Contractual interest for a secured creditor in winding up was not capped, but recovery stayed limited to secured assets and sale proceeds.

Contractual interest agreed in loan documents was not curtailed by Rules 156 and 179 of the Companies Court Rules, 1959, because Rule 156 applies where interest is neither reserved nor agreed, and Rule 179 concerns admitted claims in winding up after full payment of creditors. The secured creditor standing outside winding up could therefore retain the arbitral award of interest. Recovery, however, remained confined to the hypothecated assets and their sale proceeds, subject to liquidation expenses and the workmen's pari passu share; any shortfall had to be worked out under the Companies Act provisions governing secured creditors and workmen's dues.

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Issues: (i) Whether Rules 156 and 179 of the Companies Court Rules, 1959 restricted the arbitral award of interest in favour of a secured creditor standing outside winding up; (ii) whether the award-holder could realise the awarded amounts only from the sale proceeds of the hypothecated assets and, if necessary, in accordance with the Companies Act provisions governing secured creditors and workmen's dues.

Issue (i): Whether Rules 156 and 179 of the Companies Court Rules, 1959 restricted the arbitral award of interest in favour of a secured creditor standing outside winding up.

Analysis: Rule 156 applies where interest is not reserved or agreed for in the underlying contract, and Rule 179 applies to creditors whose proofs have been admitted in winding up and where surplus exists after payment in full of admitted claims. The loan documents contained an agreed rate of interest and penal interest. The creditor also stood outside the winding up proceedings. On the text of the Rules, the 4% ceiling could not be invoked to curtail the contractual interest awarded in arbitration.

Conclusion: The challenge based on Rules 156 and 179 failed, and the award of interest was sustained.

Issue (ii): Whether the award-holder could realise the awarded amounts only from the sale proceeds of the hypothecated assets and, if necessary, in accordance with the Companies Act provisions governing secured creditors and workmen's dues.

Analysis: The hypothecated assets were sold by the Official Liquidator, while the security was neither relinquished nor invalidated and remained enforceable against the liquidation estate. The award-holder was therefore entitled to recover against the identified secured assets and the sale proceeds thereof, after meeting permissible liquidation expenses and the workmen's pari passu share. If the proceeds were insufficient, the claim would have to be worked out in accordance with the provisions governing secured creditors and workmen's dues in winding up.

Conclusion: Recovery was confined to the secured sale proceeds, subject to the liquidation law protections for expenses and workmen's dues.

Final Conclusion: The petition challenging the arbitral award did not succeed, and the award was left undisturbed, with execution to proceed subject to the stated limitations regarding the secured assets and distribution of sale proceeds.

Ratio Decidendi: Where the debt arises under a contract stipulating interest, Rules 156 and 179 of the Companies Court Rules, 1959 do not cap the secured creditor's contractual interest merely because the company is in winding up, although realisation against secured assets remains subject to the statutory priority for liquidation expenses and workmen's pari passu dues.

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