Kerala High Court
Kerala Financial Corporation vs Official Liquidator, High Court Of ... on 18 August, 1993
Equivalent citations: [1996]87COMPCAS183(KER)
JUDGMENT G. Rajasekharan, J.
1. An application by the Kerala Financial Corporation, a secured creditor in the matter of Southern Organics (P.) Limited in liquidation.
2. The applicant preferred its claim before the liquidator for a sum of Rs. 47,02,769.40. That included interest after the winding up to the tune of Rs. 8,65,549.60 and Rs. 873.96, the amount of travelling allowance and dearness allowance paid to the nominee-directors. The liquidator rejected the claim of interest after the winding up and also the claim relating to travelling allowance and" dearness allowance. The claim of interest at the contract rate up to the date of winding up was allowed by the liquidator in adjudicating the matter.
3. In this application, the applicant contends that it is entitled to interest after the winding up also to be calculated at the rate of 4 per cent. per annum under Rule 156 of the Companies (Court) Rules, 1959.
4. Rule 156 of the Companies (Court) Rules, 1959, deals with cases where there is no contract regarding the payment of interest. That rule has no application at all and that rule does not enable a secured creditor to get interest after the date of winding up.
5. According to learned counsel for the applicant, since the insolvency provisions are made applicable, under Section 47 of the Provincial Insolvency Act, 1920, the applicant being a secured creditor is entitled to prove the entire debt which according to him includes interest after the adjudication also. This argument is totally unacceptable. Section 47 does not enable a secured creditor to claim interest after the date of adjudication unless it falls under Section 61(6) of the Provincial Insolvency Act which enables the payment of interest from the date when the debtor is adjudged an insolvent in case there is surplus after distribution.
6. Rule 179 of the Companies (Court) Rules, 1959, also makes matters clear regarding the payment of interest after the winding up. The question of payment of interest after the winding up comes only if there is surplus after payment in full of the claims admitted to proof.
7. Learned counsel for the applicant in support of his argument has placed reliance on the decision in K.V. Lakshminarayana Sastry v. Vijaya Commercial Bank Ltd. (In Liquidation) [1963] 33 Comp Cas 49 (AP). That was a case, where the secured creditor was standing outside the winding up and that has no bearing on the facts of the present case. The applicant is not standing outside the winding up and it is doubtful whether it can stand outside the winding up and walk away with the security after the amendment of 1985 adding the proviso to Section 529 and the enactment of Section 529A by which the claims of workers are treated in parity with the claims of the secured creditor.
8. Another decision relied on by learned counsel for the liquidator is State Bank of Mysore v. Official Liquidator [1985] 58 Comp Cas 609 (Kar). That decision also is not applicable to the present case. That was also a case of a secured creditor standing outside the winding up. But, he permitted the security to be sold by the liquidator on condition that the price shall be the substituted security for his claim.
9. The question of payment of interest in the case of winding up proceedings came up before a Division Bench of this court in Bombay Cotton Ltd. v. Ramachandra Iyer [1963] KLT 268. There, the effect of the provisions of the Provincial Insolvency Act also was considered and the court held that interest is payable up to the date of presentation of the petition in an insolvency case and up to the date of presentation of the winding up petition in the case of an insolvent company.
10. It was urged that the said case related to an unsecured creditor and so the dictum therein cannot be applied to the present case. Whether it be an unsecured creditor or a secured creditor, the insolvency proceedings do not permit payment of interest after the date of adjudication of insolvency. The applicant, as one of the secured creditors, along with the workers of the company, is entitled to get the claim admitted regarding interest only up to the date of winding up and the payment of interest after that date will be governed by Rule 179 of the Companies (Court) Rules or Section 61(6) of the Provincial Insolvency Act. In both cases, the payment of interest after the date of winding up will arise only where there is surplus. The adjudication made by the liquidator does not call for any interference. The application is devoid of merit and is dismissed.