BOARD OF INDUSTRIAL FINANCIAL RECONSTRUCTION NEW DELHI Vs. CHAIRMAN AND M D ADIVASI PAPER MILLS LLIMITED VIJAYAWADA

JUDGEMENT

(1.) In all these cases, the Official Liquidator is claiming proportionate expenses from the other creditors like financial institutions, and in some cases, such report praying for such contribution of expenses are pending and in some cases, there is already a direction to the financial institutions to pay their share of expenses and in some cases, such financial institutions have filed applications to recall the earlier order directing them to contribute towards the expenses. In view of these circumstances, the learned counsel appearing for the other secured creditors who were permitted to stand outside the windings, are contending that they are not liable to pay or contribute towards the expenses to be incurred by the Official Liquidator for paper publication etc. It is their case that the Official Liquidator can claim such expenses from the Central Government. But the case of the Official Liquidator in all these cases is that such other creditors are liable to share the expenses proportionately in view of proviso to sub-section (2) of Section 529 of the Companies Act, 1956. On the other hand, the counsel for other secured creditors contended that when they have opted to stand outside the liquidation, they are not liable to share any expenses. The counsel appearing for the A. P. State Financial Corporation contended that under the State Financial Corporation Act, 1951, the Financial Corporation as the secured creditor has to follow its own procedure under the Financial Corporation Act and, therefore, Section 529 or 529(A) of the Companies Act, would not apply and as such the Financial Corporation has no liability to contribute towards the expenses claimed by the Official Liquidator. He also submitted that the provisions of Section 28(6) of the Provincial Insolvency Act, 1920 are made applicable by virtue of Section 529(A) of the Companies Act and as such, the Corporation as a secured creditor can independently proceed to realise its debts, on the basis of security in its possession, and the Company Court cannot insist for payment of the contribution of the expenses. In view of these contentions urged on both sides, the point that now requires to be decided by me is, whether the other secured creditors including the State Financial Corporation, standing outside the winding up proceedings, are liable to contribute towards the expenses incurred by the Official Liquidator.

(2.) In order to appreciate the controversy between the parties, I have taken notice of certain provisions of the Companies Act in relation to the State Financial Corporation Act, 1951 and also Section 28(6) of the Provincial Insolvency Act, 1920.

(3.) By virtue of Section 456(2) of the Companies Act, all the properties and effects of the company under winding up, shall be deemed to be in the custody of the Court as from the date of the order for the winding up of the company. Section 446 of the Companies Act mandates that when once the winding up order is made by appointing the Official Liquidator,