Secured creditor claims in winding up require disclosure, verification and pari passu distribution, even when security is enforced outside proceedings.

A secured creditor may stand outside winding up and realise its security, but after a winding up order it must still notify the Official Liquidator of the amount due so claims can be verified for pari passu distribution among secured creditors and workmen. A State Financial Corporation does not enjoy a superior footing over other secured creditors merely because it has section 29 powers, and those powers remain subject to Company Court supervision after winding up. Failure to lodge the claim within the time fixed does not extinguish the substantive right, and a later notified claim may still be taken into account before distribution. Disputed entitlement of financial institutions lies before the Debt Recovery Tribunal, while the Company Court may direct distribution only of admitted or undisputed realised proceeds under the Companies Act priority scheme.

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Issues: (i) Whether a secured creditor in winding up proceedings is required to notify its claim before the Official Liquidator even if it seeks to realise its security outside winding up; (ii) whether a State Financial Corporation stands on a different footing from other secured creditors; (iii) whether non-notification within the time fixed by the Official Liquidator affects the secured creditor's right and the Official Liquidator's power to take note of a later claim; and (iv) whether the Company Court can determine the entitlement of financial institutions and direct distribution of the realised proceeds in the present proceedings.

Issue (i): Whether a secured creditor in winding up proceedings is required to notify its claim before the Official Liquidator even if it seeks to realise its security outside winding up.

Analysis: A secured creditor does retain the right to stand outside winding up and realise the security, but that right is subject to the Companies Act once a winding up order has been passed. The Official Liquidator must ascertain the amount due to enable pari passu distribution among secured creditors and workmen. A secured creditor does not become an unsecured creditor, but it cannot insist that its claim is irrelevant to the winding up process when distribution depends on knowing the amount due to all competing claimants.

Conclusion: The secured creditor must notify the Official Liquidator of the amount due, even if it retains the right to realise its security outside winding up.

Issue (ii): Whether a State Financial Corporation stands on a different footing from other secured creditors.

Analysis: A State Financial Corporation has additional statutory powers under section 29 of the State Financial Corporations Act, 1951, including taking over management or possession and selling the unit, but those powers are still subject to supervision of the Company Court after a winding up order. The corporation does not acquire a superior status over other secured creditors merely because of section 29.

Conclusion: A State Financial Corporation does not stand on a different legal footing from other secured creditors, though it may have additional statutory powers subject to the Company Court's supervision.

Issue (iii): Whether non-notification within the time fixed by the Official Liquidator affects the secured creditor's right and the Official Liquidator's power to take note of a later claim.

Analysis: Failure to notify within the time fixed does not extinguish the secured creditor's substantive right. However, the claim still needs to be notified and verified for purposes of distribution and to determine the proportion payable among secured creditors and workmen. The Official Liquidator is not bound to ignore a later notified claim merely because it was not lodged in time.

Conclusion: Non-notification within time does not destroy the secured creditor's right, and the Official Liquidator must take note of a later claim before distribution of dividends.

Issue (iv): Whether the Company Court can determine the entitlement of financial institutions and direct distribution of the realised proceeds in the present proceedings.

Analysis: Insofar as financial institutions covered by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are concerned, entitlement is within the exclusive jurisdiction of the Debt Recovery Tribunal. The Company Court can proceed with distribution only where the amount is admitted or otherwise not in dispute and where the directions relate to distribution of realised sale proceeds already under the Court's control. For the secured creditor whose entitlement as on the winding up date was accepted, the Court permitted retention of the admitted amount and directed distribution of the balance in accordance with section 529 and section 529A.

Conclusion: The Company Court cannot itself adjudicate disputed entitlement of financial institutions, but it can direct distribution of undisputed realised proceeds and apply the statutory pari passu and priority rules.

Final Conclusion: The ruling recognises the continuing security rights of secured creditors, including a State Financial Corporation, but insists on disclosure and verification of claims for effective distribution in winding up, while reserving disputed entitlement of financial institutions to the Debt Recovery Tribunal and applying the workmen's pari passu protection under the Companies Act.

Ratio Decidendi: In winding up, a secured creditor may realise security outside the proceedings, but after a winding up order it must still disclose the amount due so the Official Liquidator can verify claims and distribute realised assets in accordance with the statutory pari passu charge in favour of workmen and the applicable jurisdictional scheme.

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