Company assets in winding up cannot be sold by a secured creditor without court leave; workmen's pari passu rights control.

Where winding up has commenced, a secured creditor cannot unilaterally sell the company's assets without leave of the Company Court, because the court's custody over the property and the pari passu rights of workmen under the Companies Act, 1956 must be respected; a sale made without such leave is void. The sick industrial company regime did not displace this requirement, as the two statutes were read harmoniously and the special Act's sale powers could not be used in derogation of the Company Court's control during winding up. The operative effect is that any sale of assets in this situation must conform to the workmen's charge and obtain court approval.

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Issues: (i) whether the sale of the company's assets by the secured creditor without leave of the Company Court was void in law; (ii) whether the Sick Industrial Companies (Special Provisions) Act, 1985 displaced the requirements of the Companies Act, 1956 in the matter of sale of assets during winding up.

Issue (i): whether the sale of the company's assets by the secured creditor without leave of the Company Court was void in law.

Analysis: The statutory scheme of winding up gave the Company Court custody over the company's property, and section 537 of the Companies Act, 1956 rendered void any sale of the company's properties held without leave of the court after commencement of winding up. The amendments introducing the proviso to section 529(1) and section 529A created a pari passu charge in favour of workmen, so that a secured creditor enforcing security had to act consistently with the rights of the workmen represented by the official liquidator. The Court followed the view that the secured creditor could not ignore the pari passu chargeholder and sell the assets unilaterally.

Conclusion: The sale without leave of the Company Court was void.

Issue (ii): whether the Sick Industrial Companies (Special Provisions) Act, 1985 displaced the requirements of the Companies Act, 1956 in the matter of sale of assets during winding up.

Analysis: Section 20(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 empowered the Board to cause sale of assets, and section 32 gave the Act overriding effect in case of inconsistency. However, the Court held that the two enactments could be read harmoniously and that there was no real conflict. Even where the Board ordered or authorised sale, if winding up proceedings had commenced, leave of the Company Court remained necessary so that the interests of workmen, secured creditors, and other creditors were protected. The statutory power under the special Act did not authorise a sale in derogation of the Company Court's control over assets in winding up.

Conclusion: The special Act did not override the requirement of leave of the Company Court in this situation.

Final Conclusion: The application failed because the impugned sale could not be sustained in the absence of leave of the Company Court, and the order directing the official liquidator to take charge of the company's assets was left undisturbed.

Ratio Decidendi: Where winding up has commenced, a sale of a company's assets by a secured creditor or under the special sick-company regime must conform to the pari passu rights created in favour of workmen and cannot be effected without leave of the Company Court; any such sale without leave is void under section 537 of the Companies Act, 1956.

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