2008 (2) TMI 637 - HC - Companies Law

Winding up - Custody of company s property - Held that - The appellant is not the only secured creditor. There are several other secured creditors and also unsecured creditors. The amount realised in the sale of the assets of the Company in liquidation has to be disbursed in accordance with the provisions of the Company Court Rules. Any deposit made during the interregnum period has to necessarily be with the Official Liquidator who is holding the amount in fiduciary capacity as a trustee for the creditors and any deposit made during the interregnum period has to earn interest so as to enable the Official Liquidator to make use of the interest income for disposal of both the secured creditors and other creditors. As per the provisions of the Company Court Rules, we are not able to countenance the argument of the learned counsel to the effect that the deposit made with the appellant-Bank need not be burdened with interest. To that extent, the order of the learned Single Judge has been confirmed. In the second part of the order made by the learned Single Judge, the rate of interest has not been quantified. Having regard to the fact that the appellant has enjoyed the money in a sum of ₹ 4.42 crores and made use of the said amount for the banking business and having regard to the rate of interest prevailing during the relevant period, we are of the view that the rate of interest for the amount deposited with the appellant can be fixed at 12 per cent per annum from the date of deposit till it is withdrawn/adjustment is made for the share of the appellant. Such an order is passed. The Appeal is disposed of in the above terms.

Summary

Issues:
1. Clarification on interest earning on deposit made with the appellant.
2. Whether the deposit made during the interregnum period should earn interest.
3. Determination of the rate of interest on the deposit.

Analysis:
1. The appeal was filed against an order directing the Official Liquidator to transfer a specific sum from the company's funds to the appellant-secured creditor. The court clarified that the deposit with the appellant should earn interest until the claim is adjudicated upon. The appellant contested this order, arguing that being a secured creditor, the deposit need not accrue interest. However, the court upheld the decision, emphasizing that the Official Liquidator holds the amount in a fiduciary capacity for all creditors, necessitating the deposit to earn interest for equitable distribution among creditors.

2. The court noted that the appellant was not the sole secured creditor, and the funds realized from the company's assets in liquidation must be disbursed following Company Court Rules. Any deposit during the interregnum period, including the one with the appellant, should earn interest to facilitate fair treatment of all creditors. The court rejected the appellant's argument against burdening the deposit with interest, emphasizing the Official Liquidator's fiduciary duty to manage the funds for the benefit of all creditors.

3. Considering that the appellant utilized the deposited amount for banking activities and prevailing interest rates, the court determined a 12% per annum interest rate on the deposit until withdrawal or adjustment. The court concluded the appeal by setting the interest rate and disposing of the case without imposing any costs. The judgment underscored the importance of fair distribution among creditors and the fiduciary responsibility of the Official Liquidator in managing the company's assets in liquidation.