TMI Blog1990 (4) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. The company on its inability to pay its debts was wound up on a petition by a creditor in Company Petition No. 56 of 1984 by an order of this court dated November 25, 1985, and the property of the company came to be vested with the official liquidator attached to this court. Prior to the initiation of the winding up proceedings, the bank instituted a suit, Original Suit No. 427 of 1984, on the file of the Principal Subordinate Judge, Pondicherry, on August 1, 1984, for realisation of the debt due to them against the company and others. The bank has now come forward with the present application under section 446 of the Act of 1956 praying for grant of leave to continue the proceedings in Original Suit No. 427 of 1984, on the file of the Principal Subordinate Judge, Pondicherry, impleading as respondents, the company now represented by the official liquidator besides the five directors and the Pondicherry Industrial Promotion Development and Investment Corporation Ltd. represented by its managing director. The official liquidator has filed his report stating that he has no objection to grant of leave subject to the terms ( a ) to ( e ) enumerated thereon. Besides, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d creditor to realise his security or to otherwise deal with it and authorises him to do so in the same manner as he would have done had the section not been passed. The power of a secured creditor is to realise his money by the sale of the mortgaged property. The manner in which that right can be exercised is to file a suit, obtain a decree, get it executed and get the property sold in execution of that decree. While proceeding against the property of the insolvent for the realisation of his mortgage debt, he must implead the court or the receiver, because the equity of redemption vests in the court or the receiver, in view of the order of adjudication and in their absence the security cannot be realised. Section 47 deals with various ways of satisfaction of debts by realisation of the security. The section gives him three options. The first one is that he can realise his security and if there is something left due to him, then to come and prove for the balance. The second option is that he has to give up his security and to come into liquidation ranking with other creditors and take his share in the distribution of the dividends. The third option is to value his security and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to payment of interest only if there is any surplus available after effecting payment to all the creditors and that too at six per cent, per annum, provided he joins the schedule of creditors in the insolvency proceedings for the proof of the balance of his debt before the insolvent is discharged. The synonym of the word balance used in section 47(1) of the Provincial Insolvency Act, is of paramount importance which calls for determination, so as to avoid any confusion regarding the amount provable in liquidation proceedings before the official liquidator by a secured creditor, after realisation of the amount due to him by exhausting the security offered to him. The learned official liquidator would submit that when the company goes into liquidation, a secured creditor may realise his security and prove for any balance outstanding and in that case, the remaining assets of the company would alone be liable for such principal and interest as was due on the date of the order of winding up. This argument is repelled by learned counsel on the other side by stating that the interest due after the date of liquidation is not to be excluded from the balance which is allowed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emaining assets that could be affected by the winding up order." In H. Oppenheimer v. M.E. Moolla and Sons Ltd., ILR 1929 Rang 514 ; AIR 1930 Rang 47, the following was the view taken (p. 48) : "In the liquidation proceedings of an insolvent company a secured creditor, after having exhausted his security cannot in proving as regards the balance of his debt unsatisfied include interest after the date of the winding up order...So far as the unsecured portion of their debts is concerned the provisions of the Insolvency Act, generally, do not suggest any intention of putting secured creditors on a more favourable footing than unsecured." In Sharfuzzaman v. H. Hunter, AIR 1930 Oudh 20, the view taken was as follows (headnote) : "A secured creditor who has advantages of security may remain outside the Act. He can realise upon his security. The extent to which he realises on his security will reduce the estate in insolvency. But he obtains at first no part in the dividend and is unaffected by the proceedings. Should, however, the amount of realisation be less than the amount due to him he is given the special privilege of proving for the balance. This balance is the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for him to decide whether to honour the decree of a civil court, in the sense of allowing the creditor to make a claim before him in respect of the entirety of the balance due to him, which is inclusive of interest up to the date of realisation, or to restrict the claim of the secured creditor only to principal and interest up to the date of the winding up order. In this view of the matter, the balance due to the secured creditor coming before the insolvency or liquidation proceedings, must be made specifically clear, beyond the pale of controversy. In these circumstances, I agree with the contention of the learned official liquidator and I answer the point accordingly. Point No. 2 : The incorporation of various terms, as suggested by the learned official liquidator in his report, in the order granting leave falls for consideration in this point. It is not as if the court is bereft of power to incorporate any terms while granting such leave and it is explicitly made clear by the phraseology, namely, "except by leave of the court and subject to such terms as the court may impose" incorporated in sub-section (1) of section 446 of the Act, 1956. The incorporation of such terms i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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