Inter se priority among secured creditors survives liquidation; prior charge prevails and filing a claim does not amount to relinquishment.

Section 529A of the Companies Act, 1956 secures pari passu treatment between workmen and secured creditors, but it does not extinguish inter se priority among secured creditors; the prior first charge holder therefore retains precedence over the second charge holder. Section 48 of the Transfer of Property Act, 1882 continues to apply in company liquidation, so a later charge remains subject to an earlier charge and contractual subordination remains effective. Filing a claim before the Official Liquidator does not, by itself, amount to relinquishment of security under section 47 of the Provincial Insolvency Act, 1920; relinquishment requires a conscious and express surrender. The appellant thus remained a secured creditor with prior charge rights.

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Issues: (i) Whether section 529A of the Companies Act, 1956 extinguishes inter se priority between secured creditors. (ii) Whether section 48 of the Transfer of Property Act, 1882 is overridden in company liquidation so as to deny priority to a prior first charge holder. (iii) Whether a secured creditor relinquishes its security within the meaning of section 47 of the Provincial Insolvency Act, 1920 merely by filing a claim before the Official Liquidator.

Issue (i): Whether section 529A of the Companies Act, 1956 extinguishes inter se priority between secured creditors.

Analysis: Section 529A was enacted to protect workmen's dues by giving them pari passu treatment with secured creditors. The provision contains a non obstante clause, but it does not expressly deal with priority as between secured creditors themselves. The legislative object was to alter the relation between workmen and secured creditors, not to abolish existing contractual and proprietary priorities among different secured creditors. A prior decision on the jurisdiction of the Debt Recovery Tribunal did not lay down that inter se priority amongst secured creditors disappears on the application of section 529A.

Conclusion: Section 529A does not wipe out inter se priority between secured creditors, and the first charge holder retains precedence over the second charge holder.

Issue (ii): Whether section 48 of the Transfer of Property Act, 1882 is overridden in company liquidation so as to deny priority to a prior first charge holder.

Analysis: Section 48 embodies the rule that where rights in the same immovable property are created at different times, the later right is subject to the earlier right. The Companies Act contains no express provision taking away this rule in respect of priorities between secured creditors. Deprivation of a vested property right is not to be presumed, and a general non obstante clause in section 529A cannot be read as abrogating the specific rule of priority under section 48. The earlier charge and the contractual subordination accepted by the second charge holder remain legally significant.

Conclusion: Section 48 continues to govern priority between the secured creditors, and the prior first charge prevails.

Issue (iii): Whether a secured creditor relinquishes its security within the meaning of section 47 of the Provincial Insolvency Act, 1920 merely by filing a claim before the Official Liquidator.

Analysis: Section 47 contemplates different courses open to a secured creditor, including realising the security, relinquishing it for the general benefit of creditors, or valuing it while not realising or relinquishing it. Relinquishment requires a conscious and positive act showing an intention to give up the security. Mere lodging of a proof pursuant to notice from the Official Liquidator does not by itself amount to relinquishment. Participation in liquidation proceedings, without an express surrender of the security, does not extinguish the secured creditor's proprietary rights.

Conclusion: Filing a claim before the Official Liquidator did not amount to relinquishment of security, and the appellant did not lose its secured status.

Final Conclusion: The appeal succeeds because the appellant's prior charge and secured creditor rights were wrongly subordinated, and the order under challenge was set aside.

Ratio Decidendi: Section 529A of the Companies Act, 1956 secures pari passu treatment between workmen and secured creditors but does not abolish the pre-existing inter se priority among secured creditors; section 48 of the Transfer of Property Act, 1882 continues to protect the earlier charge, and relinquishment of security under section 47 of the Provincial Insolvency Act, 1920 requires an express, conscious surrender.

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