M. B. SHAH, J. ( 1 ) THIS Company application is filed by the official Liquidator, Himalaya Tools (India) Private limited (in liquidation) wherein it is prayed that respondent No. 1-Gujarat State Financial corporation be directed to hand over possession of M/s. Himalaya Tools (India) Private Limited to the applicant immediately in view of the winding up order dated 25-4-1988 passed by this court. ( 2 ) THE order for winding up M/s. Himalaya tools (India) Private Limited was passed by this court on 25-4-88 and Official Liquidattor has been appointed as a liquidator of the Company. On 4-5-88 the Official Liquidator wrote a letter informing respondent No. 1 that he would take physical possession of the property of the Company on 13-5-88. On 8-5-88 notice was published in Times of India stating that the order for winding up was passed by this Court. It is the say of respondent No. 1-Gujarat State Financial corporation that on 9/05/1988, the respondent no. 1 has taken possession of the assets of the company by exercising power under Section 29 of the State Financial Corporations Act, 1951 (hereinafter referred to as the "act" ). The Gujarat state Financial Corporation and the Bank of maharashtra are secured creditors of the assets of the Company under winding up as contended by them. In the afffidavit-in-reply filed by respondent No. 1 it has been contended that under section 29 of the Act the Corporation is entitled to take over management and/or possession of the property of the industrial concern making default in repayment of loan or any instalment thereof. It can also transfer the Companys property by way of lease or sale and realise the amount without intervention of the Court. It has been stated that the Corporation has accepted the offer of M/s. Mahuwala Trading Company, Bombay, for the purchase of plant and machinery, of the company in liquidaiion and the possession of the plant and machinery is handed over to the purchaser on 20/12/1989 by recovering entire sale consideration of Rs. 8,99,786. 52. ( 3 ) AT the time of hearing of this applicalion learned Advocate Mr. 8,99,786. 52. ( 3 ) AT the time of hearing of this applicalion learned Advocate Mr. Soparker appearing as amicus curiae on behalf of the liquidator submitted that once his Court has passed an order of winding up of the Company and Official Liquidator is appointed to take charge of the properties of the Company, secured creditors or unsecured creditors have no right to take possession of the companys property from the Official Liquidator. He submitted that once the property of the company under liquidaiion is in custody of the court, there is no provision under the Act or any other law empowering secured creditor to take possession of the property from the Court custody and sell it. Only the Court can deal and disburse its assets as per the provisions of the companies Act after determining the legal and payable dues of the creditors. ( 4 ) AS against this, Mr. Shah, learned Advocate appearing on behalf of respondent No. 1 - corporation, vehemently submitted that a secured creditor can realise dues by remaining outside the liquidaiion proceedings by sale of the property mortgaged or pledged. He submitted that a secured creditors has a right to transfer the property under Section 69 of the Transfer of property Act and under Section 176 of the Contract act and respondent No. 1 can also sell or transfer it as provided under Section 29 of the act. ( 5 ) LOOKING to the controversy the main question which would be required to be determined would be whether any secured creditor including the State Financial Corporation has any right to take possession of the Companys property which is in custody of the Court which has passed the winding up order. ( 6 ) THE learned Advocate Mr. Soparkar and mr. Shah who have argued out the matter at length after referring to the various provisions of the Act and decisions were not in a position to point out any provision in the Companies Act, the state Financial Corporations Act, the Transfer of property Act or any other Act providing that secured creditor has a right to take possession of the properties of the Company which is under liquidation from the Court and transfer it by sale or lease for realising its dues. ( 7 ) UNDER Section 456 of the Companies Act from the date of the order for the winding up of the company all the properties and effects of the company are deemed to be in the custody of the court. The liquidator is required to take into his custody or under his control all the properties, effects or actionable claims to which the company is or appears to be entitled. In case of difficulty in taking possession, the liquidator is entitled to take assistance from the Chief presidency Magistrate or the District Magistrate within whose jurisdiction such properties are situated. The Chief Presidency Magistrate or the district Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary for taking possession of the companys properties. This would be clear from Section 456 of the companies Act which is as under:" 456. (1) Where a winding up order has been made or where a provisional liquidator has been appointed, the liquidator or the provisional liquidator, as the case may be, shall take into his custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled. (1a) For the purpose of enabling the liquidator or the provisional liquidator, as the case may be, to take into his custody or under his control, any property, effects or actionable claims to which the company is or apppears to be entitled, the liquidator or the provisional liquidator, as the case may be, may by writing request the Chief presidency Magistrate or the District Magistrate within whose jurisdiction such property, effects or actionable claims or any books of account or other document of the company may be found, take possession thereof, and the Chief Presidency magistrate or the District Magistrate may thereupon after such notice as he may think fit, to give to any party, take possession of such property, effects, actionable claims, books of account or other documents and deliver possession thereof to the liquidator or the provisional liquidator. (1b) For the purpose of securing compliance with the provisions of sub-section (1a), the Chief presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary. (1b) For the purpose of securing compliance with the provisions of sub-section (1a), the Chief presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary. (2) All the property and effects of the company shall be deemed to be in the custody of the court as from the date of the order for the winding up of the company. "in the present case order for winding up was passed on 25-4-88. Therefore from that date all the property and effects of the Company are deemed to be in possession of the Court as provided in Section 456 (2) of the Act. ( 8 ) BEFORE considering the contention raised by the learned Advocate for the respondent, it is necessary to clarify that secured creditor can transfer his rights even pending winding up proceedings. For that there cannot be any objection. Say the secured creditor is a mortgagee in possession of the property. He can transfer his right as a mortgagee in possession without intervention of the Court. But still the question would be, when winding up order is passed and when the property is in custody of the Court, whether he can transfer the property absolutely by sale as per the terms of contract between the parties to that effect. ( 9 ) IN the caseof Kala Chand Jagannath, a. I. R. 1927 Privy Council 108, the Privy Council considered the right of a receiver with regard to mortgaged property. Privy Council considered clauses (4) and (5) of Section 16 of the provincial Insolvency Act (1909) which are similar to Sub-sections (4) and (6) of Section 28 of the Provincial Insolvency Act. The Court held that the rights of secured creditor over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent is, of course, plain but that does not in the least imply that an action against him may proceed in the absence of the person to whom the equity of redemption has been assigned by the operation of law. The latter alone is entitled to transact in regard to it, and he and not the insolvent, has the sole interest on the subject- matter of the suit. The latter alone is entitled to transact in regard to it, and he and not the insolvent, has the sole interest on the subject- matter of the suit. The Court further held that the contrary view would encourage collusive arrangements between the secured creditor and the insolvent and might involve the sacrifice of valuable equities of redemption which out to be made available for the benefit of the unsecured creditors of the insolvent with whose interest the receiver is charged. The relevant discussion is as under: "this procedure is said to be justified by the terms of Section 16 (Cl. 5) of the Act already referred to, which runs as follows : nothing in this section shall affect the power of any secured creditor to deal with the security in the same manner as he would have been entitled to realize or deal with it if this section had not been passed. ( 10 ) THE learned Judges of the High Court interpreted this clause as inferring that the secured creditor is entitled to deal with the security as though there had been no vesting in the court or the Receiver. Their Lordships are clearly of opinion that this construction of the clause cannot be supported. That the rights of the secured creditor over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent is of course, plain, but that does not in the least imply that an action against him may proceed in the absence of the person to whom the equity of redemption has been assigned by the operation of law. The latter one is entitled to transact in regard to it, and he and not the insolvent, has the sole interest in the subject-matter of the suit. To him, therefore, must be given the opportunity of redeeming the property. The contrary view would encourage collusive arrangements between the secured creditor and the insolvent and might involve the sacrifice of valuable equities of redemption which ought to be made available for the benefit of the unsecured creditor of the insolvent with whose interests the Receiver is charged. On this point their Lordships are in entire accord with the opinion of the Subordinate Judge. On this point their Lordships are in entire accord with the opinion of the Subordinate Judge. " (Emphasis added.) ( 11 ) FROM the aforesaid decision of the Privy council it is clear that secured creditor is not entitled to proceed in the absence of the liquidator to whom the equity of redemption has been assigned by the operation of Company Law. If the contrary view as contended by the learned Advocate mr. Shah is accepted, then it may encourage collusive arrangement between the secured creditor and purchaser of Companys properties and may adversely affect the rights of other secured creditors or the workers whose claim stands in pari passu with the secured creditors under Section 529a of the Companies Act or that of unsecured creditors whose interest the Court is bound to protect in winding up proceedings. ( 12 ) THIS question is also dealt with and decided by the Supreme Court in the case of J. K. (Bombay) P. Ltd. v. New Kaiser-i-Hind S. and W. Co. Ltd. , 40 Company Cases 689 (A. I. R. 1970 s. C. 1041 ). The Court specifically held that once there is winding up order, no uncompleted rights can be completed. The assets of the Company pass under the control of the liquidator whose statutory duty is to realise them and to pay from out of the sale proceeds to its creditors on the basis of their rights subject to preferential payment provided in the Act. The estate of the company is to be distributed amongst the creditors pari passu. Every creditor is to have equal share, unless anyone has already a pan of the estate in his hands, by virtue of an effectual legal right. The relevant discussion in that case is as under:"the effect of a winding up order is that except for certain preferential payments provided in the Act the property of the company is to be applied in satisfaction of its liabilities pari passu. Pari passu distribution is to be made in satisfaction of the liabilities as they exist at the commencement of the winding up (cf. Secs. 528 and 529 of the Act; Ghosh on Indian Company Law, 11thed. ,vol. 2,p. 1073 ). Pari passu distribution is to be made in satisfaction of the liabilities as they exist at the commencement of the winding up (cf. Secs. 528 and 529 of the Act; Ghosh on Indian Company Law, 11thed. ,vol. 2,p. 1073 ). The effect of a winding up order on rights already completed as against rights yet to be completed is succinctly stated by lord Halsbury in Bank of Scotland v. Macleod as follows: "right in security which have been effectually completed before the liquidation must still receive the effect which the law gives to them. But the company and his liquidators are just as completely disabled by the winding up – from granting new or completing imperfect rights in security as the individual bankrupt is by his bankruptcy. This, indeed, is the necessary effect of the express provision of the Companies Act that the estate is to be distributed among the creditors pari passu. Every creditor is to have an equal share, unless any one has already a part of the estate in his hands, by virtue of an effectual legal right, (cf. Tulsidas Jasraj Parekh v. Industrial Bank of western India) ( 13 ) SIMILARLY, in In re Anglo-Oriental Carpet manufacturing Company, it was held that even where a compnay had executed a trust-deed and issued debentures creating a charge on its assets but the charge had not been registered as required by the Companies Act by the time the company had passed an extraordinary resolution for voluntary winding up the debenture- holders were not, as against the joint body of creditors, secured creditors. ( 14 ) IT is thus well-established that once a winding up order is passed the undertaking and the assets of the company pass under the control of the liquidator whose statutory duty is to realise them and to pay from out of the sale- proceecds to its creditors. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed for doing so would be contrary to the creditors right to have the proceeds of the assets distributed among them pari passu. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed for doing so would be contrary to the creditors right to have the proceeds of the assets distributed among them pari passu. ( 15 ) FROM the aforesaid decision of the Privy council in the case of Kala Chand (supra) and the decision of the Supreme Court in the case of new Kaiser-i-Hind (supra) it is abundantly clear that the secured creditor is not entitled to proceed with the sale of the immovable property which is not in his possession in absence of liquidator in whom the equity of redemption has been assigned by the operation of the Company law. The contrary view would encourage collusive arrangement between the secured creditor and the Directors of the company under liquidation and/or the purchaser. It may involve the sacrifice of valuable equities of redemption which ought to be made available for the benefit of the other secured creditors, viz. workers whose claims stand in pari passu with the secured creditors and also of the unsecured creditors whose rights are required to be protected under the Companies Act. Once the winding up order is passed, the undertaking and the assets of the Company pass under the control of the liquidator whose statutory duty is to realise them and to pay out of the sale-proceeds to its creditors. No new rights can thereafter be created and no uncompleted rights can be completed. ( 16 ) HOWEVER, Mr. Shah, learned Advocate appearing on behalf of the Gujarat State Financial Corporation, vehemently submitted that it is an established law that secured creditor can remain outside the winding up proceedings and can realise his security without leave of the winding up Court; the State Financial Corporation is entitled to exercise power under Section 29 of the State Financial Corporations Act, 1951 and take possession of the property and transfer it; secured creditor is entitled to exercise similar power under Section 69 of the Transfer of Property Act and under Section 176 of the Contract act. For the aforesaid contentions he has relied upon the decision of the Supreme Court in the case of M. K. Ranganathan v. Govt. For the aforesaid contentions he has relied upon the decision of the Supreme Court in the case of M. K. Ranganathan v. Govt. of Madras, a. I. R. 1955 S. C. 604 and the decision of this court in Special Civil Application No. 1450 of 1984 decided on 16-9-85. It is his contention that the question involved in this matter is already decided by the aforesaid two decisions and, therefore, it is not open to this Court to take any contrary view. ( 17 ) IN the case of M. K. Ranganathan (supra) the Supreme Court considered the provisions of sections 171,229 and 232 of the Companies Act, 1913 and dealt with the rights of the secured creditors and it held that the secured creditor is outside the winding up and can realise his security without the leave of the winding up court though if he files a suit or takes other legal proceedings for realisation of his security, he is bound to obtain leave of the winding up Court. The relevant discussion is as under:"the secured creditor is thus outside the winding up and can realise his security without the leave of the winding up court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 231 (corresponding with Section 131 of the Indian Companies Act) to obtain the leave of the winding up court before he can do so although such leave would almost automatically be granted. Section 231 has been read together with Section 228 (1) and the attachment, sequestration, distress or execution referred to in the latter have reference to the proceedings taken through the court and if the creditor has resort 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. The provisions in Section 317 are also supplementary to the provisions of Section 231 and emphasise the position of the secured creditor as one outside the winding up, the secured creditor being, in regard to the exercise of those rights and privileges, in the same position as he would be under the Bankruptcy act. The provisions in Section 317 are also supplementary to the provisions of Section 231 and emphasise the position of the secured creditor as one outside the winding up, the secured creditor being, in regard to the exercise of those rights and privileges, in the same position as he would be under the Bankruptcy act. " ( 18 ) RELYING upon the aforesaid decision this court in Special Civil Application No. 1450 of 1984 decided on 16-9-1985 (by N. M. Bhatt, J.) considered the sale of the property by the G. S. F. C. under Section 29 of the State Financial Corporations Act and held that even though the proceedings under Section 29 of the State Financial corporations Act are legal proceedings yet the expression "legal proceedings" appearing in sub- section (2) of Section 446 of the State Financial corporations Act would convey the sense that they must be such proceedings as can be appropriately dealt with by the winding up court. The court relied upon the decision of the Supreme court in the case of S. V. Kandaskar v. V. M. Deshpande, A. I. R. 1972 S. C. 878. The Court referred to the judgment of the Bombay High court in the case of Abdul Aziz v. State of 9 bombay, A. I. R. 1958 Bombay 279, and held that in view of the Supreme Court decision in the case of S. V. Kandaskar v. V. M. Deshpande, a. I. R. 1972 S. C. 878, the view taken by the bombay High Court was not longer a good law. The Court further held that there is no legal impediment in the Corporations way in keeping out of the winding up proceedings and going ahead with the property subjected to charge. Secured creditor can elect and stay outside the winding up proceedings. The Court further held that property subjected to mortgage was not the property of the Company (under liquidation) which could be taken possession of or taken custody of by the liquidator. Therefore, the Corporation can proceed with the properties subjected to charge under Section 29 of the Act. For that purpose the Court relied upon the decision of the Supreme Court in the case of M. N. Ranganathan (supra ). Therefore, the Corporation can proceed with the properties subjected to charge under Section 29 of the Act. For that purpose the Court relied upon the decision of the Supreme Court in the case of M. N. Ranganathan (supra ). ( 19 ) IN my view, for the reasons elaborated hereinafter, the question involved in this matter cannot be said to be covered by the aforesaid two decisions mainly because (1) there is material change in the Companies Act with regard to the position of secured creditor. His security is subjected to statutory charge for workmens dues. This concept of statutory charge is introduced by Sections 529 and 529a by Act 35 of 1985; (2) in the present case the Companys property was in custody of the Official Liquidator while in the case of M. K. Ranganathan (supra) the property was in possession of receiver appointed by the trustees in whose favour the properties were mortgaged; and, (3) section 29 of the State Financial Corporations act does not empower the G. S. F. C. to take possession of the property of the Company under liquidation from the custody of the Court. ( 20 ) BY the amendment of Section 529 of the companies Act the security of the secured creditor is deemed to be subject to pari passu charge in favour of the workmen to the extent of the workmens portion therein. Section 529a which is added by Act 35 of 1985 provides that notwithstanding anything contained in any other provision of the Act or any other law for the time being in force, in the winding up of a company (a) workmens dues and (b) dues due to secured creditors to the extent 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 to all other dues. This would be clear from Sections 529 and 529 A of the Companies Act which read as under :"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 pari passu charge in favour of the workmen to the extent of the workmens 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 workmens 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 workmens portion in his security, whichever is less, shall rank pari passu with the workmens dues for the purposes of Section 529 A. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this Section: provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay his portion of the expenses incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realisation by the secured creditor. Explanation - For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmens portion in relation to the security bears to the value of the security. (3) For the purposes of this section, Section 529a and Section 530, (a) "workmen", in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial disputes Act, 1947 (14 of 1947); (b) "workmens dues", in relation to a company, means the aggregate of the following sums due from the company to the workmen, namely :- (i) all wages or salary including wages payable for time or piece-work and salary earned wholly or in part by way of commission of any workmen, in respect of services rendered to the company and any compensation payable to any workmen under any of the provisions of the industrial Disputes Act, 1947 (14 of 1947); (ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution; (iii) unless the company is being wound-up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in Section 14 of the Workmens Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company; (iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company; (c) "workmens portion, in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmens dues bears to the aggregate of (i) the amount of workmens dues; and (ii) the amounts of the debts due to the secured creditors. "529-A. (1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company (a) workmens dues; and (b) debts due to secured creditors to the extent 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 to all other dues. (2) The debts payable under clause (a) and clause (b) of Sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. "the proviso to sub-section (1) of Section 529 makes a deeming provision and its effect, inter alia, is as under: (1) On a security of every secured creditor charge in favour of the workmen to the extent of workmens portion therein is created. (2) Even if secured creditor is in possession of the property and instead of relinquishing his security and proving his debt, opts to realise his security by remaining outside the winding up, the liquidator is required to represent the workmen and enforce such charge. This can be done only if the security is realised through the process of Court by filing civil suit or with the consent of the liquidator and it is sold by public auction so that there may not be any intrigues or malpractices in the sale. (3) The amount so realised by the liquidator by way of enforcement of such charge shall apply rateably for the discharge of workmens dues. . ( 21 ) SECTION 529a gives overridnng effect and provides that notwithstanding anything contained in any other provision of the Companies act or any other law for the time being in force, in the winding up of a company the workmens dues and the debts due to secured creditor to the extent they remain unrealised because of proviso to sub-section (1) of Section 529 will rank pari passu. ( 22 ) FROM the aforesaid amendment in the companies Act it is apparent that even with regard to the companys properties which are in the hand of secured creditor, they cannot be disposed of by the secured creditor without the leave of the Court where winding up proceedings are pending as the liquidator is required to represent the workmen and enforce the charge over the security for the workmens dues. If the security is in possession of the liquidator, it could be sold or the amount due to the secured creditor could be realised by remaining outside the winding up proceedings but at the same lime the courts permission is required to be taken so that workmens dues can be protected. In that situation the secured creditor is liable to pay his portion of the expenses incurred by the liquidator for the preservation of the security before its realisation by the secured creditor. If this is not done, the statutory charge created under Section 529 and the provisions of Section 529a would become nugatory or would be frustrated by the secured creditor by various dubious methods. ( 23 ) SECONDLY in the case of M. K. Ranganathan (supra) and the Special Civil Application decided by this Court the possession of the properties was not with the Offical Liquidator. The Court was not required to deal with a situation where property and assets of the Company have vested in the custody of the Court ( 24 ) MR. Soparkar, learned Advocate appearing on behalf of the Official Liquidator, pointed out that the decision of this Court relied upon by the respondent would not be a good law on the point that proceedings under Section 29 of the state Financial Corporations Act would not be covered by the expression "legal proceedings" occurring in sub-sections (1) and (2) of Section 446 of the Companies Act in view of the decision of the Division Bench of this Court in the case of 12 alka Ceramics v. Gujarat State Financial Corporation, 31 (1) G. L. R. 628, ( = 1990 (2) GLH 235 ). In that case the Court was considering the validity of Section 29 of the State Financial corporations Act. In that case the Court was considering the validity of Section 29 of the State Financial corporations Act. The Division Bench observed that even though the decision of the Corporation under Section 29 is not a quasi-judicial decision but is an administrative function, none-the-less the reasonable reading of Section 29 does not exclude principles of fair play and some clement of natural justice. The relevant observations are: "it is, thus, clear that even though the decision of the Corporation under Section 29 is not a quasi-judicial decision, but is an administrative action, none-the-less, a reasonable reading of section 29 does not exclude the principle of fair play and some element of natural justice. It need not be an elaborate procedure of personal hearing, exchange of pleading, leading of evidence, cross-examination of witnesses. It need not even be a regular show-cause notice, but a notice to the party bringing to its notice the default position and the consequences following therefrom of inviting action under Section 29 of the Act has to be given so that the party has reasonable time and opportunity to explain, reply or comply with the same. After considering the response, if any, from the party, it is open to the Corporation to arrive at its own decision. The party may point out in reply about the default position and/or may offer substantial part payment and offer reschedulement of repayment supported by its financial working and cash flow for the past period as well as, as projected in future. If the Corporation is satisfied that the debtor has been bona fide, trustworthy and creditworthy and because of genuine difficulties, it wants reasonable reschedulement after substantial part payment, the Corporation will consider the same in accordance with its policy of encouraging and assisting the industrial growth of viable industrial units and if the Corporation is of the opinion that the industrial unit does not fulfil its policy requirement, the Corporation may proceed further under Sec. 29 in accordance with law, but in that case, it would be acting fairly, reasonably and in accordance with the principles of natural justice and not arbitrarily. As stated earlier in the Supreme court judgments the principles of natural justice in administrative decision are the principles to act fairly. If that is done, the Corporation can proceed further in accordance with the provisions of Section 29 of the Act. As stated earlier in the Supreme court judgments the principles of natural justice in administrative decision are the principles to act fairly. If that is done, the Corporation can proceed further in accordance with the provisions of Section 29 of the Act. If such action is in breach of the principles of natural justice, i. e. to say the Corporation did not act fairly, then that action could be challenged, but that would not vitiate the legal provision contained in Sec. 29 of the Act. " (Emphasis added.) from the aforesaid decision it would be clear that the proceedings under Section 29 of the State financial Corporations Act would be "legal proceedings" because the concerned authority is bound to follow principles of natural justice and to act fairly. ( 25 ) FURTHER, Section 29 of the State Financial corporations Act nowhere provides that Financial corporation would have the right to take over the management or possession or both of the company which is in possession or in custody of the court in which winding up proceedings are pending. This would be clear by referring to section 32 of the State Financial Corporations act. It provides a procedure before the District judge in respect of an application filed under section 31 for enforcement of claims by the financial Corporation. Section 32 (10) makes it clear that where proceedings for liquidation in respect of a company are pending, Financial corporation would not have any preference over other creditors of the company. The relevant section 32 (10) reads as under: "32 (10) Where proceedings for liquidation in respect of an industrial concern have commenced before an application is made under sub-section (1) of Section 31, nothing in this section shall be construed as giving to the 13 financial Corporation any preference over the other creditors of the industrial concern not conferred on it by any other law. " not only this, when the management of the company is taken over by the Financial Corporation and Directors or Administrators of the company are appointed, by the Corporation, yet the company could be wound up under the Companies act, 1956, with the consent of the Financial corporation. The Companies Act continues to apply to such a concern. For this there is a specific provision in Section 32e which reads as under:" 32e. The Companies Act continues to apply to such a concern. For this there is a specific provision in Section 32e which reads as under:" 32e. (1) Where the management of an industrial concern, being a company as defined in the Companies Act, 1956, 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 (a) it shall not be lawful for the shareholders of such concern or any other person to nominate or appoint any person to be a director of the concern; (b) no resolution passed at any meeting of the shareholders of such concern shall be given effect to unless approved by the Financial Corporation; (c) no proceeding 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. (2) Subject to the provisions contained in sub-section (1) and to the other provisions contained in this Act and subject to such other exceptions, restrictions and limitations, if any, as the central Government in consultation with the state Government may, by notification in the official Gazette, specify in this behalf the companies Act, 1956, shall continue to apply to such concern in the same manner as it applied thereto before the issue of the notified order under Section 32a. " ( 26 ) THEREFORE, reading Sections 29, 32 (10) and 32e together, it would be clear that when the winding up proceedings are pending, the State financial Corporation has no right to take possession of the property from the Court. In any set of circumstances, as a secured creditor if it intends to realise its dues by remaining outside the winding up proceedings, then also it is required to obtain leave of the Court. ( 27 ) FURTHER, Section 446 of the Companies act inter alia specifically provides that where a winding up order has been made or the Official liquidator has been appointed as a provisional liquidator, no suit or other legal proceeding shall be commenced except by leave of the Court. ( 27 ) FURTHER, Section 446 of the Companies act inter alia specifically provides that where a winding up order has been made or the Official liquidator has been appointed as a provisional liquidator, no suit or other legal proceeding shall be commenced except by leave of the Court. Sub-section (2) gives exclusive jurisdiction to the Court which is winding up the company to decide any claim made by or against the company and also any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company. Section 446 reads as under:"446. (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of winding up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the court may impose. (2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of (a) any suit or proceeding by or against the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any application made under Section 391 by or in respect of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company ; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) act, 1960. (3) Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court. (3) Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court. (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High court. "in view of the aforesaid section it is for the court which deals with winding up petition to decide the extent of priority even between secured creditor and the workmens dues which are having statutory pan passu charge with the secured creditor. The question of priority cannot be decided by the officer of the State Financial corporation. That question could only be decided by the court dealing with winding up proceedings. That would be the only authority to deal with the property for realising the amount or its disbursement as per the provisions of the companies Act and not the State Financial corporation. ( 28 ) FOR this purpose Mr. Soparkar, learned advocate for the liquidator, has relied upon the decision of the Full Bench of the Delhi High court in the case of L. I. C. of India v. Asia Udyog (P ). Ltd. 55 Company Cases 187. The Full bench of the Delhi High Court dealt with the question whether the proceedings initiated under the Public Premises (Eviction of Unauthorised occupants) Act, 1971, by the Life Insurance corporation against the Company (under liquidation) would be "or other legal proceedings" as contemplated by Section 446 (2) of the Companies act. The Court held that no narrow construction should be placed upon the words "or other legal proceedings". When possessions of the property is sought to be recovered from the company, it would be proceedings against the company within the meaning of Section 446 (2) (a) and it would also amount to a claim against the company within Section 446 (2) (b) of the Companies act. The Court further held that if the company is under winding up, the special Act would be the Companies Act and Public Premises act would be general Act. The relevant discussion is as under:"no narrow construction should be placed upon the words "or other legal proceedings". The Court further held that if the company is under winding up, the special Act would be the Companies Act and Public Premises act would be general Act. The relevant discussion is as under:"no narrow construction should be placed upon the words "or other legal proceedings". See Governor-General in Council v. Shiromani sugar Mills Ltd. (1946) 16 Comp Cas 71; 14 itr 248 (FC ). But as there is no definition of it, it will have to be determined in each case whether the proceedings are such which can be said to be legal proceedings within the meaning of S. 446 of the Companies Act. The meaning of the word "legal proceedings" under S. 446 will naturally take colour from the object which is sought to be served by S. 446 of the Act. Chapter II of Part VII of the Companies Act, 1956, deals with the winding up by the court. Section 446 falls under the sub-heading of consequences of winding up order. This provision broadly is analogous to Ss. 226 and 231 of the English Companies Act, 1948. The object of these provisions is stated to be - "when a winding up order is made, the court, acting by its officer the official receiver lays its hand upon the assets and says, no creditor or claimant must touch these assets or take proceedings by way of action, execution, or attachment pending the distribution by the court in due course of administration. This protection is indispensable equally in winding up and in bankruptcy to prevent a scramble for the assets, but it is not always enough. An even-handed justice requires that the court should have power to intervene at an earlier stage for the protection of the assets. " (See Palmers Company Precedents, part II, 17th ed. , page 302 ). The object of S. 446 is to save the company, which is being wound up, from unnecessary litigation and to protect its assets for equitable distribution among its creditors and its shareholders. An application for leave is, therefore, made necessary by the order for winding up, and in dealing with such application the court has necessarily to consider the interest of the company and to see that its assets are not wasted in frivolous and unnecessary litigation. Balkrishna Mahadco Vartak v. Indian Association chemical Industries Ltd. (1958) 28 Comp cas 179 (Bom ). Balkrishna Mahadco Vartak v. Indian Association chemical Industries Ltd. (1958) 28 Comp cas 179 (Bom ). This view of the Bombay High court was followed in Star Engineering Works ltd. v. Official Liquidator of the Krishnakumar mills Company Ltd. (1977) 47 Comp Cas 30 (Guj ). "dealing with winding up provisions of the english Companies Act, 1862, the object was stated to put all unsecured creditors upon an equality, and to pay them pari passu. A landlord who has not put in a distress before the commencement of the winding up is an unsecured creditor. He can prove against the company under S. 158 for all rent in arrears at the time of his proof, but his right to distrain is taken away by S. 163, unless circumstances exist which, in the opinion of the court, require it to give him leave to distrain under S. 87. Vide In re Oak Pits colliery C. (1882) 21 Ch D 322 (CA) at 329. It is thus well established that once a winding up order is passed the undertaking and the assets of the company pass under the control of the liquidator whose statutory duty is to realise them and to pay, from out of the sale-proceeds, its Creditors. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed, for doing so would be contrary to the creditors right to have the proceeds of the assets distributed among them pari passu. Vide J. K. (Bombay) P. Ltd. v. New kaiser-i-Hind Spg. and Wvg. Co. Ltd. (1970) 40 comp Cas 689 (SC) at 714. " ( 29 ) NOT only this, even in the case of S. V. Kondaskar v. V. M. Dcshpande, A. I. R. 1972 Supreme court 878, the Supreme Court has referred to the decision of Governor-General in Council v. Shiromani Sugar Mills Ltd. , A. I. R. 1946 Federal court 16, but has not distinguished it. The court has specifically held as under:"the Income-tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and re-assessment of income-tcx with which alone we are concerned in the present case. The court has specifically held as under:"the Income-tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and re-assessment of income-tcx with which alone we are concerned in the present case. The fact that after the amount of tax payable by an assessee has been determined or quantified its realisation from a company in liquidation is governed by the Act because the income-tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under Section 446 of the act. "the Court further observed that the liquidation court would have full power to scrutinise the claim of the revenue after income-tax has been determined and its payment demanded from the liquidator. It would be open to the liquidation court then to decide how far under the law the amount of income-tax determined by the Department should be accepted as a lawful liability on the funds of the company in liquidation. At that stage the winding up Court can fully safeguard the interests of the company and its creditors under the Act. ( 30 ) THEREFORE, even from this decision it is clear that if proceedings are initiated under Section 29 of the Financial Corporations Act, then it would be "other legal proceedings" for taking possession or sale of the property belonging to the company under liquidation. The claim of the state Financial Corporation would be that of a secured creditor for realising its dues. Therefore, it would be difficult to accept the contention that proceedings under Section 29 of the state Financial Corporations Act would not be "legal proceedings" as contemplated under Section 446 (1) of the Companies Act. Still, however, in view of the amendment in the Companies Act in section 529 and by addition of Section 529 A the aforesaid question is not required to be dealt with in this matter as the Court in Special Civil application No. 1450 of 1984 was not required to deal with or decide it. ( 31 ) MR. Still, however, in view of the amendment in the Companies Act in section 529 and by addition of Section 529 A the aforesaid question is not required to be dealt with in this matter as the Court in Special Civil application No. 1450 of 1984 was not required to deal with or decide it. ( 31 ) MR. Soparkar further rightly relied upon the decision of the Karnataka High Court in the case of Mysore Surgical Cottons P. Ltd. (In liquidation) v. Karnataka State Financial Corporation, (1988) 1 Company Law Journal 63 (Karri ). Dealing with similar set of circumstances and contention based on the decision of the Supreme Court in the case of M. K. Ranganathan (supra) the Court negatived the contention of the State Financial Corporation that under Section 29 of the State Financial Act the corporation was empowered to take charge of all properties of the Company mortgaged to it and to sell and realise its security even after the order of winding up of the Company is passed and the properties are in the custody of the court. Tho relevant discussion of the Court is as under:"the Supreme Court did not have occasion on the facts of Ranganathans case to examine the affect of the assets movable and immovable of the company ordered to be wound up vesting in the official liquidator. Section 456 of the Companies act, 1956 enables the official liquidator or the provisional liquidator when appointed before winding up order is made to take into his custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled. [see sub- section (1)]. Sub-section (2) of Section 456 provides that all the property and effects of the company shall be deemed to be in the custody of the Court as from the date of the order for the winding up of the company. 9. Therefore, in unequivocal terms, the Legislature has expressed itself in favour of all the properties of the company ordered to be wound up to be in the custody of the Court from the date the order for winding up is made. 10. 9. Therefore, in unequivocal terms, the Legislature has expressed itself in favour of all the properties of the company ordered to be wound up to be in the custody of the Court from the date the order for winding up is made. 10. While it is true that Section 537 (1) (a) refers to attachemnt, distress and execution put in force, without leave of the Court, against the estate or effects of the company, after the commencement of the winding up, it does not amount to empower any person much less the Corporation despite Section 29 of the Act to take away from the custody of the Court in which the properties have lawfully vested. 11. If the construction suggested by Mr. Bhatt is accepted by this Court and that is, having regard to Section 46-B of the Act which provides that the provisions of the said Act; and any rules or orders made thereunder shall have effect notwithstanding anything consistent there- with contained in any other law for the lime 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 that Act, but save as aforesaid, the provisions of that Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern, the action taken by the Corporation in the instant case by taking possession of the movable and immovable assets must be held to be valid and legal and therefore, they have the right to dispose of them under Section 29 of the Act, the result will be disastrous. 12. The question of Section 46-B of the Act coming into operation will arise only when there is repugnancy between the provisions of the state Financial Corporation Act, 1951 and any other law. If there is no repugnancy, or conflict, section 46-B has no role to play. We cannot read repugnancy where none exists and then credit the corporation in the instant case as having acted lawfully. If there is no repugnancy, or conflict, section 46-B has no role to play. We cannot read repugnancy where none exists and then credit the corporation in the instant case as having acted lawfully. Section 29 (1) of the Act reads as follows :" Where any industrial concern, which is under a libalility to the financial corporation under an agreement, makes any default in repayment of any loan or advance or any instalment there of (or in meeting its obligations in relation to any guarantee given by the Coropration) 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. "the section extracted as above makes it abundantly clear that the right of the corporation to walk in and take over all the assets is available to it only when the company or where the industrial concern is in charge and control of its assets and not when the industrial concern has lost control over its assets is favour of another by operation or law or otherwise. Therefore, if it is a question of there being an order under Section 29 (1) against the industrial concern, then Section 46 (B) would protect the action of the Corporation. But if the property of the industiral concern has alrady vested in this court, then it shall not exercise its power under section 29 of the Act, as that would be gross contempt of this Court. Such a construction apart from being absurd, is inconsistent with the scheme of things where the construction enjoins all authorities to come to the assistance of the court. " ( 32 ) AS against this, Mr. Shah, learned Advocate appearing on behalf of the Corporation, relied upon the decision of the Delhi High Court in the case of Aaryavarta Plywood v. Rajasthan state Industrial and Investment Corporation Ltd. (1990) Company Law Journal 222 (Del ). In that case the Court held as under:" The winding up petition was filed on 14/05/1984. No provisional liquidator was appointed during the pendency of the winding up proceedings. In that case the Court held as under:" The winding up petition was filed on 14/05/1984. No provisional liquidator was appointed during the pendency of the winding up proceedings. In October 1984, under the loan documents the Corporation took possession of the secured assets. Again, on 25/04/1988, the corporation took possession of the assets of the company, under Section 29 of the State financial Corporation Act, 1951. The winding up order was passed on 19/07/1988. Admittedly, all the assets of the company were, at that lime, in the possession of the Corporation. The corporation has also sold the properties. In taking possession and selling the assets of the company, the Corporation did not seek the intervention of any Court. The Corporation was justified in taking over possession of the assets of the company, during the pendency of the winding up proceedings, without the permission of the court. As the Corporation did not take the aid of the Court of realising its dues, or for effecting its right, and as it was already in possession and control of the assets of the company prior to the passing of the winding up order, so, the Corporation, was within its legal rights under Section 29 of the State Financial Corporation Act, 1951, to sell the assets of the company to the public limited company above referred, without seeking the permission of the Court. Section 537 of the Companies Act, 1956, is not applicable to the present case. "from the aforesaid facts of the case it is apparent that possession of the property was with the State Financial Corporation when winding up order was passed and therefore as a secured creditor it could remain outside the winding up proceedings but the Court has further specifically held that under Section 529 A of the companies Act the dues of the workers and the debts due to the secured creditors are to be treated pari passu and have to be paid prior to all the dues. The Court further held that the bona fides of the respondent-Financial Corporation, which is Govt. undertaking, in dealing with the assets of the Company cannot be doubted by the court unless sufficient material is placed on record by the Official Liquidator to the contrary. The Court further held that the bona fides of the respondent-Financial Corporation, which is Govt. undertaking, in dealing with the assets of the Company cannot be doubted by the court unless sufficient material is placed on record by the Official Liquidator to the contrary. The Court also considered the fact that the Financial corporation has given an undertaking to the Court that if any amount was found payable to any worker of the Company, then the same shall be paid to the respondent-Financial Corporation in accordance with law. The Court, therefore, directed that if any amount was found payable to any workman of the Company, then the same shall be paid to the respondent in accordance with law immediately. It should be noted that the Court was at pains in observing that in a case where provisional liquidator has been appointed during the pendency of the proceedings and also in a case where the order of winding up has been made, the Financial Corporation cannot invoke the provisions of Section 29 of the said Act without the permission of the company Court. This is clear from the observations made in paragraph 54 wherein the Court dealt with the case decided by the Full Bench of the Allahabad High Court in the case of Munnalal gupta v. U. P. Financial Corporation, a. I. R. 1975 Allahabad 416, and in paragraph 38 wherein the Court dealt with the case decided by the Karnataka High Court in the case of Mysore surgical Cottons (supra ). Therefore, considering the aforesaid decision as a whole, in my view it cannot be said that it take any contrary view. ( 33 ) FROM the aforesaid discussion and particularly the provisions of Sections 529 and 529-A, it emerges that (1) secured creditor can remain outside the winding up proceedings. However, before realising the amount by sale of security (mortgaged property) which is in his possession, he can do so only with the previous leave of the Court otherwise proviso to sub-section (1) of Section 529 would become nugatory or its effect could be frustrated by collusive arrangements between the secured creditor and the purchaser and/or the persons in charge of the management of the company under liquidation. Clause (a) of the proviso to sub-section (1) of Section 529 in terms provides that the liquidator shall be entitled to represent the workmen and enforce statutory charge where a secured creditor instead of relinquishing his security opts to realise his security; (2) secured creditor, if he is not in possession of the security (mortgaged property), cannot sell it under the assumption that as the property is mortgaged to him, he is deemed to be in possession of the property. He also can remain outside the winding up proceedings. Before realising the amount by sale of the mortgaged property, he has to obtain leave of the Court for the reasons stated above and also for giving effect to proviso to sub-section (2) of section 529 which provides that secured creditor shall be liable to pay his portion of the expenses incurred by the liquidator for the preservation of the security; (3) section 529a of the Companies Act provides for non-obstante clause by suiting that notwithstanding anything contained in any other provision of the Act or any other law for the time-being in force, the workmens dues and the debts due to the secured creditor as provided therein are to be paid in priority to all other dues. If assets are insufficient to meet them, workmens dues and the debt due to secured creditor shall abate in equal proportion. For giving proper effect to the aforesaid mandate of the Legislature of distributing the sale-proceeds of the assets pari-passu, it is necessary to hold that without the leave of the Court secured creditor cannot sell the property for realising his dues; (4) section 29 of the State Financial Corporations act does not empower the Financial Corporation to take possession of the property of the company under liquidator from the custody of the Court. Further, any question of priorities or the dispute with regard to the distribution of the sale-proceeds and the assets of the Company under liquidation is required to be determined by the Court which is winding up the Company as provided under Section 446 (2) (d) of the Companies Act. ( 34 ) HENCE this application is required to be "allowed and is hereby allowed. ( 34 ) HENCE this application is required to be "allowed and is hereby allowed. However, considering the facts that the Gujarat State Financial corporation had sold the plant and machinery of the Company under liquidation and the possession of the plant and machinery is handed over to the purchaser on 20/12/1989 by recovering the entire sale consideration of Rs. 8,99,786. 52 and that there is no allegation that the said transaction was not genuine one or was in any way collusive, the prayer of taking possession of the said plant and machinery from the purchaser is not granted. So far as the workmens dues are concerned, the Official Liquidator is directed to file a separate application for proper distribution as per the Companies Act. The Corporation is directed to hand over the possession of the assets of the Company under liquidation to the Official Liquidator within fifteen days from to-day. The Corporation is also directed to deposit the amount of Rs. 8,99,786. 52 received by it by sale of the plant and machinery of the company under liquidation with the Official liquidator within fifteen days from to-day. In the facts and circumstances of the case there shall be no order as to costs. .