JITENDRA NATH SINGH versus THE OFFICIAL LIQUIDATOR & ORS.

Citation: [2012] 13 S.C.R. 339 · Decided: 21-09-2012 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2012] 13 S.C.R. 339 
JITENDRA NATH SINGH 
v. 
THE OFFICIAL LIQUIDATOR & ORS. 
(Civil Appeal No. 6755 of 2012) 
SEPTEMBER 21, 2012 
[S.H. KAPADIA, CJI., A.K. PATNAIK AND 
SWATANTER KUMAR, JJ.] 
A 
B 
Companies Act, 1956 - s. 529 Proviso and s. 529A -
Company under liquidation - Right of secured creditors - Over C 
the unsecured assets - Held: The secured creditors of a 
company under liquidation have a right only over the secured 
assets and not over all the assets - However, they will have 
preferential claim even on the unsecured assets, on pari 
passu basis with the workmen in respect of dues which could D 
not be realized because of statutory charge created in favour 
of workmen in the first limb of proviso to s. 529(1) and required 
to be paid alongwith workmen's dues in priority to all other 
debts u/s.529-A. 
Words and Phrases: 
'Creditor' and 'Secured Creditor' - Meaning of, in the 
context of Companies Act, 1956. 
E 
The property and assets of the company under F 
liquidation was sold by the Official Liquidator. The 
secured and the unsecured assets were sold separately 
and separate accounts were maintained for both. The 
sale proceeds from the secured creditors was distributed 
among the secured creditors and the workmen as per s. G 
529 of the Companies Act, 1956. As regards the sale 
proceeds of unsecured assets, the claim of the workmen 
was that their entire remaining claim should be satisfied 
in preference to all other claimants in terms of s. 529A of 
339 
H 
340 
SUPREME COURT REPORTS 
[2012] 13 S.C.R. 
A the Companies Act. C>n the other hand the secured 
creditors contended that they had pari passu charge 
even on the sale proceeds of the unsecured assets in 
terms of the statutory provision and also in view of the 
fact that they had given up their security in favour of the 
B workmen. The claim of the workmen was rejected by the 
Company Court. The appeal against the order was 
dismissed by the High Court. Hence the present appeal. 
c 
D 
Allowing the appeal and remitting the matter to 
Company Court, the Cc1urt 
HELD: 
PER MAJORITY: [By A.K. Patnaik, J. (For himself and S.H. 
Kapadia, CJI)] 
1. A plain reading of clause (c) of sub-section (1) of 
Section 529 of Companies Act, 1956 makes it clear that 
in the winding up of an insolvent company, the same 
rules shall prevail and be observed with regard to the 
respective rights of secured and unsecured creditors as 
E are in force for the time being under the law of insolvency 
with respect to the estates of persons adjudged 
insolvent. This would mean that the respective rights of 
secured and unsecur1ed creditors of an insolvent 
company, which is being wound up, will be the same as 
F the respective rights of secured and unsecured creditors 
with respect to the estate!S of persons adjudged insolvent 
as are in force under thEt law of insolvency. In the State 
of Jharkhand, the Provincial Insolvency Act, 1920 is in 
force and accordingly the respective rights of secured 
G and unsecured creditors with respect to the assets of the 
insolvent company being wound up will be the same as 
in the Insolvency Act. Companies Act does not define a 
~creditor' and a 'secured creditor'. Section 2(1)(a) and 
Section 2(1 )(e) of the Insolvency Act define the words 
H 'creditor' and 'secured creditor'. A secured creditor 
JITENDRA NATH SINGH v. OFFICIAL LIQUIDATOR & 341 
ORS. 
means a person holding a mortgage, charge or lien on A 
the property of the debtor or any part thereof as a security 
for a debt due to him from the debtor. The result is that 
the expression 'secured creditor' in Section 529(1)(c) 
would mean a person who holds a mortgage, charge or 
lien on the property of the company or any part thereof B 
as a security for a debt due to him from the company. 
Where, therefore, a creditor, such as the bank or the 
financial institution in this case, does not hold a 
mortgage, charge or lien on the property of the company 
or any part thereof as a security for a debt due to it from c 
the company, it is not a secured creditor for the purposes 
of Sections 529 and 529A of the Companies Act. [Para 5] 
[390-D-H; C-F] 
2. An unsecured creditor is entitled under Section 45 
of the Insolvency Act to receive dividends equally with D 
the other creditors, whereas the secured creditor has the 
right under Section 47 of the Insolvency Act to realize the 
security and to prove for the balance due to him in case 
on realization of such security he is not able to 

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