataka, for a direction to the Official Liquidator to concur in the sale effected by Karnataka State Finance Corporation (KSFC) in its favour. The Company Judge disposed of the application holding that, in view of the order passed by this Court, the application did not survive. M/s Raheja Development Corporation made an unsuccessfu

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2003 Supreme(SC) 273

Cases Referred (3)