Secured creditor enforcement under SARFAESI may proceed outside winding-up without prior Company Court leave when security is not relinquished.

A secured creditor under the Companies Act, 1956 may either relinquish security and prove in liquidation or enforce the security outside winding-up. Mere filing of a proof of debt does not amount to relinquishment; a conscious election to join liquidation is required. Here, symbolic possession under SARFAESI and initiation of DRT proceedings showed an election to realise the security outside winding-up, so the creditor was not required to hand the assets to the Official Liquidator. Where the creditor stands outside winding-up and proceeds under SARFAESI, prior permission of the Company Court is not a precondition for taking possession or selling the secured assets, and the court's role is limited to statutory safeguards for workmen and other protected interests.

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Issues: (i) Whether the secured creditor had relinquished its security and stood within the winding-up so as to require the Official Liquidator to take possession of the secured assets; (ii) Whether prior permission of the Company Court was necessary before the secured creditor could take possession of and sell the secured assets under the SARFAESI regime.

Issue (i): Whether the secured creditor had relinquished its security and stood within the winding-up so as to require the Official Liquidator to take possession of the secured assets.

Analysis: Under Sections 529 and 529A of the Companies Act, 1956, a secured creditor may either relinquish security and prove in liquidation or realise security outside winding-up. Mere filing of a proof of debt does not by itself amount to relinquishment; there must be a conscious act showing an election to participate in liquidation. The record showed that the secured creditor had already taken symbolic possession under SARFAESI and had initiated DRT proceedings, which indicated that it had chosen to enforce its security outside the winding-up process. The Court treated these steps as sufficient to conclude that the creditor had not opted into the liquidation.

Conclusion: The secured creditor had not relinquished its security and was entitled to proceed outside the winding-up.

Issue (ii): Whether prior permission of the Company Court was necessary before the secured creditor could take possession of and sell the secured assets under the SARFAESI regime.

Analysis: Section 13 of the SARFAESI Act, 2002 permits enforcement of security interest without intervention of court or tribunal, while preserving the workmen's protection mechanism reflected in the Companies Act, 1956. The Court applied the settled position that where a secured creditor stands outside winding-up and enforces its security under SARFAESI, the Company Court does not control the secured creditor's possession or sale of the secured assets. The Official Liquidator's role is limited to the safeguards expressly provided by the statute, and permission of the Company Court is not a precondition for such enforcement.

Conclusion: Prior permission of the Company Court was not required for possession or sale under SARFAESI.

Final Conclusion: The applications failed because the secured creditor's enforcement action was held to be lawful and outside the winding-up process, leaving no basis to invalidate the possession or sale of the secured assets.

Ratio Decidendi: A secured creditor who consciously enforces its security under SARFAESI and does not relinquish its security is entitled to realise the secured assets outside winding-up, and the Company Court cannot insist on prior leave for such enforcement.

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