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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

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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

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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.