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TMI Blog1984 (10) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... our nationalised banks, viz., (i) Central Bank; (ii) Syndicate Bank ; (iii) United Commercial Bank and (iv) Bank of Madurai; while the four financial institutions are (i) Industrial Finance Corporation of India (hereinafter referred to as "IFCI"); (ii) Industrial Credit and Investment Corporation of India (hereinafter referred to as "ICICI"); (iii) Industrial Development Bank of India (hereinafter referred to as "IDBI"); and (iv) Gujarat Industrial Investment Corporation (hereinafter referred to as "GIIC"). A few relevant facts leading to this application deserve to be noted at the outset. New Swadeshi Mills of Ahmedabad is a company in liquidation which was sought to be wound up in Company Petition No. 185 of 1984, filed by the petitioning-creditor, Dye-Chem Corporation. The said petitioning-creditor has been joined as respondent No. 2 herein. In the said company petition, earlier, I passed an order on June 26, 1984, appointing an official liquidator as provisional liquidator. Possession of the assets of the company was taken by the provisional liquidator and since that time, possession of the mill premises and its assets is with the liquidator. By a later order dated October 8, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmercible pump helper. There are five such employees in New Swadeshi Mills and two in Manjushri Textiles. The total wage bill of all the employees comes to Rs. 30,400. In addition thereto, Central Bank which is one of the. secured creditors has engaged of its own ten additional security staff employees at each of the units. It is obvious that when the provisional liquidator took over the possession of these units with their existing assets, the question of making provision for adequate finances to pay the wage bill of these employees assumed importance. It is obvious that these staff members are protecting the securities of the concerned financing agents who are respondents in this application. This staff has to be paid and if they are not paid, they would naturally be entitled to walk out and that would create a total hiatus and the securities themselves will come in jeopardy. Consequently, notices were issued to the concerned financial agencies and their views were solicited for resolving this problem and for meeting the financial requirements and for paying the wage bill of these employees. During the pendency of hearing of this application, two interim orders were passed by me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection in contributing their share. But if that contribution is not forthcoming, then the banks would of course stand on their own rights. Now, it must be stated that all these secured creditors, viz., the four banks and the four financial institutions, have made it clear before me that they all stand outside the winding up and they are not subject to these winding up proceedings. So far as the four banks are concerned, Mr. N. J. Mehta fairly conceded that it may hardly be stated that these banks not only desired but have proceeded to realise their security by filing four suits in this court under sections 446(2)(a) of the Companies Act as per permission granted by me in Company Applications Nos. 138 of 1984, 169 of 1984, 170 of 1984 and 171 of 1984. However, Mr. N. J. Mehta's contention is that as the four banks as well as the three financial institutions are co-mortgagees of various assets of the company as mortgaged to them by way of equitable mortgage as per the memo of entry dated June 25, 1982, these suits filed by the banks in this court will enure for the benefit of all the co-mortgagees. Therefore, they can be said to have taken steps and proceeded for realising their se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred on the court by the Act shall be in addition to, and not in derogation of, any existing powers of instituting proceedings against any contributory or debtor of the company, or the estate of any contributory or debtor, for the recovery of any call or other sums. The next section to which ray attention was invited is section 529 which provides for application of insolvency rules in the winding up of insolvent companies. As this section has a vital bearing on the fate of this application, it requires to be quoted in extenso: "(1)In the winding-up of an insolvent company, the same rules shall prevail and be observed with regard to- (a)debts provable ; (b)the valuation of annuities and future and contingent liabilities; and (c)the respective rights of secured and unsecured creditors as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. (2)All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding-up, and make such claims against the company as they respectively are entitled to make by virtue of this section : Provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside winding up can never be said to be contributories. On the contrary, they are creditors. They are not debtors of the company. Placing reliance on the judgment in Ranganathan v. Government of Madras [1955] 25 Comp. Cas. 344 (SC) and the decision of the Bombay High Court in Gleitlargor (India) P. Ltd. and Kamlani, Official Liquidator v. Mazagaon Dock Ltd. [1983] Tax LR 2472; [1985] 57 Comp. Cas. 742 (Bom.), especially paras. 17 to 20 (at pp. 750 and 751 of 57 Comp. Cas.) thereof, it was submitted that unless secured creditors consent, the official liquidtaor cannot even function on their behalf and that once secured creditors stand outside winding up, the winding up court cannot compel them to make any contribution. At the first blush, the objections raised on behalf of the secured creditor appear to be insurmountable. However, there is a silver lining to this dark cloud and it is provided by the proviso to sub-section (2) of section 529 which is quoted above. That can be the only peg on which any order of contribution by the concerned financing agencies can at all be hung. The proviso in terms lays down that if a secured creditor instead of relinquishing his security proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a secured creditor is applicable in the winding-up of an insolvent company. It has been pointed out by an official liquidator that a secured creditor who realises his security should be made liable to reimburse the liquidator all amounts spent by the latter for the preservation or protection of the asset before it is sold by or at the instance of the secured creditor. If the secured creditor does not relinquish the security and prove for his debt and proceeds to realise the asset given as security, it is proper that he should pay the expenses of preservation or protection of the asset during the pendency of the liquidation proceedings and before the sale of the asset'." It is obvious that when secured creditor realises security outside winding-up, he gets all the benefits of the preservation of the security by the liquidator who might have been put in possession pursuant to the winding-up order. Once he gets that benefit, in fairness and equity, he must be made liable to reimburse the cost of actual preservation of security. It is for this reason that the proviso in question has been added. Keeping in view this object, it cannot be said that the winding-up court cannot order a sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the Central Government, informs me that the Central Government is not in a position to make any funds available for this company to meet the expenses for preservation of the security on on-going basis. I may also mention one submission of Mr. N.J. Mehta for the secured creditor-banks. He submitted that once a secured creditor takes up a contention that he does not want to relinquish his security and stands outside the winding up, ipso facto, it should be held that he has proceeded to realise his security. It is not necessary for me at this stage to examine this contention as it may perhaps become academic as these financial institutions are going to take a policy decision on October 18, 1984, and tell me whether they propose to relinquish their security. However, one aspect of the matter must be kept in view. All the movable and immovable properties of this company which has gone in doll-drums are charged for meeting the financial obligation of the company as incurred on the basis of the loans advanced by these secured creditors. In fact, there is no room left for realising any loan from any other source in view of this position. In fact, all the assets of the company are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns by way of ad hoc payments on account to the concerned employees for meeting their urgent needs during the earlier two festivals. The official liquidator shall calculate the net amount payable to the concerned employees up to October 31, 1984, accordingly and intimate the required contribution amount on 12½% basis to each of the secured creditors. The said exercise shall be completed by the official liquidator by Thursday, October 18, 1984. Thereupon, the concerned secured creditors shall deposit their respective amounts of contribution by Friday, October 19, 1984. The collected amount shall be distributed to the concerned workmen by October 20, 1984, or latest by October 21, 1984, at the mill premises and the liquidator shall adopt the same modus operandi as adopted on the earlier two occasions. It is made clear that the present directions are purely ad hoc and will enure the final decision of this company application after the financial institutions decide as to what they propose to do in connection with the realisation of their security. For that purpose, the application stands adjourned to November 6, 1984. I must further mention that the learned counsel for the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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