M.B. Sharma, J.@mdashThe company petition was admitted on May 12, 1989, and it was directed that the same be advertised and published. Under the present order, the application dated August 11, 1989, filed by the Rajasthan State Industrial Development and Investment Corporation Ltd. (for short "RIICO") seeking leave of the court to remain out of the winding up proceedings, is to be disposed of.
2. RIICO is a Government company within the meaning of Section 617 of the Companies Act, 1956 (for short "the Act"), and the entire shareholding of RIICO is held and controlled by the Government of Rajasthan. It paid three loans, being the first loan of Rs. 16.50 lakhs, the second loan of Rs. 10.58 lakhs and the third loan of Rs. 0.25 lakhs, total Rs. 27.33 lakhs to Asup Synthetics and Chemicals Ltd., respondent-company. The said loans were secured by the respondent-company by mortgage and hypothecation of its existing and future assets with RIICO. The aforesaid loans were secured by equitable mortgage by deposit of title deeds of the lands and buildings together with fixtures, etc. The RIICO as per its case is a secured creditor. The prescribed particulars of the charge were filed with the Registrar of Companies for registration within the prescribed period as required by the provisions of Section 125 of the Act. As per the case of the RIICO it has been conferred u/s 46 of the State Financial Corporations Act, 1951 (for short, "the Financial Corporations Act"), with the powers under various provisions thereof including Sections 29 and 30 thereof under Notification No. G.S.R. 191, dated February 27, 1987, issued by the Central Government and the same has been published in Part II, Section 3 of the Gazette of India, dated March 21, 1987 (annexure A-1). The respondent-company is said to have committed defaults in payment of instalments of three loans and as promised by it regular payments were not made and thereby an amount of Rs. 37,75,289 came to be due against the respondent-company on April 15, 1988. The respondent-company was required by notice dated August 31, 1988, u/s 30 of the Financial Corporations Act to pay the said amount along with future interest at the agreed rate from April 16, 1988, up to the final payment of dues within fifteen days thereof. It was also intimated to the respondent-company by RIICO that on failure to do so, RIICO would take over the management of the company and/or possession of the mortgaged and hypothecated assets by virtue of the powers vested in RIICO u/s 29 of the Financial Corporations Act and shall transfer the same by way of lease or sale for recovery of dues from the lease money/sale proceeds thereof. Despite notice, the respondent-company failed to pay the amount and the possession of the respondent-company was taken over on October 4/5, 1988, u/s 29 of the Financial Corporations Act.
3. The case of RIICO is that under the statute, i.e., the Financial Corporations Act, it has power to recover its dues and it being the secured creditor, it opts to remain out of the winding up proceedings so that it may proceed to realise its dues in the manner provided by law, i.e., the Financial Corporations Act.
4. The aforesaid application was contested on behalf of the petitioner/ Boolani Engineering Corporation, a partnership-firm carrying on its business at Bombay,
5. The question arises as to whether the application of RIICO deserves to be allowed and whether it being the secured creditor, can opt to remain outside the winding up proceedings ? The question also arises whether RIICO, having taken possession of the respondent-company u/s 29 of the Financial Corporations Act, can proceed to realise its dues against the respondent-company by sale of machinery, etc., mortgaged with it towards the payment of loans advanced to the respondent-company by RIICO ?
6. Section 29 of the State Financial Corporations Act deals with rights of Financial Corporations in case of default and under its Sub-section (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 of the industrial concern 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, and under Sub-section (2) of Section 29, any transfer of property made by the financial corporation in exercise of its powers under Sub-section (1) shall vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the property. A reading of Section 46B of the Financial Corporations Act will show that the provisions of that Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than the Financial Corporations Act, but save as aforesaid the provisions of the Financial Corporations Act shall be in addition to and not in derogation of any other law for the time being applicable to an industrial concern. It will, therefore, be clear that Section 46B says that the provisions of the Financial Corporations Act have overriding effect. There is no dispute between the parties that in exercise of the powers conferred u/s 29 of the Financial Corporations Act, RIICO took over the possession of the management of the respondent-company on October 5, 1988.
7. The contention of Mr. Kuhad, learned counsel for the petitioner, is that RIICO is or may be a secured creditor, having statutory right u/s 29 of the Financial Corporations Act to realise its dues by sale of property mortgaged with it, but in view of the provisions of Section 529A of the Act, it cannot opt to remain outside the winding up proceedings and moreover leave of the court cannot be granted and could not be granted to RIICO to sell the property in dispute mortgaged or hypothecated with it because the workmen''s portion shall rank pari passu and has to be paid prior to all other dues. It is this court alone which can safeguard the interest of the workmen in view of Section 529A of the Act and this court should not grant such leave to RIICO to sell the properties, etc., of the respondent-company and it is the official liquidator who is to get the same realised so that the dues of the workers, if any, may also be paid as required u/s 529A of the Act.
8. Mr. B.P. Agrawal, counsel for RIICO, contends that the provisions of the Act are general provisions governing all companies whereas the provisions of the Financial Corporations Act are special provisions and in view of the provisions of Section 46B, they will have overriding effect and will prevail over the provisions of the Act.
9. In view of the provisions contained in Section 441 of the Act, the winding-up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding-up. The petition was presented on October 9, 1987, and, therefore, it can be said that winding-up of the respondent-company commenced on October 9, 1987. Mr. Kuhad, learned counsel for the petitioner, has referred to Section 537 of the Act and contends that in view of the provisions contained therein, leave of the court is necessary before RIICO, even in exercise of its powers u/s 29 of the Financial Corporations Act sells properties mortgaged/hypothecated with it for payment of the loan advanced by it to the respondent-company. According to learned counsel for the petitioner, not only the sale, but even auction taken by it u/s 29, having been taken after the commencement of the winding up proceedings, shall be void and will have no effect. A look at Clause (a) of Sub-section (1) of Section 537 of the Act will show that where any company is being wound up by or subject to the supervision of the court, any attachment, distress or execution put in force without the leave of the court, against the estate or effects of the company, after the commencement of the winding-up shall be void. Under Clause (b) of Sub-section (1) of Section 537 of the Act during the pendency of the proceedings for winding-up of a company, any sale held without leave of the court of any of the properties or effects of the company after such commencement shall be void. In my opinion, within the ambit of the words "attachment, distress or execution" and "sale" as used in Clauses (a) and (b), respectively, of Sub-section (1) of Section 537 of the Act, the exercise of statutory powers if any, empowering bodies, like RIICO, to take possession of the properties mortgaged with it and sell the same, will not be included. The question of leave of the court for any attachment, distress or execution or to sell any property, will only arise in case help of the court is required for the aforesaid actions. In other words, only if recourse to court for attachment or sale, etc., is necessary, then leave of the court should be necessary. Till the introduction of Section 529A of the Act the law can be said to be settled that secured creditors can opt to remain out of the winding-up proceedings. In
"Prior to the amendment the law was well settled both in England and in India that the secured creditor was outside the winding up and he could realise his security without the intervention of the court by effecting a sale of the mortgaged premises by private treaty or by public auction. It was only when the intervention of the court was sought either by putting in force any attachment, distress or execution within the meaning of Section 232 as it stood before the amendment or proceeding with or commencing a suit or other legal proceedings against the company within the meaning of Section 171 that leave of the court was necessary and if no such leave was obtained the remedy could not be availed of by the secured creditor."
10. It may be stated that the court was dealing with the provisions of the Indian Companies Act, 1913. The court also said that Section 231 has to be read together with Section 228(1) of the Indian Companies Act, 1913, and the attachment, sequestration, distress or execution referred to in the latter have reference to proceedings taken through the court and if the creditor has recourse to those proceedings, he cannot put them in force against the estate or effects of the company after the commencement of the winding up without the leave of the winding up court. An argument was advanced before the learned court that the addition of the words "or any sale held without the leave of the court of any of the properties" had changed the position of the secured creditor and even though the secured creditor realised the security without the intervention of the court such sale, if effected by him without the leave of the winding up court was void. The court said (at page 353 of 25 Comp Cas) :
"It follows, therefore, that the amendment could not have been intended to bring within the sweep of the general words ''or any sale held without the leave of the court of any of the properties'' sales effected by the secured creditor outside the winding up."
11. Even Mr. Kuhad, learned counsel for the petitioner, did not challenge the settled proposition of law that the secured creditor could opt to remain outside the winding-up proceedings, but his contention is that u/s 529A of the Act a provision has been made for preferential payments and the dues of workmen and debts due to secured creditors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529 have been made pari passu. It is this court which can safeguard the interest of workers and, therefore, leave of the court is necessary even if the sale, etc., takes place without the intervention of the court. A look at Sub-section (1)(c) of Section 32E of the Financial Corporations Act will show that in case the management of the industrial concern which is a company within the definition of the Act is taken over by the financial corporation, then notwithstanding anything contained in the said Act or in the memorandum or articles of association of such concern, no proceedings for the winding up of such concern or for the appointment of a receiver in respect thereof shall lie in any court, except with the consent of the financial corporation. Therefore, the provisions of the Act will apply subject to the Financial Corporations Act, which as already stated earlier, in view of Section 46B of that Act has overriding effect. It can, therefore, be said that the provisions of the Financial Corporations Act are special provisions and the provisions of the Act are general provisions and it is well settled that special provisions shall prevail over general provisions. Save as provided in Section 46B, the provisions of the Financial Corporations Act shall be in addition to and not in derogation of any other law for the time being applicable to an industrial concern. Mr. Agrawal, learned counsel for RIICO, gave out that the RIICO shall take into consideration the interest of workers, if any, and in case the industrial concern is sold in exercise of the powers u/s 29 of the Financial Corporations Act, the payment of wages to the workers shall be made pari passu with the dues of RIICO. It has already been said earlier that the provisions of the Financial Corporations Act are applicable to RIICO also as has been made clear by the notification dated February 27, 1987, published in the Gazette of India, dated March 21, 1987, in exercise of the powers conferred by Sub-section (1) of Section 46 of the Financial Corporations Act. I am of the opinion that the insertion of Section 529A of the Act, which as stated earlier is a general law will not affect the provisions contained in the Financial Corporations Act which provisions are special. In the case of
12. I am, therefore, of the opinion that RIICO, being a secured creditor, could opt to remain outside the winding up proceedings, more so, in view of the provisions of the Financial Corporations Act which is a special Act. It has already taken possession of the properties charged with it which charge was registered with the Registrar of Companies in accordance with law. It can, therefore, in exercise of the powers u/s 29 of the Financial Corporations Act put the property charged with it to sale for realisation of its dues. Section 537 of the Act can hardly be attracted which, as already stated earlier, can only be attracted if the sale is through the intervention of the court. I am further of the view that despite the fact that winding up proceedings have commenced and are pending, so far as the financial corporation is concerned, it has the right u/s 29 to put the property to sale and no leave of the court is necessary.
13. It was contended by learned counsel for the petitioner that an effort should be made by this court to revive the company and for that end should refer the matter to the Board for Industrial and Financial Reconstruction (for short, "the BIFR") under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, "the Special Provisions Act"). A look at the preamble of that Act will show that it has been made in public interest, with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. A look at Chapter III of the Special Provisions Act will show that it contains the provisions for references, inquiries and schemes. u/s 15, reference to the Board for determination of the measures which shall be adopted with respect to the company, can only be by the board of directors of the company or the Central Government or the Reserve Bank of India, State Government or a public financial institution, or a State level institution or a scheduled bank in case the board of directors of the company, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year is of the view that the company has become sick or in other cases as aforesaid, the State Government, etc., has sufficient reason to believe that the company has become, for the purposes of the Special Provisions Act, a sick industrial company. Thus, under the provisions of the Special Provisions Act, so far as this court is concerned, there is no provision for making reference to BIFR. That apart, as stated earlier, possession, in exercise of the powers u/s 29 of the Financial Corporations Act, of the management of the company has been taken by the RIICO. u/s 32A of the Financial Corporations Act, when the management of an industrial concern is taken over by the financial corporation, the financial corporation, may by order, notified in the Official Gazette, appoint as many persons as it thinks fit (a) in any case in which the industrial concern is a company as defined in the Act to be directors of that industrial concern, or (b) in any other case to be administrator of that industrial concern. As and when directors are appointed as aforesaid, only they in view of Sub-section (1) of Section 15 of the Special Provisions Act, can make reference to the BIFR. But, in this case, it appears that no director has been appointed and the financial corporation wants to sell the property charged with it for realisation of its dues. RIICO is a public financial institution and it too can make a reference under Sub-section (2) of Section 15 of the Special Provisions Act to BIFR. It is for the RIICO to consider whether, in the facts and circumstances of this case, a reference should be made to the BIFR or not. I am of the opinion that under the Act this court cannot make a reference to the BIFR even if this court is satisfied that the respondent-company is a sick industrial concern. That apart, no such request has been made by the respondent-company and it is the petitioner who is or claims to be a creditor of the respondent-company, who has made such request.
14. Consequently, the application filed by the RIICO to opt to remain outside the winding up proceedings is allowed. So far as leave of this court to permit it to sell the properties charged with it is concerned, I have taken a view that no such leave is necessary u/s 537 of the Act, because it is in exercise of statutory powers that without the intervention and help of the court, the properties are being sold, no such leave is necessary and RIICO, if it so likes, can proceed to realise its dues u/s 29 of the Financial Corporations Act and only after the sale is challenged that it is not bona fide and it has been made for extraneous considerations, the jurisdiction of the court to interfere in the matter may arise.
