Secured creditors in liquidation must follow winding-up priorities and involve the Official Liquidator before selling company assets.

In company liquidation, a secured creditor's right to realise security under the State Financial Corporations Act is subject to the winding-up regime under the Companies Act. Sale and distribution cannot proceed independently of the company court or without associating the Official Liquidator, because the workmen's pari passu charge and overriding preferential treatment under sections 529 and 529A must be protected. Where the corporation has not invoked the statutory machinery under its Act, it cannot claim an unqualified preference over other creditors. A fresh valuation was also required before sale to ensure a fair price and proper protection of creditor and workmen interests.

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Issues: (i) whether a Financial Corporation seeking to realize securities of a company in liquidation under the State Financial Corporations Act, 1951 can do so without associating the Official Liquidator and without being governed by the distribution scheme under sections 529 and 529A of the Companies Act, 1956; (ii) whether a fresh valuation of the company's assets was required before sale.

Issue (i): whether a Financial Corporation seeking to realize securities of a company in liquidation under the State Financial Corporations Act, 1951 can do so without associating the Official Liquidator and without being governed by the distribution scheme under sections 529 and 529A of the Companies Act, 1956.

Analysis: Once winding up has commenced and the liquidator is in charge of the assets, the secured creditor's rights under the special statute remain subject to the statutory scheme governing winding up. The proviso to section 529 creates a pari passu charge in favour of workmen, and section 529A gives overriding preferential payment to workmen's dues and the secured creditors' share of those dues. Where the Financial Corporation has not activated the statutory machinery under sections 29 or 31 of its Act, it cannot claim an unqualified preference over other creditors. Even where realization of security is pursued, the sale and distribution of proceeds must respect the workmen's charge and occur under company court supervision with the Official Liquidator associated in the process.

Conclusion: The Financial Corporation had no right to sell and distribute the assets independently of the company court and the Official Liquidator; the sale proceeds had to be dealt with in accordance with sections 529 and 529A of the Companies Act, 1956.

Issue (ii): whether a fresh valuation of the company's assets was required before sale.

Analysis: In view of the lapse of time, reliance on the earlier valuation was not sufficient. A current valuation was necessary to ensure that the assets fetched a proper price and that the sale process remained fair to all creditors and workmen whose interests were protected under the winding up regime.

Conclusion: A fresh valuation was required.

Final Conclusion: The directions of the company court were substantially upheld, but they were modified to require a fresh valuation before sale.

Ratio Decidendi: In liquidation, a secured creditor's power to realize security under the State Financial Corporations Act is controlled by the winding up provisions of the Companies Act, and the Official Liquidator must be associated so that sale and distribution conform to sections 529 and 529A.

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