Pari passu rights in liquidation limit secured creditor sales; post-winding-up sale without court leave is void.

A secured creditor exercising power under section 29 of the State Financial Corporations Act, 1951 must act consistently with the pari passu rights created for workmen by sections 529 and 529A of the Companies Act, 1956 once winding up has commenced. In that setting, the creditor cannot unilaterally sell the company's assets without leave of the court and without associating the official liquidator. A sale completed after the winding-up order, and without such leave, is void under section 537(1)(b), even if possession had earlier been taken by the creditor. The sale was therefore not approved, and resale in association with the official liquidator was required, subject to court confirmation.

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Issues: (i) Whether a secured creditor exercising power under section 29 of the State Financial Corporations Act, 1951 could sell the assets of a company in liquidation without the leave of the court and without associating the official liquidator. (ii) Whether the sale concluded after the winding-up order was void under section 537(1)(b) of the Companies Act, 1956.

Issue (i): Whether a secured creditor exercising power under section 29 of the State Financial Corporations Act, 1951 could sell the assets of a company in liquidation without the leave of the court and without associating the official liquidator.

Analysis: The statutory power of a financial corporation to realise security under section 29 operates freely while the company is outside winding up, but once winding up has commenced the Companies Act provisions governing workmen's dues and pari passu distribution become relevant. The proviso to section 529(1) and section 529A create a pari passu charge in favour of workmen represented by the official liquidator. In that situation, the secured creditor is not the sole person entitled to deal with the security, and the security must be realised consistently with the rights of the pari passu charge-holder. Section 46B does not create repugnancy, because section 29 does not deal with a case where a pari passu charge-holder exists.

Conclusion: The secured creditor could not sell the assets unilaterally after winding up commenced. Leave of the court and association of the official liquidator were necessary.

Issue (ii): Whether the sale concluded after the winding-up order was void under section 537(1)(b) of the Companies Act, 1956.

Analysis: The sale was finalised only after the winding-up order had already been passed. Section 537(1)(b) renders void any sale of company property held after commencement of winding up without leave of the court. Since the sale was completed after the winding-up order and without court leave, it attracted the statutory voidness. The earlier possession taken by the secured creditor did not cure the defect, because completion of the sale occurred when the company was already in liquidation and the official liquidator had become entitled to participate in the process.

Conclusion: The sale was void under section 537(1)(b).

Final Conclusion: The appeal failed. The direction refusing approval of the sale and requiring resale in association with the official liquidator, subject to court confirmation, was upheld with a limited modification as to the opening bid in the resale process.

Ratio Decidendi: Where a company is in liquidation, the secured creditor's power under section 29 of the State Financial Corporations Act, 1951 must be exercised consistently with the pari passu rights created in favour of workmen by sections 529 and 529A of the Companies Act, 1956, and any sale effected without leave of the court is void under section 537(1)(b).

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