Official Liquidator cannot adjudicate claim of a Statutory Corporation# indianlaws

 The Supreme Court has held that the Official Liquidator has no jurisdiction to ascertain or adjudicate the claim of a secured creditor who has been permitted by the Company Judge to stand outside the liquidation proceeding with liberty to pursue its remedy as per statutory rights available under the State Financial Corporations Act 1959, subject only to the conditions imposed by the court. The rights of a financial corporation available under the provisions of the SFC Act by the amendment of 1985 in the Companies Act,  is for a  limited purpose of securing the right of the workers but such limited impediment to their rights under the SFC Act will not alter the status of State financial corporations as secured creditors and they will not be required to prove their debt which they are entitled to realize under the provisions of the SFC Act subject to right of the workers to receive their wages also as secured creditors on pari passu basis. 

Whether an Official Liquidator can claim any power or jurisdiction in itself to adjudicate and quantify the claim of statutory corporations like the one as was in the instant appeal namely A.P. Industrial Development Corporation and A.P. State Financial Corporation when the Company Judge has permitted them to stand outside the liquidation proceeding subject to certain conditions as per which the Corporations may pursue the powers available to them under Section 29 of the State Financial Corporations Act, 1959 (‘SFC Act’).

In the present matter Official Liquidator had taken over the charge of the Company and the property of the company was also seized by the Corporation under Section 29 of the SFC Act.

The power available to a corporation under Section 29 to sell the property of a debtor company under liquidation is not absolute but is subject to the proviso to Section 529(1) and non obstante clause in Section 529A of the Companies Act, as inserted therein by the amendment in 1985. After ensuring that this purpose is achieved or ensured, the State Financial Corporations can continue to enjoy their statutory rights as secured creditors. They will not be reduced to the status of unsecured creditors and equally will not be required to prove their debts nor will be required to stand in line with other unsecured creditors.

The rights of a financial corporation available under the provisions of the SFC Act by the amendment of 1985 in the Companies Act, particularly the proviso added to Section 529(1) and Section 529A, is amended only to a limited extent and for the limited purpose of securing the right of the workers but such limited impediment to their rights under the SFC Act will not alter the status of State financial corporations as secured creditors and they will not be required to prove their debt which they are entitled to realize under the provisions of the SFC Act subject to right of the workers to receive their wages also as secured creditors on pari passu basis. The control of the Company Judge and the Official Liquidator if authorized, can extend only to ensure that the aforesaid purpose of Section 529A is effectively achieved. Like any other affected person, if the Company represented by the Official Liquidator has reasons to be aggrieved by claims made by a financial corporation under the SFC Act, its remedy would be to initiate appropriate civil proceedings to challenge such claim or debt of a State financial corporation before an appropriate forum and not to assume jurisdiction to sit in adjudication and decide entitlement of the financial corporation when it has opted to stand outside the liquidation proceeding as a secured creditor. It was held that the Official Liquidator has no jurisdiction to ascertain or adjudicate the claim of a secured creditor who has been permitted by the Company Judge to stand outside the liquidation proceeding with liberty to pursue its remedy as per statutory rights available under the SFC Act, subject only to the conditions imposed by the court.

[Laxmi Fibres Ltd. vs. A.P. Industrial Dev. Corpn. Ltd. & Ors.]

SC, 07.08.2015

Civil Appeal Nos. 5803 and 5804 of 2005