1971 (10) TMI 48 - HC - Companies Law

Company with statutory lien on property qualifies as secured creditor in winding-up under Section 125

The HC ruled that a company holding a statutory lien on property is positioned as a secured creditor in winding-up proceedings under Section 125. The ... Statutory lien on a property of a company - registration under Section 125 - whether a person, having a statutory lien on a property of a company, is in the position of a secured creditor and stands outside the winding-up proceedings of the company - HELD THAT:- On a consideration of section 529 read with the relevant provisions of the insolvency law, I come to the conclusion that the holder of a statutory lien or the holder of a lien created by contract and registered as required by section 125 is a secured creditor in the matter of winding up of the insolvent company with regard to, among other things, debts provable in the winding up proceedings. The applicant-company being the holder of a statutory lien is thus in the position of a secured creditor. Though the lien to retain possession of the goods as a bailor does not confer a right of sale on the applicant-company, the applicant-company, as an unpaid vendor of the spare parts supplied, has a right of re-sale. Having regard to these circumstances, I am of the view that in the interest of justice and for the purpose of closing the administration of the insolvent-company, it is necessary that the machineries, which are in the possession of the applicant-company, are ordered to be sold in public auction by the applicant company after due publicity so as to enable the applicant-company to adjust its dues including the cost of sale out 6f the sale proceeds. If there is any balance left, it shall be paid over to the official liquidator. The application is ordered in these terms. No order as to costs. Issues Involved:1. Whether a statutory lien on a company's property positions the holder as a secured creditor outside winding-up proceedings.2. Whether the lien claimed by the applicant-company requires registration under Section 125 of the Companies Act, 1956.3. The rights available to the applicant-company as the holder of a lien.4. Whether the holder of a statutory lien is considered a secured creditor under company law.Issue-wise Detailed Analysis:1. Statutory Lien and Secured Creditor Status:The primary issue is whether a person with a statutory lien on a company's property is considered a secured creditor and stands outside the winding-up proceedings of the company. The court noted that the Companies Act, 1956, does not define 'secured creditor' or 'unsecured creditor.' The applicant-company claimed two types of liens: a particular lien under Section 170 of the Contract Act for unpaid repair charges and a lien as an unpaid seller under Section 46 of the Sale of Goods Act. The court affirmed that the applicant has the right to retain the repaired machineries until receiving due remuneration for the services rendered, distinguishing this right from a pledge, which includes the right of sale.2. Registration Requirement under Section 125:The official liquidator contended that the lien claimed by the applicant-company is void against him as it was not registered under Section 125 of the Companies Act, 1956. The court clarified that Section 125 applies only to charges created by the company and not to charges arising by operation of law. The court referenced Hukmichand v. Pioneer Mills Ltd. AIR 1927 Oudh 55, which held that such statutory liens do not require registration under Section 125.3. Rights as Holder of a Lien:The court examined the definition of 'lien' and concluded that it signifies a right to retain possession of goods until a claim is satisfied. The court noted that a lien does not confer a right of sale, unlike a pledge or mortgage. However, the applicant-company, as an unpaid seller, has a right of resale under the Sale of Goods Act. The court emphasized that the lien is a charge on the property for the payment of a debt or duty, but it does not transfer property ownership.4. Secured Creditor Status under Company Law:The court analyzed Section 529 of the Companies Act, 1956, which applies insolvency rules to the winding-up of insolvent companies. The court referred to the definitions of 'secured creditor' in the Provincial Insolvency Act, 1920, and the Presidency Towns Insolvency Act, 1909, which include holders of liens. The court cited Palmer's Company Law, stating that a solicitor with a lien on a liquidating company's documents is a secured creditor. Consequently, the court concluded that the holder of a statutory lien is considered a secured creditor in the winding-up of an insolvent company.Conclusion:The court held that the applicant-company, as the holder of a statutory lien, is a secured creditor in the winding-up proceedings. The applicant-company has the right to retain the repaired machineries until payment and, as an unpaid seller, has a right of resale. The court ordered the machineries to be sold in a public auction by the applicant-company, with the sale proceeds used to adjust its dues, including the cost of sale. Any balance remaining should be paid to the official liquidator. The application was ordered accordingly, with no order as to costs.