TaxTMI 
TaxTMI 
2018 (9) TMI 1390
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....ra (23) above, whether this Hon'ble Court would be pleased to permit the Official Liquidator to declare and pay a dividend @ 20.539% amounting to Rs. 16,08,143/­ (Rs.17,85,058/­) to Canara Bank subject submission of an undertaking to bring back the amount along with interest as and when demanded by the Official Liquidator for settlement of any worker claim in future; (c) In view of para (27) above, whether this Hon'ble Court would be pleased to permit the Official Liquidator to open a 'Separate Dividend Account' with Punjab National Bank, Punjab National Bank House, Fort, Mumbai with a sum of Rs. 16,08,143/­ (Rs.17,85,058/­) under Rule 290 of the Companies (Court) Rules, 1959 for making payment of dividend to Canara Bank and the dividend shall be payable for a period of six months from the date on which the directions/orders are given by this Hon'ble Court for Declaration of Dividend and thereafter to transfer the unpaid/unclaimed dividend, if any, to the "Companies Liquidation Account" maintained with the Registrar of Companies, Maharashtra, Mumbai under Section 555 of the Companies Act, 1956; (d) In view of para (28) above, whether this H....
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....of SICOM and Canara Bank. Security of SICOM was sold for a sum of Rs. 20 Lakhs and the security of Canara Bank was sold for a sum of Rs. 9,02,000/­. The Official Liquidator has invested the entire consolidated sale­proceeds in Fixed Deposits and the same have been renewed from time to time. As on the date of OLR No.96 of 2017, a sum of Rs. 58,09,089/­ is available with the Official Liquidator. In 19961997, the Official Liquidator had invited claims of workers and creditors as per Rule 148, by giving advertisement in the newspapers. The last date for inspection of the claims was 5th November 1997. No claims of any workers was received. On 9th August 2006, SICOM lodged its claim with the Official Liquidator for a total sum of Rs. 47,25,598/­ of which principal was Rs. 22,76,366/­ and interest upto 3rd October 1991 (date of winding up) amounted to Rs. 24,49,232/­. On 29th February 2008, The Official Liquidator passed an order adjudicating SICOM's claim and admitted SICOM's claim for the said sum of Rs. 47,25,598/­. On 22nd June 2010, SICOM, without the knowledge and consent of the Official Liquidator, unlawfully assigned the leasehold rights of the Respo....
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....ing that needed to be considered. It was felt that certain guidelines need to be laid down as to the circumstances when a secured creditor could be entitled to claim reimbursement of the expenses incurred for preserving an asset of the Company in liquidation. 5 Further, as can be seen from what is set out hereunder, the amounts that SICOM has received from guarantors, has also been adjusted against SICOM's claim against the principal debtor. SICOM has sought to contend that the Liquidator could not have adjusted the amounts received from guarantors. 6 ISSUE NO.1 :­ Shri Engineer submitted that the manner in which the expenses incurred in connection with the winding up of a Company are to be paid, shared, recouped or recovered is dealt with in Rule 292 of the Companies (Court) Rules, 1959 (Rules) and Section 529 of the Companies Act, 1956 (The Act). Shri Engineer submitted that from a bare perusal of Rule 292 of the Companies (Court) Rules, what is apparent is as follows: (i) Where a company in liquidation has funds for meeting the expenses, the Liquidator shall use the funds of the company for preserving the assets of the company. (ii) If the company does not have f....
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....itor has to be paid by the official liquidator to the creditor. 9 Let us see what Rule 292 and Section 529 say. Rule 292 and Section 529 (1) and (2) read as under :­ Rule 292 reads as follows : "R.292. Whether the company has no available assets.­ Where a company against which a winding­up order has been made has no available assets, the Official Liquidator may, with the leave of the court, incur any necessary expenses in connection with the winding­up out of any permanent advance or other fund provided by the Central Government, and the expenses so incurred shall be recouped out of the assets of the company in priority to the debts of the company: Provided that where any money has been advanced to the Official Liquidator by the petitioning or other creditor or contributory for meeting any preliminary expenses in connection with the winding­up, Official Liquidator may incur any necessary expenses out of such amount, and the money so advanced shall be paid out of the assets of the company in priority to the debts of the company." Section 529 (1) and (2) reads as follows: "529. APPLICATION OF INSOLVENCY RULES IN WINDING UP OF INSOLVENT COMPANIES ....
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....against which the winding up order has been made, has no available assets and the liquidator to incur any necessary expenses in connection with the winding up, with the leave of the Court, uses any permanent advance or other fund provided by the Central Government, then the expenses so incurred shall be recouped out of the assets of the company in priority to the debts of the company; (b) Where any money has been advanced to the liquidator by the petitioning or other creditors or contributory for meeting any preliminary expenses in connection with the winding up, the official liquidator may incur any necessary expenses out of such amount and the money so advanced, shall be paid out of the assets of the company in priority to the debts of the company. Therefore, what provision Rule 292 says is if any party, viz., petitioning or other creditor or other creditors or contributory has advanced certain amounts to the official liquidator to incur necessary expenses, such amount will be paid out of the assets of the company in priority of the debts of the company. In other words, if a party has funded the liquidator to meet his expenses, the liquidator will pay him back first that amount o....
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....f the debt after deducting the estimated value; or rely on the security and not prove in the winding up proceedings. The Court held that a secured creditor can exercise his option after the company is ordered to be wound up. Therefore, there would be a situation where the land and building of the company (in liquidation) is, let us say mortgaged to XYZ Ltd. XYZ Ltd. would have exercised the option of enforcing the security and prove in the winding up the balance of the debt, if any, after deducting the amount realised. The liquidator may have incurred expenditure to preserve the said land and building which is mortgaged to XYZ Limited. The proviso says XYZ shall be liable to pay such expenses that the liquidator has incurred for preserving that land and building secured to XYZ Limited. But expression used is ".........his portion of the expenses incurred by the liquidator...........". This is because there could be a situation where there are workmen of the company (in liquidation) who will have a pari pasu charge on that security to the extent of dues of workmen from the sale proceeds. In such a situation, XYZ Limited need not pay for the preservation cost for the entire amo....
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....for the security expenses incurred for preserving the security which was realized by SICOM and Canara Bank and the entire sale proceeds is being paid over to them. 16 There could be a situation where the land and building might have been mortgaged to a financial institution but the plant and machinery inside the land and building are not, and the financial institution has engaged services of a security agency to protect the entire property. Let us assume that the entire property has been sold on as is where is basis to a third party by the official liquidator and 80% of the sale proceeds relates to the mortgaged land and building and 20% relates to the plant and machinery. Let us also assume that the secured creditor has incurred Rs. 1,000/­ towards security costs for the entire property. The secured creditor, as provided under Section 529(2), shall be liable to pay his portion of the security charges for the preservation of the land and building which will be 80% of Rs. 1,000/­, i.e., Rs. 800/­. The balance 20%equivalent to Rs. 200/­, the secured creditor can claim to be reimbursed by the official liquidator who shall distribute that costs amongst all the unsecu....
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....Total amount available including interest 40,63,471.00 2 Plus: amount deposited by SICOM in view of unlawful assignment by SICOM 31,11,101.00 Total 71,74,572.00 3 Less: Provision for income tax, Central Government Commission etc 1,59,440.00 4 Balance available for declaration of dividend to SICOM: 70,15,132.00 The following amount is due and payable to SICOM: 1 Adjudicated claim of SICOM 47,25,598.00 2 Less: Paid by guarantor on 19.04.2007 40,50,000.00 3 Less: Paid by Naresh Gupta on 25.05.2010 10,00,000.00 AMOUNT PAYABLE TO SICOM NIL (already received Rs. 3,24,402/more than adjudicated amount) As can be seen from what is set out hereinabove, SICOM is not entitled to any further sum as dividend from the Official Liquidator. The adjudicated claim of SICOM was Rs. 47,25,598/­. SICOM had already received a sum of Rs. 40,50,000/­ on 19th April 2007 and a further sum of Rs. 10 Lakhs on 25th May 2010 aggregating to Rs. 50,50,000/­, which is Rs. 3,24,402/­ more than the amount adjudicated by the Official Liquidator. 20 Shri Engineer also submitted that the liability ....
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....ed creditor against the official liquidator and the guarantor's claim will rank pari pasu with other unsecured creditors. Shri Engineer submitted that therefore, the amount that will be payable, ultimately to the guarantor will be much lesser amount and not Rs. 47,25,598/­. 22 I agree with Shri Engineer. The liability of a guarantor and principal debtor is co­extensive. Section 128 of the Indian Contract Act, 1872 is very clear on this and it reads as under :­ "128. Surety's liability.-The liability of the surety is co­extensive with that of the principal debtor, unless it is otherwise provided by the contract. - The liability of the surety is co­extensive with that of the principal debtor, unless it is otherwise provided by the contract." Illustration A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and charges which may have become due on it. A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and....
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....lease hold rights and it had, without the knowledge and consent of the Official Liquidator, unlawfully assigned the leasehold rights of the Respondent­Company (in liquidation) to a third party and retained a sum of Rs. 31,11,101/­ sometime in May/June­2010. 26 On the directions of this Court, SICOM deposited this amount of Rs. 31,11,101/­ with the official liquidator sometime in January 2017. It is the case of the official liquidator that SICOM, having retained and enjoyed this money for more than 5 years, may be directed to pay some interest also. Shri Engineer submitted that SICOM has utilized this money towards earning revenue and normally the lending rates have been around 14% per annum with monthly or quarterly or half­yearly rests. Shri Engineer submitted that SICOM could not have earned money out of this amount of Rs. 31,11,101/­ as it was not entitled and hence SICOM should be directed to pay interest to the official liquidator of at least 14% per annum on this amount of Rs. 31,11,101/­. Shri Kanade, in fairness, and on instructions from Ms.Pradnya Sunil Tanksale, Assistant General Manager of SICOM who is present in Court, stated that SICOM wo....