Secured creditor cannot be made to pay winding-up advertisement costs; liquidator must use rule-based fund mechanism

A secured creditor who was not the petitioner in winding-up proceedings could not be treated as the petitioner for the purpose of bearing preliminary advertisement and other winding-up expenses. The court held that such costs could not be fastened on the creditor merely because it held security interests. Where the company had no available assets, the official liquidator was to incur the necessary expenses under rule 292 with leave of the court, using the Central Government fund or permanent advance, and later recoup those amounts from the company's assets in priority to debts. The direction requiring the secured creditor to deposit the advertisement expenses was therefore set aside.

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Issues: Whether a secured creditor, against whom winding up was ordered at the instance of the Board for Industrial and Financial Reconstruction, can be directed to deposit the initial expenses for advertisement of the winding up and whether such preliminary expenses should instead be met by the official liquidator under rule 292.

Analysis: A secured creditor who was not the petitioner in the winding up proceedings and who did not bring about the winding up cannot be treated as the petitioner for the purpose of rule 113 of the Companies (Court) Rules, 1959. The obligation to bear advertisement expenses and other preliminary expenses cannot, therefore, be fastened on such creditor merely because it is a secured creditor. Where the company has no available assets, rule 292 permits the official liquidator, with leave of the court, to incur necessary expenses out of the permanent advance or other fund provided by the Central Government, and such expenditure is to be recouped later from the company's assets in priority to its debts.

Conclusion: The direction requiring the secured creditor to deposit the advertisement expenses was unsustainable, and the official liquidator was required to incur the necessary winding-up expenses from the Central Government fund with later recoupment from the company's assets.

Final Conclusion: The appeal succeeded and the impugned direction for payment of preliminary advertisement expenses by the secured creditor was set aside, while the winding-up process was to proceed through the official liquidator's use of the prescribed fund mechanism.

Ratio Decidendi: A secured creditor who is not the petitioner in a winding-up proceeding cannot be compelled to bear the preliminary advertisement costs of the winding up; such expenses, where the company has no available assets, must be met by the official liquidator under rule 292 and recouped from the company's assets.

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