Winding up security rights: liquidator may apply for directions, while an overbroad management-takeover clause can be severed.

In winding up, the liquidator may seek directions by application in the company court, because the company's property is already in custodia legis and the matter is not treated as an ordinary suit for recovery. Security documents over movables and immovable property may authorise the creditor to retain possession and exercise private sale powers where the instruments so provide, subject to the governing law; property outside the security must be delivered to the liquidator. A security arrangement that leaves the company in possession and business does not, by itself, amount to disposal of the undertaking under section 293(1)(a), but a clause allowing takeover of management is invalid to that extent if severable.

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Issues: (i) Whether the liquidator was required to proceed by a regular suit and pay court-fee as for a suit while seeking directions against a secured creditor in winding up; (ii) whether the bank was entitled to retain possession of, and privately sell, the movable and immovable properties covered by the security documents; (iii) whether the securities were invalid for contravention of section 293(1)(a) of the Companies Act, 1956.

Issue (i): Whether the liquidator was required to proceed by a regular suit and pay court-fee as for a suit while seeking directions against a secured creditor in winding up

Analysis: On winding up, the company's property comes into the custody of the court, and the official liquidator acts under the control of the winding up court in acquiring and retaining possession of such property. When resistance is offered by a secured creditor, the liquidator is not suing to recover a debt or independent property of the company from a third party, but is invoking the court's winding up jurisdiction for directions in relation to assets already in custodia legis. The proper course is an application to the company court, not a regular suit, and the fee payable is the fee applicable to an application.

Conclusion: The objection was rejected, and the liquidator's application was maintainable as an application with court-fee payable accordingly.

Issue (ii): Whether the bank was entitled to retain possession of, and privately sell, the movable and immovable properties covered by the security documents

Analysis: The hypothecation deeds created security over the movable assets with a power to take possession on default and to sell them; this was treated as a floating charge over the specified movables, so the bank could retain possession of the covered movables and sell them privately in accordance with the governing law. The mortgage deed created an English mortgage, and the express terms conferred a power of sale without court intervention within section 69 of the Transfer of Property Act, 1882. The bank was also entitled to possession as mortgagee, but only to the extent of the secured properties covered by the instruments; furniture not comprised in the security had to be handed over to the liquidator.

Conclusion: The bank was entitled to retain possession of the secured properties and to exercise the power of private sale, but had to deliver the non-secured furniture to the liquidator.

Issue (iii): Whether the securities were invalid for contravention of section 293(1)(a) of the Companies Act, 1956

Analysis: The borrowings and securities, viewed in substance, did not amount to a disposal of the whole or substantially the whole of the company's undertaking. The documents operated as security for working capital while leaving the company in possession and in business, which is consistent with a floating-charge type arrangement. However, the clause authorising the bank to take over the management of the company's business went beyond mere security and, to that extent, amounted to an impermissible disposal of the undertaking. That offending clause was severable and did not invalidate the entire transaction.

Conclusion: The securities were valid except for the clause empowering the bank to take over management, which was invalid and unenforceable to that extent only.

Final Conclusion: The liquidator's challenge failed in substance except for the severable management-takeover clause, while the bank's security rights over the covered assets and its power of sale were upheld subject to the governing statutory requirements and delivery of excluded furniture to the liquidator.

Ratio Decidendi: In winding up, the company's property is in the custody of the court and the liquidator may seek directions by application; a security transaction that leaves the company in possession and in business does not amount to disposal of its undertaking, though a clause permitting takeover of management may be invalid if it exceeds the scope of mere security.

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