Court Rules in Favor of Secured Creditors for Sale Proceeds Distribution

ICICI Bank Ltd. Versus The Official Liquidator, Thane and The Court Receiver, High Court, Bombay

ICICI Bank Ltd. Versus The Official Liquidator, Thane and The Court Receiver, High Court, Bombay - TMI Issues Involved:
1. Distribution of sale proceeds among secured creditors and workmen.
2. Applicability of Rules 154 and 179 of the Companies (Court) Rules, 1959.
3. Rights of secured creditors standing outside the winding-up process.
4. Entitlement to interest post-winding up order.
5. Impact of pending claims by alleged workmen.

Detailed Analysis:

1. Distribution of Sale Proceeds Among Secured Creditors and Workmen:
The primary issue was the distribution of sale proceeds from the auctioned properties of the company in liquidation (PPL). ICICI Bank, as a debenture trustee, and Metropolitan Infra Housing, a major debenture holder, sought their respective shares from the sale proceeds. The Official Liquidator opposed the distribution, arguing that secured creditors are entitled to payment only after all claims, including those of unsecured creditors, are satisfied.

2. Applicability of Rules 154 and 179 of the Companies (Court) Rules, 1959:
The court examined whether Rules 154 and 179 applied to secured creditors standing outside the winding-up process. Rule 154 deals with the valuation of debts at the date of the winding-up order, while Rule 179 pertains to the payment of subsequent interest. The court found that these rules are applicable only to creditors who submit their claims within the winding-up proceedings for adjudication by the Official Liquidator. Since ICICI Bank and Metropolitan Infra Housing opted to remain outside the winding-up process, these rules did not apply to them.

3. Rights of Secured Creditors Standing Outside the Winding-Up Process:
The court reiterated that secured creditors who stand outside the winding-up process are entitled to realize their security and recover their dues, subject to the pari passu charge in favor of workmen as per Section 529A of the Companies Act, 1956. The court emphasized that the rights of secured creditors are not diminished by their decision to remain outside the winding-up process, except for the limited purpose of ensuring the pari passu charge of workmen's dues.

4. Entitlement to Interest Post-Winding Up Order:
The court addressed whether secured creditors are entitled to interest beyond the date of the winding-up order. It was held that secured creditors standing outside the winding-up process are entitled to interest as per their contractual terms, even beyond the winding-up order date, once the dues of workmen are fully satisfied. This entitlement is not affected by Rules 154 and 179, which apply only to creditors within the winding-up process.

5. Impact of Pending Claims by Alleged Workmen:
The court noted that some claims by individuals alleging to be workmen were rejected by the Official Liquidator and upheld by higher courts. These claimants had filed Special Leave Petitions (SLPs) before the Supreme Court. Although notices were issued in the SLPs, no interim orders were passed. Consequently, the court ordered the distribution of the surplus amount to ICICI Bank and Metropolitan Infra Housing, subject to their undertaking to return the amounts if directed by the Supreme Court in the pending SLPs.

Conclusion:
The court concluded that the surplus sale proceeds should be distributed to the secured creditors, ICICI Bank and Metropolitan Infra Housing, as per their respective holdings. This distribution is subject to the condition that they provide an undertaking to return the amounts if required by the Supreme Court in the pending workmen's claims. The Notices of Motion were disposed of accordingly.