2004 (1) TMI 393 - HC - Companies Law

Winding-up - Overriding preferential payment - Debts and claims against company - Whether interest can be claimed by the secured creditors after the date of winding up order or not - HELD THAT - Considering the matter on record, I am of the opinion that the applicant Bank has general lien over the money realized on account of sale of sugar and molasses etc. which was secured under one agreement. The applicant-bank has a right to appropriate the surplus out of such sale proceeds towards the money due to the bank in the other account. In fact, such was the terms of agreement apart from the fact that such right is recognized under the law as well. Learned counsel for the official liquidator could not show any term of the agreement wherein the general lien of the applicant-bank has been curtailed in any manner. Consequently, the consortium of banks are entitled to first appropriate the sale proceeds in the agreed ratio in respect of the outstanding against Cash Credit Pledge Account. The balance, if any, can be appropriated by the consortium of banks in the same ratio in respect of the amount due to them in other accounts. Rule 154 of the Companies (Court) Rules on which counsel for the official liquidator has put reliance is not applicable in respect of the secured creditors who stand outside the winding up. Since the secured creditors stand outside the winding up on the strength of their security, the consortium of banks are entitled to realize the interest in terms of the order passed by the Court of competent jurisdiction. The date of winding up is relevant only for those creditors whose claim is required to be settled by the official liquidator. Since the claim of the consortium of banks is not required to be adjudicated upon by the official liquidator, they are entitled to execute the order inclusive of interest against the sale proceeds of their securities. However, such realization would be subject to the dues of the workmen as and when finalized in respect of which the banks shall furnish undertaking aforesaid To conclude, it is held that - ( i ) by virtue of the provisions of section 11 of the Contract Act, the applicant bank had lien over the amount lying deposited under the orders of this Court in respect of its dues irrespective of the fact that the sale proceeds representes the sale of goods secured by the banks under the cash credit accounts; ( ii ) the applicant-Bank are entitled to interest in terms of the orders passed by the Debts Recovery Tribunal up to the date of realization; and ( iii ) the applicant-Bank shall furnish undertaking to reimburse the Official Liquidator to the extent of the workmen s claims found due and payable without any demur or objection. Thus, both the applications are allowed.

Issues Involved:
1. Permission to continue proceedings before Debts Recovery Tribunal u/s 446(1) of the Companies Act.
2. Execution of decree/recovery certificate against sale proceeds of pledged assets.
3. General lien of the bank over sale proceeds.
4. Interest entitlement of secured creditors post winding up order.
5. Workmen's claims and their pari passu charge with secured creditors.

Summary:

1. Permission to Continue Proceedings Before Debts Recovery Tribunal u/s 446(1) of the Companies Act:
The applicant-bank sought permission to continue proceedings before the Debts Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Court granted leave to proceed with the DRT application, stipulating that any decree/certificate issued by the DRT shall not be executed against the company's assets without specific permission from the Court.

2. Execution of Decree/Recovery Certificate Against Sale Proceeds of Pledged Assets:
The applicant-bank moved for permission to execute the DRT decree against the sale proceeds of the company's stock-in-trade, which were lying in fixed deposits under the Court's directions. The Court acknowledged the applicant-bank's claim as a secured creditor and allowed the execution of the decree against the sale proceeds, subject to the condition of furnishing an undertaking to reimburse the Official Liquidator for the workmen's claims.

3. General Lien of the Bank Over Sale Proceeds:
The Court upheld the applicant-bank's general lien over the sale proceeds of the pledged assets, as per section 171 of the Indian Contract Act, 1872. The bank was entitled to appropriate the sale proceeds towards the outstanding dues in the Cash Credit Pledge Account and any surplus towards other accounts, in accordance with the terms of the agreement.

4. Interest Entitlement of Secured Creditors Post Winding Up Order:
The Court ruled that Rule 154 of the Companies (Court) Rules, 1959, which restricts interest claims post winding up, does not apply to secured creditors standing outside the winding up. The secured creditors, including the applicant-bank, were entitled to interest as per the DRT's order up to the date of realization.

5. Workmen's Claims and Their Pari Passu Charge with Secured Creditors:
The Court emphasized that the dues of workmen have a pari passu charge over the security of secured creditors. The applicant-bank was required to furnish an undertaking to pay the workmen's claims without demur or objection, once determined by the competent authority.

Conclusion:
The applications were allowed with the following directives:
1. The applicant-bank had a lien over the sale proceeds irrespective of the account type.
2. The applicant-bank was entitled to interest as per the DRT's order until realization.
3. The applicant-bank must furnish an undertaking to reimburse the Official Liquidator for the workmen's claims.

The applicants were instructed to submit calculations for disbursement as per the agreed ratio within three weeks. The case was scheduled for further proceedings on 5-3-2004.

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