Pari passu workmen rights limit secured creditor sales of winding-up assets and require court-supervised disposal.

A secured creditor's power to sell mortgaged assets of a company in winding up is controlled by the workmen's pari passu charge under sections 529 and 529A of the Companies Act, 1956. Once that statutory charge exists, the creditor cannot sell the security unilaterally; the official liquidator must participate and the company court must supervise the sale and distribution of proceeds. The State Financial Corporations Act, 1951 does not override these rights, and its enforcement powers must be exercised consistently with the pari passu framework. The article notes that sale may proceed only under court sanction, with protection of workmen's dues.

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Issues: (i) whether a secured creditor with a contractual and statutory power of sale can sell mortgaged assets of a company in winding up without leave of court when the workmen have a pari passu charge under the Companies Act, 1956; (ii) whether the provisions of the State Financial Corporations Act, 1951 override or are subject to the pari passu rights created by sections 529 and 529A of the Companies Act, 1956.

Issue (i): whether a secured creditor with a contractual and statutory power of sale can sell mortgaged assets of a company in winding up without leave of court when the workmen have a pari passu charge under the Companies Act, 1956

Analysis: The earlier position recognising a secured creditor's right to realise security outside winding up was examined in the light of the 1985 amendments. The proviso to section 529 creates a pari passu charge in favour of workmen over the secured assets, and section 529A gives overriding preferential status to the workmen's dues and to the secured creditor's unrecovered portion. Once that statutory charge exists, the secured creditor is no longer the only party entitled to deal with the security. The official liquidator, representing the workmen, is a necessary participant in any sale of the charged property, and the company court retains control over the conduct of the sale and distribution of proceeds. A sale by the secured creditor without court sanction would therefore not be permissible where the workmen's pari passu charge subsists.

Conclusion: Leave of court is necessary, and the secured creditor cannot sell the property unilaterally in such a case.

Issue (ii): whether the provisions of the State Financial Corporations Act, 1951 override or are subject to the pari passu rights created by sections 529 and 529A of the Companies Act, 1956

Analysis: Section 29 of the State Financial Corporations Act confers enforcement powers on the financial corporation, but it does not nullify the statutory rights created in favour of workmen under the Companies Act. Section 46B does not assist where there is no inconsistency, because the power under section 29 must be exercised consistently with the pari passu charge in favour of workmen. The official liquidator, acting for the workmen, cannot consent to a sale without the sanction of the company court, and the court may regulate valuation, reserve price, conduct of sale, and distribution. The earlier authorities relied on by the appellants were distinguished because they did not consider the post-amendment scheme of sections 529 and 529A.

Conclusion: The statutory power under the State Financial Corporations Act is subject to the pari passu charge and the control of the company court.

Final Conclusion: The appeal succeeded to the extent that the refusal of leave was set aside and permission to sell the secured assets was granted, but only subject to court supervision and protection of the workmen's pari passu rights.

Ratio Decidendi: Where workmen acquire a pari passu charge under the winding-up provisions, a secured creditor's power of sale must be exercised jointly with the official liquidator and under the sanction and supervision of the company court.

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