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TMI Blog2007 (7) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... ibuted to other claimants as per the provisions of section 530 of the Companies Act, 1956 (hereinafter referred to as "the Act"). The brief facts of the case are that vide order dated November 2, 1995, passed by this court in C.P. No. 9 of 1994, M/s. Malook Chand Agro Oils Ltd., Sirsa, was ordered to be wound up by this court on account of non payment of debts by it. The assets of the company in liquidation were sold by the official liquidator for Rs. 1,03,54,149 to Parkash Aggarwal, ex-director, respondent No. 4 herein. The said sale was confirmed by this court vide order dated December 17, 2004, passed in C A. No. 719 of 2004. In the year 1987 the appellant-Corporation advanced a loan of Rs. 34.11 lakhs to the company in liquidation to secure the loan, a mortgage deed dated April 24, 1987 was executed between the company in liquidation and the appellant Corporation. The company in liquidation committed default in the repayment of loan to the appellant-Corporation. Consequently, on July 20, 1993 the loan was re-called by the Corporation in exercise of the powers conferred by section 29 of the State Financial Corporations Act, 1951 (hereinafter referred to as "the SFC Act") The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on filed claim of Rs. 99,17,686 with future interest at the rate of 18 per cent, per annum from June 1, 2005. As per the account statement, on the date of the winding up of the company, i.e ., on November 2,1995, only an amount of Rs. 21,89,932 was due to the appellant Corporation. The remaining amount claimed by the appellant Corporation is on account of interest. Keeping in view the provisions of sections 529A and 530 of the Act read with rule 154 of the Companies (Court) Rules, 1959 the official liquidator, vide impugned order, adjudicated the claim of the appellant Corporation, while coming to the conclusion that on the date of winding up of the company, an amount of Rs. 21,89,932 was outstanding, which is to be paid to the appellant-Corporation. He further came to the conclusion that at one time, the appellant Corporation entered into a settlement with the company in liquidation for Rs. 28,32,000 and under that settlement, an amount of Rs. 17,72,123 was paid to the Corporation, therefore, after deducting the said amount, the appellant Corporation is entitled for Rs. 7,47,622 which includes Rs. 3,29,813 towards expenses to be reimbursed to the Corporation. The official liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to sell the assets of the company in liquidation under the provisions of the SFC Act and Act and stands outside the winding up, the procedure of distribution of sale proceeds of the assets of the company in liquidation is different from the procedure of distribution of proceeds of the sale of security and in such cases, the distribution of proceeds of the sale is not governed by section 529 read with section 529A of the Act rather distribution of the sale proceeds has to be made in accordance with the agreement between the company in liquidation and the appellant-Corporation. While relying upon a decision of this court in State Bank of Patiala v. Northland Sugar Complex Ltd. [2004] 121 Comp. Cas. 847 ; [2004] 1 ISJ Banking 448, learned counsel submitted that the appellant-Corporation, being secured creditor, stands outside the winding up and is entitled to realise the interest on the due amount as per the mortgage agreement. He submitted that the pro vision of rule 154 of the Companies (Court) Rules, 1959, is not applicable in respect of the secured creditor, who stands outside the winding up. Thirdly, learned counsel, submitted that the official liquidator was not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency proceedings do not permit payment of interest for the period after the date of adjudication of insolvency. A secured creditor is entitled to get his claim regarding interest admitted only up to the date of winding up and the payment of interest after that date will be governed by rule 179 of the Companies (Court) Rules, 1959. While further referring to a decision of the Allahabad High Court in U. P. Oil Mills Agency v. Saraswati Soap and Oil Mills Ltd. [1954] 24 Comp. Cas. 450 , it is submitted that the debtor is entitled to interest only up to the date of presentation of the winding up petition. The debtor is not entitled to interest up to the date of repayment nor even up to the date of the winding up order. Learned counsel also relied upon a decision of the Andhra Pradesh High Court in A. P. State Financial Corporation v. Mopeds India Ltd. ( In Liquidation ) [2005] 124 Comp. Cas. 833 , and submitted that in view of rule 154 of the Companies (Court) Rules, 1959, the liabilities of the company in liquidation have to be determined as on the date of winding up and not subsequent thereto. Thus, learned counsel submitted that the official liquidator has rightly deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otwithstanding anything contained in any other provision of the Act or any other law for the time being in force, in the winding up of a company ( a ) workmen's dues ; and ( b ) debts due to secured creditors to the extent such debts rank under clause ( c ) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. The purpose of these provisions is to ensure that the workmen should not be deprived of their legitimate claims in the event of the liquidation of the company. Under these provisions, the workmen of the company become secured creditors by operation of law to the extent of workmen's dues, pro vided there exists a secured creditor by contract. Section 530 of the Act provides the manner in which preferential payment is to be made to the creditor of a company under liquidation. A creditor cannot claim preferential treatment outside the provision of this section. This section is subject to the provisions of section 529A of the Act. Therefore, only if there is any balance left after satisfying the claim under section 529A, the other creditors will get the remaining balance. Therefore, the sale proceeds of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only up to the date of presentation of the winding up petition and he is not entitled to interest up to the date of repayment nor even up to the date of the winding up order. In Mattoor Chits and Finance (P.) Ltd., ( In Liquidation ) v. Mrs. Mary Baby [1998] 94 Comp. Cas. 595 , it has been held by the Kerala High Court that after passing of the winding up order, no new rights can be created and no uncompleted rights can be completed. Even a continuing contract between the respondent and the claimant comes to an end by commencement of the winding up proceedings. It has been held that after commencement of the winding up proceedings, no interest can be claimed by the creditor. Though the aforesaid general legal position has not been controverted by learned counsel for the appellant-Corporation, but he submitted that position of the appellant-Corporation is different, in view of sections 29, 31 and 46B of the SFC Act. According to him, the loan advanced to the company in liquidation was secured by a registered mortgage deed, which was executed in accordance with the provisions of the SFC Act. It is the case of the appellant-Corporation that under the provisions of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets are realised by the secured creditor, even if it be by provisions under the SFC Act, distribution of the assets of a company under winding up could only be made in terms of section 529 of the Act. It was held that as far as distribution of assets of the company in winding up is concerned, there is no conflict. In this regard, the Supreme Court summarised the legal position as under (page 399) : "Thus, on the authorities what emerges is that once a winding up proceeding has commenced and the liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the official liquidator and under the supervision of the company court. The right of a financial institution or of the Recovery Tribunal or that of a financial corporation or the court which has been approached under section 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the official liquidator being associated wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociate the official liquidator with the process of sale so that he can ensure, in the light of the directions of the company court, that a proper price is fetched for the assets of the company in liquidation. It was in that context that the rights of the official liquidator were discussed in International Coach Builders Ltd. v. Karnataka State Financial Corporation [2003] 114 Comp. Cas. 614; [2003] 10 SCC 482. The Debts Recovery Tribunal and the District Court entertaining an application under section 31 of the SFC Act should issue notice to the liquidator and hear him before ordering a sale, as the representative of the creditors in general." Thus, from the above legal position, it is clear that once a winding up proceeding has commenced, the liquidator is in charge of the assets of the company being wound up and the sale proceeds of the security is to be distributed in accordance with the provisions of the Act, i.e ., section 529 read with section 529A of the Act and the rules made thereunder. In the instant case also, the appellant-Corporation has not set in motion any proceeding under the SFC Act, rather the appellant-Corporation has participated in the liquidation as w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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