Secured creditor realization outside winding up allowed, but sale proceeds must follow Companies Act priority rules.
A secured creditor that has invoked SARFAESI measures may be permitted to realize mortgaged and hypothecated assets outside winding up where the company is in liquidation, if the other secured creditors consent and the Official Liquidator is associated in the sale process. The creditor may remain outside the winding up proceedings, but the liquidation safeguards are preserved. Any sale proceeds from the secured assets must still be distributed according to the statutory priority scheme under sections 529 and 529A of the Companies Act, 1956, protecting secured workmen and other entitled claimants.
Issues: Whether the secured assets of a company in liquidation could be handed over to a secured creditor for sale when the creditor had opted to remain outside the winding up proceedings and the other secured creditors had consented, and whether the sale proceeds had to be distributed in accordance with the statutory priorities under the Companies Act.
Analysis: The applicant was a secured creditor and had invoked measures under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 after issuing notices under section 13(2) and taking steps under section 13(4). The Company was already under winding up and in the possession of the Official Liquidator. The record showed that the other secured creditors had given consent in favour of the applicant, and the Court noted that the secured creditor could remain outside the winding up proceedings. At the same time, the statutory mandate governing distribution of sale proceeds remained unaffected, and any realization from sale of the secured assets had to be dealt with in accordance with the priority scheme under the Companies Act. The Official Liquidator was also required to be informed and associated in the sale process, while the company records could continue to remain with the Official Liquidator.
Conclusion: The application was allowed and directions were issued to hand over the secured assets to the applicant for sale, with distribution of proceeds to be governed by sections 529 and 529A of the Companies Act, 1956 and with the Official Liquidator's association in the process.
Final Conclusion: The secured creditor was permitted to take possession of the mortgaged and hypothecated assets for realization, but the liquidation safeguards and statutory priorities for distribution remained intact.
Ratio Decidendi: A secured creditor may be permitted to realize secured assets outside winding up with consent of other secured creditors, but the proceeds must still be distributed in accordance with the statutory scheme protecting secured workmen and other priorities under the Companies Act.
TaxTMI 
AI Drafter ✕
TaxTMI 
