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Issues: (i) Whether the sale of the company's assets by the secured creditor was void for want of leave of the court after commencement of winding up proceedings and in view of the bar under the sick company legislation; and (ii) whether the sale ought to be set aside or, alternatively, whether the sale proceeds should be brought into the winding up for distribution.
Issue (i): Whether the sale of the company's assets by the secured creditor was void for want of leave of the court after commencement of winding up proceedings and in view of the bar under the sick company legislation.
Analysis: Under section 537 of the Companies Act, 1956, any sale of the company's property after commencement of winding up, without leave of the court, is void. The commencement of winding up was held to relate back to the presentation or receipt of the winding up proceedings before the court, and not merely to the date of the formal winding up order. The secured creditor had seized and sold the assets after the winding up proceedings had commenced and in the teeth of the direction of the BIFR requiring it to approach the High Court. During the pendency of the appeal before the appellate authority, section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 also prohibited proceedings against the assets except with consent. The powers under section 29 of the State Financial Corporations Act, 1951 were therefore subject to the workmen-protective scheme under sections 529 and 529A of the Companies Act, 1956.
Conclusion: The sale was void and contrary to the statutory restrictions, and the finding was against the secured creditor.
Issue (ii): Whether the sale ought to be set aside or, alternatively, whether the sale proceeds should be brought into the winding up for distribution.
Analysis: Although the transaction was held to be void, the court declined to disturb the completed sale at that late stage because the purchaser had acquired possession long earlier, had made further investments, and the application had been moved after considerable delay. Balancing the equities, the court protected the completed sale but directed that the entire sale proceeds with interest be deposited with the Official Liquidator so that claims could be worked out under the supervision of the company court. Exemplary costs were also imposed on the secured creditor for acting contrary to the BIFR's direction.
Conclusion: The sale was not set aside, but the sale proceeds were ordered to be deposited with the Official Liquidator for distribution in accordance with law.
Final Conclusion: The court held the sale to be legally void, yet refused to unravel the transaction and instead secured the winding up estate by directing deposit of the proceeds with interest for distribution among claimants, including workmen, under court supervision.
Ratio Decidendi: Once winding up proceedings have commenced, any sale of the company's assets by a secured creditor without leave of the company court is void, and the creditor's powers under the State Financial Corporations Act are controlled by the pari passu rights of workmen under sections 529 and 529A of the Companies Act, 1956 and by the restrictions in section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.
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