Case: M/S.Asian Power Controls Limited Vs. Mrs. Bubbles Goyal

required to be admitted and advertised and it is at that stage that the Court could go into the question as to whether the security is sufficient or not and exercise its discretion to accept the petitioning creditors claims and request for winding up or to reject the same on judicial consideration.The judgment in Bharat Overseas Bank Ltd. does not lay down any principle to the contrary. In fact, the judgment of the Division Bench in Bharat Overseas Bank Ltd.scase follows the consistent principle of law which has been laid down by the Madras and Calcutta High Courts as noted earlier.10. Section 529(1) of the Companies Act, 1956, provides that in the winding up of an insolvent company, the same rules shall prevail and be observed with regard to (a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (c) 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 estates of persons adjudged insolvent. Under sub-section (2) of section 529, all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of the section. Section 529A provides an overriding preferential priority to the dues of the workmen and to the debts due to secured creditors to the extent to which such debts rank paripassu under clause (c) of the proviso to sub-section (1) of section 529 with such dues. The rules of insolvency which are attracted to proceedings of winding up are inter alia those pertaining to the proof of debts. This is after the stage of the winding up order. This principle has been enunciated in a judgment of Mr.Justice M.N.Venkatachaliah (as the learned Chief Justice then was) speaking for a Division Bench of the Karnataka High Court in Hegdeand Golay Limited v. State Bank of India (ILR 1987 Kar 2673). The judgment of the Company Judge of this Court in CanfinHomes Ltd. (supra) has also followed the principle that the scheme of the provisions relating to winding up, particularly those in sections 528 and 529 would indicate that the stage of proving a claim of a debt arises after an order of winding up is passed. In CanffinHomes Ltd., this Court held as follows:-15. The secured creditor who seeks to prove the whole of his debt in the course of the proceedings of winding up must before he can prove his debt relinquish his security for the benefit of the general body of the creditors. If he surrenders his security for the benefit of the general body of creditors, he may prove the whole of his debt. If the secured creditor has realised his security, he may prove for the balance due to him after deducting the net amount that has been realised. The stage for relinquishing security arises when a secured creditor seeks to prove the whole of his debt in the course of winding up. If, he elects to prove in the course of winding up the whole of the debt due and owing to him, he has to necessarily surrender his security for the benefit of the general body creditors.Having regard to the position in law as consistently followed in the judgments of the Madras, Calcutta and Karnataka High Courts and as reiterated in the judgment of the Company Court in CanfinHomes Ltd., it is not possible to accept the submission which was urged on behalf of the Appellant. The law does not impose an unreasonable condition of requiring a secured creditor to forsake his security before he asserts a right to urge that a company which is unable to pay its debts should be wound up. The Respondent has stated before the learned Company Judge, when the petition for winding up came up for hearing that it was not possible for the Respondent to recover her dues by the sale of the land in respect of which a security has been created in favour of the Respondent. The claim of the Respondent is still to be proved in the course of the winding up proceedings. A secured creditor who has a mortgage, charge or lien on the property of the company as security for her debt may either: (a) enforce the security and prove in the winding up for the balance of the debt after deducting the amount realised; or (b) surrender the security to the Liquidator and prove for the whole of the debt as an unsecured creditor; or (c) estimate the value of the property subject to her security, and prove for the balance of the debt after deducting the estimated value; or (d) rely on the security and not prove in the winding up proceedings (Penningtons Company Law (Fourth edition, page 762).A secured creditor has the option of relinquishing his security and/or proving the entirety of his debt in the course of winding up. If the secured creditor does so in the course of winding up proceedings, the security will enure for the benefit of the body of creditors. On the other hand, it is open to a secured creditor to prove in the course of winding up proceedings to the extent of his debt which has not been realised outside the proceedings for winding up by either accounting for the amount that has been so realised or by estimating the value of the property subject to security so as to enable him to prove in respect of the balance of the debt. On either view of the matter, that stage is still to arrive.11. For these reasons, we are of the view that the learned Company Judge was not in error in initially admitting the Petition and thereafter making the Company Petition for winding up absolute. No case for interference in appeal is made out.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Having regard to the position in law as consistently followed in the judgments of the Madras, Calcutta and Karnataka High Courts and as reiterated in the judgment of the Company Court in CanfinHomes Ltd., it is not possible to accept the submission which was urged on behalf of the Appellant. The law does not impose an unreasonable condition of requiring a secured creditor to forsake his security before he asserts a right to urge that a company which is unable to pay its debts should be wound up. The Respondent has stated before the learned Company Judge, when the petition for winding up came up for hearing that it was not possible for the Respondent to recover her dues by the sale of the land in respect of which a security has been created in favour of the Respondent. The claim of the Respondent is still to be proved in the course of the winding up proceedings. A secured creditor who has a mortgage, charge or lien on the property of the company as security for her debt may either: (a) enforce the security and prove in the winding up for the balance of the debt after deducting the amount realised; or (b) surrender the security to the Liquidator and prove for the whole of the debt as an unsecured creditor; or (c) estimate the value of the property subject to her security, and prove for the balance of the debt after deducting the estimated value; or (d) rely on the security and not prove in the winding up proceedings (Penningtons Company Law (Fourth edition, page 762).A secured creditor has the option of relinquishing his security and/or proving the entirety of his debt in the course of winding up. If the secured creditor does so in the course of winding up proceedings, the security will enure for the benefit of the body of creditors. On the other hand, it is open to a secured creditor to prove in the course of winding up proceedings to the extent of his debt which has not been realised outside the proceedings for winding up by either accounting for the amount that has been so realised or by estimating the value of the property subject to security so as to enable him to prove in respect of the balance of the debt. On either view of the matter, that stage is still to arrive.11. For these reasons, we are of the view that the learned Company Judge was not in error in initially admitting the Petition and thereafter making the Company Petition for winding up absolute. No case for interference in appeal is made out.Section 529(1) of the Companies Act, 1956, provides that in the winding up of an insolvent company, the same rules shall prevail and be observed with regard to (a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (c) 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 estates of persons adjudged insolvent. Under(2) of section 529, all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of the section. Section 529A provides an overriding preferential priority to the dues of the workmen and to the debts due to secured creditors to the extent to which such debts rank paripassu under clause (c) of the proviso to(1) of section 529 with such dues. The rules of insolvency which are attracted to proceedings of winding up are inter alia those pertaining to the proof of debts. This is after the stage of the winding up order. This principle has been enunciated in a judgment of Mr.Justice M.N.Venkatachaliah (as the learned Chief Justice then was) speaking for a Division Bench of the Karnataka High Court in Hegdeand Golay Limited v. State Bank of India (ILR 1987 Kar 2673). The judgment of the Company Judge of this Court in CanfinHomes Ltd. (supra) has also followed the principle that the scheme of the provisions relating to winding up, particularly those in sections 528 and 529 would indicate that the stage of proving a claim of a debt arises after an order of winding up is passed.