Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2018 Supreme(Bom) 1134

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
K.R. SHRIRAM, J.
M/s. Sterling Trade and Anr. - Petitioner
Versus
The Official Liquidator through M/s. Trimbak Ispat Private Limited (in liquidation) - Respondent
Company Application No. 81 of 2013 with Official Liquidator's Report No. 96 of 2017/VIII in Company Petition No. 480 of 1988
Decided On : 30-08-2018

Advocates Appeared:
For the Applicant : Mr. Monish K. Vig.
For the Respondent: Mr. Vishal Kanade I/b Satish S. Raut, Ms. Pradnya Sunil Tanksale, Assistant General Manager of SICOM, Ms. Vaishali R. Bhilare
For the Official liquidator : Mr. Naushad Engineer, Mr. Mahendhar Aithe

The main legal point established in the judgment is that a secured creditor need not be reimbursed for security expenses if it has realized the security for its sole benefit. The judgment also clarified the liability of guarantors and the distribution of expenses among unsecured creditors.

Headnote:
Official Liquidator - Companies Act, 1956, Section 476, Rule 290 of the Companies (Court) Rules, 1959, Section 529 - The court considered the reimbursement of security expenses under section 476 of the Companies Act, 1956, and the entitlement of secured creditors to seek recovery of amounts spent towards security charges. The court also discussed the liability of guarantors and the reimbursement of expenses incurred by the liquidator for preserving the security. The court held that the secured creditor need not be reimbursed for security expenses if it has realized the security for its sole benefit. The court also clarified the liability of guarantors and the distribution of expenses among unsecured creditors.
Fact of the Case:

The company was ordered to be wound up, and the Official Liquidator was appointed. The secured creditors, SICOM and Canara Bank, sought recovery of amounts spent towards security charges and reimbursement of expenses. SICOM unlawfully assigned the leasehold rights of the company and deposited the proceeds with the Official Liquidator. The Official Liquidator filed a report seeking directions on reimbursement of security expenses and declaration of dividend.
Finding of the Court:

The court held that the secured creditor need not be reimbursed for security expenses if it has realized the security for its sole benefit. SICOM was not entitled to any further dividend as it had already received more than the adjudicated amount. The court also clarified the liability of guarantors and the distribution of expenses among unsecured creditors. SICOM was directed to pay interest on the amount deposited with the Official Liquidator.
Issues: The issues involved whether secured creditors are entitled to seek recovery of security expenses, the liability of guarantors, and the distribution of expenses among unsecured creditors.
Ratio Decidendi: The court held that the secured creditor need not be reimbursed for security expenses if it has realized the security for its sole benefit. The court also clarified the liability of guarantors and the distribution of expenses among unsecured creditors.
Final Decision: The court disposed of the Official Liquidator's report and directed SICOM to pay interest on the amount deposited with the Official Liquidator. The court also clarified the liability of guarantors and the distribution of expenses among unsecured creditors.

JUDGMENT :

1. In this official liquidator's report, the liquidator is seeking the following directions :

(a) In view of para (22 & 24) above, whether this Hon'ble Court would be pleased to permit the Official Liquidator to reimburse an amount of Rs.7,63,203/- (Rs.10,87,605/-) and Rs.1,76,915/- to SICOM (after adjusting the recovery) and Canara Bank respectively towards security Expenses under section 476 of the Companies Act, 1956;

(b) In view of para (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 Hon'ble Court would be pleased to permit the Official Liquidator to dispense with the requirements of Rule 276 of the Companies (Court) Rules, 1959 and to issue the dividend notice to Canara Bank by “Speed Post” to their last known addresses;

(e) In view of para (29) above, whether this Hon'ble Court would be pleased to direct SICOM to deposit with the Official Liquidator, interest on amount of sale proceeds of immovable Rs.31,11,101/- for the period of 5 year and one month at the rate as may be decided by this Hon'ble Court.”

2. Two issues arise in this report, viz., (a) Whether the secured creditors such as SICOM and Canara Bank are entitled to seek recovery/reimbursement of amounts spent by them towards security charges for protecting their security? and (b) Whether the amounts paid by the guarantor to the creditor is to be credited even against the amounts due and payable by the principal debtor to the creditor?

3. On 3rd October 1991, this Court passed an order in Company Petition No. 480 of 1988, by which the Respondent Company M/s. Trimbak Ispat Private Limited was ordered to be wound up and the Official Liquidator attached to this Court was appointed as Liquidator thereof with usual powers under the Companies Act, 1956. The Official Liquidator on 19th October 1991, went to take possession of the factory and the movables situated at 395/8 Bombay Agra Road, Nasik. It was noted that SICOM had already taken possession of the said premises and had deployed its security guards. The Liquidator also took possession, as can be seen from the panchanama, however, the security continued to be that of SICOM. During 1991-1992, SICOM, which claimed to be a secured creditor in respect of certain movable and immovable assets, had taken out Company Application No. 279 of 1992 for permission to sell the assets. Similarly even Canara Bank had filed Company application no.351 of 1991 for sale of its secured assets. On 30th April 1994, order was passed directing the Official Liquidator to sell the Company’s property mortgaged to SICOM. On 16th November 1995, this Court passed the order, fixing the price for selling immovable properties. On 6th December 1995, advertisement was published in the newspapers for sale of the movable properties. On 25th July 1996, an order w

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2018 Supreme(Bom) 1134

The main legal point established in the judgment is that a secured creditor need not be reimbursed for security expenses if it has realized the security for its sole benefit. The judgment also clarified the liability of guarantors and the distribution of expenses among unsecured creditors.

Cases Referred (2)