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TMI Blog1993 (7) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Corporation placed reliance upon the terms of its mortgage and the decree passed by the court whereby the District Judge at Faridabad decreed the claim for the two principal amounts being Rs. 2,89,890.01 and Rs. 7,42,560.01 together with further interest at the rate of 12% per annum from May 15, 1975, in respect of Rs. 2,88,890.01 and from June 1, 1975, in respect of the other amount, i.e. , Rs. 7,42,560.01. In the absence of any specific provision being made in the decree it will be deemed that the 12% interest awarded would be simple interest. The decree was passed much prior to the coming into force of the Code of Civil Procedure (Amendment) Act, 1976, which came into force with effect from July 1, 1977. At the time of passing of the decree, the proviso to section 34 of the Civil Procedure Code was not there. After the passing of the decree on November 25, 1975, a petition for winding up of the judgment-debtor was presented in 1978 and winding up of the judgment-debtor was ordered on May 6, 1982. The contention raised on behalf of the Haryana Financial Corporation is that the official liquidator could not reject any part of the claim of the secured creditor in respect wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors had resorted to court auction and a decree was passed. As such this authority cannot be treated as authority on the provisions of law in force in the circumstances of the present case. Another case cited was that of Ranganathan ( M.K. ) v. Government of Madras [1955] 25 Comp. Cas. 344 (SC) ; AIR 1955 SC 604, which also dealt with the provisions as those existed under the Indian Companies Act, 1913, and the right of the secured creditor to realise or otherwise deal with his security without the intervention of the court, and was not a case of a decree and the interest payable for the period after the decree. That case dealt only with the sale of the property without the intervention of the court and the Supreme Court had laid down in the light of the provisions of section 229 of the Indian Companies Act, 1913, and section 28(6) of the Provincial Insolvency Act, that a secured creditor is outside the winding up and he can realise his debt by effecting sale of the mortgaged property by private treaty or by public auction without the intervention of the court. They were not dealing with the question of the rate or the extent of the amount or the rate of interest or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il realisation. In another case, Shree Bharat Laxmi Wool Store v. Punjab National Bank, [1993] 1 SC 113, the Supreme Court dealt with the position as it prevailed prior to the amendment of section 34 and had modified the High Court order affirming the trial court decree by allowing interest on the decretal sum only at the rate of 6 per cent. per annum from the date of decree till the date of realisation. In that view of the matter, the only question which remains to be considered on this point of granting future interest under the decree is as to whether awarding interest at the rate of 12 per cent. is a mere illegality in the order or such a decree to the extent it goes beyond what the court is empowered to do under section 34 is beyond the jurisdiction of the court and, as such, can be ignored. A plea of the decree being a nullity on account of lack of jurisdiction can be set up even in collateral proceedings or execution of decree as has been laid down by the Supreme Court in the case of Kiran Singh v. Chaman Paswan, AIR 1954 SC 340. However, no such plea has been set up in the present case. The relevant provision of section 34 of the Civil Procedure Code reads as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations in the contract but both claims rank pari passu . This question had come up for consideration in the case of Amalgamated Investment and Property Co. Ltd., In re [1985] 3 Comp LJ 329. The matter was considered in great detail and the court after viewing the equities and the relevant rules had laid down that the interest should be allowed to be proved up to the date of winding up. The relevant observations are as under (at pages 336, 348, 349, 355, 356, 361) : "In short, the three questions which fell to be determined in this application were : ( i ) whether the interest for which CL is entitled to prove in the winding up of AIP should be calculated down to the commencement of the winding up (March 15, 1976) or down to the date of the winding-up order (May 3, 1976). Interest on the very large debt due from AIP to CL amounted to a significant sum even for that short period ; ( ii ) whether CL is bound to give credit for sums received after proof had been submitted either from the realisation of the assets of SCIPB over which it had a statutory or contractual charge, or by way of dividend in the winding-up of SCIPB ; ( iii ) whether by virtue of the provisions of the Bankr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of ordering recalculation of the interest and relating back to the date of presentation of the petition. Another case where this question came up for consideration was Humber Ironworks and Shipbuilding Co., In re : Warrant Finance Co., In re [1869] LR 4 Ch App 643, where, after discussion, Sir G.M. Giffard L.J. observed as under (at page 647) : "For these reasons I am of opinion that dividends ought to be paid on the debts as they stand at the date of the winding-up ; for when the estate is insolvent this rule distributes the assets in the fairest way ; and where the estate is solvent, it works with equal fairness, because, as soon as it is ascertained that there is a surplus, the creditor whose debt carries interest is remitted to his rights under his contract ; and, on the other hand, a creditor who has not stipulated for interest does not get it. I may add another reason, that I do not see with what justice interest can be computed in favour of creditors whose debts carry interest, while creditors whose debts do not carry interest are stayed from recovering judgment, and so obtaining a right to interest." In that very case, Sir C.J. Selwyn L.J. has also observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the realisation. The question relating to the rate of interest under the decree has already been considered and in that view, I think the interest as calculated for the period after the date of decree need not be interfered with. I am unable to accept the argument that the terms of contract will prevail for more than one reason. As already discussed above, once a party comes to court for relief it would be subject to the procedure of the court such as section 34 and Order 34 of the Code of Civil Procedure. The terms of a mortgage which is a contract could be subject to other restrictions including those under rules of equity, justice and good conscience. There is an equitable rule of DAMDUPT which came up for consideration in the cases of mortgages, before the Supreme Court in the case of Mhadagonda Ramgonda Patil v. Shripal Balwant Rainade, AIR 1988 SC 1200 where the Supreme Court was pleased to observe as under (at page 1204) : "We may now consider the second question as to whether the rule of Damdupt is applicable to a mortgage transaction. Admittedly, it is an equitable rule debarring the creditor to recover at any given time the amount of interest which is in exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise deal with its security and not the effect of insolvency on the chargeability of interest which is governed by the provisions of section 48 of the said Act and also under the Companies Act in the case of a company in liquidation by rules 156 and 179 of the Companies (Court) Rules. I need not go into that position at present, but for the purpose of this case, it is sufficient to hold that the claims of the wages of workmen as on the date of winding up shall rank pari passu with the claim of secured creditor, the appellant in the present case, as their claims stood on the date of winding up. Future interest could be paid in terms of the decree in case any surplus is available for distribution after meeting the claims of the workers for their wages and those of other creditors. This would be the only just and equitable way to deal with the present case. That also appears to be in consonance with the legislative intent. Therefore, I accept the appeal to a limited extent and remand the matter back to the official liquidator to examine the claim of the appellant under the decree. The workmen's claim for wages and dues of the secured creditors as on the date of winding up order sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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