2002 (9) TMI 563 - HC - Companies Law

Summary

Issues Involved:
1. Entitlement of secured creditor to full satisfaction of decree along with interest.
2. Applicability of section 529A of the Companies Act and rule 179 of the Companies (Court) Rules.
3. Rights of secured creditors standing outside the winding up proceedings versus those within.
4. Priority of workmen's dues and secured creditors' debts.
5. Enforceability of civil court decrees against the Official Liquidator.

Detailed Analysis:

1. Entitlement of Secured Creditor to Full Satisfaction of Decree Along with Interest:
The primary question was whether a decree obtained by a secured creditor standing outside the winding up proceedings could be satisfied fully along with interest if there is a surplus after paying all claims admitted by the liquidator. The court held that secured creditors who obtained a decree from a civil court with interest can claim the amount as per the decree without prejudice to the rights of those secured creditors and workmen covered by section 529A read with rule 179.

2. Applicability of Section 529A of the Companies Act and Rule 179 of the Companies (Court) Rules:
Section 529A ensures that workmen's dues and debts due to secured creditors are treated pari passu and paid in priority to all other debts. Rule 179 provides for payment of interest not exceeding 4% per annum to secured creditors if there is a surplus after payment of all admitted claims. The court concluded that section 529A read with rule 179 applies to secured creditors within the winding up proceedings, limiting their interest to 4%.

3. Rights of Secured Creditors Standing Outside the Winding Up Proceedings Versus Those Within:
The court distinguished between secured creditors who stood outside the winding up proceedings and those within. Secured creditors outside the proceedings who obtained a decree with a higher interest rate are entitled to enforce the decree as per the civil court's decision. However, this does not affect the rights of secured creditors within the winding up proceedings, who are bound by the 4% interest cap under rule 179.

4. Priority of Workmen's Dues and Secured Creditors' Debts:
The court emphasized that dues of workmen and debts due to secured creditors under section 529A are to be treated pari passu and paid in priority to all other debts. However, rule 179 limits the interest to 4% per annum for those within the winding up proceedings. This ensures that workmen's claims are not deprived in the event of liquidation.

5. Enforceability of Civil Court Decrees Against the Official Liquidator:
The court held that the Official Liquidator is bound by a decree obtained by a secured creditor from a court of competent jurisdiction with leave of the Company Court under section 446. No plea inconsistent with the decree can be raised while discharging priorities under section 446, subject to the rights of secured creditors under section 529A read with rule 179.

Principles Emerged from the Judgment:
1. A secured creditor can obtain leave of the court to stand outside the winding up jurisdiction and enforce the decree against the Official Liquidator.
2. The Company Court can impose terms while granting leave under section 446 to safeguard interests.
3. Secured creditors with leave under section 446 can enforce the decree fully, subject to section 529A and rule 179.
4. The Official Liquidator is bound by decrees obtained with leave under section 446, but this is subject to the rights of secured creditors under section 529A and rule 179.
5. Workmen's dues and secured creditors' debts under section 529A are to be paid in priority, with interest capped at 4% under rule 179.
6. Secured creditors outside the winding up proceedings can claim interest as decreed by the civil court, without the 4% cap, if there is a surplus after satisfying all claims.

Conclusion:
The court set aside the judgment restricting interest to 6% and upheld the civil court's order of 10% interest. The principles established ensure that secured creditors outside the winding up proceedings can enforce their decrees fully, while those within are subject to the 4% interest cap under rule 179, ensuring fair treatment of all creditors and workmen.