1993 (7) TMI 250 - HC - Companies Law

Court remands matter to liquidator for claim examination. Workers and secured creditors rank equally. Surplus pays interest. No costs awarded.

Haryana Financial Corpn. Versus PNB Auto Ancillary (India) Ltd.

The court remanded the matter back to the official liquidator to examine the appellant's claim under the decree. The workmen's claims for wages and the ... Winding up – Overriding preferential payments Issues Involved:1. Entitlement of Haryana Financial Corporation (HFC) to charge interest at the contractual rate post winding up.2. Applicability of Section 34 of the Civil Procedure Code (CPC) on the awarded interest rate.3. Pari passu distribution between secured creditors and workmen under Section 529A of the Companies Act, 1956.4. Validity of the court decree awarding interest beyond 6% per annum post the date of the decree.5. Impact of the rule of Damdupat and principles of equity, justice, and good conscience on mortgage transactions.6. Application of insolvency rules to the winding up of a company under the Companies Act, 1956.Detailed Analysis:1. Entitlement of Haryana Financial Corporation (HFC) to Charge Interest at the Contractual Rate Post Winding Up:The appellant, HFC, contended that as a secured creditor, it is outside the winding up and entitled to charge interest at the contractual rate as per the court decree. The official liquidator challenged this, arguing that no creditor can be paid interest beyond what is laid down under rules 156 and 179 of the Companies (Court) Rules, 1959, without distinction between secured and unsecured creditors.2. Applicability of Section 34 of the Civil Procedure Code (CPC) on the Awarded Interest Rate:The decree passed by the District Judge at Faridabad awarded interest at 12% per annum, which was deemed to be simple interest. The decree was passed before the amendment of Section 34 of the CPC in 1977. The court examined whether the decree awarding interest beyond 6% post-decree was within its jurisdiction, noting that the proviso to Section 34 CPC was not present at the time of the decree. The court concluded that the decree to the extent of awarding interest beyond 6% was a nullity and beyond the jurisdiction of the court.3. Pari Passu Distribution Between Secured Creditors and Workmen Under Section 529A of the Companies Act, 1956:The official liquidator emphasized that Section 529A of the Companies Act, 1956, mandates that the claims of workmen rank pari passu with those of secured creditors. The court agreed, stating that the secured creditor cannot sell securities without the court's intervention and must consider the workmen's interest. The court held that the official liquidator should sell the securities in consultation with the secured creditors to ensure fair distribution.4. Validity of the Court Decree Awarding Interest Beyond 6% Per Annum Post the Date of the Decree:The court referenced several cases, including West Bengal Financial Corporation v. Bertram Scott (I.) Ltd., and concluded that the court had no jurisdiction to award interest beyond 6% per annum post-decree. Although the decree was allowed to become final without appeal, the court did not interfere with the decree in these proceedings.5. Impact of the Rule of Damdupat and Principles of Equity, Justice, and Good Conscience on Mortgage Transactions:The court discussed the equitable rule of Damdupat, which prevents recovery of interest exceeding the principal amount. Although this rule is specific to Hindu law, the court emphasized the general principles of equity, justice, and good conscience. The court held that the terms of the mortgage contract would be subject to these principles and other legal restrictions.6. Application of Insolvency Rules to the Winding Up of a Company Under the Companies Act, 1956:The court highlighted that under Section 529(1) of the Companies Act, the same rules regarding debts provable, valuation of annuities, and the rights of secured and unsecured creditors apply as in insolvency cases. The court concluded that the claims of workmen for wages and the dues of secured creditors as on the date of winding up shall rank pari passu. Any surplus after meeting these claims could be used to pay future interest as per the decree.Conclusion:The court remanded the matter back to the official liquidator to examine the appellant's claim under the decree. The workmen's claims for wages and the secured creditors' dues as on the date of the winding up order shall rank pari passu. Any surplus remaining after satisfying these claims could be used to pay the interest accrued till the date of realization of the security. The court did not order costs in this case.