Case: A.P. State Financial Corporation Vs. Official Liquidator

The appellant is a Corporation established under the State Financial Corporations Act, 1951 (for short "the 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 the Act of 1951. As both the Companies were under liquidation, the appellant filed two separate applications under Section 446(1) of the Companies Act read with Sections 29 and 46 of the Act of 1951 before learned Company Judge of the High Court for staying outside the liquidation proceedings. 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 followingThe petitioner will undertake to discharge its liability due to the workers, if any, under Sectionof the CompaniesThe petitioner shall inform at least 10 days in advance before date fixed for receipt of tenders, to the Official Liquidator about the proposed sale of the properties of theThe petitioner shall also obtain the permission of the Court before finalising the tenders."appeals filed were dismissed by the Division Bench of the High Court by the impugned judgment and hence these appeals

Court's reasoning:
We are, therefore, of the opinion that the above proviso to(1) of Section 529 and Sectionwill 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 of pari passu charge to the workmen created by the proviso to Section 529of the CompaniesAct Under the proviso to(1) of Section 529, the liquidator shall be entitled to represent the workmen and force (sic enforce) the above pari passu charge. Therefore, the Company Court was fully justified in imposing the above conditions to enable the Official Liquidator to discharge his function properly under the supervision of the Company Court as the new Sectionof the CompaniesAct confers upon a Company Court the duty to ensure that the workmens dues are paid in priority to all other debts in accordance with the provisions of the above section. The 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 the secured creditor may frustrate the above pari passu right of thethe impugned judgment the High Court expressed its views asour opinion, therefore, it was not at all necessary for the Financial Corporation to approach this Court for permission to stay outside theproceedings. In spite of the same, the Financial Corporation did venture to make such an application in view of the fact that pari passu charge was created on the assets of the Company for payment of arrears to the workmen of the Company. ...."are of the opinion that the above observation of the High Court was uncalled for as we have stated that power under Section 29 of the Act of 1951 can be exercised subject to the above provisionsof the Companieswhat has been stated above, we hold that imposition of the above conditions by the High Court was lawful.