1. This is an interlocutory application No. C. M. A. 522 of 1969, purporting to be under sections 55 and 58 of the Banking Companies Ordinance, 1962 read with section 171 of the Companies Act, 1913 and section 151, C. P. C. It has been made on behalf of the Karachi Port and Dock Workers Welfare Fund which had dealings with the banking company under liquidation and had a savings bank account and a fixed deposit account with that company. This application has been made by the depositor with a prayer that the State Bank of Pakistan be called upon to pay Rs. 56,94,141.55 as the value of the securities which were pledged by the banking company under liquidation with the State Bank of Pakistan and that the transaction by which the Official Liquidator sold these securities to the State Bank of Pakistan for the lesser amount of Rs.55,75,907 be cancelled. Mr. Iqbal Kazi stated that the Official Liquidator made an application to this Court bearing No. 1162 of 1968, dated the 5th of July 1968 stating in it that he had entered into an agreement with the State Bank of Pakistan in respect of the securities of the bank under liquida--tion which were pledged with the State Bank of Pakistan and that the securities were valued at Rs. 56,94,141.55 which amount was bigger than the debt which the banking company owed to the State Bank of Pakistan ; therefore, the Official Liquidator be permitted to redeem the securities. The application was granted on the 6th of July 1968, by this Court. Thereafter the securities were transferred by the Official Liquidator to the State Bank of Pakistan for a lesser than the estimated amount with the result that the Official Liquidator was paid by the State Bank of Pakistan an amount which was less by Rs. 1,18,244 than the estimated value of the securities. The present applicant has now moved this Court to bring to the notice of this Court that according to the depositor a loss has been caused to the detriment of the other creditors of the bank under liquidation.
2. The application has been opposed by Mr. G. Raymond on behalf of the Official Liquidator. He has objected, firstly, to its maintainability. According to him, a secured creditor stands out of liquidation proceedings taken under the Companies Act, 1913 by virtue of section 229 of that Act. Counsel argued that in the winding up of an Insolvent company the same rules prevail and are to be observed with regard to the respective rights of secured and unsecured creditors as are in force for the time being under the law of insolvency with regard to the estates of persons adjudged insolvent. Owing to this provision of section 229 of the Companies Act, 1913, counsel contended that the provisions of the Insolvency (Karachi Division and Dacca) Act (Act III of 1909), should be referred to and applied for the purposes of determining as to whether a secured creditor was subject to the liquidation proceedings for any purposes or not. He referred to the proviso to section 17 of the Act and rules 9, 10, 11 and 12 of Schedule 11 to the Act.
3. In order to appreciate the contentions of the counsel, it is necessary to refer to the provisions mentioned above. Proviso to section 17 of the Act reads as under "Provided that this section shall not affect the Power of any secured creditors to realise or otherwise deal with his security in the same manner as he would have been entitled to realise or deal with it if this section had not been passed."
4. Rules 9, 10, 11 and 12 of Schedule 11 to the Act are as under "9. If a secured creditor realises his security, he may prove for the balance due to him, after deducting the net amount realised.
10. If a secured creditor surrenders his security to the official assignee for the general benefit of the creditors, he may prove for his whole debt.
11. If a secured creditor does not either realise or surrender his security, he shall, before ranking for dividend, state in his proof the particulars of his security, the date when it was given 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.
12. (1) Where a security is so valued the official assignee may at any time redeem it on payment to the creditor of the assessed value.
(2) If the official assignee is dissatisfied with the value at which a security is assessed, he may require that the property comprised in any security so valued be offered for sale at such times and on such terms and conditions as may be agreed on between the creditor and the official assignee, or as, in default of agreement, the Court may direct. If the sale is by public auction, the creditor, or the official assignee on behalf of the estate, may bid or purchase : Provided that the creditor may at any time by notice in writing, require the official assignee to elect whether he will or will not exercise his power of redeeming the security or requiring it to be realised, and if the official assignee does not, within six months after receiving the notice, signify in writing to the creditor his election to exercise the power, he shall not be entitled to exercise it; and the equity of red--emption, or any other interest in the property comprised in the security which is vested in the official assignee, shall vest fn the creditor, and the amount of his debt shall be reduced by the amount at which the security has been valued."
5. He also referred to Hansraj and others v. Official Liqui--dators, Dehra Dun Musoorie Electric Company Ltd. (AIR 1929 All. 353) In order to emphasise his point of view that in terms of section 229 of the Companies Act, 1913 not only the rules made under the Insolvency Act but also the sections of that Act were to be followed. That authority helps counsel to the extent that according to it section 229 of the Companies Act, 1913 is wide enough not only to include the rules made under the insolvency Act but also the main body of the law of that Act. It also helps counsel inasmuch as it is laid down in it that no secured creditor can be forced to prove his debt before a liquidator appointed under the Companies Act, 1913 and that a secured creditor can stand wholly outside the winding up proceedings if he so elects. I may mention that there is, however, a rider added to it by Boys, J: inasmuch as according to him the secured creditor can proceed provided he has obtained the leave of the winding up Judge to do so. Counsel relied on the observations by Niamatullah, J. To the effect that a secured creditor need not prove his debt in winding up proceedings and can stand wholly outside such proceedings relying on his security.
6. On the basis of the above proposition of law, counsel contended that in this case the State Bank of Pakistan was a secured creditor and therefore not subject to these proceeding. According to him, the State Bank of Pakistan had fall freedom to sell the securities as it did and that if there is any short fall or objection to the manner or result, then the only course open for the aggrieved party is to file a civil suit against the State Bank of Pakistan separately. He contended that there was only one course which if adopted by the State Bank of Pakistan could disentitle it to sell the securities and it is mentioned in rule 10 in Schedule II to the Insolvency Act. According to that rule, counsel contended that the State Bank of Pakistan could close all its rights to sell the securities if it had surrendered securities to the liquidator for the general benefit of the creditors. In this case, counsel contended, the State Bank of Pakistan did not surrender the securities because they remained in the custody of the State Bank and were not transferred to the Banking Company which is under liquidation. Since there was no surrender of the securities, the State Bank of Pakistan, according to counsel, continued to be a secured creditor in full enjoyment of the right to stand completely outside the liquidation proceedings.
7. Mr. Iqbal Kazi has criticised the above stand taken by Mr. G. Raymond by referring to the provisions of the Banking Companies Ordinance, 1962. He referred to sections 55, 58 and 61 of the Banking Companies Ordinance, 1962 and section 183 (5) of the Companies Act, 1913. He has pointed out that section 229 on which reliance has been placed by Mr. G. Raymond cannot give the protection which has been sought under that section for the State Bank of Pakistan because the law applicable to the liquidation of Banking Com--panies laid down in sections 55, 58 and 61 deviates from Companies Act, 1913 and curtails the right of secured creditors. In section 55 of the Ordinance, notices are to be given to secured as well as unsecured creditors for the purpose of making an estimate of the debt and liabilities of the banking company under liquidation and the secured creditors are also to be informed that if a statement of claim is not sent to the official liquidator b; fore the prescribed time, then the claim shall not be treated as one entitled to be paid in priority to other debts. The secured creditor has to value the securities and if he fails to comply with this requirement of the notice, then he becomes disentitled to get payment under section 23 of the Companies Act, 1913. Subsection (5) of section 58 empowers the official liquidator to redeem the securities and for this purpose has to follow the valuation given under section 55 to the extent that where the official liquidator is not satisfied with the valuation made by the creditor re is to apply to the High Court for making a valuation. Section 61 empowers the High Court to entertain and decide any claim made by banking company including the question of priority and : ---------.Any other question whatsoever, whether of law or fact, which may relate to or arise in the course of the winding up of a banking company, whether such claim or question has arisen or arises or such application has been made or is made before or after the date of the order for the winding up of this banking company or before or after the commence--ment of this Ordinance."
8. Mr. Kazi referred to subsection (5) of section 183 of the Com--panies Act, 1913 in order to indicate the scope of liquidation proceedings. According to that provision any person aggrieved by any act or decision of the official liquidator may apply to the Court and the Court may confirm, reverse or modify the act or decision complained of, and make such order as it thinks just in the circumstances.
9. In order to apply the above provisions to this case I should mention that the official liquidator applied to this Court with reference to the negotiations which he held with the State Bank of Pakistan, mentioned the valuation of the securities in that application and asked for permission to redeem the securities. What he actually did later on, according to counsel for the parties, is that he allowed the securities to be purchased by the State Bank of Pakistan for a lesser amount than the valuation given in his securities. In these circumstances, the contention of Mr. G. Raymond that the State Bank of Pakistan did not come within the purview of these proceedings on the ground that they did not surrender the securities appears to hinge more or less on the interpretation of the word "surrender" as a physical act. In this case what has happened is that the State Bank of Pakistan has allowed the securities to be trans--ferred by the official liquidator and has allowed the official liquidator to negotiate with itself for the payment of its debt. In so far as the manner of surrender is concerned, it does not appear to be restricted to physical or bodily surrender of securities because there can be surrender by operation of law and in an implied manner as explained in Wharton's Law Lexicon.
10. In the above circumstances the stand taken by Mr. Naimuddin on behalf of the State Bank of Pakistan provides elucidation of the situation. According to him, the securities were not sold by the State Bank of Pakistan as they could not be but were sold by the official liquidator under his own seal and signature. The price which became due to the official liquidator by virtue of the sale was adjusted towards the redemption of the securities on the payment of the debt which was due to the State Bank. Counsel contended that in so far as the value for which the sale was made is concerned, the State Bank of Pakistan did not come into the picture, because it was for the official liquidator to choose the price at which he was prepared to sell them. Counsel says that he had invited offers from brokers and banks that none of the offers was satisfactory; therefore, the State Bank of Pakistan came forward to save the situation for the liquidator and purchased the securities on the 17th of July 1968 at a higher price than any offer given by any of the brokers and banks. But according to counsel, if there is anything in this transaction which offends the provisions of the Banking Companies Ordinance, then the official liquidator and not the State Bank of Pakistan is answerable for it.
11. From the above discussion, it follows that in the circum--stances of this case it is not quite correct to say that the State Bank of Pakistan stands outside these proceedings as a secured creditor. This result arises by virtue of the difference that has been created in the position of secured creditors by means of the above-mentioned provisions of the Banking Companies Ordinance and by virtue of the conduct of the State Bank of Pakistan. The nature of the transaction is such as to bring it within the ambit of these proceedings. I, therefore, hold that the application is maintainable.
12. The second question which arises for determination is: what relief and against whom, if any, is to be granted. For this purpose, I would like to hear counsel separately. Adjourned to a date in office.