Winding-up liquidation priority requires court-supervised sale proceeds to be remitted to the Official Liquidator for distribution.

After a winding-up order, company assets in the custody of the Official Liquidator and sold under the Company Court's supervision must have the sale proceeds remitted for distribution under the Companies Act, 1956. A secured creditor cannot retain such proceeds as its own asset or invoke independent sale powers once the court controls the sale, and the proceeds remain subject to liquidation priorities, including the workmen's pari passu claim. A defence inconsistent with the court record, prior orders, correspondence, and settled Supreme Court authority was treated as frivolous and vexatious, justifying an award of costs against the secured creditor.

---

---

Issues: (i) Whether the auction sale proceeds received by the secured creditor from sale of the company's immovable assets, sold under the supervision of the Company Court after winding up, were required to be deposited with the Official Liquidator for distribution in accordance with the Companies Act, 1956; (ii) Whether the secured creditor was liable to pay costs for maintaining a frivolous and vexatious defence.

Issue (i): Whether the auction sale proceeds received by the secured creditor from sale of the company's immovable assets, sold under the supervision of the Company Court after winding up, were required to be deposited with the Official Liquidator for distribution in accordance with the Companies Act, 1956?

Analysis: Once the winding up order was passed, the company's property came into the custody of the Official Liquidator and, by statutory force, into the custody of the Company Court. A secured creditor could not, after winding up, take possession and sell the mortgaged assets on its own account without leave of the Court. The record showed that the sale here proceeded under the Court's control, the sale terms were settled by the Court, and confirmation of sale was also by the Court. In such circumstances, the secured creditor could not treat the auction proceeds as its exclusive asset and was bound to place them before the Official Liquidator for distribution according to the priorities under the Companies Act, 1956, including the pari passu claim of workmen.

Conclusion: The proceeds were required to be deposited with the Official Liquidator, and the secured creditor had no right to retain them for self-appropriation.

Issue (ii): Whether the secured creditor was liable to pay costs for maintaining a frivolous and vexatious defence?

Analysis: The defence was found to be contrary to the earlier order of the Company Court, contrary to the parties' own correspondence, contrary to the course of proceedings showing Court-supervised possession and sale, and contrary to settled Supreme Court authority on the effect of winding up on a secured creditor's powers. In those circumstances, the defence was treated as baseless and vexatious, warranting costs.

Conclusion: Costs were imposed on the secured creditor.

Final Conclusion: The application succeeded in full, the sale proceeds were directed to be remitted to the Official Liquidator for lawful distribution in liquidation, and the secured creditor was saddled with costs for its untenable stand.

Ratio Decidendi: After a winding up order, assets in the custody of the Official Liquidator and sold under the Company Court's supervision must have the sale proceeds held for distribution under the Companies Act, and a secured creditor cannot retain those proceeds by invoking its independent powers under the State Financial Corporations Act.

---