Full Judgment
1. These appeals are filed by A.P. State Financial Corporation against the order of the learned single Judge in directing the appellant-Corporation to deposit with the Official Liquidator a sum of Rs.10,000/- in RCC No.7 of 1999 and a sum of Rs.5,000/-in RCC No.3 of 1999 towards the preliminary expenses. The appellant is also aggrieved by the direction to advertise the factum of passing winding up order and to file proof of publication.
2. The first respondent company was directed to be wound up by the learned Company Judge on a reference made by BIFR under Section 20(1) of the Sick Industrial Companies (Special Provisions) Act. The appellant is a statutory Corporation which advanced loans to the companies concerned on obtaining securities including the assets of the company. Thus, the appellant is in the position of a secured creditor. The appellant is endowed with the power of take over and sale of assets to realise its outstanding dues under the provisions of the State Financial Corporations Act. It can opt to remain outside the winding up proceedings and enforce the securities on its own, subject to the leave of the Court. It is to be mentioned at the outset that it is not at the instance of the appellant-Corporation that the BIFR referred the cases for passing the order of winding up the companies. The appellant did not figure in the proceedings before this Court. In the proceedings before this Court, the appellant did not make any request for winding up. It neither supported nor opposed the winding up proceedings. However, at the time ofpassing the order of winding up, this Court directed the appellant-Corporation to cause the publication of the order and to deposit the said amount for the reason that it is the principal secured creditor. In RCC No.3 of 1998, the learned Judge clarified that the Official Liquidator has to reimburse this amount to the Corporation out of the assets in priority to the other debts of the company. The legality of the said directions given by the learned company Judge is in question in these appeals.
3. It is the contention of the appellant that the appellant is under no obligation to advertise the order under Rule 113 of Companies (Court) Rules nor advance any amount towards the initial expenses, more so, when the appellant did not apply for or request winding up. It is submitted that either the Official Liquidator has to draw funds from the Central Government to meet the initial expenses or the BIFR has to make the deposit to put into effect the order of winding up. It is also made clear that if the Official Liquidator incurs any expenditure for safeguarding the assets of the company on taking charge of the same pursuant to the winding up order, the appellant has no objection to advance or reimburse the amount to that extent if proper account is furnished. It is also pointed out that the appellant is already taking care of the security (assets) in its own interest after take over of the unit and there is very little role for the Official Liquidator to play.
4. The crux of the objection is as to the deposit of the so-called preliminary expenses with the Official Liquidator and to meet advertisement expenses to put into effect the winding up order. Reliance has been placed by the learned single Judge on the proviso to Rule 292. In BIFR v. Chairman and Managing Director, Adivasi Paper Mills Limited, : 1999(3)ALD655 , another learned single Judge relied on the proviso to Section 529 and Section 529-Aand the decisions bearing on the interpretation of the said provisions and directed the State Financial Corporation and other secured creditors to pay their contributions towards the expenses to be incurred by the Official Liquidator in connection with the winding up order passed by the Court including advertisement expenses. For taking that view, reliance was placed on the earlier decisions of this Court in APSFC v. Electro Thermics (P) Limited, 1996 (2) ALD 213, and APSFC v. Official liquidator, 1996 (2) ALD 213. The correctness of this view is being questioned in these appeals.
5. We may mention that this problem as to defraying of initial expenses soon after the winding up order is passed is peculiar to the references made by BIFR under Section 20 of the Sick Industrial Companies (Special Provisions) Act. In other cases, while passing the winding up order, the Court can direct the petitioners who are mostly creditors to advertise and advance the amount to meet initial expenses of Official Liquidator. However, that is not the position in the case of winding up at the instance of BIFR unless of course a creditor intervenes and supports the reference.
6. As already stated, the learned single Judge relied on the proviso to Rule 292 in his order dated 24-2-1999 in RCC No.3 of 1998. But, the proviso only provides for reimbursing the amount advanced to the Official Liquidator by the petitioner or a creditor or a contributory out of the assets of the company on preferential basis. It does not cast a positive obligation on the part of the contributory to advance certain money towards preliminary expenses to the Official Liquidator. Even by necessary implication, it cannot be said that a duty is cast on a secured creditor like the petitioner who did not even make a request for winding up the company to advertise and advance thepreliminary expenses. The possibility of subsequent reimbursement cannot be a ground to direct that the advance should initially be made by one of the secured creditors. In fact, Rule 292 of Companies (Courts) Rules makes a provision for incurring expenditure in connection with winding up with the leave of Court from out of permanent advance or other fund provided by Central Government. In the counter affidavit filed by the Official Liquidator, it is explained that the Official Liquidator has to get sanction from the Regional Director, Department of Company Affairs, for each case if any expenses have to be met in order to implement the winding up order. Of course if such preliminary expenses have a direct bearing for safeguarding the security which would otherwise be in peril, the Official Liquidator can require the secured creditor under the proviso to Section 529 to meet such expenses. Alternatively, when the secured creditor seeks leave of the Court to remain outside the winding up proceedings and realise the security on his own, the Court can pass appropriate orders as regards the amount necessary to meet the costs incurred or likely to be incurred by the Official Liquidator in connection with preservation of security. But, such direction cannot be given even at the threshold of winding up, when the winding up is yet to be put into effect.
7. Sections 529 and 529-A relied on by the learned single Judge in BIFR v. Chairman and Managing Director, Adivasi Paper Mills Limited, : 1999(3)ALD655 , are in our view, not relevant and they do not touch the issue of contributing funds for the purpose of defraying the preliminary expenses or the advertisement of the order. After referring to the case of A.P. State Financial Corporation v. Official Liquidator, : 1995(2)ALT406 , decided by a Division Bench of this Court, the learned single Judge concluded as follows:
'Having regard to this principle enunciated by the Division Bench of this Court, it follows that the Company Court may direct the other secured creditors whether it is a Financial Corporation or any other creditor to contribute his share of expenses in the expenses incurred by the Official Liquidator in preserving and maintaining the security. Such preservation and maintenance of security so far as he is concerned, it is for the benefit of the workmen, who are pari passu 'secured creditors, having equal rights with other co-creditors, since 'par/ passu' itself means 'with equal step equally without preference' as per Jowitt's Dictionary of Law. The Official Liquidator may have to incur other incidental expenses like paper publication, communicating orders to the other persons affected by the winding up proceedings and all such expenses are ultimately meant to preserve and maintain the security for the benefit of workmen, who are pari passu secured creditors. Therefore, the Official Liquidator is entitled to contribution from other co-secured creditors, the expenses incurred by him proportionately.'
8. The principle laid down by the Division Bench that the secured creditor is liable to bear the expenses for the preservation and maintenance of security, has been further extended by the learned single Judge to cover the initial expenses like paper publication etc., because according to the learned single Judge, such expenses 'are ultimately meant' to preserve the security for the benefit of workmen. Such interpretation, in our view, is not warranted either on the plain language of proviso to Section 529(2). The expenses for 'preservation of the security' occurring in the proviso to Section 529(2) does not comprehend advertisement expenses required to be incurred under Rule 113 of Companies(Court) Rules. The obligation to advertise the winding up order is cast on the 'petitioner' under Rule 113. Pursuant to the direction given by the Court to advertise the winding up order, it becomes incumbent on the petitioner to have it published in the newspapers, as required by Rule 113.
9. The appellant herein who is a secured creditor and who was in no way responsible for the order of reference under Section 20 of Sick Industrial Companies (Special Provisions) Act and who did not come forward to support the winding up, cannot be construed to be a petitioner, nor can the appellant be subjected to a legal obligation to deposit the advertisement costs and initial expenses of the Official Liquidator merely because it is a secured creditor. If at all it is BIFR which has referred the case to the High Court, that will broadly answer the description of the 'petitioner' under Rule 113. It would be wholly inappropriate to require a third party creditor who would like to remain outside the winding up proceedings to advertise the order in the newspapers.
10. As regards the deposit of the amount with the Official Liquidator to meet the 'preliminary expenses', we find no support from Section 529 read with Section 529-A. A reading of the proviso makes it clear that the liability of the secured creditor to pay the expenses incurred by the liquidator for the preservation of the security arises at a stage when the secured creditor wants to realise the security on his own. Even before the winding up order is published and put into effect, ihere is no scope to invoke the proviso to oblige the secured creditor who wants to remain out-side the winding up proceedings to advance a sum for preliminary expenses. Such order is not contemplated by the proviso to Section 529(2) or by Rule 292. We are therefore of the considered view that the decision in Adivasi Paper Mitts'case (supra) and also the impugned order of the learned single Judge insofar as directing the payment of ad hoc sum towards preliminary expenses by a secured creditor consequent on the winding up order passed at the instance of BIFR, are not correctly decided and we hereby overrule the said decisions. At the same time, we make it clear that the appellant is bound to reimburse the Official Liquidator for the expenses incurred by him in connection with or for the purpose of maintenance and preservation of security. Such amount should be paid without avoidable delay after' receiving a statement of expenditure from the official Liquidator. The Official Liquidator can also require the secured creditor to pay in advance regarding the expenditure which he is called upon to incur for this purpose provided sufficient details are notified to the appellant Corporation. If there is any dispute in regard to the quantum of expenses or the justification thereof, either the Official Liquidator or the secured creditor can move the Court.
11. It is unfortunate that BIFR has not put in its appearance despite service of notice. In our view, BIFR which for all practical purposes is in the position of a petitioner as far as Section 20 of Sick Industrial Companies (Special Provisions) Act and Rule 113 of Companies (Court) Rules are concerned, is bound to advertise the order of winding up. Therefore, whenever an order of winding up is passed on a reference made by BIFR, it is proper and expedient for the Court to give directions under Rule 112 read with Section 113 of the Companies (Court) Rules to BIFR to advertise the order of winding up within the stipulated time. For this purpose, BIFR may collect certain amount in advance from the applicant. As regards the preliminary expenses, we have already clarified the position that the Company Court ought not to pass any order for deposit of ad hoc amount with the Official Liquidator even atthe threshold of winding up order. The stage at which and the purpose for which the Official Liquidator can demand that amount from the secured creditor like the appellant and the corresponding obligation of the Official Liquidator in that regard has already been indicated by us supra. However, in the present cases, the appellants have already remitted the amounts to the Official Liquidator as per the order of the Court. We are also informed that the advertisement has already been made. Hence, the question of giving directions to BIFR regarding advertisement or suspending the order in regard to deposit of specified sum does not arise at this stage though the directions of the learned single Judge are not legally sustainable. But, we lay down the legal position for future guidance. We further direct that the Official Liquidator should furnish the appellants from time to time the account for the expenditure incurred or the expenditure likely to be incurred within a reasonable point of time for the purpose of safeguarding the security and also refund the excess amount wherever necessary.
12. The appeals are disposed of with the above clarifications and observations. No costs.