2007 (7) TMI 397 - HC - Companies Law

Summary

Issues Involved:
1. Entitlement of Haryana Financial Corporation (HFC) to interest on outstanding dues post winding-up order.
2. Applicability of Companies Act provisions versus State Financial Corporations Act (SFC Act) in the distribution of sale proceeds.
3. Adjustment of payment made by the ex-managing director towards the outstanding dues.

Detailed Analysis:

1. Entitlement of Haryana Financial Corporation (HFC) to Interest on Outstanding Dues Post Winding-Up Order:
The appellant, HFC, argued that as a secured creditor, it was entitled to interest on the outstanding dues till the repayment of the entire amount, as per the registered mortgage deed. The Corporation claimed that section 29 of the SFC Act conferred special rights to secure the loan amount with interest by selling the assets of the loanee company. The appellant contended that the interest should be payable irrespective of the date of the winding-up order, and that section 46B of the SFC Act would override the Companies Act provisions.

The court, however, found that the general legal position, as interpreted by various courts, does not permit a secured creditor to claim interest after the date of the winding-up order. The court cited several cases, including *Kerala Financial Corporation v. Official Liquidator* and *U.P. Oil Mills Agency v. Saraswati Soap and Oil Mills Ltd.*, which established that interest can be claimed only up to the date of the winding-up order. Therefore, the official liquidator rightly adjudicated that the amount due to HFC on the date of winding up was Rs. 21,89,932, and any interest beyond this date would be governed by rule 179 of the Companies (Court) Rules, 1959.

2. Applicability of Companies Act Provisions versus SFC Act in the Distribution of Sale Proceeds:
HFC argued that being a secured creditor standing outside the winding-up, the distribution of sale proceeds should be governed by the agreement between the company in liquidation and the appellant-Corporation, rather than sections 529 and 529A of the Companies Act.

The court referred to the Supreme Court's decision in *International Coach Builders Ltd. v. Karnataka State Financial Corporation* and *Rajasthan Financial Corporation v. Official Liquidator*, which clarified that once a winding-up proceeding commences, the distribution of sale proceeds must be in accordance with sections 529 and 529A of the Companies Act. The court emphasized that the liquidator represents the entire body of creditors and ensures that the distribution is made in compliance with the statutory provisions. Therefore, the appellant-Corporation's claim for interest post-winding-up was not sustainable under the SFC Act, and the distribution of sale proceeds had to follow the Companies Act provisions.

3. Adjustment of Payment Made by the Ex-Managing Director Towards the Outstanding Dues:
HFC contended that the payment of Rs. 17,72,123 made by the ex-managing director in 2003 should not be adjusted towards the amount due as of the winding-up date, arguing that it was paid towards interest accrued after the winding-up date.

The court found no proof indicating that the payment was specifically made towards interest. The official liquidator had rightly adjusted this amount towards the liability of the company in liquidation as of the winding-up date. The court concluded that the adjustment was lawful and did not find any illegality in the official liquidator's decision.

Conclusion:
The appeal by HFC was dismissed, with the court affirming that the official liquidator had correctly adjudicated the claims and distributed the sale proceeds in accordance with the Companies Act provisions. The court upheld that HFC was entitled to Rs. 7,47,622, considering the payment made by the ex-managing director and the outstanding dues as of the winding-up date.