IN THE PUNJAB AND HARYANA HIGH COURT 

Amit Sethi for the petitioner. 

Kamal Sehgal for the respondent. 

JUDGMENT 

V. S. AGGARWAL J. - The respondent, the Haryana Financial Corporation (for short "the corporation"), had filed a petition for winding up of Ravindra Pharmaceutical (P.) Ltd. On February 4, 1994, an order was passed for winding up of the abovesaid company. On August 12, 1994, on the application of the corporation, this court directed that after selling the properties of Ravindra Pharmaceutical Private Limited, the respondent-Corporation will send to this court a detailed report regarding all the steps taken for the sale of the property and also regarding the price which the properties had fetched. On January 13, 1995, an application was filed for confirmation of the sale which was allowed. 

The official liquidator has filed an application under rule 9 read with rules 147 and 148 of the Companies (Court) Rules, 1959, and section 529 and section 529A of the Companies Act, 1956 (for short "the Act"). It appears that an accident took place wherein seven workmen died, two were seriously injured. An application was filed with the Commissioner for Workmen's Compensation with respect to the seven persons who died. An order was passed on December 20, 1993, awarding compensation. The official liquidator contended that the statement of affairs and books of account were not available, but a letter had been received from the court of the Commissioner for Workmen's Compensation, Kurukshetra, forwarding the claims of the six workmen for Rs.5,34,298.80. The workmen are stated to have pari passu charge along with the secured creditors as per section 529A of the Act. It was, thus, prayed that the respondent should not be allowed to appropriate the sale proceeds to its claim. 

Notice of the application had been issued to the corporation. The corporation asserted that it is governed by the provisions of the special enactment, i.e., the State Financial Corporations Act, 1951. One of the objects stated in the Statement of Objects and Reasons is that the State Financial Corporations will have special privileges in the matter of enforcement of its claims against the borrowers under the State Financial Corporations Act, 1951. The Companies Act, 1956, is not applicable to the State Financial Corporations acting and invoking their powers under sections 29 and 31 of the State Financial Corporations Act. Section 529 and section 529A of the Companies Act, 1956, are, therefore, not applicable. A plea was raised that the State Financial Corporations Act is a special enactment while the Companies Act, 1956, is a general enactment. The corporation is outside the winding up proceedings. It has recovered its dues by invoking the provisions of section 29 of the State Financial Corporations Act, 1951. It had taken the permission to sell the land, building, plant and machinery of the company that had been wound up. Thus, the corporation cannot be burdened with the claims of the six workmen. 

In the rejoinder filed by the official liquidator, the contentions of the respondent-Corporation were controverted. 

On behalf of the official liquidator, it was asserted that keeping in view the provisions of section 529A of the Act, the debt due to the secured creditor would rank under clause (c) of proviso to sub-section (1) of section 529 of the Act pari passu with the dues. This included the workmen's dues. According to him, once there is an award of the Commissioner under the Workmen's Compensation Act, section 529A of the Act would come into play. 

On the contrary, on behalf of the respondent it was urged vehemently that the secured creditors are outside the winding up proceedings. The assets could only be sold for Rs. 46 lakhs while more than Rs. 1 crore is due. It was further argued that the State Financial Corporations Act, 1951, is a special enactment and it would prevail over the general enactment, namely, the Companies Act, 1956. In the alternative, it was argued further that the pari passu charge will be with the amount not recovered. 

Before proceeding further, one can conveniently refer to the relevant provisions of law in this regard. Under section 14A of the Workmen's Compensation Act, 1923, the compensation is to be the first charge on the assets transferred by the employer. It reads as under : 

"14A. Compensation to be first charge on assets transferred by employer. - Where an employer transfers his assets before any amount due in respect of any compensation, the liability where for accrued before the date of the transfer, has been paid, such amount shall, notwithstanding anything contained in any other law for the time being in force, be a first charge on that part of the assets so transferred as consists of immovable property." 

In this regard, reference must be made to the provisions of the Companies Act, 1956. Sub-section (1) to section 529, as amended in the year 1985, reads 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 workmen's 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 workmen's 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 workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A." 

The non-obstante clause in section 529A of the Act gives priority to the workmen's dues. It reads as under : 

"529A.(1) Notwithstanding anything contained in any other provisions of this Act or any other law for the time being in force, in the winding up of a company - 

(a) workmen's 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." 

A similar non-obstante clause exists in the State Financial Corporations Act, 1951. Section 46B has been added in the said Act. It reads as under: 

"46B. Effect of Act on other laws. - The provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time 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 this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of any other law for the time being applicable to an industrial concern." 

It is in this backdrop of the provisions referred to above that learned counsel for the corporation urged that the secured creditors were outside the winding up proceedings. Reliance is being placed on the decision of the Supreme Court in M. K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344; AIR 1955 SC 604. Therein, the Supreme Court was concerned with the Companies Act, 1913. The Official Receiver of the High Court, Madras, had filed an application for setting aside the sale of the assets of the company on the ground that it was prejudicial to the interests of the general body of the unsecured creditors and that the same had been concluded with undue haste and without adequate publicity. A prayer was made to restrain the other party from handing over and the third person from taking over the assets purchased by him pending disposal of the application. The Supreme Court held that the secured creditor is outside the winding up proceedings and he can realise his security without the intervention of the court by effecting a sale of the mortgaged premises by private treaty or by public auction. These findings that have been given under the Companies Act, 1913, would certainly apply if by that time the company was not wound up. Once the company is wound up and all its proceeds are taken over, the secured creditors can have nothing to effect the sale of the property. The cited decision in that view of the matter certainly does not come to the rescue of the corporation. To the same effect is the decision of the Delhi High Court in the matter of Mayur Syntex Ltd. (In Liquidation) v. Punjab and Sind Bank [1999] 96 Comp Cas 974 - C.A. No. 853 of 1994 in Company Petition No. 169 of 1992, decided on May 28, 1997, wherein it was held as under (page 991) : 

"(a) It was a settled position by now that a secured creditor stands outside the winding up proceedings and under the law he can proceed to realise the security without the leave of the winding up court, if at the time of its institution the company was not wound up. (For this settled law, reference may also be made to the decision in Central Bank of India v. Elmot Engineering Co. [1994] 81 Comp Cas 13 (SC) and M. K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344; AIR 1955 SC 604)." 

Reliance in this regard was further placed on the decision of the Orissa High Court in Hrushikesh Panda v. Orissa State Financial Corporation [1987] 61 Comp Cas 448. In the cited case the property of a company in winding up had been taken over by the abate Financial Corporation as a secured creditor under section 29 of the State Financial Corporations Act, 1951. It was held that the company court had no jurisdiction to pass the order regarding sale of such excluded property. The findings arrived at are as under (page 450) : 

"The order of winding up of the company was the subject-matter of challenge in an appeal to be affirmed by the Division Bench. Thus, the position is now clear that there cannot be any controversy whether the properties have been taken over by the corporation in exercise of the power under section 29 of the State Financial Corporations Act. In disposing of a similar application filed by an unsecured creditor for similar relief I have already held in my order dated March 22, 1985, that the corporation has taken over the possession and the official liquidator cannot be directed to take over charge of those assets." 

The decision in the cited case is clearly distinguishable from the facts of the present case. Herein, the sale itself has taken place through the order of the court and with the permission of the court. 

In that event, learned counsel for the corporation referred to the decision in the case of State Industrial and Investment Corporation of Maharashtra Ltd. v. Maharashtra State Financial Corporation [1988] 64 Comp Cas 102 (Bom). The findings arrived at in the cited case are as under (page 107) :- 

"Section 537 states that where a company is being wound up by or subject to the supervision of the court, any sale held without leave of the court of any of the properties or effects of the company after commencement of the winding up shall be void. A similar provision in the 1913 Act was interpreted by the Supreme Court in M. K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344; AIR 1955 SC 604. It was held that it was only when the intervention of the court was sought either by putting in force any attachment, distress or execution or proceeding with or commencing a suit or other legal proceedings against the company, that the leave of the court was necessary and if no such leave was obtained, the remedy could not be availed of by the secured creditor. Section 537 of the present Act must be interpreted in the same manner. The sale by SICOM having been effected outside the winding up and without the intervention of the court, it is not void." 

These findings of the Bombay High Court clearly show that where a company is wound up by or subject to the supervision of the court but the sale is held without the leave of the court, the decision in the case of M. K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344 (SC) of the Supreme Court would come into play. It is not so in the present case. Necessarily being distinguishable on the facts, for the purpose of disposal of the present petition, it must be held that it is of no avail to the corporation. 

The attention of the court was further drawn towards the decision of the Delhi High Court in Aryavarta Plywood Ltd. v. Rajasthan State Industrial and Investment Corporation Ltd. [1991] 72 Comp Cas 5. Herein also, the State Financial Corporation had taken over the assets of the company during the pendency of the proceedings. It was held that in such event it will not be hit by section 537 of the Act and that the secured creditors are outside the winding up proceedings. But as referred to above and rementioned at the risk of repetition, once the company has been wound up and the sale had been held with the permission of the court these precedents have no application. This particular argument, therefore, necessarily has to be rejected. 

Confronted with that position, it had been contended that keeping in view the non-obstante clause the State Financial Corporations Act, 1951, which is a special statute, it must prevail over the Companies Act, 1956. It was further argued that since it is a special statute, it must prevail over the general provisions of the Companies Act. In this regard, the attention of the court was drawn towards the decision of the Supreme Court in Damji Valji Shah v. Life Insurance Corporation of India [1965] 35 Comp Cas 755; AIR 1966 SC 134. The question in controversy was as to if the provisions of the Life Insurance Corporation Act being the special provision would prevail over section 446 of the Act. It was held that the provisions of the Life Insurance Corporation Act, being special Act, would prevail over section 446 of the Companies Act. The Supreme Court held as under (page 763 of 35 Comp Cas) : 

"It is in view of the exclusive jurisdiction which sub-section (2) of section 446 of the Companies Act confers on the company court to entertain or dispose of any suit or proceeding by or against a company or any claim made by or against it that the restriction referred to in sub-section (1) has been imposed on the commencement of the proceedings or proceeding with such proceedings against a company after a winding up order has been made. In view of section 41 of the Life Insurance Corporation Act the company court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not disputed that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the corporation under section 15 of the Life Insurance Corporation Act. It must follow that the consequential provisions of sub-section (1) of section 446 of the Companies Act will not operate on the proceedings which be pending before the Tribunal or which may be sought to be commenced before it. 

Further, the provisions of the special Act, i.e., the Life Insurance Corporation Act will override the revisions of the general Act, viz., the Companies Act which is an Act relating to companies in general." 

In this regard, there is no controversy that the State Financial Corporations Act, 1951, would be taken to be a special statute vis-a-vis the Companies Act but one cannot ignore the fact that section 529 (1) and section 529A of the Companies Act had been amended and added in the year 1985. Section 529A of the Act had a non obstante clause. This had been enacted to protect certain wages particularly due to the workmen. It starts with a non-obstante clause. It has to be presumed that the Legislature was aware of the other enactment and, therefore, this particular provision must take precedence over the State Financial Corporations Act, 1951. 

It is settled principle in the interpretation of statutes that normally there should be a harmonious construction of the provision. The special statute will prevail over the general provision. The intention of the Legislature can also be looked into to arrive at a correct conclusion. But when there are two special statutes, the later in time will prevail over the former. 

In the present case in hand, intention of the Legislature by adding section 529A of the act was to protect the dues of the workmen of the company in liquidation. This fact cannot be ignored. In addition to that, it is a provision added later in time than the State Financial Corporations Act. 

These principles enunciated above get support from the decision of the Supreme Court in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803; [1993] 2 SCC 144. Almost a similar argument had been raised and dealt with. The Supreme Court held as under (page 816) : 

"Having reached the conclusion that both the 1951 Act, and the 1985 Act are special statutes dealing with different situations-the former providing for the grant of financial assistance to industrial concerns with a view to boost up industrialisation and the latter providing for revival and rehabilitation of sick industrial undertakings, if necessary, by grant of financial assistance, we cannot uphold the contention urged on behalf of the respondent that the 1985 Act is a general statute covering a large number of industrial concerns than the 1951 Act and, therefore, the latter would prevail over the former in the event of conflict. Both the statutes have competing non-obstante provisions. Section 46B of the 1951 Act, provides that the provisions of that statute of any rule or order made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force whereas section 32(1) of the 1985 Act, also provides that the provisions of the said Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. Section 22(1) also carries a non-obstante clause and says that the said provision shall apply notwithstanding anything contained in the Companies Act, 1956, or any other law. The 1985 Act being a subsequent enactment, the non-obstante clause therein would ordinarily prevail over the non-obstante clause found in section 46B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one. In that event the maxim generalia specialibus non derogant would apply. But in the present case on a consideration of the relevant provisions of the two statutes we have come to the conclusion that the 1951 Act deals with pre-sickness situation whereas the 1985 Act deals with the post-sickness situation. It is, therefore, not possible to agree that the 1951 Act is a special statute vis-a-vis the 1985 Act which is a general statute. Both are special statutes-dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situations. We must, therefore, hold that in cases of sick industrial undertakings the provisions contained in the 1935 Act would ordinarily prevail and govern." 

A somewhat similar situation had arisen in the Bombay High Court in Indian Textiles v. Gujarat State Financial Corporation [1994] 81 Comp Cas 599. While referring to section 529A of the Companies Act, the Bombay High Court held as under (page 606) : 

"Prior to insertion of section 529A in the Companies Act, 1 of 1956, it was settled law that a secured creditor could remain outside the winding up of the company and could realise its securities without the intervention of the court. After the insertion of
section 529A in the Companies Act, 1 of 1956, this view no longer holds the field. In view of the insertion of section 529A in the Companies Act 1 of 1956, the workmen have statutory pari passu charge in their favour for their dues along with the secured creditors of the company and the official liquidator is enjoined by law to protect the interest of the workmen. In this view of the matter, the sale of the securities or the distribution of sale proceeds or the apportionment of the amount of sale proceeds cannot be left to the choice of the secured creditor. In this view of the change in law, the official liquidator steps in when the secured creditors attempt to realise their securities without the intervention of the company court. This view of the court is consistent with the view taken in recent judgments of the High Courts of Karnataka, Kerala and Gujarat." 

The same view was expressed by the Supreme Court in UCO Bank v. Official Liquidator [1994] 81 Comp Cas 780, and, while dealing with sub-section (1) to section 529 of the Companies Act, the Supreme Court concluded as under (page 783) : 

"The proviso to sub-section (1) of section 529 inserted by o the Amendment Act clearly provides that 'the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen'. The effect of the proviso is to create by statute, a charge pari passu in favour of the workmen on every security available to the secured creditors of the employer company for recovery of their debts at the time when the amendment came into force. This expression is wide enough to apply to the security of every secured creditor which remained unrealized on the date of the amendment. The clear object of the amendment is that the legitimate dues of workers must rank pari passu with those of secured creditors and above even the dues of the Government. This literal construction of the proviso is in consonance with and promotes the avowed object of the amendment made. On the contrary, the construction of the proviso suggested by learned counsel for the appellant, apart from being in conflict with the plain language of the proviso, also defeats the object of the legislation." 

At this stage, necessarily reference must be made to the decision of the Supreme Court in Sarwan Singh v. Kasturi Lal, AIR 1977 SC, 265. Under the Delhi Rent Control Act, no petition for eviction can be filed unless permission of the competent authority under the Slum Areas (Improvement and Clearance) Act had been obtained if the property was situated in a slum area. Section 25A, Section 25B and Section 25C were inserted in the Delhi Rent Control Act in 1975, with non obstante clauses. The controversy raised was as to if in such like cases, in an eviction application under section 14A of the Delhi Rent Control Act permission of the competent authority under the Slum Areas (Improvement and Clearance) Act was also required or not. Keeping in view that it was having a non obstante clause and the amendment referred to came into being in 1975, i.e., after the Slum Areas (Improvement and Clearance) Act had already been enforced, it was held that the permission was not required. In paragraph 20 of the judgment Supreme Court held as under 

"Speaking generally, the object and purpose of a legislation assume greater relevance if the language of the law is obscure and ambiguous. But, it must be stated that we have referred to the object of the provisions newly introduced into the Delhi Rent Act in 1975, not for seeking light from it for resolving in ambiguity, for there is none, but for a different purpose altogether. When two or more laws operate in the same field and each contains a non obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of inter-pretation arise. Since statutory interpretation has no conventional protocol, cases of such conflict have to be decided in reference to the object and purpose of the laws under consideration..." 

Similar question when considered in the case of Jain Ink Manufacturing Co. v. Life Insurance Corporation of India, AIR 1981 SC 670, was answered in the same way. Herein the controversy was vis-a-vis the Public Premises (Eviction of Unauthorised Occupants) Act, 1971. It was held that the later Act with the non obstante clause will prevail. 

The position, therefore, that emerges is that when two or more laws operate in the same field and each contains a non obstante clause stating that its provisions will override any other law for the time being in force, the conflict will have to be decided with reference to the object, purpose and over all circumstances. The purpose has already been stated. Section 529A of the Companies Act is the later provision added in the year 1985, in the Companies Act. Its non obstante clause will override the special provisions under the State Financial Corporations Act, 1951. The argument raised otherwise by the respondent's counsel on behalf of the corporation must fail. 

In that event, it was argued that pari passu charge would only be with the amount not recovered and to buttress his argument reliance was placed on the decision of the Gujarat High Court in Gujarat State Financial Corporation v. Official Liquidator [1996] 87 Comp Cas 668. It was held that section 529A of the Act in respect of secured creditors would come into play only with respect to the debt which has not been realised by the secured creditors and not otherwise. But a view contrary has been expressed by the Bombay High Court in Maharashtra State Financial Corporation and Ballarpur Industries Ltd. v. Official Liquidator, Atrois Chemicals Pvt. Ltd., AIR 1993 Bom 392, wherein it was held that when company is in winding up, its property remains the property of the company. It does not vest in the court or the official liquidator. The court returned the findings as under (page 399) : 

"It was also urged by Mr. Tulzapurkar, learned counsel for the appellants, that under section 46B of the State Financial Corporations Act, the provisions of that Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, 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. He submitted that because of section 46B, the provisions of section 29 of the said Act would prevail over the provisions of section 529 of the Companies Act. We, however, do not see any inconsistency between the provisions of section 29 of the State Financial Corporations Act and section 529 of the Companies Act. Section 29 of the State Financial Corporations Act merely confers certain powers on the mortgagee. It does not cover a situation where there is a pari passu chargeholder. Therefore, the power to sell which is given to a financial corporation under section 29 has to be exercised consistently with the right of a pari passu charge-holder. Such a right can be exercised with the consent of the pari passu chargeholder or on orders of the court after making him a party to the proceedings to enforce the security. Since the chargeholder is the official liquidator, his power to consent is subject to the sanction of the court." 

One finds in respectful agreement with the view point of the Bombay High Court because it is consistent with the plain language of section 529A of the Companies Act. Therefore, the relevant contentions of the corporation must fail. 

For these reasons, the petition filed by the official liquidator is, allowed. The respondent-Corporation will pay the amount claimed by the official liquidator to meet the costs of advertisement. It will not appropriate the sale proceeds to the satisfaction of their claim and it is further held that the dues of the workmen shall rank under clause (e) of proviso to sub-section (1) of section 529 of the Act pari passu with other dues, namely, that of the respondent-Corporation.