2001 PLP 307 (CLC)

M. Naeem Sehgal for Petitioner. S.M. Zamir Zaidi and Mian Abdul Rashid for Respondents. This order will resolve the pending controversy in regard Fto encashment of the amount of TDR alongwith interest accrued thereon as the same was deposited by the official liquidator with the Habib Bank Limited who in turn has refused to encash the same.

2. It has been reported by the official liquidator that an amount of Rs.12 lacs was deposited with Habib Bank Limited vide TDR issued in that behalf, but the said bank has refused to encash the amount alongwith the interest accrued thereon on the ground that they being a secured creditor are entitled to adjust the same towards the amount of loan advanced to the company. The official‑ liquidator maintained that the amount was deposited by him in his personal name as such and that the refusal on the part of the bank to encash the same is without lawful authority. Learned counsel appearing on behalf of Habib Bank Limited, however, maintained that the bank is entitled to retain the said amount for it was obtained from the sale of cotton pledged with the bank and the said cotton being a security for the loan, the bank was within its right to refuse encashment of TDR. In support of his argument he firstly relied on section 401 of the Companies Ordinance to contend that in the winding up proceedings of insolvent company, the provisions of Insolvency Act prevail and in view thereof the action of the bank is fully justified. In amplification of his argument he has further relied on subsection (6) of section 28 of the Insolvency Act, whereby it is ordained that nothing contained in the foregoing provisions of the said section shall affect the power of any secured creditor to realize or otherwise deal with his security, in the same manner as he would have been entitled to realize or deal with it if this section had not been passed. He also referred to section 47, which in its terms deals with secured creditors. Specific reliance has been placed on subsections (3), (4), (5) and (6) of the said section. Subsection (3) deals with the secured creditor and lays down that where a secured creditor does not either realize or relinquish his 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. It is matter of record and even otherwise admitted by the parties that the alleged security was that of cotton pledged with the bank and the same has been sold under the order of the Court. The bank having entered the liquidation proceedings is to line up with the other creditors to wait and obtain its share from the liquidation proceedings. The above said aspect apart it is too farfetched to maintain that the amount realized from the sale of the said cotton had been deposited by the official liquidator vide the TDR afore referred. Again a bare perusal of subsection (2) of section 47 would show that it requires to be stated the proof of the price of the security and the value thereof as assessed. Both the ingredients afore‑noted are missing in the instant case for it is not the cotton but the cash deposit, which cannot at all be termed as security. Perhaps the stage of objecting had already passed for the cotton having been sold it is no more possible for the bank to evaluate the same. The cash deposited by the liquidator cannot by any stretch of imagination be treated to be as security, therefore, the bank is not entitled to retain the same. Learned counsel for the bank has also relied on the case of Mod Ram v. E.H. Rodwell and another AIR 1923 All.

159. The rule laid down in the said judgment is to the following effect:‑‑ "it does appear clear from the Judge's order that if the Receiver realises the property, the debt due to the Bank at the date of such realisation, constitutes a charge payable to the Bank out of the amount so realised. Section 47 indicates what a secured creditor in such a case can do, but of course his rights under section 47 must be necessarily postponed when the legality of his alleged charge is called in question, as it was here. It is personably in effect too late for the provisions of section 47 to be applied, or at any rate the Bank has not chosen to object to the course proposed by the Receiver of realising by sale and discharging the debt due out of the proceeds. But it must not be supposed as a matter of practice that the judicial proceeding which has now come to an end has affected the option given to the creditor under section 47 "

3. The rule afore‑noted does not also support the case of the bank rather on the contrary it is in line with the reasoning adopted by me.

4. In the circumstances, the bank authorities are not entitled to retain the amount of cash deposited vide the TDR afore referred as also the interest accrued thereon, therefore, it is directed that the TDR be encashed and there amount alongwith the interest accrued thereon be delivered to the official liquidator.

5. To come up on 29‑11‑2000. M.B.A./P‑17/L Order accordingly.