Winding-up priority limits continue execution only within statutory pari passu distribution and no unauthorised creditor preference

After a winding-up order, leave to continue execution proceedings cannot be used to create a preference for one creditor over others unless the Companies Act itself authorises that priority. The statutory scheme allowed recovery of sums paid under a guarantee in the same manner as a loan, but it did not permit recovery from the principal debtor before the Government had actually honoured the guarantee. The company's liability in certificate proceedings remained subject to the winding-up regime and pari passu distribution of assets under the official liquidator's control. Any leave granted under the winding-up provisions must operate within those statutory priorities and cannot defeat the prescribed order of distribution.

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Issues: Whether, after a winding-up order, leave could be granted to continue execution proceedings by the Government in a manner that would confer priority over other creditors, and whether the statutory scheme permitted recovery of the guarantee amount from the company before actual payment under the guarantee.

Analysis: The statutory provisions governing aid to industries enabled recovery of amounts paid under a guarantee in the same manner as a loan, but did not authorise recovery from the principal debtor before the Government had actually discharged its guarantee. The company's liability in the certificate proceedings was binding as between the Government and the company, but the winding-up provisions of the Companies Act required that distribution of assets be made according to statutory priorities. Leave under the winding-up section was necessary, but that discretion could not be exercised so as to create a preference not otherwise sanctioned by the Act or to defeat the pari passu distribution among creditors. The judgment relied on the distinction between the suspension of proceedings and the creation of a substantive priority.

Conclusion: The Government was not entitled to proceed in a way that gave it a priority over other creditors, and the order permitting the execution to continue was set aside in favour of the appellant.

Final Conclusion: The assets of the company had to remain under the control of the official liquidator for distribution in accordance with the statutory winding-up regime, without any unauthorised preference to the Government.

Ratio Decidendi: Leave to continue proceedings in winding up cannot be used to confer a creditor priority not otherwise provided by the Companies Act, and recovery under a guarantee may be enforced only in accordance with the applicable statutory conditions.

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