1. The Kerala Financial Corporation, hereinafter referred to as K.F.C’ has filed this application for an order granting leave to initiate proceedings against M/s. Prime Wood Products (P) Ltd. (in liquidation), hereinafter referred to as ‘Company’ as provided under S. 29 of the State Financial Corporations Act, 1951, hereinafter referred to as ‘S.F.C Act’.
2. The Company is being wound up by this Court. The Official Liquidator attached to this Court is the Liquidator of the Company. The Liquidator has filed a counter-statement K.F.C, State Bank of Travancore and Small Industries Development and Employment Corporation are the secured creditors of the Company.
3. The State Bank of Travancore has got charge over stock-in-trade, raw material, etc. of the Company. The K.F.C has got charge over land and building, plant and machinery. Small Industries Development and Employment Corporation has got second charge over the machinery of the Company. The State Bank of Travancore after obtaining leave of this Court, sold the movable assets.
4. K.F.C can exercise its rights under S. 29 of the S.F.C Act only against industrial concerns. According to the Liquidator, the Company is not an industrial concern since it is being wound up. It is also contended that the Liquidator is entitled to represent the workmen of the Company and enforce pari passu charge in favour of workmen as per the provisions contained in Ss. 529 and 529-A of the Companies Act. Therefore the Official Liquidator representing the workmen has an important role to play in the disposal of the charged assets. According to the counter-statement rights under S. 29 of the S.F.C Act can be resorted to only if the winding up proceedings are lifted in order to enable K.F.C to take over the management. The counter-statement also refers to an earlier order by which this Court indicated that the best coursewas to dispose of the entire assets and keep the amounts in Court for disbursement to the persons or institutions entitled to the same. Such claims were directed to be considered as and when they were raised. There was no proposal to take action under S. 29 at that time. It was also pointed out that there was an attachment in respect of the building and plant and machinery from O.S 78/87 Sub Court, Pathanamthitta and the attachment has to be vacated if the proceedings under S. 29 of the S.F.C Act are to be taken.
5. The additional 2nd respondent is M/s. Veneers and Laminations (India) Limited, which is the holding Company of the Company in liquidation. The Company had taken a loan of Rs. 12.12 and odd lakhs from the K.F.C The loan is secured by a first charge on the fixed assets of the Company in liquidation and also by a guarantee given by the 2nd respondent-Company. No reasons are stated as to why the K.F.C is taking recourse to their power under S. 29 of the S.F.C Act. According to them, K.F.C has not chosen to exercise this power in many other cases where the outstanding dues are higher than that of the Company in liquidation. According to them, this application is an instance of the misuse of the power under S. 29 with a view to cause difficulties to the additional 2nd respondent. The K.F.C has turned down all requests for reviving the Company, even though all other institutions like Industrial Reconstruction Bank of India, Kerala State Industries Development Corporation and State Bank of India were agreeable for revival. All these show the unhelpful attitude of K.F.C Due to this biased attitude taken by the officers of K.F.C, the additional 2nd respondent apprehends that the sale of the properties by K.F.C will fetch only a lower price than what may be realised by the sale by Official Liquidator. In view of the guarantee given by the additional 2nd respondent, they have to make good any shortfall in realisation. The counter-affidavit also refers to the pari passu charge of the workers under S. 529-A of the Companies Act. According to the additional 2nd respondent, the rights of the workers as well as other creditors are likely to be prejudicially affected by the sale by K.F.C and that a public auction by the Official Liquidator under the supervision of this Court will fetch the maximum price for the property.
6. Under S. 29 of the S.F.C Act, the Financial Corporations are given 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’. The prayer in the application is to permit the K.F.C to exercise this right and to sell the property.
7. Under S. 529-A of the Companies Act, workmen's dues are made an overriding preferential payment pari passu with the debts due to secured creditors. There is a non-obstante clause in S. 529-A The said section, therefore, has to prevail over S. 29 of the S.F.C Act in case of a conflict. Thus the workmen's dues which rank pari passu with the dues of the secured creditors will have to be paid from the proceeds of the assets of the Company including the security given to the secured creditors.
8. In case of any dispute about the apportionment of the dues to the workers, sucha dispute cannot be left to be decided by K.F.C So also, if there is a dispute regarding the amountdue to the K.F.C, that dispute also cannot be left to be decided by K.F.C For example, a question may arise as to what is the date on which the amount due to K.F.C is to be fixed for the purpose of apportioning the amount, whether it is the date of winding up or the date on which apportioning is done. It is likely that K.F.C is applying interest on the amount due to them, even though normally no interest is charged in respect of other debts payable by the Company like the dues to the workmen. If so, while apportioning, the amount due to the workmen will be considerably reduced. There may be other similar questions also which may have to be determined before a proper apportionment is effected.
9. Another aspect to be noticed in this. The State Bank of Travancore has a charge over the movables. The movables are sold and the proceeds of thesale are available for distribution. The workers can legitimately claim pari passu charge with the State Bank of Travancore also. Therefore, the proper method of apportionment of the proceeds of the immovable as well as movable properties has tobe fixed. This also cannot be left for the decision of the K.F.C
10. Therefore, in the best interest of all concerned the sale will have to be conducted by the Official Liquidator under the supervision of this Court. The sale will be free of encumbrances and the K.F.C will get its charge transferred to the proceeds of the sale. The interest of the K.F.C, the workmen and other creditors can be safeguarded by adopting this method. The Liquidator is directed to move this Court for directions regarding the sale of the immovable property. CA No. 190/90 is accordingly dismissed.
A.A.M.N
11. Dismissed.