Secured creditor liability in winding up is limited to preservation expenses, not ad hoc preliminary or advertisement costs.

A secured creditor cannot be compelled, at the stage of winding up following a BIFR reference, to deposit ad hoc preliminary expenses or bear newspaper advertisement costs, because the statutory liability under section 529(2) is confined to expenses for preservation of the security. The obligation to advertise the winding up order lies under the Companies (Court) Rules on the petitioner, and a secured creditor outside the winding up cannot be treated as that petitioner merely by reason of its security interest. The secured creditor remains liable only to reimburse expenses actually incurred by the Official Liquidator for safeguarding, preserving and maintaining the security.

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Issues: (i) Whether a secured creditor, who did not initiate or the winding up, can be directed to deposit ad hoc preliminary expenses and bear the advertisement cost of the winding up order in proceedings arising from a reference under section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985. (ii) Whether the secured creditor is liable only for expenses incurred by the Official Liquidator for preservation and maintenance of the security, and whether directions can be issued to BIFR to cause publication of the winding up order under the Companies (Court) Rules.

Issue (i): Whether a secured creditor, who did not initiate or support the winding up, can be directed to deposit ad hoc preliminary expenses and bear the advertisement cost of the winding up order in proceedings arising from a reference under section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The liability contemplated by the proviso to section 529(2) of the Companies Act, 1956 is confined to expenses incurred for preservation of the security. That provision does not create a positive obligation on a secured creditor to advance money towards preliminary expenses or newspaper publication at the threshold of winding up. Rule 113 places the obligation to advertise the winding up order on the petitioner, and a secured creditor who merely stands outside the winding up proceedings cannot be treated as such petitioner merely because it is a secured creditor. Sections 529 and 529A do not govern ad hoc contribution towards advertisement or initial expenses.

Conclusion: The direction requiring the secured creditor to deposit preliminary expenses and advertisement charges is unsustainable and is set aside.

Issue (ii): Whether the secured creditor is liable only for expenses incurred by the Official Liquidator for preservation and maintenance of the security, and whether directions can be issued to BIFR to cause publication of the winding up order under the Companies (Court) Rules.

Analysis: While a secured creditor is not bound to fund preliminary expenses or advertisement at the inception of winding up, it remains liable to reimburse expenses actually incurred by the Official Liquidator for safeguarding, preserving, and maintaining the security. The Court also held that, in winding up proceedings arising from a BIFR reference, BIFR answers the description of the petitioner for the limited purpose of advertisement and it is proper to direct advertisement under rules 112 and 113 of the Companies (Court) Rules. The Court clarified the future course but noted that, on the facts, the amounts had already been remitted and the advertisement had already been made.

Conclusion: The secured creditor is liable only for preservation and maintenance expenses of the security, and BIFR may be directed to advertise the winding up order in appropriate cases.

Final Conclusion: The appeals succeed to the extent that the impugned directions fastening liability for preliminary expenses and advertisement costs on the secured creditor are not legally sustainable, but the obligation to bear expenditure relating to preservation and maintenance of security remains intact.

Ratio Decidendi: A secured creditor cannot be compelled, at the stage of a winding up order passed on a BIFR reference, to advance ad hoc preliminary expenses or advertisement costs, because the statutory liability under the winding up provisions extends only to expenses for preservation of the security and not to initial expenses for putting the winding up order into effect.

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