2001 (7) TMI 1230 - HC - Companies Law

Issues Involved:
1. Validity of attachment proceedings initiated by the Corporation.
2. Whether the attachment created a charge making the Corporation a secured creditor.
3. Applicability of Section 125 of the Companies Act, 1956.
4. Execution of the judgment and decree by the Corporation post winding-up order.

Detailed Analysis:

1. Validity of Attachment Proceedings Initiated by the Corporation:
The Corporation filed a civil suit on 31-7-1999 for the recovery of Rs. 7,42,27,312 along with future interest. During the pendency of the suit, the Corporation filed an application under Order XXXVIII Rule 5 of the Code of Civil Procedure for the attachment of movable and immovable properties of the respondent-company, Punwire. The Civil Judge (Junior Division), Chandigarh, on 17-8-1999, directed Punwire to furnish a Bank Guarantee of Rs. 7.50 crores, failing which two properties were ordered to be attached. The properties were:
1. Premises No. B-76-77, Industrial Area Ph. VII SAS Nagar (Mohali).
2. Property No. B-53 situated opposite Verka Plant Phase VI, SAS Nagar (Mohali).

The final judgment and decree in favor of the Corporation were passed on 9-9-1999, decreeing the recovery amount with costs and interest at 17.5% per annum. The Corporation initiated execution proceedings, and the Executing Court ordered the attachment of properties on 6-12-1999. However, Punwire filed objections which were dismissed.

2. Whether the Attachment Created a Charge Making the Corporation a Secured Creditor:
The Corporation argued that the attachment orders dated 17-8-1999 and 6-12-1999 created a charge over the properties, making it a secured creditor. The Corporation relied on judgments such as Praga Tools Ltd. v. Official Liquidator of Bengal Engineering Co. (P.) Ltd., Overseas Aviation Engg. (G.B.) Ltd., and Suryakant Natvarlal Surati v. Kamani Bros. (P.) Ltd., which held that a charge created by court orders does not require registration under Section 125 of the Companies Act, 1956, and thus, the Corporation should be considered a secured creditor.

3. Applicability of Section 125 of the Companies Act, 1956:
The Corporation contended that Section 125 does not obstruct the continuation of its proceedings as the charge was created by court orders, not by the company. The judgments cited supported that court-created charges do not require registration and thus are enforceable.

4. Execution of the Judgment and Decree by the Corporation Post Winding-Up Order:
The winding-up petition against Punwire was filed on 23-9-1999, and the winding-up order was passed on 1-2-2001. Section 446 of the Act states that no suit or legal proceedings shall proceed without the court's leave after a winding-up order. The Corporation sought permission to continue execution proceedings or transfer them to the High Court.

The respondent-company argued that the attachment proceedings initiated after the winding-up petition were void under Sections 441(2) and 537(1) of the Act. The court agreed, stating that the effective order of attachment was passed on 17-8-1999, before the winding-up petition, and thus valid. However, the court concluded that an order of attachment does not create a charge, as per Rule 54 of Order XXI of the Code of Civil Procedure and precedents like Buta Singh & Sons Ltd. v. Peoples' Bank of Northern India Ltd. and Ananta Mills Ltd. v. City Dy. Collector.

Conclusion:
The court held that the attachment orders did not create any charge in favor of the Corporation, and it remained an unsecured creditor. The Corporation's request to continue execution proceedings as a secured creditor was denied. The Corporation was advised to make an appropriate claim before the liquidator following the winding-up order.

The court concluded that no preferential rights were created in favor of the Corporation by the attachment orders, and the judgments relied upon by the Corporation were inapplicable as no charge was created by the judgment/decree. The Corporation could not execute the judgment and decree against the respondent-company as a secured creditor and should approach the liquidator for claims.

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