Company Court sale supervision and secured creditor rights can coexist without relinquishment of security in winding-up proceedings

A provisional liquidator has the same powers as a liquidator unless the court restricts them, and the Company Court may supervise sale of company assets through the Official Liquidator even before a winding-up order. A secured creditor's possession under SARFAESI, later handed over under court direction, does not by itself amount to relinquishment of security; such remedies remain cumulative, subject to statutory pari passu claims of workmen. In an integrated industrial unit, machinery installed in another company's premises may be included in a composite sale where segregation would reduce value. Leased or already-transferred equipment may not be excluded where title has passed or consent to sale was given.

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Issues: (i) whether the provisional liquidator, and the Company Court on an application by a secured creditor, could direct sale of the company's assets before a winding-up order and whether the sale had to be conducted through the official liquidator; (ii) whether IREDA's taking possession under SARFAESI and later handing over possession to the provisional liquidator amounted to relinquishment of its security or prevented it from standing outside the winding up proceedings; (iii) whether the machinery of New Horizon Sugar Mills Limited installed in the factory premises of Arunachalam Sugar Mills could be included in the sale of the latter's assets; and (iv) whether Sundaram Finance Limited, BHEL and Walchandnagar Industries Limited could exclude their equipment from sale or claim priority over the assets in liquidation.

Issue (i): whether the provisional liquidator, and the Company Court on an application by a secured creditor, could direct sale of the company's assets before a winding-up order and whether the sale had to be conducted through the official liquidator.

Analysis: Section 450(3) of the Companies Act, 1956 confers on a provisional liquidator the same powers as a liquidator unless the Court limits them. The order appointing the provisional liquidator did not restrict those powers. The Court also retained supervisory jurisdiction to direct sale of the assets through the official liquidator. Rule 272 of the Companies (Court) Rules, read with Sections 446, 456 and 457(1)(c) of the Companies Act, 1956, permitted sale under the Court's control in the course of winding-up proceedings, even at the stage of a pending winding-up petition.

Conclusion: The Court held that the provisional liquidator was not disabled from participating in the sale and that the Company Court could direct sale of the assets through the official liquidator even before the winding-up order.

Issue (ii): whether IREDA's taking possession under SARFAESI and later handing over possession to the provisional liquidator amounted to relinquishment of its security or prevented it from standing outside the winding up proceedings.

Analysis: Under Sections 13(2), 13(4), 13(9) and 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, a secured creditor's remedies are cumulative and are not excluded by the Companies Act, 1956. The handing over of possession was pursuant to the Company Court's direction and not a voluntary surrender of security. Relinquishment requires a conscious and positive act. The Court held that a secured creditor could approach the Company Court for sale while still retaining its character as a secured creditor, subject to the statutory pari passu claims of workmen under Section 529-A.

Conclusion: The Court held that IREDA had not relinquished its security and was entitled to act as a secured creditor while participating in the sale process.

Issue (iii): whether the machinery of New Horizon Sugar Mills Limited installed in the factory premises of Arunachalam Sugar Mills could be included in the sale of the latter's assets.

Analysis: The energy-efficiency equipment financed to New Horizon Sugar Mills Limited was installed in the premises of Arunachalam Sugar Mills and formed part of an integrated industrial unit. Segregation of that equipment would diminish value and frustrate an effective sale. Since IREDA held security over the equipment and had retained its claim over it, the Court treated the assets as capable of being sold together for better realisation.

Conclusion: The Court held that the machinery of New Horizon Sugar Mills Limited could be brought to sale along with the assets of Arunachalam Sugar Mills.

Issue (iv): whether Sundaram Finance Limited, BHEL and Walchandnagar Industries Limited could exclude their equipment from sale or claim priority over the assets in liquidation.

Analysis: Sundaram Finance Limited owned the leased machinery and had consented to its sale as part of the composite unit, so its claim was not a ground to stop the sale. BHEL's equipment had already passed in title to the purchaser under the contract, and its lien stood terminated on lawful delivery and possession; it was therefore only an unsecured creditor. Walchandnagar Industries Limited's boiler had likewise passed in title to the company, and its possessory lien had ceased, leaving it to rank as an unsecured creditor.

Conclusion: The Court held that Sundaram Finance Limited could not resist the sale, and BHEL and Walchandnagar Industries Limited were only unsecured creditors with no right to exclude the equipment from the sale pool.

Final Conclusion: The common order directing sale of the assets of Arunachalam Sugar Mills and the connected machinery of New Horizon Sugar Mills was affirmed, with the sale to proceed under the supervision of the Company Court and the Official Liquidator at the revised upset price fixed by the Court.

Ratio Decidendi: A secured creditor may seek sale of assets in winding-up proceedings without thereby relinquishing its security, and the Company Court may direct an integrated sale of assets under its supervision so long as the secured creditor's rights and the statutory pari passu claims of workmen are preserved.

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