A. P. State Financial Conwration Vs. Official
Liquidator [2000] INSC 424 (9 August 2000)
Appeal (civil) 3440 of 1997 $ A. P. STATE FINANCIAL
CONWRATION
S.R.Babu,
S.N.Phukan
L.I.T.J
PHUKAN.J.
The
appellant is a Corporation established under The State '« Financial
Corporations Act, 1951 (for short 'Act of 1951').
Two
companies viz. M/S Nagarjuna Paper Mills and M/S Chandra Pharmaceuticals
Limited were in liquidation and the liquidation proceedings were pending before
the, learned company Judge of the High Court. The above two companies obtained
loans from the appellant and for realisation of dues, the appellant invoked the
provisions of Section 29 of Act of 1951. As both the companies were under liquidation,
the appellant tiled two separate applications under Section 446(1) of the
Companies Act read with Sections 29 and 46 of Act of 1951 before learned
company Judge of the High Court for staying outside the liquidation proceeding.
The
learned Judge passed two similar orders in respect of both the companies and
granted permission to the appellant to stay outside the liquidation proceedings
subject to the following conditions: "1. The petitioner will undertake to
discharge its liability' due to the workers, if any, under Section 529 (A) of
the Companies Act. 2. The. petitioner shall inform at least 10 days in advance
before a date fixed for receipt of tenders, to the Official Liquidator about
the proposed sale of the properties of the company; and 3. The petitioner shall
also obtain the permission of the Court before finalising the tenders."
The appeals filed were dismissed by the Division Bench of the High Court by the
impugned judgement and hence these appeals. We have heard Mr. Y. Prabhakara Rao.
learned counsel for the appellant and Mr. A.D.N. Rao, learned counsel for the
respondent.
The
short question to be decided in these appeals is whether the order of the High
Court imposing the above three conditions is lawful. To appreciate the above
point we may quote below sub-section (1) of Section 29 of Act of 1951
and-sub-Section (1) of Section 529 and Section 529A of the Companies Act. It
maybe stated that the proviso to sub-Section (1) of Section 529 and Section
529A were inserted by the Companies (Amendment) Act, 1985. "29 (1)- Where
any industrial concern, which is under a liability to the Financial Corporation
under an agreement, makes any default in repayment of any loan or advance or
any instalment thereof or in meeting its obligations in relation to any
guarantee given by the Corporation or otherwise fails to comply with the terms
of its agreement with the Financial Corporation, the Financial Corporation
shall have the right to take over the management or possession or both ofthe
industrial concerns, as well as the right to transfer by way of lease or sale
and realise the property pledged, mortgaged.
hypothecated
or assigned to the Financial Corporation.
"529
(1) - In the winding up of an insolvent company, the same rules shall prevail
and be observed with regard to-(a) debts provable; (b)the valuation of
annuities and future and contingent liabilities; and (c)the respective 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; Provided that the security' of every' secured creditor shall be
deemed to be subject to a pan passu charge in favour of the workmen to the
extent of the workmen's portion therein, and, where a secured creditor;.
Instead
of relinquishing his security and proving his debt, opts to realise his
security- (a) the liquidator shall be entitled to represent the workmen and
enforce such charge (b)any amount realised by the liquidator by way of
enforcement of 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 realised
by him by virtue of the foregoing provisions of this proviso or the amount of
the workmen's portion in his security, whichever is less, shall rank. pan passu
with the workmen dues for the purposes of section 529A." "529A (1) -
Notwithstanding anything contained in any of this 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 clause (c) of the proviso to sub-section ( I ) of Section 529 pan passu
with such dues, shall be paid in priority to all other debts" The only
contention of Mr. Y. Prabhakara Rao, learned counsel for the appellant was that
the Act of 1951 being a special Act, power of the appellant-corporation to
invoke provisions of Section 29 of the of 1951 is absolute and cannot be
restricted. By inserting the proviso of Section 529 of the Companies Act by the
amending Act of 1985 legislature has provided that the security of every
secured creditor shall be deemed to be subject to a pan pasfu charge in favour
of the workmen to the extent of the workmen's portion therein. and, where a
secured creditor; instead of relinquishing the security and proving thedebt,opts
to realise security- (a) the liquidator shall be entitled to represent the
workmen and enforce such charge;
(b)
any amount realised by the liquidator by way ofe-nforcement of such charge; and
(c) so much of the debt due to such secured creditor as could not be realised
by him by virtue of the foregoing provisions of the proviso or the amount of
the workmen's portion in the security, whichever is less.
shall
rank pan passu with the workmen dues tor the purposes of section 529A. Section
5^9 A which was also inserted by the amending Act of 1985 starts with the non obstcalte
clause and provides that in winding up of a Company, 'workmen's' dues and debts
due to secured creditors to the extent of such debts rank under clause (c) of
the proviso to sub-section (1) of Section 529 pari passu with such dues shall
be paid in priority with all other dues. Now the question is whether Section 29
of the Act of 1951 can over ride above provisions of the proviso to sub-section
(1) of Section 529 and Section 529 A of the Companies Act. in other words
whether the Corporation can exercise its rights under above Section 29 ignoring
a pari passu charge of the workmen.
The
Act of 1951 is a special Act for grant of financial assistance tQ industrial
concerns with a view to boost up industrialisation and also recovery of such
financial assistance if it becomes bad and similarly the Companies Act deals
with companies including winding up of such companies. Both Section 29 of Act
of 1951 and Section 529 A of the Companies Act have competing mm obsicmte
provisions but the proviso to .
sub-section
(1) of 529 and Section 529 A being a subsequent enactment, the non obstante. clause
in Section 529 A prevails over the non obstante. clause found in Section 29 of
the Act of 1951 in view of the settled position of law. We are, therefore, of
the opinion that the above proviso to sub-section (1) of Section 529 and
Section 529 A will control Section 29 of the Act of 1951. In other words the
statutory' right to sell the property under Section 29 of the.. Act of 1951 has
to be exercised with the rights ofparipasstt charge to the workmen created by
the proviso to Section 529 of the Companies ,Act.
Under
the proviso to sub-section (1) of Section 529, the liquidator shall be entitled
to represent the workmen and force the above pan passn charge. Therefore, the
Company Court was fully justified in imposing abbove fconditions to enable the
Official Liquidator to discharge bis funnction -properly under supervision of
the Company Court as the new Section 529 A of the Companies Act confers upon a
Company Court a duty to ensure that the workmen's dues are paid in priority to
all other debts in accordance with provisions of the above Section. Tlie
legislature has amended the Companies Act in 1985 with a social purpose viz. to
protect dues of the workmen. If conditions are not imposed to protect the right
of the workmen there is every possibility that secured creditor may frustrate
the above pan passu right of the workmen. In the impugned judgment High Court
expressed tlie views as follows; "In our opinion, therefore, it was not at
all necessary for the Financial Corporation to approach this Court for
permission to stay outside the winding up proceedings. In spite of the same,
the Financial Corporation did venture to make such application in view of the
fact that ' pan pasyu charge was created on the assets of the company for
payment of arrears to workmen of the company........." In view of the
above opinion of the High Court that it was not necessary for Financial
Corporation to approach the Court for permission to stay outeiJe the winding up
proceedings, the learned counsel for appellant has urged that High-Court-erredd
in imposing the above conditions. We are of the opinion that- above-ebservation
of the High Court was uncalled for as we have stated that power under Section
29 of the Act of 1951 can be exerci.sed subject to the above provisions of the
Companies Act. For what has been slated above, we hold that imposition of the
above conditions by the High Court 'was lawful, The present appeals have no
merit and accordingly dismissed.
Cost
on the parties.
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