Unsecured Creditor's Compromise Decree Not Binding in Liquidation Proceedings

The High Court of Allahabad held that the compromise decree obtained by an unsecured creditor, State Bank of India, was not binding in the liquidation proceedings as the Official Liquidator was not involved. The court emphasized the necessity of involving the Official Liquidator post the winding up of the company and obtaining permission to pursue a suit. As the bank failed to do so, the compromise decree was deemed non-binding. The bank was advised to file a claim to recover the debt before the Central Government as an unsecured creditor. The court disposed of the company's application based on these findings.

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Issues: Unsecured creditor's claim in a company's liquidation.

In this judgment by the High Court of Allahabad, the applicant-bank, an unsecured creditor of a company in liquidation, sought to recover dues amounting to Rs. 2,92,230. The Official Liquidator, after the sale of assets and no claims received, deposited the unclaimed amount with the Central Government under section 555(1) of the Companies Act, 1956. The applicant-bank's charge was not registered, and they relied on a compromise decree to recover the amount.

The court noted that after a company is wound up, its assets are under the possession of the court, represented by the liquidator. It was highlighted that the applicant-bank did not obtain permission under section 446 of the Companies Act, 1956, to continue the suit post the winding up of the company. The court emphasized the necessity of impleading the Official Liquidator to represent the company's interests, which was not done in this case. The compromise decree and the compromise itself did not reflect the winding up of the company or the Official Liquidator's involvement.

The court concluded that the decree was not binding on the company in liquidation as the Official Liquidator was not involved. It was reiterated that after a company is wound up, the Official Liquidator represents the company's interests, and permission to pursue a suit is essential. Since the bank did not involve the Official Liquidator, the compromise decree was deemed non-binding. The court also noted that the mortgage was not registered, making the State Bank of India an unsecured creditor.

In the final analysis, the court held that the compromise decree was not binding on the Official Liquidator. The State Bank of India, being an unsecured creditor, was advised to file a claim to prove the legally recoverable debt before the Central Government under section 555(7)(b) of the Companies Act, 1956. Consequently, the company's application was disposed of based on these findings.

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