TMI Blog1996 (2) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured creditors as well which the company court is duty-bound to do. The company court shall also apprise itself about the fact whether dues of workmen are outstanding; if so, extent of the same. It would be seen whether after the assets of the company are allowed to be used to satisfy the debt of the secured creditor, it would be possible to satisfy the workmen's dues pari passu. - CIVIL APPEAL NOS. 5082-85 OF 1989 - - - Dated:- 22-2-1996 - B.L. HANS ARIA, J. JUDGMENT 1. The extent of right of secured creditors to realise their debts from the assets of a company which is under winding up or has been wound up, by approaching for other than the company court, is required to be spelt out in these appeals. We have also been called upon to decide as to when a pending suit or proceeding relating to realisation of the debts by such a creditor should be transferred to itself by a company court seized with the winding-up proceeding. 2. The foundational premise of the aforesaid points is that it is a settled position by now that a secured creditor stands outside the winding-up proceeding and under the law he can proceed to realise his security without the leave of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred to and disposed of by that Court. (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court. 529. Application of insolvency rules in winding-up of insolvent companies. (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 du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operties or effects of the company after such commencement; shall be void. (2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government." 4. A combined reading of the aforesaid provisions leads to the following results: ( i )A winding-up court has jurisdiction, inter alia, to entertain or dispose of any suit or proceeding by or against the company, even if such suit or proceeding had been instituted before an order for winding-up had been made. This apart, the winding-up court has jurisdiction to transfer such a suit or proceeding to itself and dispose of the same. These follow from sub-sections (2) and (3) of section 446. ( ii )When a winding-up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding, even if pending at the date of the winding-up order, can proceed against the company, except by leave of the Company Court vide sub-section (1) of section 446. ( iii )Any sale held, even without the leave of the winding-up court pursuant to order of a Civil Court on it being approached by a secured creditor to realise its debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the secured creditor to pursue his remedy in the Civil Court, despite winding-up order having been passed. Shri Salve brought to our notice, on the first aspect of the controversy, a decision of two-Judge Bench decision of this Court in Central Bank of India v. Elmot Engg. Co. [1944] 4 SCC 159. It was held therein that the aim of section 446 is to safeguard the assets of the company against wasteful or expensive litigation as far as matters which could be expeditiously and cheaply decided by the company court. It was also observed that while granting leave under this section the court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and cost. 8. In this context, it would be apposite and useful to note what was stated by a three-Judge Bench in Sudarsan Chits (I) Ltd. v. O. Sukumaran Pillai [1984] 4 SCC 657, which has traced the historical evolution as well as the present setting of section 446(2). A need for such a provision was felt because section 171 of the predecessor Act had only provided for stay of suits and proceedings pending at the commencement of winding-up proceeding, along with the embargo against the comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel, these twin objects can be achieved if the company court were to grant leave wherever required as a rule, subject to reasonable conditions. This would preserve the integrity of the substantive right of the secured creditor. The terms to be imposed should facilitate, rather than obstruct, the realisation of security. Further, wherever a receiver has been appointed prior to the commencement of the winding-up proceedings, he should be permitted to continue in general run of cases. As to the suits to be filed after the winding-up proceeding has commenced, the learned counsel urged that such a permission should normally be granted by the winding-up court. On this being done, when the question of appointment of receiver would arise, the Civil Court would do so if a case for same were to be made out after hearing the liquidator, who would be a defendant in the suit. As regards transfer of the pending suit by the company court, the submission was that convenience may not be the guiding factor; the preservation of integrity of the substantive right of the creditor should be the main consideration. 10. To buttress his submissions, Shri Salve has referred us to the Recovery of Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular case the secured creditor who has approached the Civil Court happens to be one who has lent huge amount, or be one who is the main secured creditor. In such a situation, on approach being made by such creditor, we have no doubt that company court would duly take note of this fact and should like to grant leave required by sub-section (1) of section 446; and by the same token refuse to transfer the proceeding to his court. This is not to say that in all cases where the proceedings have been initiated by the main secured creditor, the company court would grant leave. Much would depend on the circumstances of each case. But, if the position is that the secured creditor who had approached the Civil Court is one amongst many similar creditors, it may be that the company court feels that to take care of the interest of other secured creditors, either the relief of leave does not deserve to be granted or that the proceeding is required to be transferred to it for disposal. It may be pointed out that sections 529 and 529A do contain provisions insofar as the priority of secured creditor's claim is concerned. Of course, the company court would not transfer the proceed- ing to it merely ..... X X X X Extracts X X X X X X X X Extracts X X X X
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