Case: OFFICIAL LIQUIDATOR, M/S. METALLIC SOAPS &amp; CHEMICALS (PVT.) LTD Vs. MANAGER, KARNATAKA STATE FINANCIAL CORPORATION

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 529-A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion any proceeding under the SFC Act. What we have is only a liquidation proceeding pending and the secured creditors, the financial corporations approaching the company Court for permission to stand outside the winding up and to sell the properties of the company-in-liquidation. The Company Court has rightly directed that the sale be held in association with the Official Liquidator representing the workmen and that the proceeds will be held by the Official Liquidator until they are distributed in terms of Section 529-A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this Court in the decisions referred to above. In this situation, we find no reason to interfere with the decision of the High Court. We clarify that there is no inconsistency between the decisions in Allahabad Bank vs. Canara Bank [(2000) 4 SCC 406] and in International Coach Builders Ltd. vs. Karnataka State Financial Corpn.[(2003) 10 SCC 482] in respect of the applicability of Sections 529 and 529-A of the Companies Act in the matter of distribution among the creditors. The right to sell under the SFC Act or under the Recovery of Debts Act by a creditor coming within those Acts and standing outside the winding up, is different from the distribution of the proceeds of the sale of the security. The distribution in a case where the debtor is a company in the process of being wound up, can only be in terms of Section 529A read with Section 529 of the Companies Act. After all, the Liquidator represents the entire body of creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in Section 530 of the Companies Act under the directions of the Company Court. In other words, the distribution of the sale proceeds under the direction of the Company Court is his responsibility. To ensure the proper working out of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the company Court, that a proper price is fetched for the assets of the company-inliquidation. It was in that context that the rights of the Official Liquidator were discussed in International Coach Builders Ltd. The Debts Recovery Tribunal and the District Court entertaining an application under Section 31 of the SFC Act should issue notice to the Liquidator and hear him before ordering a sale, as the representative of the creditors in general. 8. Learned senior counsel appearing for respondent No. 1 thus, emphasised that in the aforesaid given facts, no action under the SFC Act had been taken till that time, nor was the winding up proceedings commenced with the Official Liquidator being appointed. The object, it was submitted, was to associate the Official Liquidator with the sale. 9. Learned senior counsel also referred to Bank of Maharashtra vs. Pandurang Keshav Gorwardkar & Ors. [2013 (7) SCC 754 ], Laxmi Fibres Limited vs. Andhra Pradesh Industrial Development Corporation Ltd. and Ors. [2015 (16) SCC 464 ] and Pegasus Assets Reconstruction P. Ltd. vs. Haryana Concast Ltd. & Anr. [2016 (4) SCC 47 ] to advance the proposition that the ultimate object was only association of the Official Liquidator for purposes of distribution of the assets of company in liquidation in terms of section 529A of the Companies Act. 10. At the conclusion of hearing, what has come to light, is that neither any claim of the workmen have been invited nor are pending with the Official Liquidator. Thus, for over 25 years nothing has been done by the Official Liquidator in this behalf while merely asserting a theoretical right of pari passu right of the workmen with respondent No. 1 corporation. 11. On a perusal of the legal provisions expounded before us, we have no doubt that the role of the official liquidator and his association with the sale of the assets, where action is taken under the SFC Act, is to ensure that a proper price is obtained for the assets sold so as to protect the rights of the other secured creditors. In this behalf, we may note the judgment of this Court in Bakemans Industries Pvt. Ltd. vs. New Cawnpore Flour Mills & Ors. [2008 (15) SCC 1 ] where it has been categorically opined that the provisions of Section 29 of the SFC Act, that being a special statute, would prevail over the general powers of the Company Judge under the Companies Act. 12. Learned senior counsel for respondent No. 1 fairly concedes that were any verified dues of the workmen to be paid, respondent No. 1 would be liable for the same to the extent of pari passu rights over the proceeds realised from respondent No.2. In fact, even the impugned order has issued a direction in terms of paragraph 4 that the sale proceeds are to be distributed in terms of Section 529A and Section 529 of the Companies Act. 13. We are, thus, of the view that the rights of the workmen, as and when the Official Liquidator verifies the dues, are fully protected as their rights would be pari passu with the rights of respondent No. 1 so far as the distribution of sale proceeds realised from respondent No. 2 are concerned.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]7. A perusal of the impugned order shows that the reasoning of the Division Bench is predicated on the judgment of this Court in Rajasthan State Financial Corporation and Anr. vs. Official Liquidator and Anr. [2005 (8) SCC 190 ].17. Thus, on the authorities what emerges is that 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 Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the Official Liquidator and under the supervision of the Company Court. The right of a financial institution or of the Recovery 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 529-A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion any proceeding under the SFC Act. What we have is only a liquidation proceeding pending and the secured creditors, the financial corporations approaching the company Court for permission to stand outside the winding up and to sell the properties of the company-in-liquidation. The Company Court has rightly directed that the sale be held in association with the Official Liquidator representing the workmen and that the proceeds will be held by the Official Liquidator until they are distributed in terms of Section 529-A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this Court in the decisions referred to above. In this situation, we find no reason to interfere with the decision of the High Court. We clarify that there is no inconsistency between the decisions in Allahabad Bank vs. Canara Bank [(2000) 4 SCC 406]  and in International Coach Builders Ltd. vs. Karnataka State Financial Corpn.[(2003) 10 SCC 482]  in respect of the applicability of Sections 529 and 529-A of the Companies Act in the matter of distribution among the creditors. The right to sell under the SFC Act or under the Recovery of Debts Act by a creditor coming within those Acts and standing outside the winding up, is different from the distribution of the proceeds of the sale of the security. The distribution in a case where the debtor is a company in the process of being wound up, can only be in terms of Section 529A read with Section 529 of the Companies Act. After all, the Liquidator represents the entire body of creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in Section 530 of the Companies Act under the directions of the Company Court. In other words, the distribution of the sale proceeds under the direction of the Company Court is his responsibility. To ensure the proper working out of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the company Court, that a proper price is fetched for the assets of the company-inliquidation. It was in that context that the rights of the Official Liquidator were discussed in International Coach Builders Ltd. The Debts Recovery Tribunal and the District Court entertaining an application under Section 31 of the SFC Act should issue notice to the Liquidator and hear him before ordering a sale, as the representative of the creditors in general.10. At the conclusion of hearing, what has come to light, is that neither any claim of the workmen have been invited nor are pending with the Official Liquidator. Thus, for over 25 years nothing has been done by the Official Liquidator in this behalf while merely asserting a theoretical right of pari passu right of the workmen with respondent No. 1 corporation.11. On a perusal of the legal provisions expounded before us, we have no doubt that the role of the official liquidator and his association with the sale of the assets, where action is taken under the SFC Act, is to ensure that a proper price is obtained for the assets sold so as to protect the rights of the other secured creditors. In this behalf, we may note the judgment of this Court in Bakemans Industries Pvt. Ltd. vs. New Cawnpore Flour Mills & Ors. [2008 (15) SCC 1 ] where it has been categorically opined that the provisions of Section 29 of the SFC Act, that being a special statute, would prevail over the general powers of the Company Judge under the Companies Act.13. We are, thus, of the view that the rights of the workmen, as and when the Official Liquidator verifies the dues, are fully protected as their rights would be pari passu with the rights of respondent No. 1 so far as the distribution of sale proceeds realised from respondent No. 2 are concerned.