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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 ..... 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 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,400 A mere look at the said chart shows that 45 watch and ward staff employees have been employed at New Swadeshi Mills while 33 in Manjushri Textiles. Their total wage bill per month amounts to Rs. 27,900. In addition, there are wireman and submercible pump operator and submercible 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the contesting financial institutions, and Mr. N. J. Mehta, who appeared for the banks have made their submissions in opposition. However, in fairness to Mr. N. J. Mehta, it must be stated that he made it clear that if financial institutions agree to contribute their share which may be decided for meeting the expenses of security staff, the four banks whom he represents will have no objection 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 contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property, effects and actionable claims to which the company is or appears to be entitled. Section 457 refers to the powers of the liquidator which are mentioned at paras. (1) and (2) of the said section. The next section pressed into service is section 470 which deals with the power of court to make calls on contributories. Section 480 was also pressed into service to show that any powers conferred 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , be liable to the payments mentioned under the said rule. On the basis of the above sections and rules, it was contended by the learned counsel for the opposing secured creditors that there is no power in the company court to direct any secured creditors who stand outside winding up to make any contribution and that power to ask for payment enures only against contributories and that secured creditors who stand 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Edn., 1984, at p. 1031, wherein the object and reasons for enacting the proviso in question have been mentioned. It has been stated that: "The proviso at the end of the section has been added on the following recommendation of the Companies Act Amendment Committee : 'The insolvency law contained in Schedule II to the Presidency Towns Insolvency Act and section 47 of the Provincial Insolvency Act relating to the rights of 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erim order having resolved the main controversy between the parties and having turned down the main objection of these secured creditors. I may mention one aspect of the matter. Notice was ordered to be issued to the Central Government with a view to finding out as to whether the Central Government is in a position to make any funds available to the liquidator and unfortunately we have drawn a blank. Mr. S. R. Shah, learned counsel 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une 22, 1984, to June 30, 1984, shall also be deposited. The official liquidator will work out these figures and the amount of 12 % contribution which each of these institutions and agencies has to contribute pursuant to this order. It must be made clear that from the total amount so calculated, deductions should be effected to the extent of Rs. 250 per each workman as these payments are already made on two occasions 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 12 % 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 ..... 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