Winding up and SARFAESI enforcement were harmonised to protect secured recovery while preserving workmen's dues and sale supervision.

A sick industrial company with no viable revival proposal and a failed rehabilitation scheme was treated as having lost its substratum, making it liable to winding up in principle. Instead of immediate liquidation, the court appointed a provisional liquidator as an interim measure. The court also harmonised secured creditor enforcement under SARFAESI with winding up law, holding that the secured creditor could stand outside winding up and realise its security interest, subject to disclosure of charges, valuation, sale supervision, and protection of workmen's dues through the company court and official liquidator.

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Issues: (i) Whether, in the absence of any viable revival proposal and after the failure of the rehabilitation scheme, the company was liable to be wound up under the sick industrial companies law and the Companies Act; (ii) Whether the secured creditor, through ARCIL, could stand outside the winding up proceedings and realise its security interest under the SARFAESI framework, and to what extent the company court's supervision and protection of workmen's dues were required.

Issue (i): Whether, in the absence of any viable revival proposal and after the failure of the rehabilitation scheme, the company was liable to be wound up under the sick industrial companies law and the Companies Act.

Analysis: The sick industrial company had remained under the rehabilitation process for many years without any workable revival plan emerging from the company, promoters, secured creditors, or workmen. The earlier rehabilitation scheme had failed, the company itself admitted inability to revive operations, and no concrete proposal was pending for consideration. In these circumstances, the company had lost its substratum and the statutory basis for further revival ceased to exist.

Conclusion: The company was found liable to be wound up in principle, but the Court did not immediately order liquidation and instead adopted an interim course by appointing a provisional liquidator.

Issue (ii): Whether the secured creditor, through ARCIL, could stand outside the winding up proceedings and realise its security interest under the SARFAESI framework, and to what extent the company court's supervision and protection of workmen's dues were required.

Analysis: The special recovery mechanism under the securitisation law was held to be capable of operating alongside the winding up regime. The statutes were harmonised so that enforcement of security interest could proceed without defeating the winding up provisions, while the company court retained a limited supervisory role to protect workmen's dues, ascertain valuation, regulate confirmation of sale, and ensure deposit and distribution of amounts in accordance with the statutory priority scheme. The secured creditor's right to stand outside winding up was accepted, but subject to disclosure of charges, valuation, sale procedure, and adjustment of workmen's dues and surplus through the official liquidator.

Conclusion: The application of ARCIL was allowed, and it was permitted to realise the charged assets under the securitisation law subject to court supervision and the specified conditions.

Final Conclusion: The decision permits enforcement of security interest by the secured creditor while preserving the winding up court's limited control to protect statutory priorities, particularly workmen's dues, and to supervise distribution of sale proceeds.

Ratio Decidendi: Where a sick company has no viable revival scheme and the secured creditor elects to stand outside winding up, the company court may harmonise the SARFAESI regime with the winding up provisions by allowing security enforcement subject to disclosure, valuation, sale supervision, and protection of workmen's pari passu rights.

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