Secured creditor enforcement in winding up must respect pari passu rights, liquidator involvement and court supervision.

A State Financial Corporation's power to enforce security under section 29 of the State Financial Corporations Act, 1951 must be exercised consistently with company liquidation proceedings under the Companies Act, 1956. Where winding-up is pending, the secured asset cannot be sold in disregard of the official liquidator, the pari passu rights of workmen and other secured creditors, or the court's supervisory control. The Corporation may proceed with sale only by associating the liquidator in the process and subject to confirmation by the court, although a different position may arise where possession was validly taken before winding up.

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Issues: Whether a State Financial Corporation can proceed under section 29 of the State Financial Corporations Act, 1951 to realise its security during company winding-up proceedings, and whether such power is subject to the Companies Act, 1956 in view of the pari passu rights created for workmen and other secured creditors.

Analysis: The dispute turned on the interaction between the Corporation's statutory power to enforce its security under section 29 and the winding-up regime under the Companies Act, 1956, including the effect of sections 529, 529A and 537. The Court held that the Corporation could not ignore the winding-up process where the company's assets were to be dealt with in liquidation, and that the rights of the secured creditor had to be worked out consistently with the pari passu charge in favour of workmen represented by the official liquidator. The Court distinguished cases where possession had already been validly taken before winding up and relied on the line of authority holding that sale of the security requires the involvement of the liquidator and confirmation of the Court when liquidation proceedings are pending.

Conclusion: The Corporation could sell the mortgaged assets only by standing outside the winding-up proceedings and by associating the liquidator in the sale process, subject to the rights of any pari passu chargeholder and confirmation by the Court.

Ratio Decidendi: A secured creditor's statutory power under section 29 of the State Financial Corporations Act, 1951 must be exercised consistently with the pari passu rights created by the Companies Act, 1956, and in liquidation the sale of secured assets cannot disregard the official liquidator or the court's supervisory control.

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