2008 (2) TMI 616 - HC - Companies Law

Preliminary expenses towards advertisement for giving effect to the winding up order - Held that - Allowing this appeal, to direct the official liquidator to incur the necessary expenses for advertising the winding up of the first respondent-company by drawing from the permanent fund or any other grant made available by the Central Government to him and recoup, the said expenses from out of the assets of the company in liquidation realised, later on. The order of the learned single judge, will be carried out accordingly.

Summary

Issues:
1. Direction to deposit a sum for preliminary expenses towards advertisement in a winding-up proceeding.
2. Interpretation of the role of a secured creditor in a winding-up proceeding.
3. Application of rule 292 for incurring necessary expenses in connection with winding up.

Issue 1: Direction to deposit a sum for preliminary expenses towards advertisement in a winding-up proceeding:
The appeal involved a dispute where the Andhra Pradesh State Financial Corporation, a secured creditor, challenged an order directing it to deposit Rs. 50,000 for preliminary expenses towards advertisement in a winding-up proceeding. The appellant contended that such a direction was improper as it was not the petitioner for the winding-up and should not be obligated to bear such expenses. The court examined the legal obligations of a secured creditor in such proceedings and found that the appellant should not be required to advance funds for preliminary expenses. The court overruled previous decisions and clarified that the secured creditor was only bound to reimburse the official liquidator for expenses related to security preservation, not for general preliminary expenses.

Issue 2: Interpretation of the role of a secured creditor in a winding-up proceeding:
The court discussed the role of a secured creditor in a winding-up proceeding, emphasizing that a secured creditor like the appellant should not be considered the "petitioner" for advertising the winding-up of a company. It was highlighted that the obligation to advertise the winding-up lies with the petitioner initiating the proceeding, in this case, the Board for Industrial and Financial Reconstruction. The court concluded that the order directing the appellant to deposit funds for advertisement expenses was unsustainable given the circumstances of the case.

Issue 3: Application of rule 292 for incurring necessary expenses in connection with winding up:
Regarding the application of rule 292, the court explained its purpose in enabling the official liquidator to incur necessary expenses in connection with winding up when a company has no available assets. The court noted that the provision under rule 292 allows the official liquidator to draw upon funds provided by the Central Government to cover initial expenses in such situations. It was clarified that these expenses would be recouped from the company's assets later, prioritizing them over the debts of the company. The court directed the official liquidator to utilize the available funds for necessary expenses and recoup them from the company's assets in due course, ensuring compliance with the winding-up order.

In conclusion, the court allowed the appeal, directing the official liquidator to incur necessary expenses for advertising the winding-up of the company from funds provided by the Central Government and recoup them from the company's assets. The court clarified the obligations of a secured creditor and the role of the petitioner in a winding-up proceeding, ensuring proper compliance with legal provisions and protecting the interests of all parties involved.