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TMI Blog2004 (1) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... d ratio in respect of the outstanding against Cash Credit Pledge Account. The balance, if any, can be appropriated by the consortium of banks in the same ratio in respect of the amount due to them in other accounts. Rule 154 of the Companies (Court) Rules on which counsel for the official liquidator has put reliance is not applicable in respect of the secured creditors who stand outside the winding up. Since the secured creditors stand outside the winding up on the strength of their security, the consortium of banks are entitled to realize the interest in terms of the order passed by the Court of competent jurisdiction. The date of winding up is relevant only for those creditors whose claim is required to be settled by the official liquidator. Since the claim of the consortium of banks is not required to be adjudicated upon by the official liquidator, they are entitled to execute the order inclusive of interest against the sale proceeds of their securities. However, such realization would be subject to the dues of the workmen as and when finalized in respect of which the banks shall furnish undertaking aforesaid To conclude, it is held that:- ( i ) by virtue of the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Consortium of Banks, it advanced various credit facilities to the company in liquidation. There was an agreement of pledge of goods and assets dated 6-1-1995, Exhibit A/23, and an agreement of hypothecation of goods and assets dated 6-1-1995. Exhibit A/24, wherein a sum of Rs. 360 lacs and Rs. 410 lacs respectively were financed to the company in liquidation on the terms and conditions mentioned therein. Since the company in liquidation failed to make payment to the Banks, the applicant sought permission of this Court under section 446(1) of the Act to continue and proceed with the application filed by it before Debts Recovery Tribunal, Jaipur, under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. This Court granted leave to the applicant to continue and proceed with the proceedings filed before the Debts Recovery Tribunal and to have the same decided in accordance with law. However, it was ordered that any decree/certificate issued by the Debts Recovery Tribunal shall not be executed against the assets of the company without specific permission of this Court at that stage. The Court concluded to the following effect: "For the reasons aforestated, I find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everally, to the applicant is Rs. 4,05,11,044 as on 31-8-2002. The Debts Recovery Tribunal has passed the following order: "The application for recovery of Rs. 1,93,23,904.53 is allowed and defendants Nos. 1 to 11 are ordered to pay : ( i )A sum of Rs. 1,93,23,904.53 (Rupees one crore ninety three lacs twenty three thousand nine hundred and four and paise fifty three only) jointly and severally along with interest at the rate of 16.57 per cent per annum with quarterly rests from the date of filing of suit till its realization. ( ii )Pay the cost of litigation; and; ( iii )Pay the above amount within 30 days from the date of receipt of this order." 7. Since the stock-in-trade i.e. sugar and molasses etc. of the company in liquidation was sold under the orders of this Court and the sale proceeds thereof are lying deposited under the directions of this Court, the appli- cant has moved the present application for permission to execute the decree/recovery certificate issued by the Debts Recovery Tribunal against the sale proceeds of sugar and molasses etc. lying deposited with State Bank of Patiala, High Court Branch Chandigarh, in the form of fixed deposit under the directions of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank has no right to realize such security. The claim of the applicant-bank would be satisfied by treating the Bank as unsecured creditor. 10. In replication, the applicant-Bank attached an agreement of pledge of goods and assets as well as agreement of hypothecation of goods and assets as mentioned above. 11. Mr. P.D. Mehta, learned counsel for the applicant-Bank has submitted that the sale proceeds are on account of sale of movable assets of the company in liquidation which were pledged to the consortium of Banks. Recovery claim of the applicant-Bank has been accepted by the Debts Recovery Tribunal, a Court of competent jurisdiction, and, thus, the applicant-Bank is entitled to the sale proceeds in the ratio in which they have advanced finances to the company in liquidation. 12. Mr. Puneet Kansal, learned counsel for the Official Liquidator, has raised the following arguments to controvert the stand of the applicant-Bank : ( i )The consortium of Banks entered into separate and distinct agreement of advancing credit facilities on the security of movable and current assets. The Banks are entitled to recover the amount of advance in respect of such cash credit account pledging movab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e security pledged irrespective of the nature of the account i.e. whether the amount is amount due under Term Loan or Cash Credit Account, in view of the terms of the agreement as well as in terms of the general lien of the Bank as provided under section 171 of the Indian Contract Act, 1872. 16. Before adverting to the merits of the respective contentions of the parties, it will be beneficial to reproduce few terms of the agreement and that of statutory provisions. 17. Clauses (1) and (10) of the Agreement of Pledge of Goods and Assets dated 6-1-1995 read as under : "(1) In pursuance of the said Agreement of Loan and in consideration of the Bank having granted under/or agreed to grant to the Borrower all or some or any of the aforesaid credit facilities for the purposes and subject to the terms and conditions specified and contained in the said agreement of Loan and in consideration of the premises aforesaid it is hereby agreed and declared the goods, book-debts, movables and other assets mentioned in the schedule hereto which or the documents of title to which have been already deposited and the goods, book debts, movable and other assets which or the documents of title to which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er : "171. General lien of bankers, factors, wharfingers, attorneys and policy-Brokers . Bankers, Factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain, as a security for general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect." 19. Hon ble Supreme Court in the case M.K. Ranganathan v. Govt. of Madras AIR 1955 SC 604 while considering the provisions contained in sections 171, 229 and 232 of the Companies Act, 1913 has held that the secured creditor is outside the winding up. He can realize his security without the intervention of the Court by effecting a sale of the mortgaged premises by private treaty or by public auction. Sections 171, 229 and 232 of the Companies Act, 1913 are pari materia to the provisions of sections 446, 529 and 537 of the Companies Act, 1956. It was held to the following effect : "The secured creditor is outside the winding up and he can realize his security without the intervention of the Court by effecting a sale of the mortgaged premises by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor on whose approach the receiver has been appointed. This view cannot also be and has indeed not been contended by the learned counsel appearing for the appellants." (p. 170) 21. A reading of the above judgment would show that this Court is to look after the interest of all the creditors including the workmen. The dues of the workmen ran pari passu with the dues of the secured creditors. However, the official liquidator had to initiate the process of determining the dues of the workmen may be for the reason that statement of affairs had not been filed. In this view of the matter, I find substance in the argument raised by the learned counsel for the official liquidator that the amount can be disbursed to the consortium of the banks subject to their furnishing an undertaking that they will pay to the official liquidator the amount found to be payable to the workmen pari passu with the claim of the secured creditors. Since the claim is of the banks, therefore, instead of bank guarantee, an undertaking by the banks to make the payment to the official liquidator without any demure or objection after final adjudication of the claim of the workmen treating the workmen dues pari passu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities bailed to them unless there is an express contract to that effect. Whereas in respect of the first category of person mentioned in section 171 section itself enables them to retain the goods as security in the absence of a contract to the contrary but in respect of any other person to whom goods are bailed the right of retaining them as securities can be exercised only if there is an express contract to that effect." (p. 2953) 24. In the case Devendrakumar Lalchandji v. Gulabsingh Nekhesingh AIR 1946 Nagpur 114, it was held by the Court that in the absence of specific provisions on the subject, when moneys are held by the bank in one account and the payer in respect of these moneys owes the bank on another account, the banker s lien gives the bank a charge on all the monies of the payer in its hands, so that they may be transferred to whatever account the bank chooses, to set off or liquidate the debt. It was held to the following effect : "That under the English law a banker has such a lien is laid down in several cases. In (1898) AC 693 it was held that as the bank was not shown to have received during the currency of the account notice of their trust character, the bank w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds and is at liberty to transfer the monies to whatever account, the banker may like to set off or liquidate the debts. This Court has held as under : "14. The rule of English law that the bank has a lien or more appropriately, a right to set off against all monies of his customers in his hands has been accepted as the rule in India. According to this rule when monies are held by the Bank in one account and the depositor owes the Bank on another account, the Banker by virtue of his lien has a charge on all monies of the depositor in his hands and is at liberty to transfer the monies to whatever account, the banker may likely with view to set off or liquidate the debts: vide Lloyds Bank Ltd. v. Administrator General of Burma AIR 1934 Rang 66 and Devendrakumar Lanchandji v. Gulabsingh AIR 1946 Nag 114." (p. 635) 26. In the case of London and Globe Finance Corpn. [1902] 2 Chancen Division 416, it was decided that if the securities so deposited are left in the hands of a banker after the loan secured is cleared,the securities become subject to the general lien as the customer by leaving them is supposed to have re-deposited them. On the other hand, if, upon sale of the securities depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed ratio in respect of the outstanding against Cash Credit Pledge Account. The balance, if any, can be appropriated by the consortium of banks in the same ratio in respect of the amount due to them in other accounts. 29. Now the question which remains to be decided is whether interest can be claimed by the secured creditors after the date of winding up order or not. Rule 154 of the Companies (Court) Rules on which counsel for the official liquidator has put reliance is not applicable in respect of the secured creditors who stand outside the winding up. Since the secured creditors stand outside the winding up on the strength of their security, the consortium of banks are entitled to realize the interest in terms of the order passed by the Court of competent jurisdiction. The date of winding up is relevant only for those creditors whose claim is required to be settled by the official liquidator. Since the claim of the consortium of banks is not required to be adjudicated upon by the official liquidator, they are entitled to execute the order inclusive of interest against the sale proceeds of their securities. However, such realization would be subject to the dues of the workmen a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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