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Issues: (i) Whether the secured creditor's right to take over and sell the secured assets under section 29 of the State Financial Corporations Act, 1951 could be exercised in the face of winding up, and (ii) whether the sale proceeds had to be subjected to pari passu distribution in favour of workmen and other secured creditors under the Companies Act, 1956.
Issue (i): Whether the secured creditor's right to take over and sell the secured assets under section 29 of the State Financial Corporations Act, 1951 could be exercised in the face of winding up.
Analysis: The statutory right under section 29 remains available to the financial corporation, but once the company is in liquidation the liquidation framework cannot be ignored. The winding up court has jurisdiction under section 446 of the Companies Act, 1956, and the liquidator is required to protect the interests of the company estate and the persons entitled in the winding up. The secured creditor does not acquire an unfettered right to appropriate the entire security if the company's assets are insufficient to satisfy competing statutory claims.
Conclusion: The secured creditor may proceed under section 29, but only in conformity with the liquidation regime and the pari passu rights created by the Companies Act, 1956.
Issue (ii): Whether the sale proceeds had to be subjected to pari passu distribution in favour of workmen and other secured creditors under the Companies Act, 1956.
Analysis: Section 529, as amended, creates a pari passu charge in favour of workmen, and section 529A gives overriding priority to workmen's dues and the corresponding share of secured creditors to the extent the proviso to section 529 applies. The liquidator must therefore represent the workmen, secure the rateable distribution of the realisations, and ensure that any competing secured creditor shares in the realised assets in proportion to its claim when the assets are insufficient to pay all secured debts in full. The claim of a secured creditor outside winding up cannot be used to defeat the statutory priority of another secured creditor or the workmen.
Conclusion: The sale proceeds were required to remain available for rateable distribution among workmen and secured creditors, including the State Bank of Hyderabad, on a strict pari passu basis.
Final Conclusion: The appeal succeeds in part, and the impugned order is modified so that the financial corporation may realise its dues while preserving the statutory pari passu rights of workmen and other secured creditors in the winding up.
Ratio Decidendi: A secured creditor exercising a statutory power of sale during winding up cannot appropriate the security free of the statutory pari passu charge in favour of workmen and the corresponding rights of other secured creditors where the company's assets are insufficient; the liquidation court and liquidator must secure rateable distribution under the Companies Act, 1956.
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