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TMI Blog2001 (3) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... isbursed by the petitioner. 2. A letter dated 24-2-1992 issued by the petitioner sanctioning the term loan, inter alia, stipulated that the rate of interest would be as per the guidelines of the National Housing Bank for NHB refinanceable loans and that there would be a service charge of 2 per cent. The letter, inter alia, provided that penal interest at 2 per cent over and above the interest charged on the loan would be payable in the event of the repayment schedule not being adhered to. The loan agreement which was executed on 17-8-1992, provided that the applicable rate of interest would be 22 per cent or as prescribed by the NHB on the applicable portion of the loan. The loan was repayable in 120 equal monthly instalments over a period of 10 years. 3. On the basis of the documents which were executed by the respondent, the petitioner disbursed to the respondent an amount of Rs. 5.52 crores - Rs. 1 crore on 21-8-1992, Rs. 1.85 crores on 18-8-1993, Rs. 1.15 crores on 10-9-1993, Rs. 1 crore on 19-10-1993 and Rs. 52 lakhs on 7-1-1994. By its letters dated 1-4-1995 and 1-4-1998, the company has acknowledged the outstanding which are due and payable to the petitioner. In the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company has failed to secure the petitioner; (iii)A secured creditor must, in the first instance, relinquish its security if it wants to be a part of the process of winding up of the company from whom a debt is due and payable. Unless the security is relinquished in the first instance, the petition for winding up cannot be maintained. In any event, the petition does not contain any disclosure of whether the security is or is not sufficient to meet the dues of the petitioner; and (iv)The petitioner has instituted a suit being Suit No. 237 of 2000 in this Court after the company petition was filed. The petitioner having taken recourse to its remedies by filing a civil suit, the company petition ought not to be entertained. 7. The principal point on which the arguments were addressed to the Court was on the question as to whether the petitioner as a secured creditor is entitled to maintain the petition for winding up without relinquishing the security had by it as a secured creditor. The submission on the part of the respondent-company, which has already been noted earlier, is that unless the petitioner were to relinquish the security prior to the institution of or in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opinion that bearing in mind the clear provisions of the Companies Act and the principles which have been discussed in detail in the Madras High Court and the Calcutta High Court judgments above cited, the rejection of the petition in this case at the stage of admission was not at all justified. The petition was required to be admitted and advertised and it is at that stage that the court could go into the question as to whether the security is sufficient or not and exercise its discretion to accept the petitioning creditors claims and request for winding up or to reject the same on judicial consideration." [Emphasis Supplied] (p. 177) A similar view, it may be noted, has been taken by a Division Bench of the Calcutta High Court in Techno Metal India (P.) Ltd. v. Prem Nath Anand [1973] 43 Comp. Cas. 556 . The Court held thus : "...It is now too late to argue that a secured creditor cannot successfully prosecute an application for winding up, especially in view of sub-section (2) of section 439 of the Companies Act, 1956, a provision which was lacking in the Indian Companies Act of 1913. Apart from the fact that for the purpose of winding up, the term 'creditor' includes a secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act an order for winding up of a company operates in favour of all the creditors and of all the contributories of the company as if it had been made on the joint petition of a creditor and of a contributory. The provisions in regard to the Official Liquidator are made in the group of sections commencing with section 448. Under section 466(1) of the Act, the Court is empowered to stay the proceedings for winding up. Section 467 deals with the settlement of a list of contributories and application of the assets of the company. Sub-section (1) provides that as soon as may be after making a winding up order, the Court shall settle a list of contributories, with power to rectify the register of members in all cases where rectification is required and shall cause the assets of the company to be collected and applied in discharge of its liabilities. Chapter III or Part VII makes provisions in regard to voluntary winding up and Chapter IV, in respect of winding up subject to supervision of the Court. Chapter V of the Act prescribes provisions which are applicable to every mode of winding up. Section 528 provides as follows : "Debts of all descriptions to be admitted to proof.-In every w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alise his security, he shall be liable to pay his portion of the expenses incurred by the liquidator including a provisional liquidator, if any for the preservation of the security before its realisation by the secured creditor. Explanation.-For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmen's portion in relation to the security bears to the value of the security." 11. The scheme of the provisions relating to winding up, particularly those of sections 528 and 529 of the Act, is that the stage of proving of a claim on debt arises after an order of winding up is passed. A secured creditor, as a matter of general rule is outside winding up, unless he expressly abandons his security. The Supreme Court in a judgment in M.K. Ranganathan v. Government of Madras AIR 1955 SC 604, considered the position of a secured creditor in the winding up of a company and referred to the dictum of Lord Wrenbury in Food Controller v. Cork 1923 AC 647(A). In para 15 the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on his security and not prove in the winding up." 13. The same position would exist, in any event at least broadly speaking, in our law. By the provisions of section 529, the insolvency rules are attracted in regard to the proof of claims of creditors in the proceedings for winding up. These rules are contained in Part III of the Presidency Towns Insolvency Act, 1900. Section 48 of the Act provides that with respect to the mode of proving debts, the right or proof by secured and other creditors, the admission and rejection of proofs, and the other matters referred to in the Second Schedule, the rules in that Schedule shall be observed. Rule 9 of the Second Schedule enunciates that if a secured creditor realises his security, he may prove for the balance due to him, after deducting the net amount which has been realised. Rule 10 of the Second Schedule provides that if a secured creditor surrenders his security to the official assignee for the general benefit of the creditors, he may prove for his whole debt. Rule 11 of the Second Schedule provides that if a secured creditor does not either realise or surrender his security he shall, before ranking for dividend, state in his proof t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity is declared in section 529A(1) but it is restricted only to the extent specified in clause (b) of section 529A(1)...." [Emphasis Supplied] (p. 1554) 15. The position of the secured creditor has, in this regard, been considered by three early judgments and these may be adverted to at this stage since they express a consistent strand of thought which has been followed since. In Ram Chand v. Bank of Upper India Ltd. ILR 1922 Lahore 59, the position of the secured creditor was elucidated in the following words : "As far as possible the rules of bankruptcy are applicable to liquidation matters. When a company goes into liquidation, a secured creditor may realise his security and prove for any balance there may be outstanding. The remaining assets of the company would in that case only be liable of such principal and interest as was due on the date of the winding up order. A secured creditor in the case of a liquidation is on the same footing as in that of insolvency proceedings. The property hypothecated is thus liable for the whole claim, principal and interest up to the date of realisation, and it is only the liability of the remaining assets that could be affected by the windin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors in accordance with the applicable rules. This has been laid down by a Division Bench of this Court in Harinagar Sugar Mills v. M.W. Pradhan 67 BLR 294. A secured creditor who seeks to prove the whole of his debt in the course of the winding up proceedings is necessarily required to relinquish the security. That, however, cannot be construed to mean that when he files a petition for winding up, a secured creditor must relinquish his security. In the present case, the petitioner has filed a suit in this Court and made it clear, therefore, that he seeks to enforce the security. When the stage for the proving its of debt does arise, the petitioner would necessarily have to prove for the balance of the debt which is due and owing to it after the security in respect of which the petitioner is a secured creditor is realised. 18. There is no merit in the other contentions which have been urged. The learned counsel appearing on behalf of the petitioner stated that the last payment which was made by the respondent-company was in 1997 after which on 1-4-1998 it has acknowledged that there are outstanding dues of Rs. 4.42 crores to the petitioner. Thereafter, various amounts have be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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