Secured creditor enforcement outside winding up cannot proceed through summary company court relief under section 446(2)(b).

A secured creditor who chooses to stand outside winding up cannot use section 446(2)(b) of the Companies Act, 1956 as a substitute for a civil action to enforce hypothecation and obtain possession of secured movables from the official liquidator. The HC held that questions of default, breach of hypothecation terms, and entitlement to possession require proof in ordinary proceedings, not in a summary company application. A further request for sale of the secured assets and priority payment was also declined because it could not be decided without considering the rights of all secured creditors and the statutory insolvency scheme. The creditor was left to work out its remedies in civil court or other appropriate proceedings.

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Issues: Whether a secured creditor standing outside the winding up proceedings can invoke section 446(2)(b) of the Companies Act, 1956 to obtain possession of hypothecated movables from the official liquidator, and whether such a creditor can seek sale of the secured assets and priority payment in the company court.

Analysis: The applications were by secured creditors claiming rights over machinery and stock-in-trade hypothecated to them, while expressly remaining outside the winding up. The court held that enforcement of security must be pursued according to the ordinary legal procedure and not through a claim application under section 446(2)(b). A secured creditor outside the winding up cannot seek possession in summary company proceedings, because questions such as default, violation of hypothecation terms, and the right to possession require proof in an appropriate civil court. The court further held that a claim for sale and priority payment could not be granted without examining the claims of all secured creditors and the statutory scheme governing insolvency and winding up.

Conclusion: An application under section 446(2)(b) by a secured creditor standing outside the winding up proceedings for possession of hypothecated assets was held not maintainable, and the creditor was left to enforce the security in civil court.

Final Conclusion: The company court declined to exercise summary jurisdiction in favour of secured creditors who had chosen to remain outside the winding up and required them to work out their remedies in accordance with law before the civil court or other appropriate proceedings.

Ratio Decidendi: A secured creditor who stands outside the winding up cannot use section 446(2)(b) of the Companies Act, 1956 as a substitute for a civil action to enforce hypothecation and obtain possession of secured movables from the official liquidator.

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