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Supreme Court of India
Ofact 4 Of 1996 vs Official Liquidator on 9 August, 2000
Author: Phukan.J.
Bench: S.R.Babu, S.N.Phukan
           CASE NO.:
Appeal (civil) 3439  of  1997
Appeal (civil)	3440	 of  1997



$
A.  P.	STATE FINANCIAL CONWRATION

	Vs.

RESPONDENT:
OFFICIAL LIQUIDATOR

DATE OF JUDGMENT:	09/08/2000

BENCH:
S.R.Babu, S.N.Phukan




JUDGMENT:

L…..I………T…….T…….T…….T…….T…….T…….J
JUDGMENT

PHUKAN.J.

The appellant is a Corporation established under The State
‘« Financial Corporations Act, 1951 (for short ‘Act of 1951′).
Two companies viz. M/S Nagarjuna Paper Mills and M/S Chandra
Pharmaceuticals Limited were in liquidation and the liquidation
proceedings were pending before the, learned company Judge of the
High Court. The above two companies obtained loans from the
appellant and for realisation of dues, the appellant invoked the
provisions of Section 29 of Act of 1951. As both the companies

were under liquidation, the appellant tiled two separate
applications under Section 446(1) of the Companies Act read with
Sections 29 and 46 of Act of 1951 before learned company Judge of
the High Court for staying outside the liquidation proceeding.
The learned Judge passed two similar orders in respect of both
the companies and granted permission to the appellant to stay
outside the liquidation proceedings subject to the following
conditions: “1. The petitioner will undertake to discharge its
liability’ due to the workers, if any, under Section 529 (A) of
the Companies Act. 2. The. petitioner shall inform at least 10
days in advance before a date fixed for receipt of tenders, to
the Official Liquidator about the proposed sale of the properties
of the company; and 3. The petitioner shall also obtain the
permission of the Court before finalising the tenders.” The
appeals filed were dismissed by the Division Bench of the High
Court by the impugned judgement and hence these appeals. We have
heard Mr. Y. Prabhakara Rao. learned counsel for the appellant
and Mr. A.D.N. Rao, learned counsel for the respondent.

The short question to be decided in these appeals is
whether the order of the High Court imposing the above three
conditions is lawful. To appreciate the above point we may quote
below sub-section (1) of Section 29 of Act of 1951
and-sub-Section (1) of Section 529 and Section 529A of the
Companies Act. It maybe stated that the proviso to sub-Section
(1) of Section 529 and Section 529A were inserted by the
Companies (Amendment) Act, 1985. “29 (1)- Where any industrial
concern, which is under a liability to the Financial Corporation
under an agreement, makes any default in repayment of any loan or
advance or any instalment thereof or in meeting its obligations
in relation to any guarantee given by the Corporation or
otherwise fails to comply with the terms of its agreement with
the Financial Corporation, the Financial Corporation shall have
the right to take over the management or possession or both ofthe
industrial concerns, as well as the right to transfer by way of
lease or sale and realise the property pledged, mortgaged.
hypothecated or assigned to the Financial Corporation.

“529 (1) – In the winding up of an insolvent company, the
same rules shall prevail and be observed with regard to-(a) debts
provable; (b)the valuation of annuities and future and
contingent liabilities; and (c)the respective rights of secured
and unsecured creditors; as are in force for the time being
under the law of insolvency with respect to the estates of
persons adjudged insolvent; Provided that the security’ of
every’ secured creditor shall be deemed to be subject to a pan
passu charge in favour of the workmen to the extent of the
workmen’s portion therein, and, where a secured creditor;.
Instead of relinquishing his security and proving his debt, opts
to realise his security- (a) the liquidator shall be entitled to
represent the workmen and enforce such charge (b)any amount
realised by the liquidator by way of enforcement of such charge
shall be applied rateably for the discharge of workmen’s dues;
and (c) so much of the debt due to such secured creditor as could
not be realised by him by virtue of the foregoing provisions of
this proviso or the amount of the workmen’s portion in his
security, whichever is less, shall rank. pan passu with the
workmen dues for the purposes of section 529A.” “529A (1) –
Notwithstanding anything contained in any of this provision of
this Act or any other law for the time being in force. in the
winding up of a company-

(a) workmen’s dues; and (b) debts due to secured creditors
to the extent such debts rank under clause (c) of the proviso to
sub-section ( I ) of Section 529 pan passu with such dues, shall
be paid in priority to all other debts” The only contention of
Mr. Y. Prabhakara Rao, learned counsel for the appellant was
that the Act of 1951 being a special Act, power of the
appellant-corporation to invoke provisions of Section 29 of the
of 1951 is absolute and cannot be restricted. By inserting the
proviso of Section 529 of the Companies Act by the amending Act
of 1985 legislature has provided that the security of every
secured creditor shall be deemed to be subject to a pan pasfu
charge in favour of the workmen to the extent of the workmen’s
portion therein. and, where a secured creditor; instead of
relinquishing the security and proving thedebt,opts to realise
security- (a) the liquidator shall be entitled to represent the
workmen and enforce such charge;

(b) any amount realised by the liquidator by way
ofe-nforcement of such charge; and (c) so much of the debt due
to such secured creditor as could not be realised by him by
virtue of the foregoing provisions of the proviso or the amount
of the workmen’s portion in the security, whichever is less.
shall rank pan passu with the workmen dues tor the purposes of
section 529A. Section 5^9 A which was also inserted by the
amending Act of 1985 starts with the non obstcalte clause and
provides that in winding up of a Company, ‘workmen’s’ dues and
debts due to secured creditors to the extent of such debts rank
under clause (c) of the proviso to sub-section (1) of Section 529
pari passu with such dues shall be paid in priority with all
other dues. Now the question is whether Section 29 of the Act of
1951 can over ride above provisions of the proviso to sub-section
(1) of Section 529 and Section 529 A of the Companies Act. in
other words whether the Corporation can exercise its rights under
above Section 29 ignoring a pari passu charge of the workmen.

The Act of 1951 is a special Act for grant of financial
assistance tQ industrial concerns with a view to boost up
industrialisation and also recovery of such financial assistance
if it becomes bad and similarly the Companies Act deals with
companies including winding up of such companies. Both Section
29 of Act of 1951 and Section 529 A of the Companies Act have
competing mm obsicmte provisions but the proviso to .
sub-section (1) of 529 and Section 529 A being a subsequent
enactment, the non obstante. clause in Section 529 A prevails
over the non obstante. clause found in Section 29 of the Act of
1951 in view of the settled position of law. We are, therefore,
of the opinion that the above proviso to sub-section (1) of
Section 529 and Section 529 A will control Section 29 of the Act
of 1951. In other words the statutory’ right to sell the
property under Section 29 of the.. Act of 1951 has to be
exercised with the rights ofparipasstt charge to the workmen
created by the proviso to Section 529 of the Companies ,Act.
Under the proviso to sub-section (1) of Section 529, the
liquidator shall be entitled to represent the workmen and force
the above pan passn charge. Therefore, the Company Court was
fully justified in imposing abbove fconditions to enable the
Official Liquidator to discharge bis funnction

-properly under supervision of the Company Court as the new
Section 529 A of the Companies Act confers upon a Company Court a
duty to ensure that the workmen’s dues are paid in priority to
all other debts in accordance with provisions of the above
Section. Tlie legislature has amended the Companies Act in 1985
with a social purpose viz. to protect dues of the workmen. If
conditions are not imposed to protect the right of the workmen
there is every possibility that secured creditor may frustrate
the above pan passu right of the workmen. In the impugned
judgment High Court expressed tlie views as follows; “In our
opinion, therefore, it was not at all necessary for the Financial
Corporation to approach this Court for permission to stay outside
the winding up proceedings. In spite of the same, the Financial
Corporation did venture to make such application in view of the
fact that ‘ pan pasyu charge was created on the assets of the
company for payment of arrears to workmen of the
company………” In view of the above opinion of the High Court
that it was not necessary for Financial Corporation to approach
the Court for permission to stay outeiJe the winding up
proceedings, the learned counsel for appellant has urged that

High-Court-erredd in imposing the above conditions. We are
of the opinion that- above-ebservation of the High Court was
uncalled for as we have stated that power under Section 29 of the
Act of 1951 can be exerci.sed subject to the above provisions of
the Companies Act. For what has been slated above, we hold that
imposition of the above conditions by the High Court ‘was lawful,
The present appeals have no merit and accordingly dismissed.
Cost on the parties.


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