Secured creditor rights in liquidation must be read with dividend priority rules; blanket exclusion from dividends is too wide.

Leave to continue a suit against a company in liquidation may be granted under section 446 of the Companies Act, 1956, but the court must preserve the secured creditor's statutory rights under sections 529 and 529A. A secured creditor who realises security is entitled to priority for the protected portion under section 529A and may also prove for any unpaid balance, subject to the insolvency scheme. The condition barring the creditor from participation in dividends beyond section 529A was too wide and unsustainable, so leave could be granted without that restrictive condition.

---

---

Issues: Whether leave to continue the suit against the company in liquidation could be granted without the restrictive condition that the secured creditor be excluded from any dividend beyond the priority under section 529A of the Companies Act, 1956.

Analysis: The Court held that under section 446 of the Companies Act, 1956, leave to proceed with a suit against a company in liquidation may be granted, but the rights of a secured creditor must be read with sections 529 and 529A of the Companies Act, 1956. A secured creditor who realises security is entitled to priority for the portion protected by section 529A and may still prove for any balance remaining unpaid, subject to the statutory scheme. The Court further relied on the insolvency principle embodied in section 47 of the Provincial Insolvency Act to explain the creditor's options and concluded that the condition excluding the creditor from all dividend participation beyond section 529A was too wide.

Conclusion: The restrictive condition was unsustainable, and leave to continue the suit was to be granted without specifically incorporating such condition.

---