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Issues: (i) whether a secured creditor whose security is sufficient to satisfy the principal and contracted interest up to the winding-up date is entitled to post-winding-up interest at the contracted rate from the sale proceeds before any distribution to unsecured creditors; (ii) whether workmen, whose dues rank pari passu with those of the secured creditor, are entitled to the same rate of interest from the surplus sale proceeds and in priority to unsecured creditors.
Issue (i): whether a secured creditor whose security is sufficient to satisfy the principal and contracted interest up to the winding-up date is entitled to post-winding-up interest at the contracted rate from the sale proceeds before any distribution to unsecured creditors.
Analysis: The scheme of sections 529 and 529A of the Companies Act, 1956, read with the applicable insolvency rules under the Provincial Insolvency Act, 1920, treats the secured creditor as entitled to realise the security first, subject to the workmen's pari passu charge. Where the realised security is more than sufficient to meet the secured debt, including contractual interest up to the date of sale, the excess cannot be diverted to unsecured creditors before satisfying the secured creditor's continuing claim for interest after the winding-up date. The Companies (Court) Rules, 1959, including rule 179, cannot be construed to curtail the statutory right created by the Act itself or to reduce the secured creditor to a lesser rate merely because a surplus is available. Plea of waiver or estoppel was rejected.
Conclusion: The secured creditor is entitled to post-winding-up interest at the contracted rate from the surplus sale proceeds, subject to the workmen's pari passu rights.
Issue (ii): whether workmen, whose dues rank pari passu with those of the secured creditor, are entitled to the same rate of interest from the surplus sale proceeds and in priority to unsecured creditors.
Analysis: By virtue of the proviso to section 529(1) and section 529A of the Companies Act, 1956, workmen stand on the same footing as the secured creditor to the extent of the pari passu charge. Since their dues are to be treated on par with the secured creditor's dues, the workmen cannot be confined to principal alone where the secured creditor's debt carries contractual interest. If a surplus remains after meeting the secured creditor's and workmen's pari passu claims, only then can unsecured creditors be paid, and thereafter any further surplus may attract statutory post-dividend interest under the insolvency rules.
Conclusion: The workmen are entitled to pari passu payment of interest at the same contracted rate from the available surplus before unsecured creditors are paid.
Final Conclusion: The official liquidator's proposed distribution to unsecured creditors without first satisfying the secured creditor's continuing interest claim and the corresponding workmen's pari passu entitlement was not accepted, and the distribution was directed to proceed after setting apart the amounts required for those claims and the disputed workmen's claim.
Ratio Decidendi: Where the security of a secured creditor is sufficient to satisfy the debt in full, the statutory pari passu charge of workmen under section 529A requires that any surplus from the security first meet the secured creditor's continuing contractual interest and the workmen's corresponding claim before any distribution to unsecured creditors.
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