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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether recovery proceedings could validly continue against the guarantor when the principal debtor company had been wound up and an official liquidator had been appointed; (ii) whether a State Financial Corporation could exercise its right under Section 29 after the company had gone into liquidation without consent of the official liquidator and without approaching the Company Court.
Issue (i): Whether recovery proceedings could validly continue against the guarantor when the principal debtor company had been wound up and an official liquidator had been appointed.
Analysis: The recovery action was examined in the backdrop of the principal debtor having been declared sick, having undergone winding up proceedings, and an official liquidator having been appointed. The situation was found materially different from cases where the debtor company was not under liquidation. The earlier recovery steps and the pendency of related proceedings did not alter the legal position created by the winding up of the principal debtor.
Conclusion: The challenge to recovery against the guarantor was rejected and the proceedings were held to be sustainable.
Issue (ii): Whether a State Financial Corporation could exercise its right under Section 29 after the company had gone into liquidation without consent of the official liquidator and without approaching the Company Court.
Analysis: It was held that the unilateral right under Section 29 of the State Financial Corporations Act, 1951 is available only so long as there is no order of winding up. Once the company is under liquidation, the secured creditor cannot unilaterally realize mortgaged assets without the consent of the official liquidator. If such consent is not forthcoming, the proper course is to move the Company Court for directions, and the process remains under judicial supervision.
Conclusion: The Corporation could not proceed unilaterally against the mortgaged properties after winding up and had to act with the official liquidator's consent or under directions of the Company Court.
Final Conclusion: The appeal failed because the company was already in liquidation and the statutory recovery route could not be pursued in the manner urged by the appellant.
Ratio Decidendi: The unilateral enforcement power of a State Financial Corporation under Section 29 is unavailable once the debtor company is under winding up, and realization of secured assets must then proceed with the official liquidator's consent or under the Company Court's directions.
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