JUDGMENT
P. Venkatarama Reddi, J.
1. These applications are filed under Section 446(1) of the Companies Act seeking leave of the court to continue and proceed with the suits filed in the City Civil Court, Hyderabad, and the High Court of Mumbai. In C. A. No. 241 of 1994, a further relief is sought for to allow the receiver appointed by the Mumbai High Court to remain in possession of the mortgaged assets in order to recover the dues of the applicants. The first respondent-company, Boppana Oils Limited was ordered to be wound up by this court on March 25, 1994, after a reference was received from the BIFR. The official liquidator was directed to take charge of the properties of the company and to function as liquidator.
2. The applicants herein are the banks and financing institutions which advanced loans of various types to the said company under liquidation. There are three applicants in C. A. No. 241 of 1994. They are Industrial Development Bank of India, Industrial Finance Corporation of India Ltd. and Industrial Credit and Investment Corporation of India Ltd. A loan of Rs. 242 lakhs was sanctioned to the company by the three applicants herein in the proportion of Rs. 121 lakhs, Rs. 60 lakhs and Rs. 61 lakhs during the year 1984-85. A further loan of Rs. 23 lakhs was advanced by the first applicant (IDBI) in August, 1986. According to the applicants, the company created a first charge on movable properties by way of hypothecation on October 13, 1984, and a mortgage of its immovable properties by deposit of title deeds on February 21, 1986. For securing the second loan, the respondent-company executed a deed of hypothecation creating” a first charge on certain movable properties and created a general mortgage by way of extension in favour of the first applicant by giving consent to the first applicant to continue to hold the title deeds deposited earlier as
security for the second loan as well. On failure to discharge the loans, the three applicants in C. A. No. 241 of 1994 filed Suit No. 205 of 1993 in the High Court of Judicature at Mumbai for recovery of a total sum of about Rs. 6.93 crores due as on January 15, 1993. The applicants sought appropriate reliefs for enforcing the securities to recover the monies advanced to the company. On August 3, 1993, the High Court of Mumbai appointed a court receiver as an interim measure to take charge of the immovable and movable properties of the respondent-company and also granted injunction restraining the company and its agents from dealing or parting with the possession of the immovable properties and the machinery and other movables or creating lease or encumbrances in respect thereof. The suit is pending in the Mumbai High Court. It is reported that the Debt Recovery Tribunal has not yet been constituted for the Mumbai region and hence the suit is still on the file of the High Court.
3. M/s. Canara Bank (Iron Centre Branch, Vijayawada) and the State Bank of India (Labbipet Branch, Vijayawada) are the applicants in C. A. No. 216 of 1994. These two banks advanced loans in the ratio of 60 : 40 to meet the working capital requirement of the respondent-company. Apart from the personal guarantees of respondents Nos. 2 to 4 and equitable mortgage created by the second respondent, the loans were secured by hypothecation of current assets, second charge on factory shed and building and first charge on the gum treatment and soap manufacturing plant and the machinery and fixtures in the factory premises. Suit No. 465 of 1994 was instituted by both the banks jointly in the City Civil Court, Hyderabad, for recovery of Rs. 1,35,08,468 due on the date of filing of the suit. The said suit has since been transferred from the court of the 5th Addl. Judge, Hyderabad, to the Debt Recovery Tribunal, Bangalore. The number assigned by the Tribunal is O. A. No. 88 of 1997.
4. It appears that the first applicant in C. A. No. 216 of 1994, i.e., the first plaintiff in the suit has been nominated as leader of the consortium advances to give effect to the terms and conditions agreed upon under the inter se agreement between the two participating banks.
5. The second respondent in C. A. No. 216 of 1994, who was the erstwhile managing director of the company has filed a counter mainly contending that the applicants cannot proceed against respondents Nos. 2 to 4 without first realising the dues from the hypothecated/mortgaged properties of the company and it is alleged that the suit has been instituted in Hyderabad solely with a view to enforce the personal guarantees of the second respondent. At this juncture, suffice it to observe that the objection taken by the second respondent does not deserve serious consideration as it has no relevancy as far as the present application is concerned.
6. After hearing counsel, I passed an order on April 25, 1997, directing the official liquidator to take steps calling for claims if any from the workmen/
employees of the company by taking out an advertisement and by local publication. The official liquidator was also directed to verify whether any dues to the workers and secured creditors (other than the applicants) are disclosed from the account books. By a further order dated October 1, 1997, the applicants were directed to advance a sum of Rs. 3,000 to the official liquidator to meet the expenses for advertisement and publication.
7. The official liquidator has filed a report on February 19, 1998, stating that he gave a paper advertisement in the Telugu daily “Eenadu” and got the local publication done by beat of “tom tom” in the village in which the factory is situated, but no workman has put forward his claim. The official liquidator has also stated that the statement of affairs submitted by the ex-directors on July 21, 1997, does not reveal any workmen/employees’ dues. The official liquidator, however, reported that he could not verify the account books. It is also reported that the statement of affairs does not reveal the existence of any other secured creditors.
8. The normal well-recognised rule is that a secured creditor can remain “outside the winding-up” process and enforce his rights as mortgagee or chargeholder without participating in the winding up proceedings. In Industrial Credit and Investment Corporation of India Ltd. v. Srinivas Agencies , this legal position has been reiterated in the following words (page 257) :
“… it is a settled position by now that a secured creditor stands outside the winding-up proceeding and under the law he can proceed to realise his security without the leave of the winding-up court, if by the time he initiated the action the company has not been wound up. This view has been holding the field ever since a three-judge Bench decision of this court in Ranganathan (M.K.) v. Government of Madras .”
9. When a winding-up order has been made, no suit or other legal proceeding pending on the date of the winding-up order can proceed against the company except with the leave of the company court, as enjoined by Sub-section (1) of Section 446.
10. As to the approach of the company court and the considerations that should weigh with the court, when leave is sought for, the Supreme Court made the following pertinent observations (page 263) :
“It is no doubt correct that the interest of the secured creditor, who has had recourse to an independent proceeding to realise his debt has to be protected ; but it is apparent this cannot be done at the cost of other secured creditors. To preserve the integrity of one secured creditor, another secured creditor cannot be discredited–his integrity has to be of equal concern. It may, however, be that in a particular case the secured creditor who has approached the civil court happens to be one who has lent a huge amount, or be one who is the main secured creditor. In such a
situation, on approach being made by such creditor, we have no doubt that the company court would duly take note of this fact and should like to grant leave required by Sub-section (1) of Section 446 ; and by the same token refuse to transfer the proceeding to his court. This is not to say that in all the cases where the proceedings have been initiated by the main secured creditor, the company court would grant leave. Much would depend on the circumstances of each case. But, if the position be that the secured creditor who had approached the civil court is one amongst many similar creditors, it may be that the company court feels that to take care of the interest of other secured creditors, either the relief of leave does not deserve to be granted or that the proceeding is required to be transferred to it for disposal . . . The need to protect the company from unnecessary litigation and costs have, however, to be borne in mind by the company court.”
11. Their Lordships concluded the discussion as follows (page 264) :
“We are, therefore, of the view that the approach to be adopted in this regard by the company court does not deserve to be put in a strait-jacket formula. The discretion to be exercised in this regard has to depend on the facts and circumstances of each case. While exercising this power, we have no doubt that the company court would also bear in mind the rationale behind the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, to which reference has been made above. We make the same observation regarding the terms which a company court should like to impose while granting leave. It need not be stated that the terms to be imposed have to be reasonable, which would, of course, vary from case to case. According to us, such an approach, would maintain the integrity of that secured creditor who had approached the civil court or desires to do so, and would take care of the interest of other secured creditors as well which the company court is duty bound to do. The company court shall also apprise itself about the fact whether dues of workmen are outstanding ; if so, the extent of the same. It would be seen whether after the assets of the company are allowed to be used to satisfy the debt of the secured creditor, it would be possible to satisfy the workmens’ dues pari passu.”
12. Viewed from the standpoint of the principles or guidelines laid down by the Supreme Court, I do not see any impediment in granting leave under Section 446(1) for the continuance of the suits instituted by the applicants before the winding up order was passed. All the secured creditors having first and second charges over the properties are before this court. None of them object to any of them being permitted to proceed with the relevant suits. There is no material on record to indicate that there is any other secured creditor. Most likely, there is none. Moreover, the suits have been filed for enforcing personal guarantees and for realisation of
the dues from the erstwhile managing directors and other guarantors. One of the suits has already been transferred to the Debt Recovery Tribunal. The Tribunal is a forum created by a Parliamentary enactment for the expeditious recovery of heavy debts due to the banks. Having regard to the factual scenario and the nature of the suits, I do not see any particular advantage in withdrawing the suits to this court or allowing the official liquidator to embark upon the arduous task of pursuing the legal proceedings and realising securities, when all the secured creditors in one voice request the leave of the court to proceed with their own suits so as to realise the securities in their best interests. I do not think that by granting leave to the applicants to proceed with their suits and to enforce their securities and realise their dues by standing outside the winding up, there will be detriment to anybody concerned with the company. It would be sufficient if necessary conditions are imposed for the purpose of ensuring payment of workmens dues if any found to be due ultimately and to take care of the event of the surplus remaining for the purpose of distribution to the unsecured creditors and shareholders though unlikely it is.
13. Accordingly, I grant leave under Section 446(1) as prayed for in the applications, subject to the following conditions :
(1) The official liquidator at Hyderabad shall be apprised of the stages of the suit/O. P. pending in the High Court of Mumbai and Debt Recovery Tribunal, Bangalore, from time to time in six monthly intervals. In particular, the applicants should inform the official liquidator about the commencement of the trial and the date on which the case is posted for arguments.
(2) The official liquidator shall have custody of account books, registers and records of the company. If any copies therefrom are required by the applicants, the official liquidator may furnish certified copies on usual terms.
(3) The official liquidator shall be allowed to have inspection of the company’s properties and assets and to take inventory as and when required.
(4) The certified copies of judgments and decrees passed by the court/Tribunal pertaining to the suit/O. P. shall be made available to the official liquidator without avoidable delay.
(5) The official liquidator shall be apprised of the proposed date of sale of properties or regarding the important steps in the execution of the decrees that may be passed in the aforementioned suit/0. P.
(6) Permission of this court shall be obtained before the sale of properties (immovable or movable) is confirmed or finalised.
(7) The official liquidator shall be entitled to obtain information regarding the amounts realised by way of sale.
(8) The applicants shall undertake to deposit the money with the official liquidator for the purpose of discharging the workmen/employees’
dues pari passu, before the leave is obtained from this court for confirmation of sale and be bound by any direction that may be given by the court with regard to payments on that account.
(9) It is open to the official liquidator to move this court for appropriate directions in case the workmen’s claims come to light on an examination of the account books notwithstanding the direction in the preceding clause.
(10) The official liquidator shall file before the court the list of secured creditors, if any, as may be ascertained from a perusal of the account books or documents of the company at the time of hearing the application for leave of the court to finalise the sale.
(11) Whatever surplus remains after sale and realisation of dues of secured creditors and workmen dues as per law, the funds shall be made available to the official liquidator for being dealt with in accordance with the provisions of the Companies Act and Rules.
14. The company applications are accordingly disposed of. No costs.