Sat. Sep 19th, 2020

Official Liquidator does not have the authority to ascertain the entitlement claims of State Financial Corporations

2 min read

Supreme Court: While deciding the question that whether the Official
Liquidator can adjudicate and quantify the claim of statutory corporations when
the Company Judge has permitted them to stand outside the liquidation, the
Division Bench of Vikramajit Sen and S.K. Singh, JJ., held that an Official Liquidator
does not have the authority to adjudicate and decide entitlement claims of
financial corporations, especially when it has opted to stay out of liquidation
proceedings as a secured creditor.

In the instant case, the respondent corporations had to
prove their claim to the proceeds of sale of mortgage assets of the company
under liquidation before the Official Liquidator. However, the Division Bench
of the High Court of Andhra Pradesh held that the respondent corporations need
not prove their entitlement claim before the Official Liquidator, as they are
secured creditors. The appellant were represented by G.R. Prasad, whereas Y.P.
Rao represented the respondents.  

Keeping in mind the facts of the case and the specific
provisions of Companies Act and Section 29 of State Financial Corporations
(SFC) Act, 1959, the Court upheld the decision of the Division Bench of the
A.P. High Court and observed that the Official Liquidator does not have
jurisdiction to 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, 1959. Referring to its earlier decision in A.P. State Financial
Corporation v. Official Liquidator, (2000) 7 SCC 291, where it was
held that, to protect the pari passu charge of the workmen, 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. Thus after fulfilling the objective of
protecting the workmen’s dues the financial corporations can enjoy their
statutory rights as secured creditors and will not be required to prove their
entitlement claims or be clubbed with the unsecured creditors. [Laxmi Fibres
Ltd. v. A.P. Industrial Dev. Corpn. Ltd,  2015 SCC OnLine SC 697, decided on 07.08.2015] 
Source: Legal news India

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