Secured creditor must bear preservation and litigation costs where liquidation expenses protect its asset and benefit its recovery effort.

When a liquidator incurs preservation or salvage expenses for a secured asset with the secured creditor's consent, and the creditor seeks to realise its security outside liquidation, those costs are not shifted to the liquidation estate; the creditor must bear the proportionate expense attributable to the benefit received. The tribunal also upheld litigation costs against the secured creditor where the appeal prolonged a dispute over reimbursement for expenses incurred for the creditor's benefit. The decision affirms that a secured creditor cannot enjoy asset protection during liquidation and simultaneously avoid the corresponding preservation and legal costs.

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Issues: (i) Whether the secured creditor was liable to bear the expenses incurred for salvaging and securing vessel Tag 22 during liquidation. (ii) Whether the secured creditor was liable to pay litigation costs for pursuing the appeal and resisting the liquidator's claim for reimbursement.

Issue (i): Whether the secured creditor was liable to bear the expenses incurred for salvaging and securing vessel Tag 22 during liquidation.

Analysis: The liquidator had acted for preservation and protection of the assets after receiving the secured creditor's consent and in the context of the creditor's decision to realise its security interest in the vessel outside liquidation. The secured creditor had earlier invoked admiralty proceedings to realise its charge over the vessel, and the securing operation was undertaken much later to prevent damage and preserve the asset for its benefit. In these circumstances, the expenses for securing the vessel were not treated as liquidation process expenses to be absorbed by the estate, but as costs payable by the secured creditor in proportion to the benefit derived from the operation.

Conclusion: The secured creditor was liable to pay its proportionate share of the expenses incurred in securing vessel Tag 22.

Issue (ii): Whether the secured creditor was liable to pay litigation costs for pursuing the appeal and resisting the liquidator's claim for reimbursement.

Analysis: The appeal was found to prolong a dispute over expenses already incurred for the secured creditor's benefit, and the continued litigation was held to have burdened the liquidation estate. The tribunal therefore considered it appropriate to award litigation costs to the liquidator, payable by the secured creditor.

Conclusion: The secured creditor was liable to pay litigation costs of Rs. 1,00,000 to the liquidator.

Final Conclusion: The appeal failed, and the order directing the secured creditor to bear its proportionate share of securing expenses and litigation costs was affirmed.

Ratio Decidendi: Where a liquidator incurs preservation or salvage expenses at the request or with the consent of a secured creditor for protecting the secured asset during liquidation, the creditor seeking to realise its security interest must bear the corresponding proportionate cost rather than shifting it to the liquidation estate.

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