Prior hypothecation enforced before winding up prevails over liquidation where the secured creditor had already taken possession of assets.

A prior hypothecation enforced by a financial corporation under the State Financial Corporations Act, where possession of the secured assets had already been taken before winding up, was treated as prevailing over the liquidation process. The absence of charge registration under the Companies Act did not defeat the earlier security interest because the hypothecation arose before incorporation as a company. The court also noted that the winding-up proceedings had been obtained without notice to the secured creditor, who had no notice of the stay or the liquidation. The secured creditor was therefore kept outside the liquidation and permitted to proceed against the hypothecated machinery and equipment, with limited directions for segregation and handover of those assets.

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Issues: Whether a secured creditor, whose hypothecated assets were attached and taken possession of under the State Financial Corporations Act before the company went into winding up, could be kept outside the liquidation and allowed to proceed against the hypothecated assets notwithstanding the winding-up order and the absence of registration of charge under the Companies Act.

Analysis: The hypothecation in favour of the financial corporation was created when the concern was still a partnership firm, before incorporation as a company, so the absence of registration under company law did not defeat the prior charge. The company and its directors had also sought winding up without disclosing the earlier action taken under section 29 of the State Financial Corporations Act, and the secured creditor had no notice of the winding-up proceedings or the stay of civil and criminal proceedings. The special powers of the financial corporation under sections 29 and 46B of the State Financial Corporations Act operated with overriding force, and the creditor's possession and attachment could not be displaced by the liquidation machinery in the circumstances of the case.

Conclusion: The secured creditor was entitled to be kept outside the liquidation and to proceed against the hypothecated machinery and equipment.

Final Conclusion: The petition succeeded, the winding-up process did not bar the secured creditor from enforcing its hypothecation rights over the identified assets, and limited directions were issued for segregation and handover of the hypothecated machinery and equipment.

Ratio Decidendi: A prior hypothecation enforced by a financial corporation under the State Financial Corporations Act, where possession had already been taken, prevails over the liquidation process and need not be defeated by non-registration under company law when the company's winding-up order was obtained without notice to the secured creditor.

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