Hastie, Adams and Max Rosenn, Circuit Judges.
In this case, we are presented with three issues for resolution. First, does the court in railroad reorganization proceedings under section 77 of the Bankruptcy Act, 11 U.S.C. § 205 (1964), have the power to order that proceeds from the sale of mortgaged properties be placed in a central depository rather than be placed in accordance with the terms of the mortgage agreements? Second, assuming that the reorganization court has the power to order the deposit of proceeds of the sale of mortgaged properties contrary to the terms of the mortgage agreements, what are the applicable standards under the Bankruptcy Act which should guide the court in this regard? And third, has the reorganization court complied with such standards here.
The facts of this case are essentially undisputed. On November 13, 1970, the trustees of the property of the debtor Penn Central Transportation Company (Penn Central Trustees) petitioned the reorganization court for authority to sell nine parcels of real estate, each sale exceeding $100,000 in amount.*fn1 Six of the parcels had been acquired from Richard Joyce Smith, trustee of the property of the New York, New Haven and Hartford Railroad Company (New Haven Trustee) in connection with Penn Central's acquisition of New Haven's assets and operations. See New Haven Inclusion Cases, 399 U.S. 392, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970). Pursuant to orders of the Interstate Commerce Commission and the court supervising the reorganization of the New Haven Railroad, all of New Haven's real estate acquired by Penn Central was impressed with the lien of a Divisional First Mortgage (mortgage) securing an issue of Penn Central Divisional First Mortgage Bonds (bonds)*fn2 issued to the New Haven Trustee as a part of the consideration for the transferred property.*fn3 The mortgage agreement names the Fidelity Bank and Joseph F. McDonald as indenture trustees (indenture trustees). The terms of the mortgage specify that the proceeds of the sale of properties subject to the mortgage are required to be deposited with the indenture trustees.*fn4
The petition of the Penn Central Trustees requested that the nine parcels be conveyed free of lien, that the liens to which the property had been subject attach to the sale proceeds, and that the net sale proceeds be deposited in the registry of the reorganization court. The New Haven Trustee opposed any deposit of proceeds other than with the indenture trustees.*fn5 The reorganization court questioned the advisability of utilizing the court registry because of the accounting burden that would be placed on the clerk of the Court. Thereupon the Penn Central Trustees proposed that a single bank account be opened into which the proceeds from all sales of property in excess of $100,000 would be deposited without regard to which of the mortgages the proceeds were subject.*fn6 The Penn Central Trustees suggested that the Girard Trust Bank be named as the central depository. At a further hearing in the reorganization court appellants and other indenture trustees objected to such an arrangement for a variety of reasons.
On March 23, 1971, the reorganization court entered Orders No. 192 and 193 directing that a common bank account be established with the Girard Trust Bank, into which would be deposited the proceeds of the nine parcels of real estate in controversy here as well as the proceeds of all future sales of Penn Central properties in excess of $100,000.*fn7 Order No. 192 directed that the proceeds be invested in either certificates of deposit of any bank or trust company or short term securities of the United States Government. The appellants, the New Haven Trustee and the Indenture Trustees, have asked that we reverse these orders.
II. JURISDICTIONAL BASIS FOR EXERCISE OF POWER BY REORGANIZATION COURT
The jurisdictional basis for the reorganization court's control over the property of a debtor is found in section 77(a) of the Bankruptcy Act.*fn8 This jurisdiction applies to all property of the debtor regardless whether it is subject to a lien. Section 77 (o) of the Act grants the court specific power to order the sale of property free of liens and to dispose of the proceeds in the manner the court determines proper.*fn9 Early in the judicial history of section 77, the Supreme Court clearly held that abrogation of a power of sale provision in a pledge agreement by a bankruptcy court did not violate the Due Process Clause of the Fifth Amendment. Continental Illinois Bank and Trust Co. v. Chicago, R. I. & P. R. Co., 294 U.S. 648, 680-681, 55 S. Ct. 595, 79 L. Ed. 1110 (1935); accord, New Haven Inclusion Cases, 399 U.S. 392, 419-421, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970). See also, Van Huffel v. Harkelrode, 284 U.S. 225, 227, 52 S. Ct. 115, 76 L. Ed. 256 (1931).
The indenture trustees here do not challenge the authority of the reorganization court to order the sale of the property. Rather, they are attacking the orders on the ground that the reorganization court exceeded its power under the circumstances here only insofar as the orders require the deposit of the proceeds in a central depository. However, section 77(o), in providing that "the judge may order the trustee or trustees of the debtor to deposit such proceeds with any mortgage trustee entitled thereto . . .", impliedly grants the judge discretion to order the debtor's trustees to deposit the proceeds of sale of mortgage property elsewhere. In the New Haven Inclusion Cases, supra, the Supreme Court recognized that the power of the reorganization court was "broad and general" and that the court had "power appropriate for adjusting property rights in the railroad debtor's estate . . ." 399 U.S. at 421, 90 S. Ct. at 2073. Accordingly, we hold that the reorganization court possessed the necessary authority validly to order the creation of a central depository to hold the proceeds of real estate sales.*fn10
III. APPLICABLE STANDARDS
Holding that the reorganization court had power to issue the challenged orders, however, does not terminate our inquiry. Section 77(o), by providing that orders entered pursuant to it are final for the purposes of appeal, clearly contemplates that meaningful judicial review of such orders may be obtained. It thus follows that the power of the reorganization court is not absolute. Since the provision of section 77(o) which is controlling here vests discretion in the reorganization court, we may apply traditional standards and reverse that court only if it has abused its discretion. The Supreme Court, in the New Haven Inclusion Cases, supra, 392 U.S. at 435, 90 S. Ct. at 2081, restated the test previously established:
"'It is not enough to reverse the District Court that we might have appraised the facts somewhat differently. If there is warrant for the action of the District Court, our task on review is at an end.' Group of Institutional Investors v. Chicago, M., St. ...