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Issues: (i) whether a secured creditor covered by the State Financial Corporations Act, 1951 could remain outside the winding up proceedings and realise its security by sale of the charged assets without leave of the company court; (ii) whether the court could refuse such course on the footing of section 529A of the Companies Act, 1956 and require the official liquidator to control the sale; and (iii) whether a reference to the Board for Industrial and Financial Reconstruction could be made by the court in the circumstances of the case.
Issue (i): whether a secured creditor covered by the State Financial Corporations Act, 1951 could remain outside the winding up proceedings and realise its security by sale of the charged assets without leave of the company court
Analysis: The secured creditor had taken possession under section 29 of the State Financial Corporations Act, 1951 after default and the Act conferred a statutory right to take over management or possession and to transfer the property by lease or sale for recovery of dues. The provisions of that Act were treated as special provisions having overriding effect under section 46B. The restraint in section 537 of the Companies Act, 1956 was held to apply to attachment, distress, execution or sale through the intervention of the court and not to a sale made in exercise of independent statutory powers outside winding up. The court relied on settled authority that a secured creditor may stay outside winding up and realise security without court intervention.
Conclusion: The secured creditor was entitled to remain outside the winding up proceedings and to realise its security under section 29 without leave of the court.
Issue (ii): whether the court could refuse such course on the footing of section 529A of the Companies Act, 1956 and require the official liquidator to control the sale
Analysis: Section 529A was treated as part of the general company law, whereas the State Financial Corporations Act, 1951 was treated as a special enactment governing recovery by the financial corporation. The court held that the insertion of section 529A did not curtail the special statutory powers under section 29, and that the possibility of workmen's dues did not displace the corporation's independent right to sell the charged assets. The court therefore rejected the contention that leave of court was necessary merely to protect pari passu treatment in winding up.
Conclusion: Section 529A did not prevent the secured creditor from proceeding under the special Act, and no leave of the court was required.
Issue (iii): whether a reference to the Board for Industrial and Financial Reconstruction could be made by the court in the circumstances of the case
Analysis: Under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, reference could be initiated only by the persons or authorities specified in that provision. The court found no power in itself to make such reference, particularly when the financial corporation had already taken possession and had not appointed directors who could act for the company under the statutory scheme. The request was also not one made by the company itself.
Conclusion: The court could not make a reference to BIFR.
Final Conclusion: The application of the financial corporation was granted, its right to remain outside winding up and to sell the charged assets under the special statute was upheld, and the request for court-directed BIFR reference was declined.
Ratio Decidendi: A secured creditor acting under a special statute with overriding effect may realise its security without leave of the winding up court, and section 537 of the Companies Act, 1956 does not control such statutory sale outside court intervention.
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