Secured creditor rights in winding up must yield to pari passu claims, liquidator control, and preservation expenses.

A secured creditor seeking to remain outside liquidation cannot bypass the Companies Act winding-up scheme to recover mortgaged property from the Official Liquidator. The secured creditor's rights under the State Financial Corporations Act, 1951 do not override the pari passu framework under section 529A, under which workmen's dues and secured creditors' claims rank together. A creditor retaining security must also bear its share of preservation expenses incurred for the asset. The Official Liquidator's custody and control over company assets after a winding-up order remains effective, and any delivery of possession must respect the competing claims of the workmen and other secured creditor.

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Issues: Whether a secured creditor permitted to stay outside liquidation can obtain possession of the mortgaged property from the Official Liquidator, and if so, whether such relief is conditioned upon payment of the preservation expenses and protection of the workmen and other secured creditors.

Analysis: The secured creditor's rights under the State Financial Corporations Act, 1951 were held not to override the scheme of the Companies Act, 1956 governing winding up. The Court followed earlier decisions recognising that the workmen's dues and secured creditors' claims rank pari passu under section 529A of the Companies Act, 1956 and that a secured creditor who retains security must bear its share of the expenses incurred in preserving the property. The Official Liquidator's custody and control over the company's assets after the winding up order was also affirmed, and the secured creditor could not disregard the liquidator or the competing claims of the other secured creditor and the workmen.

Conclusion: The secured creditor was entitled to delivery of possession of the mortgaged property only after paying the quantified and ongoing preservation expenses, and subject to involving the Official Liquidator in the sale process and protecting the pari passu claims of the workmen and the other secured creditor.

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