Supervisory control over SARFAESI sale proceeds upheld to protect statutory priorities in pending winding up proceedings.

A Company Court may permit a reconstruction company to proceed under the SARFAESI Act while retaining supervisory control over appropriation and disbursal of sale proceeds, where winding up remains pending. The directions were treated as supervisory rather than prohibitory because they did not prevent possession or sale of secured assets, but merely required leave before appropriation to protect statutory priorities. The Court noted that, if winding up were eventually ordered, compliance with section 13(9) of the SARFAESI Act and payment of labour dues protected by section 529A of the Companies Act would have to be secured. The directions were upheld and the reconstruction company's claim to unfettered freedom was rejected.

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Issues: Whether the company court was justified in permitting the reconstruction company to proceed under the SARFAESI Act while retaining supervisory control over appropriation and disbursal of sale proceeds, and whether such directions unlawfully fettered the reconstruction company's powers.

Analysis: The Court held that the impugned directions did not restrain the reconstruction company from taking possession or selling secured assets. The directions were characterised as supervisory, not prohibitory, because the winding up petition was still pending and the situation remained fluid. The Court noted that if winding up were ordered, compliance with section 13(9) of the SARFAESI Act and payment of labour dues protected by section 529A of the Companies Act would have to be ensured. The requirement of seeking leave before appropriation or disbursal of sale proceeds was therefore treated as a legitimate protective measure to secure statutory priorities and to keep the Company Court informed.

Conclusion: The directions were upheld and the contention that the reconstruction company was a complete free agent was rejected. The appeal was dismissed.

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