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TMI Blog2020 (1) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable. Moreover, Rule 156 also refers to the right of a creditor to prove for interest at a rate not exceeding 4% per annum up to that date from the time when the debt or sum was payable . This clearly indicates that even in cases where a rate of interest is not specified in the contract in question, Rule 156 only applies to creditors who participate in the winding up and submit their claims for adjudication by the Official Liquidator - Therefore, the contention of the learned counsel for the Official Liquidator with regard to the applicability of Rule 156 up to the date of the winding up order is rejected. The conclusions of the other High Courts, in the judgments cited by the learned counsel for the Official Liquidator, with regard to the applicability of Rules 156 and 179 to secured creditors who stand outside the winding up. The text of the said Rules provide unambiguous evidence of the intention to apply the said Rules only where contractual interest is not specified, in the case of Rule 156, and with regard to both Rules 156 and 179, only where the creditor concerned, whether secured or unsecured, submits a claim for adjudication by the Official Liquidator - the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prior to that, it appears that the Asian Development Bank, Manila, had sanctioned a loan for a sum of US$ 15 million to the first Respondent as per agreement dated 16.01.1995. Pursuant to the Loan Agreement, the first Respondent extended a term loan facility for a sum of US$ 3.3 million to the Petitioner, which was required to be repaid in 10 equated half yearly instalments commencing from 30 May 1997 and ending on 30 November 2001. As security for the said financial facility, the movable capital equipment, plant and machinery of the Petitioner were exclusively hypothecated to the first Respondent in terms of a Deed of Hypothecation dated 09.01.1996 (the Original Hypothecation Deed), Ex.C-6. The assets that were hypothecated were described both generically and specifically in the schedule to the Original Hypothecation Deed. The charge over the aforementioned assets was duly registered with the Registrar of Companies, Coimbatore, by filing Forms 8 and 13, as required under section 125 of the Companies Act 1956 (CA 1956), Ex.C-7. In view of the inability of the Petitioner to repay the said term loan, a Supplementary Agreement was executed on 10.09.1996(the First Suppleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 36,21,92,610; (ii) interest on ₹ 11,68,15,845, i.e. the principal amount at 12% per annum from 11.05.2006 till the date of realisation; (iii) the Petitioner's share of arbitrator's fees of ₹ 1,55,000 with interest thereon at 12% per annum from 01.12.2007 till the date of realisation; and (iv) ₹ 5 lakhs as costs. The said Award is under challenge in this proceeding. 4.I heard Mr.S.R.Sundar, the learned counsel appearing on behalf of the Official Liquidator, and Mr.Manoj Menon, the learned counsel appearing on behalf of the first Respondent. Mr.S.R.Sundar commenced his arguments by pointing out that the first Respondent had filed an application under Section 31 (6) of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) wherein the Arbitral Tribunal was requested to pronounce an award for payment of the admitted sum of ₹ 22,29,30,300/-. This application was rejected by order dated 08.01.2007 of the Arbitral Tribunal. By referring to the said order, he submitted that the claims made by the first Respondent should also have been rejected because the Official Liquidator was not in a position to verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said amount the dividends declared as on the date of the declaration of such dividend. By relying upon the above Rule, the learned counsel contended that interest is not payable after the date of the winding-up order unless there is a surplus and, even in such event, at a rate not exceeding 4% per annum. Once again, according to the learned counsel for the Petitioner, the award of interest at 12% per annum from the date of the order of winding up up to the date of realisation is in contravention of Rule 179 and therefore, the Award is liable to be set aside in this regard. 7.In order to substantiate the above submissions, the learned counsel referred to and relied upon the judgments, which are set out below along with context and principle: (a) The Federal Bank v. Official Liquidator 2003 (1) ILR 572(the Federal Bank case), wherein, at paragraph 8, the Division Bench of the Kerala High Court set out the principles that apply with regard to the rights of a secured creditor in the context of a company in liquidation. In specific, it was held therein as follows: 8 (vi).Secured creditor who stood outside the wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors by applying Rules 156 and 179 of the Rules. (d) AP State Financial Corporation v. Magna Hard Tempt Limited (in liquidation) (2008) 146 Comp.cas 254 (AP) , wherein, at paragraph 15, the Andhra Pradesh High Court held that the liability of the company in liquidation to a secured creditor in respect of payment of principal and the contractual rate of interest can only be to the date of the order of winding up and not thereafter. (e) KFC v. The Official Liquidator, High Court of Kerala, ILR 1993 (1) 197, wherein, the Kerala High Court held, at paragraph 10, that a secured creditor is entitled to get the claim admitted regarding interest only up to the date of winding up and that the payment of interest after that date will be governed by Rule 179 of the Rules. (f) S. Anthony Raj vs. A. Shanmugam (1994) 80 Company Cases 531 (Mad)(the Anthony Raj case), wherein, in the context of a claim by workmen, a Division Bench of this Court held that Rule 156 applies to such a claim and that interest should be granted at a rate not exceeding 4% per annum. 8.By relying upon the aforesaid decisions, the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 156. Upon examining Rule 156, it is clear that it applies if interest is not reserved or agreed for . By implication, it does not apply if interest is agreed upon in the contract out of which the debt arises. In this case, it is the admitted position that the debt arises out of the extension of financial facilities to the Petitioner by the first Respondent and that the relevant loan agreements specify a rate of interest and a rate of penal interest. Therefore, Rule 156 is clearly inapplicable. Moreover, Rule 156 also refers to the right of a creditor to prove for interest at a rate not exceeding 4% per annum up to that date from the time when the debt or sum was payable . This clearly indicates that even in cases where a rate of interest is not specified in the contract in question, Rule 156 only applies to creditors who participate in the winding up and submit their claims for adjudication by the Official Liquidator. Therefore, the contention of the learned counsel for the Official Liquidator with regard to the applicability of Rule 156 up to the date of the winding up order is rejected. 12.This brings us to the next contention relating to the applicability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period subsequent to the date of the winding up order is also untenable. Consequently, both the grounds of challenge to the Award are rejected. 14.However, it is to be noted that the Hypothecated Assets of the Petitioner were brought to sale by the Official Liquidator and not by the first Respondent; nevertheless, the first Respondent asserted its right to enforce its security for purposes of realising its dues and certainly did not relinquish the security. The charge, including the modified charge, was also duly registered with the Registrar of Companies and is, therefore, enforceable against the Official Liquidator. Therefore, the first Respondent is in the position of a secured creditor who stood outside the winding up but permitted the Official Liquidator to sell the identified assets subject to the charge. The principles, in this regard, are set out in the judgment of the Hon'ble Supreme Court in Jitendra Nath Singh v. Official Liquidator (2013) 1 SCC 462. As such, the first Respondent is entitled to recover the amounts awarded only from the sale proceeds of the Hypothecated Assets, as described in the schedule to the Modified Hypothecation Deed read w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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