Workmen's pari passu charge limits unilateral sale rights of a secured creditor in company liquidation.

After the 1985 amendments to the Companies Act, 1956, workmen acquire a pari passu charge over the security of a secured creditor when that creditor realises its security outside winding up. In a winding up, the Official Liquidator represents that charge and acts under the supervision of the Company Court. The special power of sale under section 29 of the State Financial Corporations Act, 1951 remains available only until a winding up order is made; once liquidation begins, the secured creditor cannot sell unilaterally and must obtain the consent of the Official Liquidator or seek directions from the Company Court.

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Issues: Whether a State Financial Corporation could exercise its power under section 29 of the State Financial Corporations Act, 1951 to take possession of and sell the security of a company in liquidation without reference to the Company Court, despite the pari passu rights created in favour of workmen by the Companies Act, 1956.

Analysis: The statutory scheme of sections 529 and 529A of the Companies Act, 1956, as amended in 1985, creates a pari passu charge in favour of workmen over the security of a secured creditor where the secured creditor opts to realise its security outside the winding up. The Official Liquidator represents that charge and cannot act except under the directions and supervision of the Company Court. Section 29 of the State Financial Corporations Act, 1951 confers a special right of sale, but that right must yield in a winding up situation to the later and overriding provisions protecting workmen's dues. The secured creditor therefore cannot act unilaterally so as to defeat the pari passu charge or bypass the Company Court.

Conclusion: The right under section 29 of the State Financial Corporations Act, 1951 is available against a company only so long as there is no winding up order, and once winding up is ordered the secured creditor must obtain the consent of the Official Liquidator or move the Company Court for directions.

Ratio Decidendi: After the 1985 amendments, the pari passu charge in favour of workmen under section 529 of the Companies Act, 1956 and the overriding priority under section 529A control the exercise of section 29 rights under the State Financial Corporations Act, 1951 in winding up proceedings, so realisation of the security requires Company Court supervision.

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