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

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 697decided on 07.08.2015 

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