A contributory's partial payment to a creditor leads to their entitlement to receive equivalent property from the company's assets in liquidation.

Dictated by Arijit Banerjee, J.

The Court: A Company by the name of Bengal Enamel Works Limited (hereinafter referred to as “the company”) went into liquidation in the year 1984. The present appellant was one of the contributories of the company. The dues of the United Bank of India from the company were in excess of Rs.500 lakh. The dues were settled at Rs.450 lakh. Rs.225 lakh was paid to the Bank by the present appellant on behalf of the company. This was in the year 2006. The balance portion of the settled amount was not paid. Therefore, the company remained in liquidation.

In 2013, the present appellant took out an application before a Learned Single Judge being CA /455/2013 saying that since it had paid a substantial sum of money to the creditor-Bank on behalf of the company, the landed assets of the company which were in the custody of the Official Liquidator should be released in favour of the appellant herein. An order dated May 14, 2014, was passed by the Learned Single Judge, the relevant portion whereof reads as follows:

“Having considered the submission of the parties there is no doubt that the secured creditor UBI lent and advanced sums to one Bengal Enamel Works Limited, which went into liquidation in 1984. A settlement was reached between UBI and the company on 12th February, 2005. This was pursuant to proceedings filed under sections 391(1) and 393 of the Companies Act, 1956 and an application filed under section 466 of the Companies Act, 1956 . Although the settled amount was Rs.450 lakhs, for payment of only a part thereof, termination notice was issued on 14th January, 2006 which by consent of parties was stayed by order dated 8th March, 2006 on the condition that the company and the applicant herein would pay a sum of Rs.72.50 lakhs to the secured creditor UBI and on such payment land equivalent thereto would be released and title deeds in respect thereof would be handed over either to the company or to the applicant. On the basis of the said order an agreement was entered into between the company, its director, applicant and UBI on 18th March, 2008. In the said agreement which the parties referred to as a deed of release it was recorded that a sum of Rs.225 lakhs out of Rs.450 lakhs had been paid by the applicant and the company. Payment of balance Rs.225 lakhs was also set out in the said agreement which sum admittedly has not been paid. A schedule has been appended to the said deed of release wherefrom the plots of land which stood released in favour of the company finds mention.

According to the parties, the properties which were released in favour of the applicant is at present in the custody of the Official Liquidator. Therefore, any direction that may be passed be on the Official Liquidator to hand over possession of the said properties to the applicant. In fact, a certificate has also been appended to the deed of release wherein the United Bank of India has certified that its dues has been liquidated and the company absolved of its liabilities, therefore, the properties mentioned be released in favour of the applicant herein who will hold the same as a mortgage. Admittedly, Rs.225 lakhs has been paid by the applicant and to the extent thereof the properties ought to be released in its favour. The agreement postulated payment of Rs.450 lakhs and as Rs.225 lakhs is 50% of the settled amount, let land equivalent to the said sum be released by the Official Liquidator in favour of the applicant herein within eight weeks from date. In the event valuation is required to be made the said exercise be undertaken by the Official Liquidator out of the funds lying with it, if any, in the account of the company (in liquidation). In the event no money is held by the Liquidator to the credit of the said company (in liquidation), let expense be borne from the Official Liquidator’s Establishment fund for which the Official Liquidator will be entitled to reimbursement.

It is an admitted fact that the settled amount in it