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Issues: (i) Whether a State Financial Corporation could complete sale of mortgaged property under its statutory powers after commencement of winding up proceedings but before the winding up order, without the leave or supervision of the company court; (ii) whether the sale and agreement to sell were liable to be treated as fraudulent preference or otherwise invalid against the official liquidator; (iii) what protective directions were required to safeguard the workmen's pari passu charge while sustaining the sale.
Issue (i): Whether a State Financial Corporation could complete sale of mortgaged property under its statutory powers after commencement of winding up proceedings but before the winding up order, without the leave or supervision of the company court.
Analysis: The statutory scheme of the State Financial Corporations Act, 1951 and the Companies Act, 1956 was construed harmoniously. The right under section 29 of the State Financial Corporations Act, 1951 remains available against a company until an order of winding up is made, but after winding up the secured creditor cannot ignore the workmen's pari passu charge under sections 529 and 529A of the Companies Act, 1956. The relevant point for this inter se adjustment was treated as the actual winding up order, not merely the date of presentation of the petition, and the corporation's pre-winding-up exercise of power was recognized.
Conclusion: The sale could not be invalidated merely because the winding up petition had earlier been presented, and the corporation's pre-winding-up sale process was upheld, subject to company court supervision for protecting workmen's dues.
Issue (ii): Whether the sale and agreement to sell were liable to be treated as fraudulent preference or otherwise invalid against the official liquidator.
Analysis: The transaction was entered into after repeated auctions and successful acceptance of a bona fide bid at a reasonable price fixed through the corporation's procedure. The alleged fraudulent preference under section 531 of the Companies Act, 1956 was not accepted on the facts. The transaction was not treated as a device to defeat creditors, and cancelling the sale was found unnecessary and potentially counterproductive.
Conclusion: The sale and agreement to sell were not held to be fraudulent preference and were not set aside.
Issue (iii): What protective directions were required to safeguard the workmen's pari passu charge while sustaining the sale.
Analysis: Since workmen's dues enjoy priority and a pari passu charge under section 529 and section 529A of the Companies Act, 1956, the remaining consideration had to be secured through the official liquidator. The court therefore directed deposit of the unpaid instalments with the official liquidator, with de-sealing and delivery of possession to follow upon compliance, and with liberty to re-seal if future instalments were defaulted. The balance was to be dealt with after inviting claims from workmen.
Conclusion: The sale was approved with conditions protecting the workmen's pari passu charge by routing the unpaid consideration through the official liquidator.
Final Conclusion: The applications were disposed of by sustaining the auction sale and directing conditional de-sealing and delivery of possession, while safeguarding workmen's priority through deposit and supervision by the official liquidator.
Ratio Decidendi: A State Financial Corporation may exercise its section 29 power until a winding up order is made, but once winding up supervenes the company court must protect the workmen's pari passu charge under sections 529 and 529A of the Companies Act, 1956 by imposing suitable conditions on realization of the security.
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