Secured creditors' liability for preservation costs in winding up extends to proportionate watch and ward and liquidation expenses.

Secured creditors who stand outside a winding up and retain the benefit of preserved security may be required to bear proportionate costs of actual maintenance and safeguarding of that security, including watch and ward and related liquidation expenses. The proviso to Section 529(2) of the Companies Act, 1956 is treated as reflecting legislative intent that the ultimate beneficiaries of preservation contribute to those outgoings. Relief is determined by the substance of the application and the prayer made, not by an incorrect statutory reference in the application. On that basis, the liquidator's claim for proportionate reimbursement was upheld.

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Issues: Whether secured creditors who retain their securities outside the winding up can be directed to contribute proportionately towards the expenses incurred for the maintenance and safekeeping of the secured assets and the day-to-day liquidation expenses, and whether mention of an incorrect provision in the application defeats the relief.

Analysis: The proviso to Section 529(2) of the Companies Act, 1956 reflects the legislative intent that secured creditors who choose to stand outside the winding up and retain the benefit of preservation of their security should bear the cost of actual maintenance and safeguarding of that security. The relief claimed is determined by the substance of the application and the prayer made, not by the mere label or mistaken reference to a provision. The secured creditors, being ultimate beneficiaries of preservation, can therefore be required to reimburse proportionate expenses incurred by the liquidator for watch and ward and related liquidation outgoings.

Conclusion: The objection of the secured creditors failed, and the Court upheld the liquidator's claim for proportionate contribution towards watch and ward charges and petty liquidation expenses.

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