Case: ICICI Ltd Vs. Ahmedabad Manufacturing &amp; Calico Printing Co. Ltd. &amp; Another

1. The appellant had advanced loans to the respondent Company between6. Onan application for winding up was filed against the respondent by an unsecured creditor. Subsequent to this on8, the appellant sanctioned two further loans to the Company. In 1990 the Company as well as the appellant made an application under S.536(2) of the Companies Act, 1956 for allowing the disposition of the Companys properties "which may have to take place" as a consequence of the loans advanced by the appellant to the Company from 1976. The learned Single Judge allowed the application in part by granting leave to dispositions by the Company of its assets under S.536(2) in respect of those loans which were made subsequent to the commencement of the winding up of the respondent Company, namely,but refusing such leave in respect of the prior transactions.2. The appeal preferred by the appellant was dismissed by the Division Bench by holding that leave under S.536(2) should normally be granted if the dispositions were necessary for the purpose of obtaining funds for the Company or otherwise in the interest of the Company which was being wound up. It was also held that permitting the Company to dispose of all its assets to a particular creditor would affect the claims of all creditors of the Company and that before any such order is passed publicity should be given to the application so that all creditors could file their objections to the application under S.536(2), if they wanted to do. It was also found that the application under S.536(2), was moved only onIt was noted that no details have been given regarding those transactions which had taken place prior toThis was sought to be rectified only subsequently by giving details of the earlier loans. The High Court held that what the appellant was in fact seeking to do was to convert itself from an unsecured into a secured creditor in respect of transactions which had taken place "15 to 17 years ago". The Court therefore refused to interfere with the order of the learned Single Judge. However,, the Court went further and set aside the decision of the learned Single Judge insofar as it pertained to the postloans, although no appeal had been preferred therefrom.

Reasoning:
3. It is not in dispute that during the pendency of the proceedings the Company was referred to the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act. The efforts to revive the Company were unsuccessful both before BIFR as well as AAIFR. The Company was accordingly ultimately wound up. Its assets have been sold by the Official Liquidator and the sale proceeds are at present held by the Official Liquidator. These subsequent developments have been noted by this Court by orders passed in this appeal from time to time.4. The appellants prayer under S.536(2) was to allow the Company to execute documents creating a first charge over the Companys properties in favour of the appellants. The Companys properties as of today are not properties belonging to the Company. Apart from it being a practical impossibility to allow the appellants prayer at this stage, we are of the view that the Division Bench did not err in rejecting the application of the appellant at least insofar as it pertained to the loan transactions prior toThere is no explanation forthcoming from the appellant as to how these advances were made for over a period of 10 years without obtaining any security. The appellant ultimately sought to create securities in respect of these transactions only in 1990. The Division Bench was also correct that the grant of leave under S.536(2) would not be appropriate after this delay. Leave under S.536(2) may be granted for the benefit of the company in liquidation or the creditors of the company in general. It cannot be said that the securing of old debts due to one creditor of the respondent by creating of a mortgage ex post facto would in any way either enure towards the preservation of the Companys assets or its business or enure to the benefit of its other creditors.5. However, we are of the view that the High Court erred in setting aside the learned Single Judges order even in respect of the postloans on the simple ground that this was beyond the scope of the appellants appeal. The appellant could not be in a worse position by having preferred the appeal from the order of the learned Single Judge.