Bombay High Court
Export Import Bank Of India vs Gol Offshore Limited on 2 January, 2023
Author: N. J. Jamadar
Bench: N. J. Jamadar
22-IAL-4988-20+CP-756.DOC
Sayali Upasani
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (L) NO.4988 OF 2020
IN
COMPANY PETITION NO.756 OF 2014
Export Import Bank of India ...Applicant
In the matter between
Export Import Bank of India ...Plaintiff
Vs
GOL Offshore Limited ...Defendant
Mr. Charles De Souza with Mithila Damle, for Applicant.
Mr. Aditya Pimple, for Official Liquidator.
CORAM: N. J. JAMADAR, J.
RESERVED ON : 16th NOVEMBER, 2022
PRONOUNCED 2nd JANUARY, 2023
ON:
ORDER:-
1. The applicant/original petitioner, who is a secured creditor of GOL Offshore Limited, the company (in liquidation) has preferred this application, seeking directions to the Official Liquidator to hand over the balance sale proceeds of Rs.26,09,50,900/-, realised from the sale of the Secured Assets, to the applicant along with interest accrued thereon, after appropriation of claims/liens received by the Official Liquidator till date, that rank higher in priority to the claim of the applicant in respect of the Secured Assets. The applicant- 1/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 :::
22-IAL-4988-20+CP-756.DOC petitioner had advanced certain financial facilities to GOL Offshore Limited (GOL), the company (in liquidation). To secure the repayment, GOL had created charge over the Vessels (Secured Assets) in favour of the applicant. On account of the default on the part of GOL to repay the dues, applicant preferred the instant Company Petition to wind up GOL. Initially, by an order dated 5th May, 2017, a Provisional Liquidator came to be appointed. Subsequently, by an order dated 4th December, 2017, this Court ordered the winding up of GOL and appointed the Official Liquidator as the Liquidator, with usual powers under the Companies Act, 1956 (the Act, 1956).
2. The applicant preferred Company Application (L) No. 568 of 2017, seeking directions, inter alia, to the Provisional Liquidator to take possession, if not already taken, and sale the six Vessels (Secured Assets), for and on behalf of the applicant. By an order dated 13 th December, 2017, this Court noted that Dumb Barge Gal Constructor had gone adrift due to the heavy seas and winds and the applicant had spent Rs.30,68,000/-, in securing it and on essential basic repairs in accordance with the directions of the Port authorities. This Court did not find any difficulty in acceding to the request of 2/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC the applicant that all those secured assets be brought into the hands of the liquidator and the process of auctioning the same be started. Thus the Company Application (L) No. 568 of 2017, came to be allowed in terms of prayer Clauses (a) to (f).
3. Pursuant to subsequent orders dated 1st March, 2018, 23rd March, 2018 and 28th March 2018, the sale of six Vessels came to be effected for a consideration of Rs. 28,42,00,000/-.
4. The applicant filed an affidavit of expenses with the Official Liquidator, seeking reimbursement of expenses to the tune of Rs.2,33,95,943.37/-. The Official Liquidator filed OLR No. 141 of 2018, partially accepting the claim of the applicant to the extent of Rs.1,33,82,986/-, only. By an order dated 26 th October, 2018, this Court, however, directed the Official Liquidator to remit a further sum of Rs.98,66,113.68/-, to the applicant towards the amount sought in the affidavit of expenses of the applicant. Thus a sum of Rs.2,33,49,100/-, came to be reimbursed out of the sale proceeds of the Secured Assets and the balance Rs.26,09,50,900/-, continues to be deposited with the Official Liquidator.
5. The applicant further claims that pursuant to the notice published by the Official Liquidator inviting the claims, the applicant filed Affidavit of Proof of Debts. By a Notice of 3/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC Admission dated 17th January, 2020, the Official Liquidator admitted the claim of the applicant to the extent of Rs.619,69,68,700/-.
6. The applicant further claims that the applicant had an exclusive charge over the Secured Assets. It had neither relinquished the security nor elected to join the winding up proceedings in respect of GOL. The applicant had, on the contrary, sought the sale of the Secured Assets for and on behalf of the applicant. In the circumstances, as against admitted claim of Rs.619,69,68,700/-, the amount of balance sale proceeds represents a minuscule part. It would, therefore, be just and reasonable that the said amount of Rs.26,09,50,900/-, alongwith the accrued interest thereon, be paid to the applicant.
7. An affidavit-in-reply is filed by the Official Liquidator resisting the aforesaid claim. The Official Liquidator contends that there is no material to indicate that the applicant had registered the charge over the assets of the company in liquidation with the Registrar of Companies. In the absence of such registration of charge with ROC, the charge claimed by the applicant would be void as against the Official Liquidator. It is further contented that the applicant had not exercised the 4/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC option to enforce its security interest standing outside winding up. Instead the applicant consciously chose to bring the Vessels, the Secured Assets, to sale through the Company Court. Moreover, the right of the applicant to claim reimbursement of liquidation expenses was kept open and the applicant, in fact, recovered the liquidation expenses from the Official Liquidator. Therefore, the claim of the applicant that it had not relinquished the security and participated in the winding up can not be considered. Resultantly, according to Official Liquidator, the applicant can not claim priority in payment of the sale proceeds and must await distribution of dividend under the winding up proceeding.
8. I have heard Mr. De Souza, the learned Counsel for the applicant, and Mr. Pimple, the learned Counsel for the Official Liquidator at some length. The learned Counsel took the Court through the pleadings and the material on record, including the orders passed by this Court.
9. Mr. De Souza laid emphasis on the order passed by this Court in Company Application (L) No. 568 of 2017, whereby the Secured Assets were ordered to be auctioned. It was urged, with a degree vehemence, that this Court had allowed the said application in terms of prayer Clauses (a) to 5/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC
(f), which included a direction to then the Provisional Liquidator to hand over the sale proceeds to the applicant. In view of the said order, according to Mr. De Souza, at this stage, it is not open for the Official Liquidator to contest the prayer in the instant application, as the Official Liquidator had acquiesced in the said order and it attained finality.
10. Prayer Clause (e), upon which special emphasis was laid by Mr. De Souza, reads as under-
"(e) That in the event the sale of the Secured Assets (or such of them) is successful the Provisional Liquidator be directed to hand over the sale proceeds to the Applicant, within a period of 45 days from the date of receipt of payment from the successful bidder, after deducting all reasonable expenses incurred directly by the Provisional Liquidator in connection with the sale of the Secured Assets (or such of them);"
11. Since the applicant's claim primarily rests on the order dated 13th December, 2017, it would be necessary to note the relevant part of the said order to retain emphasis and decide the question in controversy in a proper perspective, which reads as under-
3. In prayer clause (a) of the Chamber Summons these vessels are mentioned. The prayer reads:
"(a)That this Hon'ble Court be pleased to exercise power sunder Section 457(3) read with Section 536(2) of the Companies Act, 1956, and direct the Provisional Liquidator to take possession of, if not already taken, and sell Floating Dry Dock Great Offshore FD-1 (Ex-
FD-3) and Dumb Barge Gal Constructor; harbour tugs viz MT Kanti and MT Malini; and merchant vessel viz Malaviya Thirty belonging to the Respondent (Secured Assets), and for and on behalf of the Applicant, by way of an e-auction through MSTC Limited, a Government of India Enterprise, an agency empaneled with the 6/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC Office of the Official Liquidator of this Hon'ble Court or any other agency as may be considered appropriate by the Official Liquidator of this Hon'ble Court."
4. Dr Saraf on behalf of the Applicant points out that Dumb Barge Gal Constructor actually went adrift due to the heavy seas and winds in the recent cyclone. It has since been secured at the applicants' costs and brought to anchorage. It was heavily damaged. The Applicant is pending Rs.1,12,000/- approximately on a daily basis to safeguard the vessel having already spent Rs.30,68,000/- in securing it and on essential basic repairs in accordance with the directions of the Port authorities.
5. At this stage, the request is that all these assets be brought in to the hands of Liquidator and the process of auctioning then be started. I can see no conceivable difficulty in the grant of relief. Subject to the directions set out below, there will an order in terms of prayer clauses (a) to (f).
8. It is made clear that while the Applicant Petitioner will bear the costs of these operations, this is only in the first instance and the Petitioner-Applicant will be entitled to make a claim to recover these costs from the sale proceeds, or from the funds then available in the hands of the Official Liquidator, or both. Exim Bank's claim for recovery will include all amounts spent including expenditure already made and expenditure yet to be incurred."
(emphasis supplied)
12. Banking upon aforesaid order, Mr. De Souza submitted that the fact that the applicant is a secured creditor of GOL, is incontestable. In fact, the Official Liquidator has admitted the claim of the applicant vide Notice of Admission of Proof of Debt dated 17th January, 2020, in the applicant's said capacity. In this view of the matter, by keeping aside a portion for the workmen or any other claimants, who stand higher in priority than that of the applicant, the balance amount of the sale proceeds must be paid to the applicant, urged Mr. De Souza.
13. In contrast to this, Mr. Pimple, the learned Counsel for the Official Liquidator stoutly submitted the application is 7/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC wholly misconceived. Mr. Pimple premised his resistance on the ground that there is no material to show that the applicant, as a secured creditor, stood outside winding up process. Conversely, there is material to show that the applicant consciously made the Secured Assets a part liquidation proceedings. According to Mr. Pimple, the core issue that crops up for consideration, in the instant application, is whether the applicant stood outside the winding up proceeding and realised his security.
14. Taking the Court through the material on record and the orders passed by this Court, Mr. Pimple would urge the answer to the aforesaid question must be in the negative. The order passed by this Court on 13 th December, 2017, directing the Official Liquidator to take possession of the Secured Assets and proceed for auction thereof, according to Mr. Pimple, is of no avail to the applicant. On the contrary, the said order unmistakably indicates that the applicant had chosen to subject his claim to the outcome of winding up proceedings.
15. At the first blush, the submission of Mr. De Souza that nothing survives for consideration in this application as the order dated 13th December, 2017, directs the payment of the sale proceeds to the applicant, appears attractive. However, on 8/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC a close scrutiny, I am afraid to draw such an inference unhesitatingly. The order dated 13th December, 2017, in my view, is required to be read in the context of the then prevailing situation, presented before the Court. The applicant had moved the Court as it was made to incur huge expenses for securing one of the Vessels which had gone adrift. In that backdrop, request was made to the Court that all the Vessels be brought into the hands of the liquidator and the process of auctioning be started. It seems in the prevailing circumstances, the Court found the said request innocuous. Thus an order was passed in terms of prayer Clauses (a) to (f).
16. On a plain reading of the said order, it would be audacious to draw an inference that, at that stage, the Court had delved into the aspect of determining the priorities and/or directing the payment of sale proceeds of the Secured Assets to the applicant alone to the exclusion of other claimants.
17. Mr. Pimple was justified in laying emphasis on the observations in paragraph No. 8 (extracted above), whereby the applicant was directed to bear the costs of the operations, in the first instance only, and lay a claim to recover those costs from the sale proceeds or from the funds available in the hand of the Official Liquidator or both. This direction indicates that 9/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC the applicant was, in effect, relieved of the liability to incur costs to secure the Secured Assets.
18. At this juncture, it may be apposite to extract the relevant provisions contained in Sections 529 and 529 A of the Act, 1956.
"529. Application of insolvency rules in winding up of insolvent companies.
(1) 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:
1[Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen' s portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,-
(a) the liquidator shall be entitled to represent the workmen and enforce such charge;
(b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen' s dues; and
(c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen' s portion in his security, whichever is less, shall rank pari passu with the workmen' s dues for the purposes of section 529A.] (2) 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 this section:
[Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his 10/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC security, he shall be liable to 3 pay his portion of the expenses] incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.] [Explanation.- For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less amount which bears to such expenses the same proportion as the workmen' s portion in relation to the security bears to the value of the security.] (3) For the purposes of this section, section 529A and section 530,-
(a) " workmen", in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947 );
............
(c) " workmen' s portion", in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen' s dues bears to the aggregate of-
(i) the amount of workmen' s dues; and
(ii) the amounts of the debts due to the secured creditors. Illustration The value of the security of a secured creditor of a company is Rs. 1, 00, 000. The total amount of the workmen' s dues is Rs. 1, 00, 000. The amount of the debts due from the company to its secured creditors is Rs. 3, 00,
000. The aggregate of the amount of workmen' s dues and of the amounts of debts due to secured creditors is Rs. 4, 00, 000. The workmen' s portion of the security is, therefore, one- fourth of the value of the security, that is Rs. 25, 000.] 529 A. Overriding preferential payment. Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force in the winding up of a company-
(a) workmen' s dues; and
(b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub- section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts.
(2) The debts payable under clause (a) and clause (b) of sub- section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.
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19. A conjoint reading of the provisions contained in Sections 529 and 529A, would indicate that the secured creditor has an option to realise his security or relingquish his security. If the secured creditor exercises the option to realise his security, he is entitled to do so in a proceeding other than the winding up proceeding. But he has to pay to the liquidator the costs of preservation of the security till he realises the security. The workmen of the company in winding up also acquire the status of secured creditor. Where a company is in liquidation, a statutory charge is created in favour of workmen in respect of dues over the security of every secured creditor and this charge is pari passu with that of the secured creditor. Such statutory charge is to the extent of workmen's portion in relation to the security held by the secured creditors of the company as illustrated by Section 529 of the Act.
20. A useful reference in this context can be made to a three Judge Bench judgment of the Supreme Court in the case of Jitendra Nath Singh Vs. Official Liquidator and Others 1, wherein the Supreme Court expounded the import of the provisions contained in Sections 529 and 529A of the Companies Act, 1956. The Supreme Court culled out the 1 (2013) 1 SCC 462 12/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC propositions in paragraph No. 16 as under.
"16. Our conclusions on interpretation of the provisions of Sections 529 and 529A of the Companies Act, therefore, are:
16.1 a secured creditor has only a charge over a particular property or asset of the company. The secured creditor has the option to either realize his security or relinquish his security. If the secured creditor relinquishes his security, like any other unsecured creditor, he is entitled to prove the debt due to him and receive dividends out of the assets of the company in the winding up proceedings. If the secured creditor opts to realize his security, he is entitled to realize his security in a proceeding other than the winding up proceeding but has to pay to the liquidator the costs of preservation of the security till he realizes the security.
16.2 over the security of every secured creditor, a statutory charge has been created in the first limb of the proviso to clause (c) of sub- section (1) of Section 529 of the Companies Act in favour of the workmen in respect of their dues from the company and this charge is pari passu with that of the secured creditor and is to the extent of the workmen's portion in relation to the security of any secured creditor of the company as stated in clause
(c) of sub- section (3) of Section 529 of the Companies Act.
16.3 where a secured creditor opts to realize the security then so much of the debt due to such secured creditor as could not be realized by him by virtue of the statutory charge created in favour of the workmen shall to the extent indicated in clause (c) of the proviso to sub- section (1) of Section 529 of the Companies Act rank pari passu with the workmen's dues for the purposes of Section 529A of the Companies Act.
16.4 The workmen's dues and where the secured creditor opts to realize his security, the debt to the secured creditor to the extent it ranks pari passu with the workmen's dues under clause (c) of the proviso to sub-section (1) of Section 529 of the Companies Act shall be paid in priority over all other dues of the company."
(emphasis supplied)
21. A Division Bench of this Court, in the case of Asian Power Controls Ltd Vs. Bubbles Goyal 2, enunciated the 2 2013(3) Mh. L.J.811 13/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC options which are open to a secured creditor of company, which is ordered to be wound up as under-
..........10. 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. [Pennington's 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 ensure 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."..............................
.................. (emphasis supplied)
22. In the light of the aforesaid enunciation of law, it has to be seen, whether in the case at hand, the applicant stood outside the winding up and proceeded to realise its security on its own. Mr. De Souza would submit that the mere fact that the applicant had either made an application for taking possession of the Secured Assets and the consequent sale thereof or that it had filed an Affidavit of Proof of Debt, pursuant to the notice inviting claims issued 14/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC by the Official Liquidator, by itself, does not constitute relinquishment of the security. Mr. De Souza submitted that it requires a positive and conscious act on the part of a secured creditor to infer relinquishment of security. In any event, since the applicant is ready to keep aside an amount to satisfy the claims of workmen, under Section 529 A of the Act, 1956, and pay the costs of preservation of the security incurred by the Official Liquidator, there is no justification in depriving the applicant of the sale proceeds.
23. Mr. Pimple countered the submissions of Mr. De Souza by pointing out that the positive acts on the part of the applicant in bringing the Secured Assets under liquidation process, claiming reimbursement of the entire cost incurred for preserving the security before effecting the sale, and lodging the whole claim before the Official Liquidator lead to no other inference than that of relinquishment of security. Mr. Pimple would urge that all these acts militate against the claim that the applicant stood outside the liquidation.
24. To bolster up the aforesaid submission, Mr. Pimple banked upon the following observations of Hon'ble Justice Swatanter Kumar, in the case of Jitendra Nath Singh 15/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC (supra).
"45. The relinquishment of security by a secured creditor certainly requires some conscious act on his part more than the mere filing of a claim in response to a public notice issued by the official liquidator. Once the secured creditor takes such further actions like sale of the secured assets through the liquidator and subject to the control of the Company Court in that event, he would be part of the scheme of payment as rationalized under Section 529 and 529A of the Act.
48. A secured creditor who has a charge over the assets of a company in winding up, merely by instituting an application before the DRT or any other special forum without effectively pursuing that remedy and taking effective steps to realize his security would not stand outside the winding up proceedings. If the sale of secured assets is effected by the Official Liquidator subject to control of the Company Court and such amounts are utilized for discharging the debts of the secured creditor as well as statutory charge of the workmen created under Sections 529 and 529A, then, in effect, the secured creditor would be deemed to have participated in the winding up proceedings and not stood outside the same. It is for the reason that a secured creditor has to take steps by filing petition before any other forum just to protect his legal right and to prevent the claim from getting barred by time. On the contrary, if he realizes his security within the four corners of the company law, i.e., before the Official Liquidator and the Company Court, in that event it would not be possible to hold that such secured creditor has given up his option to participate in the winding up proceedings. However, the matter would be quite different where the secured creditor elects not only to institute a petition before the specialized forum but also takes effective steps to realize his security and pursues the proceedings effectively, in which event, the conclusion has to be that such secured creditor has stood 'outside the winding up' proceedings.
49. Equally, it can be stated that a secured creditor who, after institution of a claim but without pursuing the remedy outside the provisions of this Act, files claim before the official liquidator, relinquishes his security and agrees to the distribution of the sale proceeds through the official liquidator, subject to jurisdiction of the Company Court, could always be said to be not 'standing outside the winding up' proceedings. However, where he institutes a petition, proceeds with it and seeks realisation of security 16/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC before a forum outside the Company Court, then he obviously pursues the remedy beyond mere filing of a claim and would be a person 'standing outside the winding up' proceedings and shall be subject to the rights enforced by the official liquidator in terms of the proviso to Section 529 of the Act. As it has also been held by this Court in the case of ICICI Bank (supra), the secured creditor has to take some positive steps to participate in the winding up petition.
(emphasis supplied)
25. The aforesaid pronouncement indicates the actions like sale of the Secured Assets through the liquidator and subject to the control of the Company Court, non institution of the proceedings before the forum other than the Company Court, failure to effectively prosecute the proceeding instituted before other forums, despite having lodged the same, and instead filing claims before the Official Liquidator, constitute relinquishment of security and a secured creditor can then be said to be not "standing outside the winding up"
proceeding.
26. In the facts of the case at hand, in my considered view, the actions and omissions on the part of the applicant clearly demonstrate that the applicant consciously chose to bring the Secured Assets under the control of Official Liquidator, desired its sale through the Official Liquidator under the control of the Company Court, refrained from 17/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC realizing the security by instituting the proceedings in forums other than the Company Court and lodged the claim with Official Liquidator.
27. What is of critical salience is the fact that the applicant insisted to be reimbursed of the costs it incurred in preserving the Secured Assets and auction sale of the Secured Assets. Conversely, there is no material to indicate that the applicant volunteered to incur the costs of preservation of the Secured Assets. In the backdrop of the aforesaid facts, I find it rather difficult to accede to the submission on behalf of the applicant that it stood outside the winding up process.
28. I am not persuaded to agree with the broad submission of Mr. De Souza that it is open to a secured creditor to utilize the machinery provided under the Companies Act to effect the sale of the Secured Assets for the purpose of exclusive appropriation of the sale proceeds to the secured creditor, without adhering to the mandate of the proviso to sub Section (2) of Section 529 of the Act, 1956.
29. The reason is not far to seek and can be legitimately found in the provisions of Section 529 of the Act, 1956. The proviso to Sub Section (1) of Section 529, gives an option to 18/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 ::: 22-IAL-4988-20+CP-756.DOC the secured creditor to either relinquish or realise his security. The proviso to Sub Section (2) further provides that the in case a secured creditor opts to realise his security, he shall be liable to pay his portion of the expenses incurred by the Liquidator for the preservation of the security, before its realization by the secured creditor.
30. The Parliament has designedly used the words "realise" and "realization". The terms "realise" and "realization" have a definite meaning and connotation. Realisation implies actulisation of the security or convert the security into such form that it becomes immediately available for utilisation. Realisation involves initiating measures, including proceedings, if required, to realise the thing to which a person claims to be entitled to. The expression "until payment and/or realisation", which is often used in legal parlance, brings out the import of the term realization. It conveys an idea of initiating the steps and/or proceedings to recover.
31. In P. Ramanatha Aiyar, Advanced Law Lexicon, 3 rd Edition, (Reprint 2007), the term "realize" has been defined as under-
19/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 :::
22-IAL-4988-20+CP-756.DOC "Realize- To convert into cash or into any form whereby it becomes available for immediate distribution. 28 Bom 264 : 6 LR 11.
To recover, to obtain or to acquire possession. When used in connection with the conversion of claims or demands into money, "realize" is a very broad term, and may reasonably be said to include a realization of money by "compromise".
To put a plan into action, or sell assets for cash; the act of doing so is realization. (Banking; Insurance) To dispose of goods or securities at the best price obtainable. (Trade Finance)".
32. In Black's Law Dictionary, Eighth Edition, the term "realization" has been explained as under-
"realization, n 1. Conversion of Noncash assets into cash assets".
33. It is in the aforesaid context of the connotation of the term "realization", a secured creditor, who stands outside the winding up is expected to institute proceeding, other than that of winding up proceeding, to realise his security. It could be a proceeding under Recovery of Debts and Bankruptcy Act, 1993, or the measures under the The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, without the intervention of the Court, or for that matter, The Admiralty (jurisdiction and settlement of Maritime Claims) Act, 2017. 20/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 :::
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34. In the facts of the case at hand, the applicant could have instituted suits on the strength of the charge on the Secured Assets in the capacity of mortgagee of, and/or charge holder on, the Vessels and laid maritime claim under Section 4 (1) (c) of The Admiralty (jurisdiction and settlement of Maritime Claims) Act, 2017.
35. In conclusion, the proviso to Sub Section (1) and Sub Section (2) of Section 529 of the Act, 1956, give an option to the secured creditor to "realise" the security and not a right to "appropriate" the sale proceeds of the security which have been realised by the Official Liquidator, on the premise that he is a secured creditor. If a secured creditor exercises the option to realise the security, he has to enforce the same in a proceeding other than the one under the Companies Act, 1956 and bear the process, costs and expenses. Having chosen not to realize his security, in the manner ordained, a secured creditor is not entitled to lay an exclusive claim over the proceeds realised from the sale of the assets of the company by the Official Liquidator under the control of the Company Court. 21/22 ::: Uploaded on - 02/01/2023 ::: Downloaded on - 03/01/2023 17:05:51 :::
22-IAL-4988-20+CP-756.DOC
36. For the foregoing reasons, the application deserves to be rejected.
37. Hence, the following order.
:ORDER:
(i) The application stands rejected.
(ii) No costs.
[N. J. JAMADAR, J.
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