TaxTMI 
TaxTMI 
2008 (5) TMI 399
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....able to the workmen, along with their principal dues, in the absence of an agreement for payment of interest ? The company in liquidation availed a loan from the State Bank of India, (SBI) for Rs. 160 lakhs against the mortgage of immovable properties comprising of land and buildings, i.e., the fixed assets belonging to the company situate at Pendurthi in Visakhapatnam district. Forms Nos. 8 and 13, for registering the charge of land and buildings in favour of the State Bank of India, were filed with the Registrar of Companies, vide registration No. 3240 dated February 24, 2000. The company under liquidation failed to repay the debt due resulting in the State Bank of India filing O. A. No. 739 of 2007, before the Debts Recovery Tribunal, Visakhapatnam on December 18, 2001, for the recovery of Rs. 1,6940,978.62 paise, (the then outstanding dues), and for interest thereon at 15 per cent, per annum compounded quarterly from the date of the application till realisation, for the sale of the immovable properties of the company under liquidation charged in their favour by way of first charge, and to pay them the sale proceeds. The Industrial Development Bank of India (IDBI) filed O. A. ....
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....s. 2,40,16,649 was available to the credit of the company in liquidation which is to be disbursed to the creditors since all valid claims were adjudicated and placed on the notice board of this court in accordance with rules 167 and 169 of the Companies (Court) Rules, 1959, that no appeal was pending in respect of these adjudicated claims and, though the official liquidator was not obliged to set apart any amount for future claims, (there being on record some belated claims from the governmental authorities), an amount equivalent to such claims for Rs. 37,06,433 had been kept aside from the proposed dividend distribution and that the official liquidator proposed to disburse dividend at 100 per cent, to all the secured and preferential creditors and at 86.56 per cent, to the unsecured creditors. This court, in its order dated September 3, 2007, noted the appearance of Sri P. V. Markandeyulu, learned counsel for the Industrial Development Bank of India and issued notice to the other secured creditors. In his affidavit of proof of service dated September 14, 2007, the official liquidator stated that notice was served on the Industrial Development Bank of India through special messeng....
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....g up, that the claim had been filed voluntarily, and not pursuant to any direction, that this court, by order dated September 30, 2006, had permitted him to pay 70 per cent, of the sale realisation which exceeded the total amount of debt of Rs. 1,87,24,000 claimed by the State Bank of India before him and hence he had disbursed 100 per cent, of the claimed secured debt of the State Bank of India for Rs. 1,87,24,000 from out of the proportionate sale proceeds of the land and buildings of Rs. 446.65 lakhs. He farther states that, subsequently, by order dated October 11, 2006, this court had directed him to invite claims from the creditors of the company, that claims were invited by way of publication in the newspapers, that 23 claims were received and that neither had the State Bank of India submitted a revised claim nor had they made any additional claim before him. The official liquidator states that he had issued a notice in Form No. 68 dated January 9, 2007, for investigation of the claims and production of further evidence, that a copy of Form No. 68 was also issued to the State Bank of India, that the claims were decided on the basis of the proof filed as also the charge partic....
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....ed was Rs. 5.30 crores which was confirmed by the High Court, that they had submitted proof of their debt in the prescribed Form No. 66 before the official liquidator claiming dues as on April 9, 2002, amounting to Rs. 438.66 lakhs, (comprising of Rs. 200 lakhs towards principal arid Rs. 238.66 lakhs towards interest) and that a sum of Rs. 70 lakhs was disbursed pending adjudication of proof of their debt. They would state that they had sanctioned a term loan of Rs. 400 lakhs to the company1 under liquidation, that the said term loan had to be secured by way of mortgage of land and buildings and hypothecation of plant and machinery, ranking pari passu with the mortgage and hypothecation of the State Bank of India, that the deed of hypothecation of plant and machinery was executed in their favour on October 29, 2007, and presented before the Registrar of Companies, but the mortgage of land and buildings was not created as the State Bank of India had not honoured its ceding in principle of the pari passu charge issued earlier, that as such they had reduced the loan to Rs. 200 lakhs, that the said amount was disbursed to the company under liquidation, that the official liquidator had ....
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....State Bank of Patiala v. Northland Sugar Complex Ltd. [2004] 121 Comp Cas 847 (P & H), Haryana.Financial Corporation v. PNB Auto Ancillary (India) Ltd. (in liquidation) [1994] 81 Comp Cas 588 (Delhi) and ICICI Bank Ltd. v. Sidco Leathers Ltd. [2006] 131 Comp Cas 451 ; AIR 2006 SC 2088. On the other hand, the official liquidator would contend that neither the Companies Act, nor the Companies (Court) Rules, 1959, provide for payment of interest subsequent to the date of winding up and that the dues of the secured creditors comprise of the principal and interest only till the date of winding up. With regard to the claim of subsequent interest, from the date of winding up till the date of sale of the assets, the official liquidator would state that the secured creditor was entitled, along with the workmen and the other unsecured creditors, for payment of interest at 4 per cent, per annum/from the surplus available, if any, after the principal dues of the unsecured creditors have been paid in their entirety. He would submit that, in view of section 529(1)(c), the statutory provisions of the Provincial Insolvency Act, 1920, would apply in the winding up of an insolvent company. He would....
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.... they are respectively entitled to make by virtue of the section. Section 447 of the Companies Act, 1956, relates to the effect of a winding up order and, thereunder, an order of winding up shall operate in favour of all the creditors and all the contributors of the company as if it had been made on the joint petition of a creditor and of a contributory. Part VII, Chapter V of the Companies Act, 1956, are the provisions applicable to every mode of winding up. Under the head "proof and ranking of claims", section 528 provides for debts of all descriptions to be admitted to proof. Section 529 relates to the application of insolvency rules in the winding up of insolvent companies and, under section 529(1)(c), in the winding up of an insolvent company, the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. Under the proviso thereunder, the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein and whe....
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....t or certain sum payable at a certain time or otherwise, whereon interest is not reserved or is not agreed for, and which is overdue on the date of the winding up, the creditor may prove for interest at a rate not exceeding four per cent, per annum upto that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time and, if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest would be claimed from the date of demand until the time of payment. Rule 179 relates to payment of subsequent interest and, thereunder, in the event of there being a surplus after payment in full of all the claims admitted to proof, the creditors whose proofs have been admitted shall be paid interest from the date of winding up upto the date of the declaration of the final dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount of the claim, after adjusting against the said amount the dividend declared as on the date of the declaration of dividend. It must be borne in mind that, in the case on hand, the State Bank of India was the sole charge holder of the lan....
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....ng the value of the security as assessed by him. Where the security is insufficient to meet the debt of a secured creditor, section 47(3) of the Provincial Insolvency Act, 1920, enables him to claim for the balance. Where, however, the security is sufficient to meet the dues of the secured creditor, they would be entitled, under section 47(3) of the Provincial Insolvency Act, 1920, to make a claim only for the balance due after application of the sale proceeds of the security in its entirety for repayment of their debt. Section 48 relates to interest where the debt has been proved. As noted above, a secured creditor is entitled to submit proof of his debt only in cases where the security is insufficient to meet their dues in full. Where a secured creditor submits proof of any amount due to them, after adjusting the value of the security, they would then, under section 48, be entitled to prove for interest at a rate not exceeding 6 per cent, per annum. The payment of interest at 6 per cent, per annum would arise only where the security, on its realisation, is insufficient to repay the dues of the secured creditor in full, i.e., principal plus the contracted rate of interest from the....
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....ting of the principal with interest from the due date till the date of sale of the assets, would the secured creditor, after the sum realised on the sale of the security is utilised in its entirety for repayment of their debt, and proportionately towards the workmen's dues, be entitled to claim/prove, along with the other unsecured creditors, for the balance. In such a situation the secured creditor would be treated on par with an unsecured creditor for the balance due to them and, in case of availability of surplus, be entitled for interest, subsequent to the order of winding up, at 6 per cent, per annum or 4 per cent, per annum, as the case may be. Sri P.V. Markandeyulu, learned counsel appearing for M/s. Stressed Assets Stabilization Fund, would, however, place reliance on section 61(6) to contend that, after the date of winding up, even a secured creditor is entitled only for interest at 6 per cent, per annum on par with all other creditors, both secured and unsecured, that too only when there is a surplus. Under the head "distribution of property", section 61 prescribes the priority of debts. Under sub-section (5) thereof, subject to the provisions of the Act, all debts enter....
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....id not examine the entitlement of the State Bank of India for payment of interest at the contracted rate from the date of winding up till the date of sale of the assets, and merely held that at this stage they were not entitled to any further payment. On a conjoint reading of section 529(1) and 529A, it is evident that, where the security of a secured creditor is sufficient to repay their dues in its entirety (which would include the principal and the contracted rate of interest from the due date till the date of sale of the assets), then, the liquidator is entitled to represent only for the workmen's dues for enforcement of such a charge and not for the other unsecured creditors. It is only if any amount is still due to the secured creditor, even after the sale proceeds of the security has been utilised in its entirety, on account of its ceding pari passu charge to the workmen, shall it rank pari passu with the workmen's dues for the purpose of section 529A. Where the security is sufficient to meet the entire debt of the secured creditor (both principal and interest), the official liquidator's duty is only to protect the interests of the workmen who, by virtue of their dues being....
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....Viewed from any angle, the entitlement of the State Bank of India to be paid interest at the contracted rate of 15 per cent, per annum (from the date of winding up till the sale of assets), from the sale proceeds of the security of which it is the sole charge holder, cannot be denied on the doctrine of estoppel or waiver. It does not stand to reason that a secured creditor, more so a statutory corporation such as the State Bank of India, would waive their claim for interest subsequent to the date of winding up, when the quantum of interest claimed exceeds Rs. 1.67 crores. This contention of estoppel and waiver urged by the official liquidator must be rejected and, since a sum in excess of Rs. 2.40 crores is still available from the sale proceeds of the land and buildings, even after the principal and interest due till the date of winding up has been paid, the State Bank of India must be held entitled to interest at the contracted rate of 15 per cent, per annum from the date of winding up till the date of sale of the assets, as the sum realised on the sale of the land and buildings, of which they were the sole charge holder, is more than sufficient to meet their entitlement. The pl....
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....ffort constitute an important part of the activities of the company, are not deprived of their legitimate dues. A combined reading of sections 529 and 529A of the Companies Act would show that, notwithstanding anything contained in any other law for the time being in force, or in the Companies Act itself, preference is given for workmen's dues, and debts due to the secured creditors, to the extent such debts rank, under clause (c) of the proviso to section 529(1), pari passu. Therefore, when the assets of the company are sold and the proceeds realised, the debts by way of workmen's dues, and that of the secured creditors, have to be paid in full if the assets are sufficient to meet them and if they are not sufficient then in equal proportions. The distribution, in a case where the debtor is a company in the process of being wound up, can only be in terms of section 529A read with section 529 of the Companies Act. The liquidator represents the entire body of the creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors (Rajasthan Financial Corporation v. Official Liquidator, Jaipur Spinning and Weaving Mills Ltd. ( in liq....
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....ses, then the proportionate amount available for repayment of the dues of the workmen decreases. Accepting the contention of Sri K. Gopalakrishna Murthy, learned standing counsel for the State Bank of India, would mean that, while the secured creditor would be repaid the principal and interest at the contracted rate till the date of repayment, the dues of the workmen would be restricted only to the principal and they would not be entitled for interest on their dues. The very purpose of inserting section 529A, to treat workmen's dues on par with the dues of the secured creditors, would be defeated thereby. It must, therefore, be held that since the workmen are entitled to have their dues ranked pari passu with the debts of the secured creditor they shall, on par with the secured creditor, be entitled for payment of interest at the contracted rate of interest which the secured creditor is entitled to claim from the sale proceeds of the assets of the company under liquidation to the extent to which it holds a charge over such assets. In case a surplus is available, after payment of the dues of the secured creditor (which consists of the principal along with interest at the contracted....