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whether the Official Liquidator 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 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’).= 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 Act in the light of later amendments to the Companies Act incorporating proviso to Section 529(1) and Section 529A of the Companies Act through Amendment Act 35 of 1985. The object of the amendment was to protect the dues of the workmen. This Court held that the power available to a corporation under Section 29 to sell the property of a debtor 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. In International Coach Builders Ltd. this Court not 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 thus : “31. Finally, counsel for SFCs urge that the view we are to take would obliterate the difference between a creditor opting to stay outside winding- up and one who opts to 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 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 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 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.” It is clear from the aforesaid judgment that no doubt the 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 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 to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors. A three Judges’ Bench in the case of Rajasthan State 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 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 terms of Section 529A of the Companies Act takes place”. (emphasis added) In our considered view, the rights of a financial corporation available under the provisions of the SFC Act 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 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 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 Liquidator if authorized, can extend only to ensure that the aforesaid 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 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 in adjudication and decide entitlement of the financial corporation when it has opted to stand outside the liquidation proceeding as a secured creditor. As noted earlier, the statutory powers of SFCs have suffered only a limited impediment only to serve the purpose of protecting workers’ dues. In view of law noticed above, we find no error in the 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 12. The orders under appeal dated 07th 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., 07th January 2004 passed in O.S.A.No.85 of 2003. In the connected appeal bearing C.A.No.5805 of 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.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.5805 OF 2005


Laxmi Fibres Ltd.                                   …..Appellant

      Versus

A.P. Industrial Dev. Corpn. Ltd. & Ors.        …..Respondents


                                   W I T H


                        C.A.Nos.5803 and 5804 of 2005



                               J U D G M E N T



SHIVA KIRTI SINGH, J.


Civil Appeal No.5805 of 2005

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  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
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’).
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  company  is  also  seized  by  the  first  respondent  (the
Corporation) under Section 29 of the SFC Act.  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 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 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 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  the  Official
Liquidator for being dealt with as per the provisions of the  Companies  Act
and the Rules.
On the application filed by the respondent-corporation seeking  confirmation
of sale of the mortgage assets of the  company,  the  learned  Single  Judge
vide order dated 19.11.2003 noted the contention  of  all  the  parties  and
finding that there was no objection to sale of the properties either by  the
second charge holder or by the Official Liquidator, confirmed  the  sale  of
land, buildings, plant and machinery in  favour  of  M/s.  Sri  Venkataswara
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
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 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 quantifies the claim  of  the  applicant
and 2nd respondent Corporations.  The applicant  and  2nd  respondent  shall
deposit 1/4th  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
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 sale papers in their favour.”

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 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  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.
The Division Bench in our  view  came  to  a  correct  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  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 :

A.P. State Financial Corporation v. Official Liquidator (2000) 7 SCC 291;

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

Rajasthan State Financial Corpn. v. Official Liquidator (2005) 8 SCC 190


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 Act in the light of later amendments to the Companies  Act
incorporating proviso to Section 529(1) and Section 529A  of  the  Companies
Act through Amendment Act 35 of 1985.  The object of the  amendment  was  to
protect the dues of the workmen.  This Court held that the  power  available
to a corporation under Section 29 to sell the property of a  debtor  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.
In International Coach Builders Ltd. this Court not 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 thus :

“31.  Finally, counsel for SFCs urge that the view  we  are  to  take  would
obliterate the difference between a creditor opting to stay outside winding-
up and one who opts to 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 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 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 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.”


It is clear from the aforesaid judgment that no doubt  the  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 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  to  the
status of unsecured creditors and equally will  not  be  required  to  prove
their debts nor will be required to  stand  in  line  with  other  unsecured
creditors.
A three Judges’ Bench in the case of Rajasthan State  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
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 terms of Section 529A of the Companies  Act  takes  place”.
(emphasis added)
In our considered view, the rights  of  a  financial  corporation  available
under the provisions of the SFC Act 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 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 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 Liquidator if authorized, can extend only  to  ensure  that
the aforesaid 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 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 in adjudication and decide  entitlement  of  the  financial  corporation
when it has opted to stand outside the liquidation proceeding  as a  secured
creditor.  As noted earlier, the statutory  powers  of  SFCs  have  suffered
only a limited impediment only to serve the purpose of  protecting  workers’
dues.
In view of law noticed above, we find no error in the 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

12.   The orders under appeal dated 07th 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., 07th January 2004 passed  in
O.S.A.No.85 of 2003.  In the connected appeal bearing  C.A.No.5805  of  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.




                       …………………………………….J.
                       [VIKRAMAJIT SEN]


                       ……………………………………..J.
                             [SHIVA KIRTI SINGH]
New Delhi.
August 07, 2015.







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