Secured creditors' contribution to preservation expenses may be ordered on an interim basis when they realise charged assets outside winding up.

Under the proviso to section 529(2) of the Companies Act, 1956, a winding-up court may require secured creditors who stand outside winding up and choose to realise their securities to bear the expenses incurred in preserving the charged assets. The court reasoned that this liability is not confined to a final liquidation account, because preservation work by the liquidator or provisional liquidator directly benefits the secured creditors and legislative intent would be defeated if contribution could be ordered only after full expenditure was first raised elsewhere. On the stated facts, the court treated interim ad hoc contribution as permissible while the secured creditors decided whether to relinquish their security.

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Issues: Whether the company court has jurisdiction under the proviso to section 529(2) of the Companies Act, 1956 to require secured creditors who stand outside winding up and do not relinquish their securities to contribute towards the expenses of preserving the charged assets, and whether such contribution can be directed on an interim basis.

Analysis: The proviso to section 529(2) contemplates that where a secured creditor proceeds to realise its security instead of relinquishing it, the creditor is liable to bear the expenses incurred by the liquidator, including a provisional liquidator, for preserving that security before realisation. The liability is not confined to a final accounting at the end of the liquidation; the court reasoned that it would defeat the legislative intent to hold that no contribution can be ordered until the liquidator has already incurred the whole expense from other sources. The preservation benefit accrues directly to the secured creditors, and in proper cases the winding-up court may therefore direct them to contribute towards maintenance and safe-keeping of the assets. The court further held that, on the facts, the secured creditors had either proceeded to realise their securities or were in a position where ad hoc contribution could properly be directed pending their policy decision on relinquishment.

Conclusion: The company court has jurisdiction to direct secured creditors who remain outside winding up to make contribution towards preservation expenses, and the objection to interim ad hoc contribution was rejected.

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