RAJASTHAN FINANCIAL CORPORATION AND ANR. versus THE OFFICIAL LIQUIDATOR AND ANR.

Citation: [2005] SUPP. 3 S.C.R. 1073 · Decided: 05-10-2005 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Disposed off

Judgment (excerpt)

.. 
RAJASTHAN FINANCIAL CORPORATION AND ANR. 
A 
v. 
THE OFFICIAL LIQUIDATOR AND ANR. 
OCTOBER 5, 2005 
[S.N. VARIAVA, TARUN CHATTERJEE AND P.K. 
B 
BALASUBRAMANYAN, JJ.) 
State Financial Corporation Act, 1951: Sections 3, 29, 31, 32 and 46. 
Company-in-liquidation-Rights of secured creditors to sell properties C 
of-Company-in-liquidation ordered to be wound up-Official Liquidator 
directed to take charge of assets of said company-Secured creditors standing 
outside the winding up filed an application praying for permission to realize 
the securities and apportion net sale proceeds between them and another 
secured creditor-Undertaking given to pay over dues of workmen on the D 
same being adjudicated by the Official Liquidator out of the net sale proceeds 
of the properties of the said company-High Court rejected application on the 
ground that right available under s.29 had to be exercised consistently with 
the right of workmen represented by the Official Liquidator who was a charge- • 
holder-Secured creditors permitted to invite offers for .sale of properties and 
directed them to finalize the same in consultation with the Official Liquidator- E 
Correctness of-Held: Once a winding up proceeding has commenced and the 
liquidator is put in charge of the assets of the company being wound up, the 
distribution of the proceeds of the sale of the assets held at the instance of the 
financial institutions coming under the Recovery of Debts Act or of financial 
corporations coming under the SFC Act, can only be with the association of F 
the Official Liquidator and under the supervision of the company court-
Hence, the company Court rightly directed that the sale be held in association 
with the Official Liquidator representing the workmen and that the proceeds 
would be held by the Official Liquidator until they are distributed in terms of 
Section 529-A of the Companies Act under its supervision. 
The appellants were the secured creditors of the company-in-
Iiquidation. The High Court ordered the company-in-liquidation to be 
wound up. The Official Liquidator was directed to take charge of the assets 
of the company-in-liquidation. The appellants filed an application praying 
1073 
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H 
1074 
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R. 
A that as the secured creditors standing outside the winding up, they might 
be permitted to realize the securities and apportion the net sale proceeds 
between them and another secured creditor. The appellant undertook to 
pay over the dues of the workmen on the same being adjudicated by the 
Official Liquidator to the extent of availability of the funds out of the net 
B sale proceeds of the properties of the company in accordance with Section 
529-A of the Coll!panies Act, 1956. The company court rejected the 
application of the appellants on the ground that the right available under 
Section 29 of the State Financial Corporations Act, 1951 had to be 
exercised consistently with the right of the workmen represented by the 
Official Liquidator who was a charge-holder. The company court 
C permitted the appellant to invite offers for sale of the properties and 
directed it to finalize the same in consultation with the Official Liquidator. 
The Division Bench of the High Court dismissed the appellant's appeal. 
Hence the appeal. 
Disposing of the appeal, the Court 
D 
HELD: I.I. Once a winding up proceeding has commenced and the 
liquidator is put in charge of.the assets of the company being wound up, 
the distribution ofthe proceeds of the sale of the assets held at the instance 
of the financial institutions coming under the Recovery of Debts Due to 
Banks and Financial Institutions Act, 1993 or of financial corporations 
E coming under the State Financial Corporation Act, 1951, can only be with 
the association of the Official Liquidator and under the supervision of the 
company court. The right of a financial institution or of the Recovery 
Tribunal or that of a financial corporation or the Court which has been 
approached under Section 31 of the SFC Act to sell the assets may not be 
p taken away, but the same stands restricted by the requirement of the 
Official Liquidator being associated with it giving the company court the 
right to ensure that the distribution of the assets in terms of Section 529A 
of the Companies Act, 1956 takes place. In the case on hand, admittedly, 
the appellants have not set in motion any proceeding under the SFC Act. 
Only a liquidation proceeding

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