ICICI BANK LTD. versus SIDCO LEATHERS LTD. AND ORS.

Citation: [2006] SUPP. 1 S.C.R. 528 · Decided: 28-04-2006 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
ICICI BANK LTD. 
v. 
SIDCO LEATHERS LTD. AND ORS. 
APRIL 28, 2006 
[S.B. SINHA AND P.K. BALASUBRAMANY AN, JJ .] 
Companies Act, 1956; Sections 529 and 529A-Provincial Insolvency 
Act, 1920; Section 47-Transfer of Property Act, 1882; Section 48-Company 
C created first charge and second charge over its immoveable assets in favour 
of two lending banks respectively for loans obtained-Company Court ordered 
winding up of the Company and appointed an official Liquidator-First 
charge holder filed a suit for recovery before Debt Recovery Tribunal which 
is pending-Second charge holder filed a suit before trial court which was 
decreed-First charge holder lodged a claim before the Official liquidator 
D and filed an application before the Company Court for recovery of amount-
Company Court dismissed the application holding that the bank is only 
entitled to pro-rata share since it had relinquished its first charge over the 
assets by filing a claim with the Official Liquidator-High Court dismissed 
the Second Appeal-Correctness of-Held, Section 529A of the Companies 
E Act only deals with pari passu treatment of the dues of the workmen and 
secured creditors and does not deal with inter se priorities amongst the 
secured creditors-Claim of first charge holder will continue to prevail over 
the claim of the second charge holder as provided under Section 48 of the 
Transfer of Property Act-Provision in the Act must be given effect to the 
extent the Parilament intended and not beyond it-Parliament never intended 
F to deprive the first charge holder of its right under any Act. 
Appellant-Bank and two other banks (respondent nos. 3 and 4) advanced 
loan to respondent no. I-Company for setting up a manufacturing plant. 
Respondent no. 2-bank also advanced a loan to the company for providing 
working capital funds. The company created a first charge in favour of the 
G appellant and the two banks by way of equitable mortgage of little deeds of its 
immovable property. The company created a second charge with respondent 
no.2 by way of constructive delivery of title deeds. 
Court passed an order directing winding up of the company and appointed 
H 
528 
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ICICIBANKLTD.v. SIDCOLEATHERSLTD. 
529 
an Official Liquidator under the provisions of the Companies Act, 1956. The A 
appellant and the two banks filed a suit for recovery of money before Debt 
Recovery Tribunal. The appellant and the two banks filed an application before 
the Company Court under Section 446 of the Companies Act, 1956 to continue 
with the suit for recovery of the security and remain outside the winding up 
proceedings, which was granted. 
B 
Respondent no.2 filed a suit before trial court against the company for 
recovery of money. In the meantime, the Official Liquidator issued a public 
notice to all the creditors to put forth their claim of their debts. The appellant 
lodged a claim with the Official Liquidator. The trial court decreed the suit 
filed by respondent no.2. The appellant and the two banks filed a Company C 
Application before the Company Court claiming first charge over the assets 
of the company. The Company Court held that on filing a claim-with the Official 
liquidator, the appellant and the two banks had relinquished their first charge 
over the assets of the company and are hence only entitled to pr<N"llta share 
out of the sale proceeds. The Second Appeal filed before Division Bench of 
the High Court was dismissed. 
D 
In appeal to this Court, the appellant contended that section 47 of the 
Provincial Insolvency Act, 1920 comes into play by reason of the provisions 
of Chapter V of the Companies Act, 1956; that wrong reliance was placed on 
section 47(2) of the Provincial Insolvency Act, 1920 ignoring other provisions 
of the Act; the first charge holders and second cha'rge holders could not be E 
·equated; that respondent no. 2 also having filed a claim before the Official 
Liquidator, it should not have been given any preferential treatment; and that 
the right of the secured creditor does not get obliterated only because the 
appellant responded to the public notice issued by the office Liquidator; and 
that section 48 of the Transfer of Property Act would override the provisions p 
of Section 529 of the Companies Act, 1956. 
Respondent no. 2, the bank contended under section 529-A of the· 
Companies Act, 1956, no distinction is made amongst the secured creditors 
and hence the appellant cannot have a priority over its claim; 

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