A secured creditor's right to realize or otherwise deal with its security is not affected by the order of adjudication or by insolvency proceedings, but failure to register the mortgage under Section 109 of the Indian Companies Act, 1913, renders it void against the liquidator and any creditor of the company.

1. This is an application on behalf of the Punjab State under Section 530 of the Companies Act 1956 praying for permission to be granted by this Court for recovering the amount due to the State from the respondent-company (in liquidation) as arrears of land revenue in priority to the other debts of the company and without waiting to receive payment in winding up proceedings.

2. The State Government had advanced a loan of Rs. 5,000/- to the Company in March 1955 under the state Aid to Industries Act (5 of 1935). The loan was advanced in order to enable the Company to manufacture butter and cream and the advance was against the security of the Companys assets including booklets, stock, stores, machinery equipment etc. The advance was evidenced by a deed of mortgage, certified copy of which has been placed on the record as Exhibit P.W. 1/1. It is stated that nothing at all has been refunded to the Government. As required by sections 23 and 24 of the State Aid to Industries Act 1935, a notice was sent to the Company and it was followed by a declaration duly published in the official gazette. Nothing has been paid by the Company. On the above allegations the State wants that in pursuance of the provisions of section 35 of the Act it may be allowed to recover the amount due to it as arrears of land revenue. Section 35 runs as under:

"Notwithstanding anything contained in sections 23, 24 and 25, any amount payable to the State Government under this Act or by virtue of a contract entered into under this Act including interest and costs, if any, may with the previous sanction of the State Government, be recoverable as arrears of land revenue".

3. Mr. K. S. Kwatra, learned counsel for the State has drawn my attention to section 529 of the Companies Act 1956 which is to the effect that in the winding up of the insolvency of the Company, the same rule shall prevail and be observed with regard inter alia to the respective rights of secured and unsecured creditors, as are in force for the time being under the law of insolvency with respect to the state of persons adjudged insolvents.

He has also drawn my attention to section 28, sub-section (6) of the Provincial Insolvency Act which provides: "Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this section had not been passed."

The argument which he rests on this provisions is that the rights of a secured creditor to realise or otherwise deal with his security in the same manner as he would have been entitled to realise or deal with it if section 28 had not been passed, remains unaffected by the order of adjudication or by insolvency proceedings. He has also drawn my attention to a similar statement of Indian Law, as noticed in Palmers Company Precedents, part 11 page 316. It is stated there that a secured creditor is prima facie entitled to proceed, his security not being part of the estate and effects of the company, and this being so, it would not be proper for the court to refuse liberty to proceed, and so compel the secured creditor to allow the assets to be realised in the winding up, and thus to forgo his just rights. Finally Mr. Kwatra drew my attention to my decision in Excise and Taxation Officer V/s. Gauri Mal Butail Trust, ILR (1960) 1 Punj 809: (AIR 1961 Punj 292). Therein I had held that after the enforcement of the Constitution, the situation has not undergone any change as to the priority enjoyed by the State for the debts due to it. The Common Law doctrine, that if the debts due to the Crown are of equal degree to the debts due to a private citizen then the Crown are of equal degree to the debts due to a private citizen then the Crown must have priority against the private citizen, is also the law of this country. That was a case in which the Excise and Taxation Officer had made an application praying that the property t