1995 (12) TMI 276 - HC - Companies Law

Court directs sale proceeds to be kept for workmen & creditors, ensuring compliance with Companies Act.

Andhra Pradesh State Financial Corpn. Versus Electrothermic (P.) Ltd.

Andhra Pradesh State Financial Corpn. Versus Electrothermic (P.) Ltd. - [1996] 86 COMP. CAS. 402 (AP) Issues Involved:1. Compatibility between the State Financial Corporations Act, 1951, and the Companies Act, 1956.2. Rights and obligations of secured creditors in the context of company liquidation.3. Role of the official liquidator in representing workmen's dues.4. Jurisdiction of the company court under Section 446 of the Companies Act, 1956.5. Application of Sections 529 and 529A of the Companies Act, 1956, concerning pari passu charges.Detailed Analysis:1. Compatibility between the State Financial Corporations Act, 1951, and the Companies Act, 1956:The court examined whether there is any incompatibility between the provisions of the State Financial Corporations Act, 1951, and the Companies Act, 1956. Section 29 of the State Financial Corporations Act empowers financial corporations to take over and sell the assets of defaulting industrial concerns. However, the Companies Act, 1956, under Section 446(1), creates a bar on any suit or legal proceedings against a company in liquidation without the leave of the court. The court concluded that while financial corporations have the right to sell assets under Section 29, this right must be exercised in harmony with the provisions of the Companies Act, especially concerning the rights of other secured creditors and workmen.2. Rights and obligations of secured creditors in the context of company liquidation:The judgment highlighted that secured creditors, such as the Andhra Pradesh State Financial Corporation (APSFC) and the State Bank of Hyderabad, have specific rights to realize their dues from the assets of the company. However, these rights are subject to the pari passu charge created in favor of workmen under Section 529A of the Companies Act. The court emphasized that secured creditors must share the proceeds from the sale of assets proportionately with workmen's dues and other secured creditors.3. Role of the official liquidator in representing workmen's dues:The court underscored the role of the official liquidator in representing the workmen's dues. Under Section 529(1) of the Companies Act, the liquidator is entitled to enforce the pari passu charge in favor of workmen and ensure that the amount realized from the sale of assets is applied rateably for the discharge of workmen's dues. The court affirmed that the official liquidator must act under the direction of the court and seek permission before giving concurrence to the sale of assets by secured creditors.4. Jurisdiction of the company court under Section 446 of the Companies Act, 1956:Section 446 of the Companies Act, 1956, confers special jurisdiction on the court winding up the company to entertain and dispose of various proceedings, including claims by or against the company. The court reiterated that this jurisdiction aims to safeguard the assets of the company against wasteful litigation and ensure equitable distribution among creditors. The court cited the Supreme Court's judgment in Sudarsan Chits (I) Ltd. v. G. Sukumaran Pillai, which clarified that the winding-up court has comprehensive jurisdiction over claims and proceedings related to the company.5. Application of Sections 529 and 529A of the Companies Act, 1956, concerning pari passu charges:Sections 529 and 529A of the Companies Act, 1956, provide for the creation of a pari passu charge in favor of workmen's dues and place them on the same priority as secured creditors. The court referred to the judgment in A.P. State Financial Corporation v. Official Liquidator, which held that the statutory right to sell property under Section 29 of the State Financial Corporations Act must be exercised with the rights of pari passu charge holders. The court emphasized that the dues of workmen and secured creditors should be rateably apportioned and paid from the sale proceeds of the company's assets.Conclusion:The court modified the order of the learned single judge, directing that the sale proceeds from the assets of the company disposed of by APSFC be kept available for the claims of workmen and other secured creditors, including the State Bank of Hyderabad. The official liquidator was instructed to proceed accordingly, ensuring that the claims are discharged proportionately. The appeal was allowed to the extent indicated, ensuring compliance with the provisions of the Companies Act, 1956, and safeguarding the interests of all stakeholders.