1961 (9) TMI 40 - HC - Companies Law

Winding up Debts of all descriptions to be admitted to proof and Overriding preferential payments

Issues Involved:

1. Validity and enforceability of the floating charge under exhibits A-5 and A-15.
2. Status of the respondent as a secured creditor for the amounts claimed.
3. Entitlement of the secured creditor to interest beyond the date of the winding-up order.
4. Application of the Provincial Insolvency Act and its provisions to the case.

Detailed Analysis:

1. Validity and Enforceability of the Floating Charge:

The respondent claimed a floating charge on the assets of the bank under two deeds: exhibit A-5 for Rs. 2,00,000 and exhibit A-15 for Rs. 1,99,000. The official liquidator sought an order adjudicating the claim. The court, in its order dated August 10, 1956, held that the floating charge under exhibit A-5 was valid and enforceable as a charge on the bank's assets, making the respondent a secured creditor for Rs. 2,00,000 with interest at the contract rate. However, for exhibit A-15, the court held that the respondent was only entitled to a charge for Rs. 46,000 with subsequent interest at 5% per annum, while the balance of Rs. 1,53,000 was unsecured.

2. Status of the Respondent as a Secured Creditor:

The respondent was acknowledged as a secured creditor for Rs. 2,00,000 under exhibit A-5 and Rs. 46,000 under exhibit A-15, with the remaining Rs. 1,53,000 being unsecured. This determination was based on the validity of the floating charges and the advances made.

3. Entitlement to Interest Beyond the Date of the Winding-Up Order:

The primary issue was whether the secured creditor was entitled to interest beyond January 19, 1954, the date of the winding-up order. The court examined the provisions of the old Companies Act (VII of 1913) and the Provincial Insolvency Act (Act V of 1920). Section 229 of the Companies Act applied the rules of insolvency to the winding-up of an insolvent company. Under Section 28(6) of the Provincial Insolvency Act, a secured creditor's right to realize or deal with the security remained unaffected by the order of adjudication. The court concluded that the secured creditor, who did not adopt any of the courses under Section 47 of the Provincial Insolvency Act, remained outside the insolvency proceedings and was entitled to interest at the contractual rate until the date of payment.

4. Application of the Provincial Insolvency Act:

The court analyzed the Provincial Insolvency Act's provisions, particularly Sections 28, 47, 48, 61, and 67. It noted that a secured creditor's debt does not become provable unless one of the methods in Section 47 is adopted. Since the respondent had not realized, relinquished, or valued the security, he remained outside the insolvency proceedings. The court held that the respondent was entitled to interest at the contractual rate until the date of full payment, as his rights under the contract were unaffected by the winding-up order.

Conclusion:

The court adjudicated that the respondent, as a secured creditor, was entitled to interest at the contractual rate until the date of payment, as his rights were preserved under the Provincial Insolvency Act. The official liquidator, holding only the equity of redemption, was required to redeem the debt by paying the full amount due, including interest. The respondent was awarded costs of Rs. 50 from the contesting creditors, and the official liquidator was entitled to costs out of the estate.

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