2001 (8) TMI 1320 - HC - Companies Law

Court recognizes petitioner as secured creditor for property up to Rs. 1.50 crore; claim dismissed for other property.

MSTC Ltd. Versus Shree Diwan Steel (I.) Ltd.

MSTC Ltd. Versus Shree Diwan Steel (I.) Ltd. - [2003] 115 COMP. CAS. 587 (PUNJ. & HAR.) Issues Involved:1. Whether the properties attached by the District Judge, Ludhiana, and the Delhi High Court can be utilized for disbursement to all creditors or exclusively to the petitioner-company.2. Whether the attachment orders create a charge in favor of the petitioner-company, making it a secured creditor.3. The effect of the 1944 Ordinance on the attachment orders.4. The impact of the winding-up proceedings on the attachment orders.5. The status of the petitioner-company as a secured creditor.Detailed Analysis:Issue 1: Utilization of Attached PropertiesThe primary question was whether the properties of the respondent-company attached by the District Judge, Ludhiana, and the Delhi High Court could be exclusively used to satisfy the debts owed to the petitioner-company or whether they should be used for all creditors. The court concluded that the properties attached by the District Judge, Ludhiana, were subject to the 1944 Ordinance and could be used to satisfy the petitioner-company's claims, whereas the properties attached by the Delhi High Court did not create any preferential rights for the petitioner-company.Issue 2: Charge Creation by Attachment OrdersThe petitioner-company argued that the attachment order by the Delhi High Court created a charge in its favor, making it a secured creditor. However, the court referred to Rule 54 of Order 21 of the Code of Civil Procedure, which states that an attachment order only prevents the transfer or creation of third-party rights in the property but does not create any interest in favor of the decree-holder. Therefore, no charge or lien was created by the attachment order of the Delhi High Court.Issue 3: Effect of the 1944 OrdinanceThe court acknowledged the validity of the 1944 Ordinance, which applies to offenses under sections 406 and 420 of the IPC, among others, when committed against the Government. The petitioner-company, being a government entity with 90% shares held by the Government of India, was entitled to the benefits under the 1944 Ordinance. The attachment order by the District Judge, Ludhiana, under the 1944 Ordinance, created a charge on the attached property, securing the petitioner-company's claim to the extent of Rs. 1.50 crore, subject to the conviction of the respondent-company's directors.Issue 4: Impact of Winding-Up ProceedingsThe official liquidator contended that the winding-up proceedings should stay all pending legal proceedings, including attachment orders. However, the court clarified that the winding-up order did not affect the attachment order passed by the District Judge, Ludhiana, under the 1944 Ordinance. The petitioner-company may need to seek the court's approval under section 446 of the Companies Act, 1956, if further proceedings under the 1944 Ordinance arise after the directors' conviction.Issue 5: Status as a Secured CreditorThe court concluded that the petitioner-company could not be treated as an ordinary creditor due to the special provisions of the 1944 Ordinance, which protect the interests of the Government. The petitioner-company would be treated as a secured creditor for the property attached by the District Judge, Ludhiana, subject to the final determination of the criminal proceedings and the court's finding under section 12 of the 1944 Ordinance. However, the petitioner-company's claim to be a secured creditor for the property attached by the Delhi High Court was rejected.ConclusionThe court partially allowed the petition, recognizing the petitioner-company as a secured creditor for the property attached by the District Judge, Ludhiana, up to Rs. 1.50 crore, contingent upon the final outcome of the criminal proceedings. The claim regarding the property attached by the Delhi High Court was dismissed.