Holding

Section 529A does not affect inter‑se priority; the first charge holder’s priority under Section 48 of the Transfer of Property Act remains intact, and filing a claim with the Official Liquidator does not constitute relinquishment under Section 47, so the first charge holder continues to have priority over the second charge holder.

Summary

ICICI Bank and two other banks (first charge holders) and Punjab National Bank (second charge holder) had secured loans to Sidco Leathers Ltd., which was wound up and an Official Liquidator appointed. The first charge holders filed a suit in the Debt Recovery Tribunal and lodged a claim with the Official Liquidator, while the second charge holder filed a separate suit that was decreed. The Company Court held that by filing a claim with the liquidator the first charge holders had relinquished their first‑charge rights and were entitled only to a pro‑rata share, a view affirmed by the High Court. The Supreme Court allowed the appeal, holding that Section 529A of the Companies Act does not erase inter‑se priority among secured creditors, that Section 48 of the Transfer of Property Act preserves the first‑charge holder’s priority, and that filing a claim with the liquidator does not constitute relinquishment under Section 47 of the Provincial Insolvency Act. Consequently, the first charge holder’s priority over the second charge holder was upheld.

Issues considered

Whether Section 529A of the Companies Act, 1956 eliminates inter‑se priority among secured creditors.
Whether Section 48 of the Transfer of Property Act, 1882 overrides Section 529A of the Companies Act.
Whether filing a claim with the Official Liquidator amounts to relinquishment of security under Section 47 of the Provincial Insolvency Act, 1920.
Whether the first charge holder retains priority over the second charge holder despite filing a claim in the winding‑up proceedings.

Legislation cited

Companies Act, 1956s. 446, s. 529, s. 529(1)(c), s. 529A
Provincial Insolvency Act, 1920s. 47
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 19(19)
Transfer of Property Act, 1882s. 48

Subjects

secured creditorfirst chargesecond chargepriorityCompanies Act 529ATransfer of Property Act 48Provincial Insolvency Act 47winding upliquidationpari passudebt recovery tribunalrelinquishment

Judgment

A ICICI BANK LTD.
v.
SIDCO LEATHERS LTD. AND ORS.

APRIL 28, 2006

B [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 offirst 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.

H
Court passed an order directing winding up of the company and appointed

528
..
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; that Section 48
of the Transfer of Property Act is subservient to sections 529 and 529-A of G
the Companies Act as the latter had been enacted subsequent to the Transfer
of Property Act; that the claim of the appellant shall rank pari passu only
with all other secured creditors and not a preferential right; that having
regard to the provisions of section 47 of the Provincial Insolvency Act, the
appellant would be deemed to have relinquished its rights.
H
530 SUPREME COURT REPORTS [2006) SUPP. I S.C.R.

A Respondent Official Liquidator contended that having regard to the
provisions of sub-section (2) of Section 47 of the Provincial Insolvency Act,
1920, the appellant would be deemed to have relinquished his rights.

Allowing the appeals, the Court

B HELD: 1.1. Section 529A of the Companies Act, 1956 contains a non-
obstante clause. The non-obstante nature of a provision although may be of
wide amplitude, the interpretative process thereof must be kept confined to
the legislative policy. Only because the dues of the workmen and the debt due
to the secured creditors are treated pari passu with each other, the same by
C itself would not lead to the conclusion that the concept of inter se priorities
amongst the secured creditors had thereby been intended to be given a total
go-by. A non-obstante clause must be given effect to, to the extent the
Parliament intended and not beyond the same. Section 529-A of the Companies
Act does not ex facie contain a provision on the aspect of priority amongst
the secured creditors and, hence, it would not be proper to read thereinto
-
D things, which the Pariiament did not comprehend. (545-D, F, H; 546-Al

1.2. While enacting a statute, the Parliament cannot be presumed to
have taken away a right in property. Right to property is a constitutional right
Right to recover the money lent by enforcing a mortgage would also be a right
to enforce an interest in the property. In terms of Section 48 of the Transfer
E of Property Act, 1882 Act, the claim of the first charge holder shall prevail
over the claim of the second charge holder. Such a valuable right, having
regard to the legal position as obtaining in common law as also under the
provisions of the Transfer of Property Act, must be deemed to have been known
to the Parliament Thus, while enacting the Companies Act, the Parliament
F cannot be held to have intended to deprive the first charge of the said right
Such a valuable right, therefore, must be held to have been kept preserved.
(546-D, E, GI

Workmen of Mis. Firestone Tyre and Rubber Co. of India (P.) Ltd. v.
Management and Ors., (19731 l SCC 813, referred to.

G 1.3. If the Parliament, while amending the provisions of the Companies
Act, 1956, intended to take away such a valuable right of the right charge
holder, it could have stated so explicity. Deprivation of legal right existing in
,,
favour of a person cannot be presumed in construing the statute. In fact, a
contrary presumption shall have to be raised. (546-H; 547-AI

G 1.4. Section 529(1 )(c) of the Companies Act speaks about the respective
ICICIBANK LTD.v. SIDCOLEATHERSLTD. 531
rights of the secured creditors which would mean the respective rights of A
secured creditors vis-a-vis unsecured creditors. It does not envisage respective
rights amongst the secured creditors. Merely because Section 529 of the Act
does not specifically provide for the rights of priorities over the mortgaged
assets, that, would not mean that the provisions of Section 48 of the Transfer
of Property Act in relation to a company, which has undergone liquidation, B
shall stand obliterated. (547-B(

1.5. If the inter se priority of secured creditors gets obliterated by
merely responding to a public notice, it would lead to deprivation of the secured
creditor of his right over the security and would bring him at par with an
unsecured creditor. The logical sequitor of such an inference would be that C
even unsecured creditors would be placed at par with the secured creditors.
This could not have been the intendment of the legislation. [547-C, DJ

1.6. The provisions of the Companies Act may be a special statute but if
the special statute does not contain any specific provision dealing with the
contractual and other statutory rights between different kinds of the secured D
creditors, the specific provisions contained in the general statute shall prevail.
[547-E]

Maru Ram v. Union of India and Ors., [1981 ( 1 SCC 107, referred to.

1.7. There does not exist any provision in the Companies Act which E
provides that the provisions of Section 48 of the Transfer of Property Act
would not be applicable in relation to the affairs of a company. Unless, expressly
or by necessary implication, such a provision contrary to or inconsistent
therewith carrying a different intent can be found in the Companies Act,
Section 48 of the Transfer of Property Act cannot be held to be inapplicable.
[547-G, HJ F
Mulla 's Transfer ofProperty, Act 9th edition, referred to.

1.8. Section 47 of the Provincial Insolvency Act is attracted by virtue of
Section 529(1) of the Companies Act. Sub-section (2) of Section 47 of the
Insolvency ~ct would become applicable where a secured creditor voluntarily G
relinquishes his security for the general benefit of the creditors. The
expression "relinquish" envisages a conscious act, i.e., an act where a person
was aware of his right and then relinquishes the same. The same must be for
the general benefit of the creditors. His action must lead to a conclusion that
he, for one reason or the other, intended to stand in the queue for receiving
money owed to him. It, however, does not stand obliterated only by the filing of H
532 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A an affidavit or proof of claim with the official liquidator. Such a claim had
been filed pursuant to a notice issued by the official liquidator. If the creditor
does not respond to the said notice, he would not be in a position to bring to
the notice of the official liquidator, the existance of his right. [549-8-El

Ramantha Aiyar 's Advanced Law Lexicon, referred to.
B
l.11. Sub-Section (3) of Section 47 of the Provincial Insolvency Act
clearly envisages the p~sition where he does not either relalise or relinquish
his security. He, in such a situation, may state in his Affidavit of Proof, the
particulars of the security and value at which he assesses the same. The
C consequences therefor would ensue. If the Official Receiver proceeds to sell
the security, the Court first has to pay to amount at which the security was
valued to the secured creditor out of the sale proceeds. [549-FI

Mahindra and Mahindra Ltd. v. Union of India and Anr., [1979] 2 SCC
529 and State Bank of Mysore v. Official Liquidator and Ors., (1985) 58
D Company Cases Kar 609, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2332/'2006.

From the Judgment and final Order dated 4.8.2004 of the Allahabad High
Court in S.A. No. 698/2002.
E Rajiv Shakdher, U.A. Rana and Srabonee Roy (for Gagrat & Co.) for the
Appellant.

Shrish Kumar Misra, V.P. Singh, Pankaj Bhatia, M.T. George, Sanjay
Bhatt and Amit Kumar for the Respondents.
F The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted.

Interpretation of Sections 529 and 529-A of the Companies Act, 1956 is
G involved in this appeal, which arises out of a judgment and order dated
4.8.2004 passed by the High Court of Judicature at Allahabad in Special
Appeal No. 698 of 2002 affirming the judgment and order dated 24.5.2002
passed by a learned Singh Jucjge of the said Court.

The appellant herein is a Banking Company. It, along with Industrial
H Finance Corporation of India (IFCI) and Industrial Development Bank of India
ICICIBANKLTD.v. SIDCOLEATHERSLTD. [S.B. SINHA,J.] 533
(IDBI), advanced the following amounts by way of loan to Respondent No. A
I with a view to give financial assistance to it in setting up a plant for
manufacture of leather boards:

(a) IDBI Rupee Term Loans ofRs.193.2 lacs and Foreign Currency loan
of Italian Lira 1380900,000.
B
(b) IFCI Rupee Term Loans of Rs.196.74 lacs, Central Investment
subsidy of Rs.25 lacs and Foreign Currency loan of OM 2127,565.

(c) ICICI Rupee Term Loans of Rs.96.61 lacs and Foreign Currency
loan ofltalian Lira 1380900,000.

The Punjab National Bank (PNB) also advanced a loan to the said
c
Respondent for providing working capital funds. The Ist Respondent, in
order to secure the amounts lent to it, created a first charge in favour of the
appellant along with other financial institutions, i.e., Respondent Nos.3 (IFCI)
and Respondent No. 4 (IDBI) herein by way of equitable mortgage by deposit
of title deeds of its immovable property. A second charge was created in D
favour of PNB by way of constructive delivery of title deeds remaining in
deposit with Respondent No. 3 herein, clearly indicating that the charge in
favour of the latter was subject and subservient to charges in favour of IFCI,
IDBI and ICICI.

On an application for winding up of the I st Respondent made before E
the High Court of Judicature at Allahabad, an order was passed on 16.12.1993
directing its winding up whereupon an Official Liquidator was appointed. The
borrowing facilities of the said Respondent had been terminated. A suit for
recovery of the credited sum was filed by the appellant along with the
Respondent Nos.3 and 4 herein against the !st Respondent in the High court p
of Judicature at Bombay, which was numbered as Suit No. 2789/1995. The said
suit was thereafter transferred to the Debt Recovery Tribunal, Bombay.
Recovery proceedings are admittedly pending adjudication.

The Official Liquidator was one of the defendants. Liberty was granted
by the Debt Recovery Tribunal to the appellant herein and the other G
respondents to obtain permission of the Company Court, i.e., High Court of
Judicature at Allahabad to continue the prosecution of the said suit.
Thereupon, an application under Section 446 of the Companies Act, 1956 was
filed by the plaintiffs in the said suit stating that they were Secured Creditors
and had decided to remain outside the winding up proceedings being desirous
H
534 SUPREME COURT REPORTS [2006) SUPP. I S.C.R.

A of realizing the Security in the suit. The pennission to continue the proceedings
in the said Suit No. 2789/95 was granted by the High Court of Judicature at
Allahabad on 30.8.1995. In the said suit, however, the Respondent No. 2
herein, PNB, was not impleaded as a party.

PNB filed a Civil Suit in the Court of Civil Judge, Fatehpur (U.P.) on
B 15.10.1998, which was numbered as Suit No. 2/98, for recovery of money
payable to it by the 1st Respondent. In its plaint it was, inter alia, averred:

"That the defendant No. I company had secured various other
financial facilities from the Defendant Nos.4, 5 and 6 in whose favour
the Defendant No. I company had created Equitable mortgage as
c Collateral Security by deposit of original title deeds in respect of land,
building and plant and machineries situated at Village Kauriya, Tehsil
Binkdi, District Fatehpur (U.P.), but, then the Defendant No. l company
agreed to secure the second charge on the said mortgaged property
in favour of the plaintiff Bank, after the defendant Nos.4, 5 and 6 gave
D their consent to the effect that the title deeds in respect of the
aforesaid properties shall remain with the Defendant No. 4, for and on
behalf of the Joint First charge holders, viz. Defendant No. 4, 5 and
6 and the said title deeds shall also be retained by the Defendant No.
4, as agents, for and on behalf of the plaintiff Bank as a Second
charge holder in respect of the aforesaid properties.
E
xxx xxx xxx
12. That the said Charge of the Plaintiff Bank regarding the grant of
cash credit hypothecation limit and creation of Second Charge in
respect of immoveable properties of the Defendant No. I company in
F favour of the Plaintiff Bank, was duly registered with the Registrar of
Companies (U.P.) at Kanpur, on the basis of submission of the
Defendant No. 1 company with the Registrar of Companies (U.P.)
Kanpur."

It is, however, not in dispute that in the meantime the assets of the
G Company were sold and the Official Liquidator, against the said assets,
received a sum ofRs.65,72,311/-. As on 31.10.2001, the Official Liquidator had
a sum of Rs.71,00,351/- available with him for distribution to the creditors of
the Company. An advertisement was issued by the said Official Liquidator
being Notice in Fonn No. 63 prescribed under Rule 148(1) of the Companies
H (Court) Rules, 1959, inter alia, stating:
ICICIBANKLTD.v. SIDCOLEATHERSLTD. [S.B. SINHA,J.] 535
"Any creditor so fails to submit his affidavit of proof within the A
time limited as aforesaid will be excluded from the benefit of any
distribution of dividend before the debt is proved or as the case may
be from objecting to such distribution.

Any creditor who has sent in his proof, if so required by notice
in writing from the Official Liquidator shall either in person or by his B
advocate, attend the investigation of such debt or claim at such time
and place as shall be specified in such notice and shall produce such
further evidence of his debt or claim as may be required."

In response to the said notice, the appellant herein lodged a claim
stating as under: C
S.No. Name of Secured Creditor Amount Claimed To be disbursed
1.6 paise
I. xx xx xx

2. ICICI 26, 18,44,044.00 41.89,506.00 D
Although, before us the factual aspect of the matter that Respondent
No. 2 was the ~econd charge holder, whereas the appellant and IFCI and IDBI
were the first charge holders is not in dispute, we may, however, notice that
Respondent No. 2, in its letter dated 20.11.1989, addressed to the appellant E
and Respondent Nos. 3 and 4 categorically stated:

"We, Punjab National Bank, hereby confirm that notwithstanding
anything to the contrary contained in or by virtue of the various
securities created/to be created by Mis. Sidco Leathers Ltd. (hereinafter
referred to as the Company) in favour of Punjab National Bank on the F
immovable and movable properties (save and except book debts) of
the Company, the charges created to be credited by the Company in
favour of Punjab National Bank for its working capital facilities being
Cash Credit limit ofRs.80 lac and bills discounting of Rs.54 (Fifty four
lac only) shall be subject and subservient to the charges created/to
be created by the Company in favour of: G
(l)(a) rupee term loan ofRs.277.00 lac in Participation with IDBI
and ICICI to the extent mentioned below:
IFCI - Rs.112.00 lac
H
536 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A IDBI - Rs.110.00 lac

ICICI - Rs. 55.00 lac
xx
We further agree and confirm as follows:
B (i) We shall not be entitled to call upon IFCI/IDBl/ICICI and other pari
passu charge holders, if any, (hereinafter referred to as 'the first
charge holders') to exercise or enforce any of the rights under their
securities or otherwise.

(ii) We shall not resort to any legal proceedings for the sale of the
c mortgaged properties or for the exercise of our any other right (a)
against the Company unless---(a) we exhaust our remedies as a first
charge holders on the current assets of the Company, (b) we give to
the first charge holders a notice of minimum period of 60 days of our
intention in this regard and (c) we obtain prior written approval of
D IFCl/IDBI/ICICI and other first charge holders iri this regard.

(iii) We, in our capacity as a second charge holder, take steps to
enforce the security for realization of our dues consequent on default
or breach committed by the Company after giving notice to and
obtaining prior approval of the first charge holders as at (ii) above,
E the first charge holders, shall also be at liberty (but without obligation)
to call upon the Company to repay forthwith their respective loans
and advances as if they have become due under their respective loan
documents and shall also be at liberty to exercise and/or all the right
and remedies available to them as first mortgages or under any law
for the time being in force."
F
In the Memorandum of Entry, acting also on behalf of the Respondent
No. I, the Bank stated:

"2. The said Shri M. Zafrulla stated that the documents of title,
evidences, deeds and writings more particularly described in the First
G Schedule hereunder written (hereinafter called "the said deeds") in
respect of the Company's all immovable properties situated at Village
Klauriya Mustaquil, Tehsil Binki, District Fatehpur in the State of
Uttar Pradesh were deposited on the I Ith day of August, 1988 and
further deposited by way of constructive delivery on the 8th day of
H November, 1989 by the Company with IFCI and IFCI acting for itself
ICICIBANK LTD.v. SIDCOLEATHERSLTD. [S.B. SINHA,J.] 537
and as agent of A
Industrial Development Bank of India

The Industrial Credit & Investment Corporation of India Ltd.

in order to create security, by way of joint mortgage by deposit of title
deeds, on the Company's all immovable properties together with the B
buildings and other structures, fixed plant and machinery, fixtures and
fittings, constructed or erected or installed thereon or to be
constructed, erected or installed thereon, for securing the due
repayment, discharge and redemption by the Company."

It is not in dispute that the suit filed by Respondent No. 2 has been C
decreed; whereas the proceedings before the Debt Recovery Tribunal (DRT)
initiated by the appellant and others is still pending. It is furthermore not in
dispute that the appellant along with Respondent Nos. 3 and 4 filed a Company
Application before the learned Company Judge of the High Court of Judicature
at Allahabad, inter alia, praying for that their claim for a sum ofRs.4,56,06,736 D
as on I6.12.1993 should be considered on pro-rata basis and further prayed
that the ciaim of PNB be excluded from the movable and immovable assets
of the Company.

By an order dated 9.1.2002, the first prayer of the appellant was allowed.
However, as regards the second prayer, order was reserved. By an order dated E
24.5.2002, relying on or on the basis of the decision of this Court in Allahabad
Bank v. Canara Bank & Anr., AIR (2000) SC 1535 it was held:

"The test in law, as emerges from the aforesaid discussion is that
where the secured creditors even if it has first charge over mortgaged
assets, in preference to other secured creditors, having second charge F
over the same assets, opts to prove his debts before Official Liquidator
and claim dividend by joining winding up proceedings, relinquishes
his claim over the assets and ranks equal to other secured creditors,
including those who have second charge over the assets and shall be
· entitled to pro rata share out of the sale proceeds subject to the claim G
of workmen to.be determined as provided under Section 529-A of the
Companies Act, 1956.

I may add here that IFCI, IDBI and ICICI had given foreign
currency loan and term loans to the company (in liquidation) by
H
538 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A connotation, the rate of interest and liquidated damages were claimed.
Punjab National Bank had second charge over the fixed assets of the
company for working capital of Rs. l 34 lacs by deposit of title deeds
created by the company in favour of Punjab National Bank on 21st
November 1989 at IFCI office. The second charge in favour of Punjab
National Bank was subject to first charge of IFCI, IDBI and ICICI. It
B is admitted to the applicant that Punjab National Bank might have first
charge on the current assets of the company but that claim of Punjab
National Bank as second charge holder of Rs.1,32,22,539/- has to be
excluded and that the Punjab National Bank may get its share out of
the sdle proceeds of current assets. Since the applicants-IFCI and
c IDBI have joined the winding up proceedings and have submitted
proof of their debts before the Official Liquidator, as held above, they
shall be taken to have given up their securities and thus they can not
claim any priority over the assets of Punjab National Bank on the fixed
assets."

D An intra-court appeal known as Special Appeal thereagainst was filed
by the appellant before the Division Bench of the High Court. Having regard
to the provisions contained in Section 47 of the Provincial Insolvency Act,
1920, it was held that the appellant having opted to remain outside the
liquidation proceedings by expressing its desire to continue with its suit, in
E respect of the second claim of beneficial right, Section 48 of the Transfer of
Property Act will have no application in the instant case. It was further opined
that in view of the terminology used in Section 529-A of the Companies Act,
the right of Secured Creditors being a contingent right, the appellant shall
rank with unsecured creditors and has to take his dividend as provided under
Section 529(2) of the Act.
F
The High Court relying upon Allahabad Bank (supra) further held:

"The second class of secured creditors are those who come under
section 529(1)(b) read with proviso (c). These are those who opt to
stand outside the winding up to realize their security. Section 19( 19)
G of the RDB Act, 1993 permits distribution to secured creditors only
in accordance with Section 529-A of the Companies Act, 1956 which
includes the creditors who stand outside the winding up. These
secured creditors in certain circumstances can come before the
Company Court and claim priority over all other creditors to realize the
amounts out of other moneys lying in the Company Court. This
H
ICICIBANKLTD.v. SIDCO LEATHERS LTD. [S.B. SINHA,J.] 539
limited priority is declared in Section 529-A (1 ). It is however restricted A
only to the extent specified in clause (b) of Section 529-A( 1). The
Canara Bank had laid claims against realizations by other creditors.
The Supreme Court found that it has not exercised its option to remain
outside the winding up proceedings and thus it was held that the
question of such claim can be raised only if the Canara Bank had B
stood outside the winding up and had realized the amount and if it
shows that out of the amounts privately realized by it, some portion
has been rateably taken away by the liquidator under sub-clause (a)
and (b) of the proviso to Section 529( I). It is only then that it can
claim that it should be reimbursed at the same level as a secured
creditor with priority over the realizations of other creditors lying the C
Tribunal."

On the aforementioned findings, the said special appeal was dismissed.

Mr. Raj iv Shakdher, learned Senior Counsel appearing on behalf of the
appellant would submit that: D
(i) The High Court misread and misinterpreted the judgment of this
Court in Allahabad Bank (supra), as therein this Court was primarily concerned
with interpretation of Section 446 of the Companies Act vis-a-vis the provisions
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
('ROB Act', for short), i.e., as to whether for instituting or continuing E
proceedings under ROB Act interference of the Company Court was required
under Section 446 thereof, as would appear from the subsequent decision of
this Court in Rajasthan State Financial Corporation v. Official Liquidator
reported in [2005] 8 SCC 190. It even failed to consider the observations made
in paragraph 37 of judgment in Allahabad Bank (supra). F
(ii) The High Court failed to appreciate the true and correct scope and
purport of Section 47 of the Provincial Insolvency Act, 1920 which comes into
play by reason of the provisions of Chapter V of the Companies Act, 1956.

(iii) The High Court committed a serious error in relying upon Sub- G
section (2) of Section 47 of the Provincial Insolvency Act and ignoring the
.. other provisions thereof.

(iv) The first charge holders and second charge holders could not have
been equated having regard to the fact situation obtaining herein:
H
540 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A (v) PNB, also having filed a claim before the Official Liquidator, it should
not have been given any preferential treatment;

(vi) Right of the Secured Creditor, in terms of Section 48 of the Transfer
of Property Act which is a specific provision dealing with the priority against
mo11gage and there being no such specific provision in the Companies Act
B dealing with a similar matter, does not get obliterated only because the
appellant responded to the public notice;

(vii) Section 48 of the transfer of Property Act would override the
provisions of Section 529 of the Companies Act.

C Mr. M. T. George, learned counsel appearing on behalf of Punjab National
Bank, on the other hand, would submit:

(a) Having regard to the fact that Section 529-A of the Companies Act
provides for a non-obstante clause and no distinction having been made
D therein as regard the priority over the claim amongst the secured creditors
inter se, the Appellant cannot have a priority over the claim of the Second
Respondent.

(b) Proviso appended to sub-section (I) of Section 529 of the Companies
Act and Section 529-A having been enacted by the Parliament subsequent to
E the enactment of the Transfer of Property Act, Section 48 thereof must be
held to be subservient thereto.

(c) The claim of the Appellant shall rank pari passu only with all other
secured creditors and, thus, it cannot claim a preferential right over other
secured creditors.
F
(d) Section 47 of the Provincial Insolvency Act shall apply to the
instant case in terms whereof the Appellant had three options:

(i) He can realize his security and ifthere is something left due to him,
then come and prove its claim for the balance; or
G
(ii) He has to give up his security and to come into liquidation ranking
with other creditors and take share in the distribution of the dividends; or
...

(iii) To value his security and to come into liquidation and prove for any
dues that according to him remain outstanding in respect of his debt on the
H valuation of his security.
ICICIBANKLTD.v. SIDCOLEATHERSLTD.[S.B.SINHA,J.] 541
Having regard to the fact that the Appellant had not exercised his A
option in regard to the same, its claim was extinguished.

The. learned counsel appearing on behalf of the Official Liquidator
submitted that having regard to the provisions of sub-section (2) of Section
47 of the Provincial Insolvency Act, the Appellant would be deemed to have
relinquished its rights. B
The questions therefor which arise for our consideration are:

(a) Whether significance is lost in respect of inter se right of priority
between two sets of secured creditors in view of Section 529-A
of the Companies Act? c
(b) Whether Section 48 of the Transfer of Property Act stands over-
ridden by Section 529-A of the Companies Act.

(c) Whether the Appellant can be said to have relinquished his right
to claim as a secured creditor as it had not opted in terms of D
Section 4 7 of the Provincial Insolvency Act.

Some legal propositions, which are not in controversy, may also be
noticed at this stage.

There are two categories of secured creditors, namely, (i) those who are
desirous of going before the Company Court and; (ii) those who stand E
outside the winding up proceeding.

Corporate insolvency procedures serve a variety of functions which
include collective execution by unsecured creditors, facilitation of corporate
rescue and the enforcement of security which would include certain public F
goals as for example, corporate morality. In an insolvency proceeding, the
fundamental questions, which go to the root of the procedure, are:

(i) which parties are involved;

. (ii) which assets are to be included; and
G
(iii) how proceedings are to be funded.

Liquidation proceeding although is a collective enforcement mechanism
for the benefit of unsecured creditors, the question which invariably arises
, .. is what would be the meaning of the asset of the company in the Indian H
542 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A context. For the said purpose, the court has to be bear in mind that the
liquidation is also the occasion for the termination of the company's affairs.
Assets of the company would include debentures holder assets, free hold
assets and sometimes floating assets.

Applying pari passu principles, creditors' claim are to be treated alike,
B a single point of time at which the assets are liable to be quantified must be
pinpointed, but then, subsequent events are also required to be considered.

For those who desire to go before the Company Court for dividend by
relinquishing their security, in accordance with the Insolvency Rules, Section
C 529 of the Companies Act would be attracted.

The relevant portion of Section 47 of the Provincial Insolvency Act
reads as under:

"47. Secured creditors.-(!) where a secured creditor realises his security,
he may prove for the balance due to him; after deducting the net
D amount realized.

(2) Where a secured creditor relinquishes his security for the general
benefit of the creditors, he may prove for his whole debt.

(3) Where a secured creditor does not either realise or relinquish his
E security, he shall, before being entitled to have his debt entered in the
Schedule, state in his proof the particulars of his security and the
value at which he assesses it and shall be entitled to receive a
dividend only in respect of the balance due to him after deducting the
value so assessed.

F (4) .......... .

(5) ......... ..

(6) Where a secured creditor does not comply with the provision of
this section, he shall be excluded from all shares in any dividend."
G
The second class of the secured creditors are those who come under
Section 529-A (J)(b) of the Companies Act, i.e., those who opt to stand .
outside the winding up to realize their security. They also can, in certain
circumstances, go before the Company Court.

H In Allahabad Bank (supra), Jagannadha Rao, J., referring to the Tiwari
ICICIBANKLTD.v. SIDCOLEATHERSLTD. [S.B. SINHA, J.] 543

Committee Report, 1981 as regard framing of the Recovery of Debts due to A
Banks and Financial Institutions Act, 1993 Act (for short "RDB Act"}, stated
the law in the following terms:

"Even in regard to "priorities" among creditors, the said Committee
stated in Annexure I as follows:
B
"The Adjudication Officer will have such power to distribute the
sale proceeds to the banks and financial institutions being secured
creditors, in accordance with inter se agreement/arrangement
between them and to the other persons entitled thereto in
accordance with the priorities in the law."

The above recommendations as to working out "priorities" have now
c
been brought into the Act with greater clarity under Section 19( 19) as
substituted by Ordinance I of 2000, inter a/ia, whereof Priorities, so far as
the amounts realized under the RDB Act are concerned, are to be worked out
only by the Tribunal under the RDB Act. Section 19(19) of the RDB Act reads
asfo~~ D
"19. (19) Where a certificate of recovery is issued against a company
registered under the Companies Act, 1956, the Tribunal may order the
sale proceeds of such company to be distributed among its secured
creditors in accordance with the provisions of Section 529-A of the
Companies Act, 1956 and to pay the surplus, if any, to the company." E
(Emphasis supplied)

Section 19( 19) is clearly inconsistent with Section 446 and other
provisions of the Companies Act. Only Section 529-A is attracted to
the proceedings before the Tribunal. Thus, on questions of F
adjudication, execution and working out priorities, the special
provisions made in the RDB Act have to be applied."

In that case, this Court was not called upon to decide the question as
to whether having regard to the provisions contained in Section 529-A of the
Companies Act those who stand outside the winding up proceedings will G
have to proceed with the proceedings initiated by them. Therein, the court
was concerned with the interpretation of Section 446 of the Companies Act,
1956 vis-a-vis the provisions of the RDB Act, namely, as to whether for

.. instituting or continuing proceedings thereunder, permission of the Company
Court was required to be obtained. Having regard to the finding that the RDB H
544 SUPREME COURT REPORTS (2006] SUPP. I S.C.R.

A Act was a special statute enacted by the Parliament much after the Companies
Act came into force, it was opined that no permission was required since the
Debt Recovery Tribunal had exclusive jurisdiction with respect to matters
concerning recovery of dues by banks and financial institutions.

This legal position was considered by a Bench of this Court in Rajasthan
B State Financial Corpn. & Anr. v. Official Liquidator & Anr., [2005] 8 SCC
190 wherein one of us (Balasubramanyan, J.) was a member. It was stated:

"In Allahabad Bank v. Canara Bank the question of jurisdiction
of the Debts Recovery Tribunal under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993, vis-a-vis the Company
c Court arose for decision. This Court held that even where a winding-
up petition is pending, or a winding-up order has been passed against
the debtor company, the adjudication of liability and execution of the
certificate in respect of debts payable to banks and financial
institutions, are respectively within the exclusive jurisdiction of the
D Debts Recovery Tribunal and the Recovery Officer under that Act and
in such a case, the Company Court's jurisdiction under Sections 442,
537 and 446 of the Companies Act stood ousted. Hence, no leave of
the Company Court was necessary for initiating proceedings under
the Recovery of Debts Act. Even the priorities among various creditors,
could be decided only by the Debts Recovery Tribunal in accordance
E with Section 19( 19) of the Recovery of Debts Act read with Section
529-A of the Companies Act and in no other manner. The Court took
into account the fact that the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 was a legislation subsequent in point
of time to the introduction of Section 529-A of the Companies Act by
F Act 35 of 1985 and it had overriding effect. But it noticed that by
virtue of Section 19(19) of the Recovery of Debts Act, the priorities
among various creditors had to be decided by the Recovery Tribunal
only in terms of Section 529-A of the Companies Act and Section
19( 19) did not give priority to all secured creditors. Hence, it was
necessary to identify the limited class of secured creditors who have
G priority over all others in accordance with Section 529-A of the
Companies Act. The Court also held that the occasion for a claim by
a secured creditor against the realisation by other creditors of the
debtor under Section 529-A read with proviso (c) to Section 529(1) of
the Companies Act could arise before the Debts Recovery Tribunal
only if the creditor concerned had stood outside the winding up and
H
ICICIBANKLTD.v. SIDCOLEATHERSLTD. [S.B. SINHA,J.] 545
realised amounts and if it is shown that out of the amounts privately A
realised by it, some portion had been rateably taken away by the
Liquidator under clauses (a) and (b) of the proviso to Section 529(1).
The Court has not held that Section 529-A of the Companies Act will
\.
have no application in a case where a proceeding under the Recovery
of Debts Act has been set in motion by a financial institution. The
Court there was essentially dealing with the jurisdiction of the Debts B
Recovery Tribunal in the face of Sections 442, 537 and 466 of the
Companies Act."

Allahabad Bank (supra), therefore, is not an authority for. the
proposition that in terms of Section 529-A of the Companies Act the distinction C
between two classes of secured creditors does no longer survive. The High
Court, thus, in our considered opinion, was not correct in that behalf.

In fact in Allahabad Bank (supra), it was categorically held that the
Adjudication Officer would have such powers to distribute the sale proceeds
to the banks and financial institutions, being secured creditors, in accordance D
with inter se agreement/arrangement between them and to the other persons
entitled thereto in accordance with the priority in law.

Section 529-A of the Companies Act no doubt contains a non-obstante
clause but in construing the provisions thereof, it is necessary to determine
the purport and object for which the same was enacted. E
In terms of Section 529 of the Companies Act, as it stood prior to its
amendment, the dues of the workmen were not treated pari passu with the
secured creditors as a result whereof innumerable instances came to the
notice of the court that the workers may not get anything after discharging
the debts of the secured creditors. It is only with a view to bring the workman's F
dues pari passu with the secured creditors, Section 529-A was enacted.

The non-obstante nature of a provision although may be of wide
amplitude, the interpretative process thereof must be kept confined to the
legislative policy. Only because the dues of the workmen and the debt due G
to the secured creditors are treated pari passu with each other, the same by
• itself, in our considered view, would not lead to the conclusion that the
concept of inter se priorities amongst the secured creditors had thereby been
intended to be given a total go-by.

A non-obstante clause must be given effect to, to the extent the H
546 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A Parliament intended and not beyond the same.
Section 529-A of the Companies Act does not ex facie contain a
provision (on the aspect of priority) amongst the secured creditors and,
hence, it would not be proper to read thereinto things, which the Parliament
did not comprehend. The subject of mortgage, apart from having been dealt
B with under the common law, is governed by the provisions of the Transfer
of Property Act. It is also governed by the terms of the contract.

The Punjab National Bank granted loan to the !st Respondent herein
knowing fully well that, over the assets of the mortgagor, the Appellant held
C the first charge. It in no uncertain terms stated that the charges created by
reason of the loan agreement entered into by and between itself and the Ist
Respondent was subservient to the charges of the appellant as also the
Respondent Nos. 3 and 4. The admission of the PNB in this behalf is absolutely
clear and explicit. Even in the suit filed by it for recovery of the mortgage
money as against the Ist Respondent, it not only in no uncertain terms stated
D that the Appellant and Respondent Nos. 3 and 4 herein were the first charge
holders in respect of movable and immovable properties of the 1st Respondent,
but its prayers in regard thereto were also limited, as would appear from
prayer (f) made in the suit.

While enacting a statute, the Parliament cannot be presumed to have
E taken away a right in property. Right to property is a constitutional right.
Right to recover the money lent by enforcing a mortgage would also be a right
to enforce an interest in the property. The provisions of the Transfer of
Property Act provide for different types of charges. In terms of Section 48 of
the Transfer of Property Act claim of the first charge holder shall prevail over
F the claim of the second charge holder and in a given case where the debts
due to both, the first charge holder and the second charge holder, are to be
realized from the property belonging to the mortgagor, the first charge holder
will have to be repaid first. There is no "dispute as regards the said legal
position.

G Such a valuable right, having regard to the legal position as obtaining
in common law as also under the provisions of the Transfer of Property Act,
must be deemed to have been known to the Parliament. Thus, while enacting
the Companies Act, the Parliament cannot be held to have intended to deprive
the first charge holder of the said right. Such a valuable right, therefore, must
be held to have been kept preserved. [See Workmen of Mis. Firestone Tyre
H and Rubber Co. of India (P.) ltd. v. Management & Ors., [1973] I SCC 813]
-,

IC!CJBANK LTD.v. SIDCO LEATHERS LTD. [S.B. SINHA,J.] 547
If the Parliament while amending the provisions of the Companies Act A
intended to take away such a valuable right of the first charge holder, we see
no reason why it could not have stated so explicitly. Deprivation of legal right
existing in favour of a person cannot be presumed in construing the statute.
•
It is in fact the other way round and thus, a contrary presumption shall have
to be raised.
B
Section 529(l)(c) of the Companies Act speaks about the respective
rights of the secured creditors which would mean the respective rights of
secured creditors vis-a-vis unsecured creditors. It does not envisage respective
rights amongst the secured creditors. Merely because Section 529 does not
specifically provide for the rights of priorities over the mortgaged assets, that, C
·in our opinion, would not mean that the provisions of Section 48 of the
Transfer of Property Act in relation to a company, which has undergone
liquidation, shall stand obliterated.

If we were to accept that inter se priority of secured creditors gets
obliterated by merely responding to a public notice wherein it is specifically D
stated that on his failure to. do so, he will be excluded from the benefits of
the Dividends that may be distributed by the Official Liquidator, the same
wou\d lead to deprivation of the secured creditor of his right over the security
and would bring him at par with an unsecured creditor. The logical sequitor
of such an inference would be that even unsecured creditors would be placed
at par with the secured creditors. This could not have been the intendment E
of the legislation.

The provisions of the Companies Act may be a special statute but if
the special statute does not contain any specific provision dealing with the
contractual and other statutory rights between different kinds of the secured F
creditors, the specific provisions contained in the general statute shall prevail.

In Maru Ram v. Union of India and Ors., [1981] l SCC 107, this Court
distinguished between a specific provision and a special law holding that a
specific provision dealing with a particular situation would override even a
special law, which is inconsistent therewith. G
Section 9 of the Companies Act only states that provisions thereof
would override the Memorandum or Articles of Association of the company
or any other agreement executed or resolution passed by the company. There
does not exist any provision in the Companies Act which provides that the
provisions of Section 48 of the Transfer of Property Act would not be H
548 SUPREME COURT REPORTS [2006) SUPP. I S.C.R.

A applicable in relation to the affairs of a company. Unless, expressly or by
necessary implication, such a provision contrary to or inconsistent therewith
carrying a different intent can be found in the Companies Act, Section 48 of
the Transfer of Property Act, cannot be held to be inapplicable.
•
Section 48 of the Transfer of Property Act reads as under:
B
"48. Priority of rights created by transfer-Where person purports to
create by transfer at different times rights in or over the same immovable
property, and such rights cannot all exist or be exercised to their full
extent together, each later created right shall, in the absence of a
special contract or reservation binding the earlier transferees, be subject
c to the rights previously created."

The said provision, as noticed hereinbefore, deals with a specific situation.
The exceptions to the provisions of Section 48 are as under:

(i) where parties execute a Registered Deed at any point in time which
D is subsequent to a prior but an unregistered deed. This is also subject to the
doctrine of notice, i.e., that parties to the Registered Deed executed after the
Unregistered Deed did not have notice of the same;

(ii) where there are exceptions carved out by a statute-for example,
E Section 98 of the Bengal Tenancy Act.

(iii) a mortgage executed on the directions of the Court to preserve a
property;

(iv) where a 'salvage lien' is created, i.e., where lien is created for
F moneys advanced for the purposes of saving the property from destruction
or forfeiture. The salvage lien is confined in English Law to maritime lien.

In Mulla's Transfer of Property Act, 9th edition, page 346-347, it is
stated:

"Again, when a court for the purpose of preserving the property
G in suit, directs the receiver to execute a mortgage, it has jurisdiction
to order that the mortgage shall take precedence over prior charges.
This is an application of the equity which gives salvage liens, ie liens
for money advanced for the purpose of saving the property from
destruction of forfeiture, priority over all their encumbraRces, With
H regard to such liens the general rule is reversed and they are ·entitled
ICICIBANKLTD.v. SIDCOLEATHERSLTD. [S.B. SINHA,J.] 549
to priority in inverse order to their dates. Salvage liens are confined A
in English law to maritime liens. A salvage lien was claimed in an old
Calcutta case in respect of an advance made for the purpose of
carrying on an indigo factory, and again in another case in respect of
an advance made to enable the mortgagor to pay the rent of the
premises mortgaged, but in both cases the claim was repelled. B
The lien of a co-sharer for owelty money on partition is entitled
to precedence over prior mortgages of property allotted to the co-
sharer who is liable to pay owelty."

Section 47 of the Provincial Insolvency Act is attracted by virtue of C
Section 529(1) of the Companies Act. Sub-section (2) of Section 47 would
become applicable where a secured creditor voluntarily relinquishes his security
for the general benefit of the creditors.

The expression "relinquish" has a different-connotation. In P. Ramanatha
Aiyar's Advanced Law Lexicon at page 4047, it is stated: D
"Relinquish: To give over possession or control of; to leave off."

It envisages a conscious act, i.e., an act where a person was aware of
his right and then relinquishes the same. The same must be for the general
benefit of the creditors. His action must lead to a conclusion that he, for one E
reason or the other, intended to stand in the queue for receiving money owed
to him. It, however, does not stand obliterated only by the filing of an affidavit
or proof of claim with the official liquidator. Such a claim had been filed
pursuant to a notice issued by the official liquidator. If the creditor does not
respond to the said notice, he would not be in a position to bring to the notice F
of the official liquidator, the existence of his right.

Sub-section (3) of Section 47 clearly envisages the position where he
does not either realise or relinquish his security. He, in such a situation, may
state in his Affidavit of Proof, the particulars of the security and value at
which he assesses the same. The consequences therefor would ensue. If the G
Official Receiver proceeds to sell the security, the Court first has to pay the
amount at which the security was valued to the secured creditor out of the
sale proceeds.

In Mahindra and Mahindra Ltd. v. Union ofIndia& Anr., [1979] 2 SCC H
529, i! was stated:
550 SUPREME COURT REPORTS (2006] SUPP. I S.C.R.

A " ... That has to be determined on an interpretation of Section 13(2) in
the light of the context or setting in which it occurs and having regard
to the object and purpose of its enactment. Now, one thing is clear
that the power conferred under Section 13(2) is a corrective or
rectificatory power and it is conferred in terms of widest amplitude ... .It
is left to the discretion of the Commission whether the power should
B
be exercised in a given case and if so, to what extent. But it must be
remembered that this discretion being a judicial or in any event a
quasi judicial discretion, cannot be "arbitrary, vague or fanciful" : it
must be guided by relevant considerations. It is not possible to
enumerate exhaustively the various relevant considerations which
c may legitimately weigh with the Commission in exercising its discretion,
nor would it be prudent or wise to do so, since the teeming multiplicity
of circumstances and situations which may arise from time to time in
this kaleidoscopic world cannot be cast in any definite or rigid mould
or be imprisoned in any strait-jacket formula ...."
D The question came up for consideration before a learned Single Judge
of Kamataka High Court in State Bank of Mysore v. Official Liquidator &
Ors., [1985] 58 Company Cases 609, wherein the Jaw was stated in the following
terms:

E "It will be thus plain that what section 47 provides is only for the
benefit of the mortgagee and not to his detriment. He can follow any
one of the three procedures suggested in the section. In this case, I
do not think it can be validly argued that the mortgagee has
relinquished his security. Exhibit B-1 makes it clear that he had no
objection if the property is sold free of mortgage but a lien is kept in
F so far as the value he had assessed is concerned and is preferentially
paid out of the sale proceeds. There are no words in Exhibit B-1 which
warrant any conclusion that the mortgagee had relinquished his
security ....

Jn fact, sub-section (3) of section 47 lends support to this method
G
of payment to the mortgagee. If the official receiver proceeds to sell
the security, the court first has to pay the amount at which the
security was valued to the secured creditor out of the sale proceeds.
Whatever may be the position in regard to the balance, in so far as
the value of his assessment is concerned, he can be preferentially
H paid out of the sale proceeds.
ICICIBANK LTD.v. SIDCO LEATHERS LTD. [S.B. SINHA, J.] 551
If the sale was valid, I fail to see how the mortgagee could be A
deprived of his security, particularly when he had not" relinquished.
The property was sold with a clear understanding that the mortgagee
will be paid firm from the sale proceeds. This mode of realization of
security is not, in my view, derogatory either to section 47 or to
section 59 of the Act."
B
It was further held:

" .... Sub-s. (3) of s. 47 of the Act does not come in the way of the
official liquidator entertaining the application of the bank for payment
of secured loans in accordance with the hypothecation agreement and C
the mortgage by deposit of title deeds, as proved by the bank. In the
result, the bank is entitled to realize that amount on a preferential
basis as a secured creditor notwithstanding the fact that it filed the
affidavit indicating that it stands within liquidation but subject to the
reservation of its security being continued."
D
A Division bench of the Gujarat High Court in Gujarat Steel Tube
Employees Union &Anr. v. O.L. ofGujarat Steel Tubes Ltd & Ors., disposed
ofon 9.1.2006, held:

" .... The Court is also of the view that simply because the secured
creditors participate in the sale proceedings undertaken by the Court E
and they also became the members of the Sale Committee constituted
pursuant to the directions issued by the Court does not mean that
they have exercised their option of remaining outside the winding up
and they have relinquished their security. As a matter of fact,
relinquishment of security by the secured creditors require a positive F
action on the part of the secured creditors. They have never stated
in any of the proceedings that they are relinquishing their securities.
On the contrary, they have made it clear that they remain outside the
winding up and they participate in the sale proceeds only with a view
to facilitate the sale proceeds so as to get the auction proceedings
completed as expeditiously as possible. There is also substance in the G
say of the secured creditors that as soon as the assets of the companies
are sold and realization is taken place, their securities are converted
from the specified assets into cash and they have equal right in cash
which is realized on sale of the assets of the Company in liquidation ....."

We agree with the said view. H
552 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A For the aforesaid reasons, we are of the view that the High Court has
overlooked salient aspects of the provisions of the relevant Acts including
that of the Provincial Insolvency Act. Hence, the impugned judgment cannot
be sustained. It is set aside accordingly. The appeal is allowed. The Ist
Respondent shall bear the costs of the Appellant throughout.

B B.S. Appeal allowed.