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High Court Of Delhi
HARYANA FINANCIAL CORPORATION - Appellant
Versus
LUK AUTO ANCILLARY (INDIA) LIMITED (IN LIQN) - Respondent
Company 6 of 1993
Decided On : 07/15/1993
COMPANY - WINDING UP - SECURED CREDITOR - INTEREST - RATE - DECREE - JURISDICTION - EQUITY - PARI PASSU DISTRIBUTION - WORKMEN'S WAGES - SECTION 34, C. P. C. - SECTION 529-A, COMPANIES ACT, 1956 - RULES 156 AND 179, COMPANY (COURT) RULES, 1959.
Fact of the Case:
The appellant, Haryana Financial Corporation (HFC), filed an appeal against the order of the Official Liquidator, who accepted HFC's claim as a secured creditor to the extent of Rs. 19,86,847.90. HFC contended that, as a secured creditor, it was outside the winding up and was entitled to charge interest at the contractual rate or the rate awarded by the court decree. The Official Liquidator challenged this contention, arguing that under the Companies Act, 1956, no interest could be paid to any creditor beyond what was laid down in Rules 156 and 179 of the Company (Court) Rules, 1959, without any distinction between secured and unsecured creditors.
Finding of the Court:
The court held that the decree passed by the trial court awarding interest at 12% p.a. from the date of the decree was beyond the court's jurisdiction under Section 34 of the Code of Civil Procedure (C.P.C.), which limited the rate of interest to 6% p.a. However, since no appeal was filed against the decree and it had become final, the court declined to interfere with it.
Issues: 1. Whether a secured creditor is entitled to charge interest at the contractual rate or the rate awarded by the court decree, even after the commencement of winding up proceedings. 2. Whether the claims of workmen for their wages rank pari passu with the claims of secured creditors in the distribution of assets during winding up.
Ratio Decidendi: 1. The court held that under the Companies Act, 1956, and the Company (Court) Rules, 1959, no interest could be paid to any creditor beyond what was laid down in the rules, without any distinction between secured and unsecured creditors. This meant that the secured creditor was not entitled to charge interest at the contractual rate or the rate awarded by the court decree after the commencement of winding up proceedings. 2. The court held that the claims of workmen for their wages ranked pari passu with the claims of secured creditors in the distribution of assets during winding up. This was based on the principle of equity and fairness, as well as the legislative intent behind Section 529-A of the Companies Act, 1956, which brought the claims of workmen on par with those of secured creditors.
Final Decision: The court allowed the appeal to a limited extent and remanded the matter back to the Official Liquidator to examine the appellant's claim under the decree. The court directed that the workmen's claim for wages and dues of the secured creditors as on the date of the winding up order should rank pari passu with each other. After meeting these claims, if there was a surplus remaining, payment to other creditors with regard to their dues should be made. If after meeting this liability any surplus was still available, the amount of interest at the rate decreed which had already accrued till the date of realization of the security should be paid to the secured creditors.
( 1 ) THIS is an appeal filed by Haryana Financial Corporation (H. F. C.) against the order of the Official Liquidator whereby he has accepted the claim of the Haryana Financial Corporation to the extent of Rs. 19,86,847. 90 in its capacity as a secured creditor. At the time of hearing, it was pointed out that this claim represents the full principal amount plus interest in terms of the decree in favour of Haryana Financial Corporation upto the date of winding up order.
( 2 ) THE case of the appellant is that being a secured creditor, it is outside the winding up and as such, are entitled to charge interest at the contractual rate/the rate at which it has been awarded interest under the court decree. This contention has been challenged by the Official Liquidator.
( 3 ) AT the time of the hearing, the Haryana Financial Corporation placed reliance upon the terms of its mortgage and the decree passed by the court whereby the District Judge at Faridabad decreed t claim for the two principal amounts being Rs. 2,89,890. 01 and Rs. 7,42,560. 01 together with further interest at the rate of 12% p. a. from 15. 5. 1975 in respect of Rs. 2,88,890. 01 and from 1. 6. 1975 in respect of the other amount, i. e. , Rs. 7,42,560. 01. In the absence of any specific provision being made in the decree it will be deemed that the 12% interest awarded would be simple interest. The decree was passed much prior to the coming into force of the Code of Civil Procedure (Amendment) Act, 1976 which came into force w. e. f. 1. 7. 1977. At the time of passing of the decree, the proviso to Section 34 of C. P. C. was not there. After the passing of the decree on 25. 11. 1975, apetition for winding up of judgement-debtor was presented in 1978 and winding up of the judgement- debtor was ordered on 6. 5. 1982. The contention raised on behalf of the Haryana Financial Corporation is that the Official Liquidator could not reject any part of the claim of the secured creditor in respect whereof a court had passed a decree.
( 4 ) THE Official Liquidator has pointed out that the position under the Companies Act, 1956 is quite different from that which prevailed under the Indian Companies Act, 1913 and that no interest to any creditor can be paid beyond what has been laid down under Rules 156 and 179 of the Company (Court) Rules, 1959 without any distinction between secured and unsecured creditor.
( 5 ) IT is further contended that as a consequence of the enactment of Section 529-A in the Companies Act, 1956, the situation has undergone a significant change whereby the claim for wages of the workmen ranks pari passu with the claims of the secured creditors. Official Liquidator has to represent the workmen for the purposes of such pari passu distribution. Such pari passu distribution is not feasible unless and until funds are available to the 0. L. or the security is enforced with full involvement of the O. L. For mat reason, it cannot be said now that the secured creditor can sell the securities without the intervention of the court and that it can appropriate the sale proceeds for the satisfaction of its dues without any reference to 0. L. or court as 0. L. has to represent workers interest also. It is for that reason that it is often considered just and equitable and proper that the O. L. should sell the securities of the secured creditors in consultation with the secured creditors or vice- versa. There is also the question as to whether under the provisions of Section 34 of C. P. C. as it existed at the time of passing of the decree, the court could not award pendente lite and post decree period interest in excess of 6%. The question for consideration in such a case would be whether the decree is a nullity being beyond the jurisdiction of court to award interest at any rate higher than 6% in view of specific bar on the powers of the Court.
( 6 ) ON behalf of H. F. C. , reliance has been placed on the case of Lakshminarayana Shashtry Vs. Vijay Commercial Ban
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