Winding-up jurisdiction to require secured creditors to contribute to liquidator preservation costs, with interim wage deposits ordered.

Winding-up courts possess jurisdiction under the proviso to section 529(2) of the Companies Act to require secured creditors who remain outside winding up and proceed to realise their securities to contribute to expenses incurred by the liquidator for preservation or protection of those securities; the principle applies where creditors will benefit from preservation measures and, on the facts, applied to banks that had realised security. The court also authorized interim ad hoc directions requiring specified secured creditors to deposit proportional contributions toward unpaid wages of watch-and-ward staff pending final determination, with the liquidator to compute, collect and disburse amounts.

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Issues: (i) Whether a winding-up court has jurisdiction under the proviso to section 529(2) of the Companies Act to direct secured creditors who remain outside winding up and do not relinquish their securities to contribute towards expenses incurred by the liquidator for preservation of the security; (ii) Whether interim directions should be issued requiring specified secured creditors to deposit ad hoc contributions towards unpaid wages of watch and ward staff pending final decision.

Analysis: The legal framework includes the winding-up provisions of the Companies Act concerning appointment and duties of the official liquidator, the insolvency application under section 529 and its proviso, and the Companies (Court) Rules, 1959 (notably Rule 292 and Rule 338) governing payment and recoupment of expenses in winding up. The proviso to section 529(2) creates a statutory liability on a secured creditor who proceeds to realise his security (instead of relinquishing it and proving in the winding up) to reimburse expenses incurred by the liquidator for preservation or protection of the asset prior to realisation. That proviso contemplates that secured creditors who derive benefit from preservation measures undertaken by the liquidator may be required to bear the corresponding preservation costs. On the facts, four banks had proceeded to realise their securities; the financial institutions had not yet finally decided. The central government had no funds available. In the circumstances of imminent need to pay accrued wages and to preserve security values pending final resolution, an interim ad hoc contribution scheme was appropriate to prevent prejudice to the preservation exercise and to those entitled to wages.

Conclusion: (i) The winding-up court has jurisdiction under the proviso to section 529(2) of the Companies Act to direct secured creditors who remain outside the winding up and proceed to realise their securities to contribute towards expenses incurred by the liquidator for preservation of those securities. This jurisdiction is applicable where creditors will benefit from preservation measures and, on the facts, applies at least to the banks which had proceeded to realise their securities. (ii) Interim directions are granted on an ad hoc basis requiring the four banks to contribute collectively 50% and the four financial institutions to contribute collectively 50% (each secured creditor contributing 12.5%) towards the calculated net wage bill for the specified period; the liquidator to compute net amounts and collect deposits by specified dates, with distribution to workmen and the application adjourned for final decision.

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