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IN THE HIGH COURT OF BOMBAY
N.J. Jamadar, J.
Axis Bank - Appellant
Versus
Gol Offshore Limited - Respondent
Interim Application No. 2917 of 2021
Decided On : 12-04-2023
SECURED CREDITORS - COMPANY LIQUIDATION - Companies Act, 1956: Sections 531, 536, 529A; Merchant Shipping Act, 1958; Companies Act, 2013: Sections 77(1), 78, 326 - The court analyzed the rights of secured creditors in the context of a company in liquidation, emphasizing the validity of transactions made in the ordinary course of business. It interpreted Sections 531 and 536 of the Companies Act, determining that the funds in the Trust and Retention Account (TRA) and O & M Expenses Sub Account were not subject to claims of fraudulent preference or void transactions, as they were generated from charter operations and secured by prior agreements. The court allowed the appropriation of these funds by the secured creditors, subject to satisfying workmen's claims under Section 529A.
Fact of the Case:
The applicants, claiming to be secured creditors of Gol Offshore Limited, sought permission to appropriate funds from the Trust and Retention Account and O & M Expenses Sub Account, which were generated from the charter of a vessel owned by the company in liquidation. The Official Liquidator contested this, arguing that the funds constituted company assets and were subject to claims from other creditors, including workmen.
Finding of the Court:
The court found that the applicants were indeed secured creditors with a valid charge over the assets of the company in liquidation. It determined that the funds in question were generated in the ordinary course of business and thus were not subject to claims of fraudulent preference or void transactions under the Companies Act. The court allowed the appropriation of the funds, provided the applicants satisfied the claims of workmen.
Issues: Whether the applicants, as secured creditors, could appropriate the funds in the TRA and O & M Expenses Sub Account, and whether such appropriation constituted a fraudulent preference or was void under the Companies Act.
Ratio Decidendi: The court held that transactions made in the ordinary course of business are valid and not subject to the provisions of fraudulent preference or void transactions under Sections 531 and 536 of the Companies Act. The court emphasized the importance of the secured creditors' rights and the necessity to balance these rights with the claims of workmen under Section 529A.
Final Decision: The application was allowed, permitting the applicants to appropriate the amounts in the TRA and O & M Expenses Sub Account, subject to an undertaking to satisfy the workmen's claims as required by law.
JUDGMENT/ORDER
1. The applicants who claim to be the secured creditors of Gol Offshore Limited, the company in liquidation, have preferred this application to seek permission to appropriate their purportedly exclusive security namely the amounts lying in the Trust and Retention Account and O & M expenses sub account of the company in liquidation as maintained by the applicant No. 1 Axis Bank Limited, the Lead Bank, on behalf of the applicants.
2. The background facts necessary for determination of this application can be stated in brief as under:-
b] The said vessel Malavia- 36 was chartered to ONGC and the amounts generated by the said vessel were deposited by ONGC in the company in liquidation's Trust and Retention US$ Account (TRA) and subsequently those amounts were transferred to TRA INR Account No. 914020041607073 held by Axis Bank Limited, the applicant No. 1, on behalf of the applicants. An account namely O & M Expenses Sub Account with Account No. 914020042093925 was also opened.
c] The applicants assert the funds in the TRA and O and M Expenses Sub Account have been, inter alia, used by the company in liquidation for the maintenance of vessel Malavia 36. As of 30/6/2021 an amount of Rs.16, 60, 67, 829.96 along with further interest was lying in the TRA account and an amount of Rs.20, 44, 749.99 along with further interest was lying in the O and M Expenses Sub Account.
d] In the meanwhile, by an order dtd. 5/5/2017 passed in Company Petition No.119 of 2015, the Company Petition came to be admitted and the official liquidator attached to this Court was appointed as the provisional liquidator of the company in liquidation. By a further order dtd. 4/12/2017, the company in liquidation was ordered to be wound up and the Official Liquidator came to be appointed as liquidator of the company in liquidation.
3. The applicants claimed that on account of the default committed by the company in liquidation in respect of the various loan facilities, the applicants in the capacity of the secured creditors enforced their respective security by standing outside the winding up proceeding. Therefore, the applicants have preferred this application to seek permission of the Court to appropriate the amounts lying in the TRA and O & M Expenses Sub Account. The applicants undertake to satisfy pro rata the claims of the workmen of the company in liquidation upon adjudication under Sec. 529A of the Companies Act, 1956 or Sec. 326 of the Companies Act, 2013 along with interest at the prevailing rate by depositing a portion of the amount equivalent to the workmen's portion with the Official Liquidator as and when directed by this Court. Hence, this application.
4. The Official Liquidator resisted the application by filing an affidavit in reply. The Official Liquidator contends the Company Petition was presented on 20/8/2014 and, post the winding up order, the Official Liquidator has invited the claims of workmen and other creditors and has adjudicated 1381 claims for an aggregate sum of Rs.1283.95, 75, 520. However, Official Liquidator pursuant to an order passed by this Court on 19/5/2020 in
Secured creditors can appropriate funds generated in the ordinary course of business from a company in liquidation, provided they comply with statutory obligations to satisfy workmen's claims.
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