Non obstante priority in possession: secured creditor may continue pre-winding-up asset sales subject to liquidator supervision and statutory priorities.

The court held that a state financial corporation's possession and steps for sale taken under its special statute prior to a winding up order may continue, but not to the exclusion of statutory priorities or court supervision; such actions remain subject to directions and safeguards protecting other creditors and workmen. The official liquidator must receive the company's records to discharge statutory duties, and a committee comprising the official liquidator, a senior financial corporation official and a senior bank officer will oversee management, sales and compliance, with periodic accountings to the Court.

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Issues: (i) Whether the State Financial Corporations (BISCICO) can retain possession of and continue steps for sale of the company's assets taken under section 29 of the State Financial Corporations Act, 1951 notwithstanding a subsequent winding up order; (ii) Whether custody of the company's entire records must be delivered to the official liquidator and what interim managerial arrangement should be directed.

Issue (i): Whether BISCICO may retain possession and proceed with sale of assets taken on October 15, 1996 under section 29 of the State Financial Corporations Act, 1951 despite the winding up order dated December 5, 1997.

Analysis: The SFC Act contains a non obstante clause (section 46B) giving its provisions overriding effect over inconsistent provisions of other laws. The Companies Act contains section 529A, also with a non obstante clause, creating pari passu priority between workmen's dues and certain secured creditors' claims. The Court noted authorities on precedence between special and general statutes and observed that where two non obstante clauses operate, temporal and contextual factors affect which provisions govern. The parties stated BISCICO is prepared to act in concert with the official liquidator and follow court directions; the Court also considered past practice where secured creditors were permitted to effect sales under court supervision to achieve realisation.

Conclusion: BISCICO may continue to retain possession and proceed with steps for sale taken prior to the winding up order, but not with an unfettered right to the exclusion of statutory priorities and court supervision; its actions are subject to directions of this Court and safeguards to protect other creditors and workmen.

Issue (ii): Whether custody of the entire records must be handed over to the official liquidator and what interim management arrangement should be made.

Analysis: The official liquidator must be enabled to discharge statutory obligations under the Companies Act and other statutes (for example filing statements of affairs, audits, and tax obligations). Practical difficulties arising from secured creditors retaining physical possession can be addressed by mandating delivery of company records to the liquidator while allowing assets to remain in BISCICO's custody, coupled with a supervisory mechanism to protect the interests of all stakeholders. The Court found it appropriate to constitute a committee including the official liquidator, a senior BISCICO official and a senior officer of the Central Bank of India to oversee management, sales and statutory compliance, with periodic accountings to the Court.

Conclusion: The entire records of the company shall be handed over to the official liquidator; a committee comprising the official liquidator, the managing director of BISCICO and a senior officer of the Central Bank of India shall manage the company and oversee sale of assets subject to court directions; BISCICO may retain possession of assets but must comply with the committee's and Court's directions and submit quarterly account statements.

Final Conclusion: The application is allowed in part by modifying the earlier order: BISCICO may retain possession and continue sale steps initiated before the winding up order, subject to delivery of records to the official liquidator, oversight by the constituted committee, compliance with statutory priorities (including workmen's dues pari passu with certain secured claims), and periodic accounting to the Court.

Ratio Decidendi: Where a special statute with a non obstante clause and a later statutory provision in a general Act with a non obstante clause interact, rights conferred by the special statute to take possession and effect sale of assets prevail insofar as actions were taken prior to a winding up order, but such rights are subject to statutory priorities established by subsequent legislation and to court supervision to protect other creditors and workmen.

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