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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 ..... 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 Supplementary Agreement, Ex.C-11, whereby the terms of repayment were revised. Around this juncture, a Deed of Hypothecation dated 25.09.1996 (the Modified Hypothecation Deed), Ex.C-14, was executed and the schedule thereto sets out the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the date of realisation; and (iv) Rs. 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 Rs. 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 the said claims and the only information that was available with the Official Liquidator was from the Statement of Affairs filed by the exdirectors, which reflected that a sum of Rs. 22,29,30,300/- was due and payable by the Petitioner to the first Respondent, but could not be verified and admitted by the Official Liquidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 winding up proceedings and obtained decree can enforce the decree as against the assets and the ceiling with regard to payment of interest under Rule 179 would not apply in the case of those secured creditors and they are entitled to get interest as decreed by the civil court. In a case where there is no surplus after payment in full of all the claims admitted of proof, the creditors who stood outside the winding up proceedings as well as the secured creditors who fall u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, 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 for the Official Liquidator submitted that the Award is liable to be set aside in respect of the grant of interest at 12% from 11.05.2006 till the date of realisation. He also pointed out that the Official Liquidator had paid a sum of Rs. 53,11,845 to the first Respondent herein. 9.In response, the learned counsel for the first Respondent contended that the first Respondent is a secured creditor of the company in liquidation. Accordingly, he submitted that leave was granted to the first Respondent to prosecute its claim by standing outside the winding up. Consequently, he submitted that neither Rule 156 nor Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of Rule 179 from the date of the order of winding up. Once again, it is necessary to examine Rule 179 closely so as to decide this issue. Rule 179 states, inter alia, that "in the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted shall be paid interest from the date of the winding up order or of the resolution as the case may be, up to the date of the declaration of the final dividend, at a rate not exceeding 4% per annum, on the admitted amount of the claim...." This Rule also makes it clear that it is applicable to creditors whose proofs have been admitted. In other words, there is a clear indication that it onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the relevant Forms 8 and 13, after also ensuring that permissible expenses of the Official Liquidator in relation to the Hypothecated Assets and the amounts due as per the pari passu charge of the workmen in respect of the workmen's portion of the said security are paid from such sale proceeds. However, if the sale proceeds of these assets are insufficient to realise the amount awarded, whether in respect of principal or interest, the claims of the first Respondent would be required to be decided in accordance with Section 529, 529-A and other applicable provisions of the Companies Act and, in such event, Rule 179 would apply. The relevant facts and documents with regard to the sale price of the Hypothecated Assets, the "wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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