JUDGMENT : BY THE COURT This Company Application under Rule 9 of the Companies (Court) Rules, 1959 (hereinafter “the Rules of 1959”) has been filed by the Official Liquidator (hereinafter “OL”) with the prayer that the respondent—Rajasthan Financial Corporation (hereinafter “RFC”) be directed to deposit the auction amount received by it from the sale, which was confirmed by the Company Court on 28.07.2011, of the immovable assets of the company in liquidation. To address the prayer made, it is necessary to state the factual background. M/s. Shield Shoe Company Private Ltd. (hereinafter “the Company in liquidation”) was ordered to be wound up by this Court on 12.05.1989 in S.B. Company Petition No.12/1987 (titled as Registrar of Companies Vs. M/s. Shield Shoe Company Pvt. Ltd.). Under the said order, the powers under Section 457(1) of the Companies Act, 1956 (hereinafter “the Act of 1956”) were conferred on the O.L. At the time of passing of the winding up order, the assets of the company in liquidation were under lock and key of a secured creditor i.e. Central Bank of India commencing the year 1986. Following the winding up order and the appointment of the O.L. as the liquidator of the company in winding up, the said fixed assets of the company in liquidation came into the O.L.'s custody by virtue of Section 456(2) of the Act of 1956 and also were taken possession by the O.L. putting his lock over the existing lock of the Central Bank of India on the unit in issue. RFC moved an application before this Court bearing Company Application No.22/1991 under Section 446(2)(b) & (d) read with Section 529(2) of the Act of 1956 read with Rule 9 of the Rules of 1959, praying that the Central Bank of India be directed to remove its lock over the unit of the company (in liquidation), the inventory of assets be prepared and the OL be directed to handover the assets of the company in liquidation to RFC (emphasis mine) as the Corporation was purportedly entitled to the possession of the mortgaged assets of the company in liquidation under Section 29 of the State Financial Corporation Act, 1951 (hereinafter “the Act of 1951”) with a right to sell them to recover its outstanding dues. Vide order dated 9.12.1991, the Company Court recorded that even though as a secured creditor, RFC could ordinarily invoke Section 29 of the Act of 1951 for taking possession of the mortgaged assets of a defaulting company, yet as the O.L. attached to the Company Court had been appointed as liquidator of the company in liquidation following the winding up order dated 12.05.1989 and had “taken possession of the assets of the Company”, it was not appropriate or otherwise warranted in the facts of the case to allow RFC to exercise its powers under Section 29 of the Act of 1951 and take possession of the assets. The Company Court by its order dated 09.12.1991 thus dismissed RFC's application. Consequently RFC could not take over the assets of the company in liquidation in its possession which remained with the Central Bank of India as a secured creditor and the O.L. as the statutory custodian of the assets of the company in winding up. That several years subsequent to the dismissal of RFC's application vide order dated 09.12.1991, the O.L. took the view in circumstances, not made clear by the counsel for the parties despite a specific query, that to facilitate the sale of the assets and proceed with the dissolution of the company under winding up, it would be desirable to require RFC to sell the fixed assets of the company in liquidation. He moved an application bearing No.52/1995 before the Company Court praying that for that purpose, the possession of the factory with land and building in his custody be handed over to RFC. The assets were then handed over to RFC. In its order dated 24.07.1997, which is on record, the Company Court observed that the fixed assets i.e. plant and machinery of the company in liquidation in possession of RFC following the earlier order dated 16.02.1996 had not been sold despite attempts to auction them. RFC was directed to take fresh steps for the auction and sale of the immovable property of the company in liquidation. The property was however not sold despite about 70 attempts by RFC. In the circumstances, last of the permissions was again sought by way of misc. application No.28300 dated 23.12.2010 under Rule 9 of Rules of 1959 by RFC from the Company Court for re-auctioning the assets of the company in liquidation. The property was however not sold despite about 70 attempts by RFC. In the circumstances, last of the permissions was again sought by way of misc. application No.28300 dated 23.12.2010 under Rule 9 of Rules of 1959 by RFC from the Company Court for re-auctioning the assets of the company in liquidation. Vide order dated 10.02.2011 the Court granted the requisite permission making it clear that the sale however not confirmed without the permission of the Court. Finally on 10.05.2011 in the auction, the highest bid of Rs.1,90,25,000/- was received. Subsequently for reasons of intervening events which are not material, the Company Court confirmed the sale of immovable assets of the company in liquidation for a sum of Rs.221 lacs to the highest bidder. The said sale has since been confirmed by this Court vide order dated 28.07.2011. Vide its order dated 01.12.2011, the Company Court allowed the parties to file further applications. The auction amount was to be paid in installment as per the condition of sale and has since been received in full by RFC on 21.02.2013. Mr. Gaurav Sharma, appearing for the O.L. has submitted that RFC, having received the entire sum against the sale consideration of the fixed assets of the company in liquidation, in the statutory custody of the O.L., auctioned under the direction and control of this Court, now be directed to deposit the entire amount received by it along with accrued interest with his office, to facilitate inviting of and settling of the claims of the creditors of the company in liquidation in accordance with law. The application has been opposed by Mr. Anuroop Singh, appearing for RFC. It has been submitted that RFC is the secured creditor of the company in liquidation and has a subsisting first charge over the assets of the company in liquidation which have been sold finally under the order of this Court. It has been submitted that the dues of RFC as a first charge holder as of 05.10.2011 aggregated to Rs.365.44/- lacs. RFC's outstanding amount against the company in liquidation is not fully satisfied from the sale proceeds of the assets of the company in liquidation i.e. sum of Rs.221 lacs along with accrued interest upto that date. The accounts as of today will have also to be additionally worked out. RFC's outstanding amount against the company in liquidation is not fully satisfied from the sale proceeds of the assets of the company in liquidation i.e. sum of Rs.221 lacs along with accrued interest upto that date. The accounts as of today will have also to be additionally worked out. It has been submitted that even otherwise as a secured creditor, RFC can only be required to account for workers' dues under the proviso to Section 529 of the Act of 1956 as and when conveyed by the O.L. and in view of the fact that no such dues have yet been conveyed, the O.L. has no right to claim any amount from the proceeds of auction sale of the immovable assets of the company in liquidation. It has been further submitted that RFC was in lawful possession of the fixed assets of the company in liquidation as per the order dated 16.02.1996 passed by the Company Court in Company Application No.52/1995, and the sale of the assets by RFC was therefore on its own count as a secured creditor and to RFC's benefit. Heard and considered. Of importance in the case at hand is the order dated 09.12.1991 passed by this Court wherein the application filed by RFC under Section 446(2)(b) & (d) read with Section 529 (2) of the Act of 1956 and Rule 9 of the Rules of 1959 was dismissed. By the said dismissal, the prayer of RFC to exercise its powers under Section 29 of the Act of 1951 was negated. The custody of the fixed assets of the company in liquidation remained with the O.L. consequent to his appointment as the Liquidator of the company in liquidation as per the winding up order dated 12.05.1989, passed by the Company Court. That was the resultant inexorable effect of Section 456(2) of the Act of 1956. RFC not being in custody of the assets of the company in winding up, even though it was a secured creditor, could not conceivably have exercised its powers to stay outside winding up, take possession of the mortgaged assets under Section 29 of the Act of 1951 and sell the same on its own account for the benefit of recovering its outstanding against the company in liquidation. However for reasons which are not clear, despite the final order dated 09.12.1991, passed by the Company Court in Company Application No.22/1991, the O.L. thought it fit to move an application before the Company Court in Company Application No.52/1995 to have the possession of the assets handed over to RFC to facilitate their sale. But as the orders of the Company Court passed from time to time, between 04.08.1995 to 01.12.2011 clearly show, the sale of the assets in issue was to be for and on behalf of the O.L. as would be evident from the fact that not only the RFC sought approval of the modalities of the sale from the Court but also acceded to the condition of the auction sale being subject to confirmation by the Company Court. This would not have been so if the sale by RFC was on its own account in the exercise of its power under Section 29 of the Act of 1951. Since the auction sale, RFC has however retained the amounts thereof with itself claiming its right to appropriate it against outstanding dues as per its accounts, of the company in liquidation. The O.L. claims the auction amount plus interest for the benefit of creditors of the company disbursable as per the Companies Act, 1956. The question which arises for the consideration of this Court is as to whether the amount received by RFC from the auction sale of the immovable assets of the company in liquidation under the direction and supervision of this Court has to be remitted to the O.L. or whether RFC is entitled to hold the said amount and appropriate it as the secured creditor of the Company in liquidation subject only to the pari passu charge of the workers under the proviso to Section 529 (1) of the Act of 1956. Section 456(1) of the Act of 1956 provides that where a winding up order has been passed or a provisional liquidator/liquidator appointed, he shall take into his custody or under his control, all the property, effects and actionable claims of the company. Under Section 456(2) of the Act of 1956, all property and effects of the company shall be deemed to be in the custody of the Company Court or the Tribunal as may be, from the date of the winding up order of the company. Under Section 456(2) of the Act of 1956, all property and effects of the company shall be deemed to be in the custody of the Company Court or the Tribunal as may be, from the date of the winding up order of the company. Section 457(2)(v) of the Act of 1956 inter alia empowers the O.L. to appoint an agent to do what the liquidator is unable to do. The liquidator is the statutory trustee and also acts both in the capacity of an agent of the company and officer of the Company Court for benefit of all the parties/persons interested in the regulated winding up of the company in liquidation till its dissolution under Section 481 of the Act of 1956. Vis a vis an official liquidator coming into custody of the company's property on an order of winding up being passed, a secured creditor as a mortgagee of the company's property can take possession thereof after the passing of the winding up order, only with the leave of the Court. Without the custody of the property, the secured creditor cannot obviously dispose it of to its own account by way of a conveyance following a sale. RFC despite being a secured creditor of the property of the company in issue, had not taken possession of the mortgaged assets by resort to Section 29 of the Act of 1951 before the winding up order was passed on 12.05.1989 and when the O.L., appointed as liquidator of the company in liquidation, came into custody/possession of the property with reference to Section 456(2) of the Act of 1956—the earlier attachment of the Central Bank of India since 1986 as a secured creditor notwithstanding. It is also on record that the O.L. also did indeed put his locks over the fixed assets of the company in liquidation. It was in this state of affairs that RFC moved an application under Section 446(2)(b) & (d) read with Section 529(2) of the Act of 1956 along with Rule 9 of the Rules of 1959 before the Company Court. The very act of RFC moving the application under Section 446(2)(b) & (d) read with Section 529(2) of the Act of 1956 along with Rule 9 of the Rules of 1959 was premised on the O.L.'s possession of the said assets. Vide order dated 09.12.1991 was rejected. The very act of RFC moving the application under Section 446(2)(b) & (d) read with Section 529(2) of the Act of 1956 along with Rule 9 of the Rules of 1959 was premised on the O.L.'s possession of the said assets. Vide order dated 09.12.1991 was rejected. It was held that RFC had been lethargic in exercising its rights despite notice by the Central Bank of India with regard to Shield Shoe Company Private Ltd—the company being defunct for all practical purposes since 1986. The Company Judge's unarticulated reasons for rejecting RFC's application are not for this Court to speculate but it appears that by virtue of the winding up order and the resultant operation of the proviso to Section 529(1) of the Act of 1956, the workers' dues came to operate as a pari passu first charge on the fixed assets of the company mortgaged with the secured creditors. In fact the O.L. representing the workers of the company in liquidation came to acquire the status of a co-mortgagee with the secured creditors. The Court further appears to have been of the view that in the circumstances, for the orderly liquidation of the company in issue, RFC as secured creditor should not be allowed to dispose of the secured assets and appropriate amount therefrom without adjudication and distribution and in accordance with the provisions of Section 528, 529, 529A & 530 of the Act of 1956 to the detriment of the general body of creditors and more particularly the workers with regard to their dues. In the circumstances, RFC's intent to invoke Section 29 of the Act of 1951 was rendered sterile and of no effect. Correspondence on record of the application such as letters dated 27.03.2012, 23/27.02.1998, 10.01.2014 exchanged between RFC and the O.L. shows that RFC accepted the control of the Company Court over the assets in issue. Further the terms of the auction were settled by the Company Court and the sale was subject to its confirmation. Finally the auction sale was confirmed by the Court on 28.07.2011. In fact thereafter RFC vide letter dated 10.01.2014 sought the O.L.'s permission to adjust the sale proceeds of the auction in the outstanding and due loan amount of the company in liquidation. Such permission was inconceivable if the RFC indeed believed that the auction was on its own account and to its primary benefit. In fact thereafter RFC vide letter dated 10.01.2014 sought the O.L.'s permission to adjust the sale proceeds of the auction in the outstanding and due loan amount of the company in liquidation. Such permission was inconceivable if the RFC indeed believed that the auction was on its own account and to its primary benefit. Despite the O.L.'s legal possession as detailed hereinabove and the factual aspect recorded earlier in this judgment, RFC apparently ill advised, on a misdirection is holding back the auction amount received from the sale of the assets of the company in liquidation in an attempt to obstruct their distribution in accordance with the Companies Act, 1956. A State Financial Corporation cannot take possession of the assets of a debtor company after the said company is ordered to be wound up. This issue is not res integra and stands firmly settled by the judgment of the Hon'ble Supreme Court in the case of Rajasthan State Financial Corporation & Anr. Vs. Official Liquidator & Anr. [ (2005) 8 SCC 190 ] where a three judge Bench has endorsed the earlier two Judge judgments in the case of A.P. State Financial Corporation Vs. Official Liquidator [ (2000) 7 SCC 291 ] and International Coach Builders Ltd. Vs. Karnataka State Financial Corporation [ (2003) 10 SCC 482 ]. It has been held that in cases where a winding up order in respect of company in liquidation has been passed prior to the exercise of powers under Section 29 of the Act of 1951, by virtue of the workers' debts of the company in liquidation statutorily being deemed to be pari passu with the debt of the secured creditors and all assets, including fixed assets of the company in liquidation coming, in such a situation, in the custody of the O.L. on behalf of the Company Court, the O.L., aside of being mandatorily required to be associated with the sale of the assets in all aspects should hold the proceeds of the sale for distribution thereof amongst creditors in terms of the priorities detailed for the purpose under the provisions of Sections 528, 529, 529A & 530 of the Act of 1956. The Hon'ble Supreme Court in International Coach Builders Ltd. (Supra) had held that where a debtor is in winding up, rights of a secured creditor there-against, such as a financial corporation under Section 29 of the Act of 1951, would be affected and subordinated to the provisions of the Act of 1956. And in A.P. State Financial Corporation (Supra), the Hon'ble Apex Court has held that Sections 446, 529 & 529A of the Act of 1956 override Section 29 of the Act of 1951 for the reason that the said provisions were brought in by way of amendment in the Companies Act, 1956 subsequent to the Act of 1951 and albeit the Act of 1951 was a special Act vis a vis the Companies Act, 1956, yet the amendment to the Act of 1956 in 1985 incorporating Sections 529 & 529A was special in nature, vis a vis Act of 1951 pertained as it specifically did to the special right to the workers consequent to which they overrode the provisions of Section 29 of the Act of 1951. The upshot of the aforesaid discussion is that the application filed by the O.L. deserved to be allowed. The respondent-RFC is directed to deposit with the O.L. within seven working days following today, the entire amount received by it from the sale of the assets of the company in liquidation along with upto date accrued interest. RFC as the secured creditor however would be entitled to receive amounts due to it in that capacity in accordance with the provisions of the Companies Act, 1956 and the Rules of 1959. Before parting with the case, I am of the considered view that in the facts and circumstances of the case, RFC should be visited with costs for setting up a frivolous and vexatious defence not only contrary to the order dated 09.12.1991 passed by the Company Court on its Application No.22/1991; contrary to its correspondence on record with the O.L.; as also contrary to various orders passed by the Court from time to time subsequent to 16.02.1996 which all indicate possession of the assets with RFC and their sale not on account of RFC itself but on account of the O.L. The defence of RFC is also found in the teeth of the judgment of the Hon'ble Supreme Court in the case of Rajasthan State Financial Corporation (Supra). Pendency of cases is a serious issue in the administration of justice. Causes are multiple. Not the least however is reckless litigation by State instrumentalities despite being supported by legal departments and no lack of funds to obtain good legal advise before filing cases or setting up defences. Where the defences are baseless and in the face of admitted facts and/or settled legal position, this Court would be failing in its duty in not imposing exemplary costs. The Hon'ble Supreme Court in the case of Ramramesh Wari Devi Vs. Nirmala Devi & Ors. [ (2011) 8 SCC 249 ] has held that frivolous and vexatious defence should be visited with exemplary costs. The present case is such a case. In the circumstances, RFC is held liable to pay costs of Rupees One lac to the Rajasthan State Legal Services Authority within a period of ten weeks from today. The Deputy Registrar (Judicial) is directed to ensure that costs as directed are paid—no doubt subject to an order to the contrary in an appeal. If costs are not paid as directed, without just cause, the Dy. Registrar (Judicial) to bring the matter to the notice of this court after ten weeks. The Company Application stands allowed accordingly.