M. B. SHARMA, J. - (1.) THE 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 share-holding of RIICO is held and controlled by the Government of Rajasthan. It paid three loans, being first loan of Rs. 16. 50 lacs, second loan of Rs. 10. 58 lacs, and third loan of Rs. 0. 25 lacs, total Rs. 27. 33 lacs, to M/s Asup Synthetics and Chemicals Ltd. respondent company. The said loans were secured by the respondent company by mortgaging 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 Sec. 125 of the Act. As per the case of the RIICO it has been conferred under Sec. 46 of the State Financial Corporations Act, 1951 (for short, Financial Corporation Act) with the powers under various provisions thereof including Sees. 29 and 30 thereof under the Notification No. GSR 191 dated February 27, 1987 issued by the Central Government and the same has been published in Part II Sec. 3 (i) 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 respondeat company on April 15, 1988. The respondent company was required by notice dated August 31, 1988 under Sec. 30 of the Financial Corporation Act to pay the said amount along-with further interest at the agreed rate from April 16, 1988 upto the final pay-ment 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 under Section 29 of the Financial Corporation 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 under Sec. 29 of the Financial Corporations Act. The case of RIICO is that under the statute i. e. Financial Corporation Act it has power to recover its dues and it being the secured creditor, it opts to remain out of the winding proceedings so that it may proceed to realise its due. in the manner provided by law i. e. the Financial Corporations Act. The aforesaid application was contested on behalf of the petitioner M/s Boolani Engineering Corporation, a partnership firm carrying on its business at Bombay. 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 out of winding up proceedings? The question also arises whether RIICO having taken possession of the respondent company under Sec. 29 of the Financial Corporations Act, can it proceed to realise its dues against the respondent company by sale of machineries etc. mortgaged with it towards the payment of loans advanced to the respondent company by RIICO? Section 29 of the 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 46 B of the Financial Corporation 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 Jaw for the time being in force or in the memorandum of 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 46 B says that provisions of the Financial Corporations Act have over-riding effect. There is no dispute between the parties that in exercise of the powers conferred under Sec. 29 of the Financial Corporations Act, RIICO took over the possession of management of the respondent company on October 5, 1988.
(3.) THE contention of Mr. Kuhad, learned counsel for the petitioner, is that RIICO is or may be a secured creditor, having statutory right under Sec. 29 of the Financial Corporation Act to realise its dues by sale of property or mortgage thereof but in view of the provisions of Section 529a of the Act, it cannot opt to remain out of the winding up proceedings and more so 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 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 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 due of the workers, if any, may also be paid as required under Sec. 529 A of the Act. Mr. B. P. Agrawal, counsel for RIICO contends that the provisions of the Act are general provisions governing all the companies whereas the provisions of Financial Corporations Act are special provisions and in view of the provisions of Sec. 46b, they will have over-riding effect and will prevail over the provisions of the Act. In view of the provisions contained in Section 441 (2) 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 under Sec. 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 the learned counsel for the petitioner, not only the sale, but even action taken by it under Sec. 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 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 words attachment, distress or execution and sale as used in clause (a) & (b) respectively of sub-S. (1) of S. 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 of court for attachment or sale etc. is necessary then leave of the court should be necessary. Till the introduction of Sec. 529-A 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 M. K. Rangnathan Vs. Government of Madras, (1) in page 20 the court said "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 S. 232 (1) as it stood before the amendment or proceeding with or commencing a suit or other legal proceedings against the company within the meaning of S. 151 (illegible) 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. " It may be stated that the court was dealing with the provisions of the Companies Act, 1913. The court also said that Section 231 has been read together with Sec. 228 (1) of the 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 resort to those procedings, he cannot put 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 any sale held without 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 of the intervention of the court such sale, if effected by him without the leave of the winding-up court was void. The court said "it follows, therefore, that the amendment could not have been intended to bring within the sweep of the general words 'or sale held without the leave of the court of any of the properties' sales effected by the secured creditor outside the winding up" Even Mr. Kuhad, learned counsel for the petitioner did not challenge the settled proposition of law that secured creditor could opt to remain out of the winding up proceedings, but his contention is that under Sec. 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 proviso to sub-section (1) of Sec. 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 the sale etc. takes place without the intervention of the court. A look at sub-section (l) (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 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 have over-riding 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 under Section 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 Financial Corporations Act are applicable to RIICO also as has been made clear by the notification dated February 27, 1987, published in 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 State industrial and Investment Corporation of Maharashtra Ltd. Vs. Maharashtra State Financial Corporation (2), it has been held that sale by a secured creditor, in that case, State Industrial and Investment Corporation of Maharashtra Ltd. (SICOM) was in exercise of its powers of sale as a secured creditor and having been effected outside winding-up and without the intervention of the court it was not void, as Section 537 did not apply. The Orissa High Court in the case of llrushikesh Panda Vs. Orissa State Finance Corporation (3) dealing with the provisions of Financial Corporations Act held that in regard to the property of a company in winding up taken over by a State Financial Corporations, as a secured creditor, under sec. 29 of the State Finance Corporations Act, which has been excluded by the court from the assets of which the Official Liquidator has to take custody, the winding up court cannot make directions regarding their sale by the State Financial Corporations. The property advertised for sale by the Corporations would be subject to the limitations of Section 29. In Damji Valji Shah Vs. Life Insurance Corporation of India (4) the court was dealing with the provisions of the Act and the provisions of Insurance Corporation Act. The court said that the provisions of Special Act i. e. Life Insurance Corporation Act will over ride the provisions of general Act. ;