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Issues: (i) Whether a State Financial Corporation can invoke section 29(1) of the State Financial Corporations Act, 1951, to take possession and sell assets of a company after a winding up order without the leave of the company court; (ii) whether the official liquidator is entitled to custody and control of the mortgaged and hypothecated assets and to have the assets and sale proceeds handed over for administration under the Companies Act, 1956; (iii) whether contempt action was warranted for the Corporation's acts.
Issue (i): Whether a State Financial Corporation can invoke section 29(1) of the State Financial Corporations Act, 1951, to take possession and sell assets of a company after a winding up order without the leave of the company court.
Analysis: Upon a winding up order, the property and effects of the company are deemed to be in the custody of the court, and the liquidator is required to take custody and control of all the company's property. Section 529A of the Companies Act, 1956 creates a statutory pari passu charge in favour of workmen and secured creditors, so realisation of securities cannot be left to the unilateral choice of a secured creditor. Section 29(1) of the State Financial Corporations Act, 1951 can operate only while the company itself remains in possession and control of its assets. After winding up, the secured creditor can proceed only with the prior leave of the company court.
Conclusion: The Corporation could not validly invoke section 29(1) after the winding up order without prior leave of the company court.
Issue (ii): Whether the official liquidator is entitled to custody and control of the mortgaged and hypothecated assets and to have the assets and sale proceeds handed over for administration under the Companies Act, 1956.
Analysis: Section 456(1) obliges the liquidator to take custody of all the company's assets, and section 456(2) deems those assets to be in the custody of the court from the date of the winding up order. In the presence of section 529A, the official liquidator must safeguard the interests of workmen and secure fair realisation of the assets under the supervision of the company court. The assets, including mortgaged and hypothecated assets, therefore fall under the liquidator's control for realisation and distribution in accordance with law.
Conclusion: The official liquidator was entitled to custody and control of the assets and to receive the assets and the net sale proceeds from the Corporation.
Issue (iii): Whether contempt action was warranted for the Corporation's acts.
Analysis: Although the Corporation's taking possession and sale of plant and machinery without leave of court were held illegal, the conduct was not found to be wilful and deliberate defiance of the court's orders. The circumstances did not justify immediate contempt proceedings, though liberty was reserved to seek such action upon continued non-compliance with the directions issued.
Conclusion: Contempt action was rejected.
Final Conclusion: The winding up court's control prevails over unilateral enforcement by the secured creditor, the official liquidator must administer the assets and sale proceeds for the benefit of all concerned including workmen, and contempt relief was declined.
Ratio Decidendi: After a winding up order, a secured creditor cannot enforce its security under section 29(1) of the State Financial Corporations Act, 1951 without the leave of the company court, because the company's assets are deemed to be in the custody of the court and the liquidator must realise them subject to the statutory pari passu rights of workmen under section 529A of the Companies Act, 1956.
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