Kerala State Financial Enterprises Ltd. vs Official Liquidator, High Court of Kerala

N.K. Sodhi, Actg. C.J.

This company appeal is directed against the order dated November 28, 2003, passed by the learned judge accepting the report of the official liquidator and rejecting the application filed by the appellant seeking leave to proceed against the company in liquidation u/s 446 of the Companies Act, 1956 (for short "the Act"). The facts giving rise to the appeal may first be noticed.

M/s. Concert Capital Ltd. (hereinafter called "the company") is a company incorporated under the provisions of the Act and is presently under liquidation. The company and its sister concern M/s. Concert Securities Ltd. had jointly taken a loan from the Kerala State Financial Enterprises Ltd., the appellant herein and it is stated that the properties of the company had been mortgaged to secure that loan. It is the common case of the parties that the charge created on the properties of the company had not been registered with the Registrar of Companies u/s 125 of the Act. The appellant proceeded against the company under the Revenue Recovery Act and obtained an order of attachment against the properties of the company on September 1, 1999. After the properties had been attached, the company was ordered to be wound up by this Court in C. P. No. 25 of 2001 on September 28, 2000. On the passing of the winding up order, the official liquidator took charge of the assets of the company in terms of the provisions of the Act. The official liquidator submitted a report to the learned company judge with a request that the appellant, which was a creditor of the company and whose charge had not been registered u/s 125 of the Act, be treated as an unsecured creditor. Simultaneously, the appellant as a creditor also filed an application, viz., C. A. No. 165 of 2001 seeking leave of the court u/s 446 of the Act to proceed against the properties of the company in pursuance of the order of attachment. The learned company judge on a consideration of the matter accepted the report submitted by the official liquidator and declared the appellant as an unsecured creditor. The application filed by the appellant seeking leave has been dismissed by a common order dated November 28, 2003. Hence, this appeal.

We have heard learned Counsel for the parties. Learned Counsel for the appellant contends that since the order of attachment was obtained on September 1, 1999, i.e., prior to the commencement of the winding up, the order of attachment is valid and is not hit by the provisions of Section 637 of the Act and therefore the learned company judge should have granted leave to the appellant to proceed against the company to recover its dues. He further contends that the learned company judge erred in law in accepting the report of the official liquidator and declaring the appellant as an ordinary creditor.

We have given our thoughtful consideration to the submissions made by learned Counsel for the appellant and are unable to accept them. It is not in dispute that the charge created on the properties of the company had not been registered with the Registrar of Companies u/s 125 of the Act. This being so, the appellant has to be considered as an unsecured creditor and has to stand in queue with the other creditors to receive its dues as and when the assets of the company are collected by the official liquidator for their distribution in accordance with law. This is precisely what the learned company judge has done when he accepted the report of the official liquidator. No fault can thus, be found with the impugned order in this regard.

As regards the other contention that the learned company judge should have granted leave to the appellant to proceed against the assets of the company on the basis of the order of attachment obtained by it on September 1, 1999, we are clearly of the view that the facts and circumstances of the case do not warrant such an action. Since the appellant is an ordinary creditor, it cannot be allowed to recover its dues to the detriment of the other creditors and therefore the learned company judge was well advised in not granting the leave prayed for u/s 446 of the Act. If such a leave were to be granted, the very purpose of preserving the assets of the company for the benefit of the entire body of the creditors and shareholders would stand frustrated. In this view of the matter, the learned company judge was right in accepting the report of the official liquidator and declining the prayer for leave asked for by the appellant.

In the result, we find no merit in the appeal and the same stands dismissed with no order as to costs.