Enforcement of security by secured creditors outside winding-up proceedings must be done through appropriate civil court proceedings, and claims under Section 446(2)(b) of the Companies Act, 1956 are not maintainable for possession of hypothecated goods.

Chandrakantraj, J.—These two applications under Section 446(2)(b) of the Companies Act, 1956 (hereinafter referred to as "the Act"), are disposed of by the following common order as a common question of law arises for consideration in both the applications. The applicant in C. A. No. 617 of 1982 is the Karnataka Bank Ltd., a banking concern incorporated under the Banking Companies Act. It is represented by its manager at the Harihar branch who is also its duly authorised power of attorney holder. The applicant-bank claims to be a secured creditor of the respondent, M/s Craft Tools Pvt. Ltd., which has been ordered to be wound up by this court. The respondent is represented by the official liquidator who is the liquidator of the company in question. The bank claims to have advanced a little over Rs. 9,74,259.04 as pronote loans in certain sums on four hypothecation deeds in respect of machinery and stock-in-trade. The prayer in the application is that the official liquidator may be directed to hand over all movables situated in the factory premises of the company in liquidation at Harihar including the machinery and stock-in-trade which is said to be hypothecated under the four hypothecation deeds to the bank. Alternatively, it is prayed that the court may cause the sale of the said movables and machinery hypothecated with the bank and direct the amount to be paid to satisfy the loans of the petitioner's bank on priority, as it is a secured creditor.

Similarly, in C. A. No. 646 of 1982, the applicant is one Dr. H. Job and the respondent is M/s Mysore Tools Ltd., which is also now in liquidation. In that application, the petitioner. Dr. H. Job, has prayed for an order directing the official liquidator to give custody of the machinery and other materials which are said to have been hypothecated to him under a deed of hypothecation by the respondent, M/s Mysore Tools Ltd. The amount claimed is Rs. 4,34,280 together with interest, etc.

2. It is useful to state that in both the applications, the applicants have made it clear that they wish to stand outside the winding up proceedings.

3. The question is whether the official liquidator who is now in charge of the assets of the companies in liquidation is liable to give possession of the hypothecated goods to the respective secured creditors of the two companies in liquidation as their loan is secured by the said movables. Incidentally, the question which automatically falls for consideration is whether such secured creditors can move this court under Section 446(2)(b) of the Act and if not whether the applications are liable to be rejected as not maintainable.

4. The learned counsel appearing for the applicant companies have submitted their arguments at length. Shri Udaya Holla, the learned counsel in C. A. No. 617 of 1982, has placed reliance on a number of decisions to some of which reference will be made in the course of this order. Shri S. Vijayashankar, learned counsel appearing for the official liquidator, has strenuously opposed the prayers in the applications and has contended that the practice of this court has always been to dismiss claims by secured creditors who stand outside the winding up proceedings leaving them to work out their remedies in the appropriate civil court for enforcement of their security. He has specifically drawn my attention to the provisions of Section 47 in Part III of the Provincial Insolvency Act, 1920, which alone provides the mode and manner of settlement of the claims of a secured creditor by the official liquidator.

5. Both the applicants do not dispute that they have not enforced their security so far outside of making the applications under Section 446(2)(b) of the Act. Therefore, in effect, what is claimed now is right to possession of the hypothecated materials, possession in the sense of actual custody to which the applicants claim they are entitled by virtue of the terms contained in the deeds of hypothecation. It is only the alternativ