1. ' The petitioner is also a creditor of the company and claims to be a secured creditor by virtue of the fact that the loan given by it to the company was secured by mortgage of the Company's property. The Official Liquidator had, after his appointment as such, required the petitioner to deliver to him the documents of title relating to the property and the property was subsequently sold by the Official Liquidator. It is an admitted position that the documents of title were delivered to the Official Liquidator "without prejudice to NDFC's right as a secured creditor being mortgagee" and with the stipulation that the delivery of the documents "may not be construed as surrendering any of our rights as mortgagee".
2. ' The rights of a secured creditor in a winding up are governed by section 404 of the Companies Ordinance, 1984, which is as follows:--- "In the winding up of an insolvent Company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent; and all persons who in any such case would be entitled to prove for and receive dividend out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section."
3. ' The law of insolvency in force in Karachi is the Insolvency (Karachi Division) Act, 1909, which, by section 48 thereof provides:-- "Rules as to proof of debts.---With respect to the mode of proving debts, the right of proof by secured and other creditors, the admission and rejection of proofs, and the other matters referred to in the Second Schedule, the rules in that Schedule shall be observed."
4. Under the rules contained in the Second Schedule, a secured creditor has the option either to realise his security and prove for the balance due to him after deducting the net amount realised; or to surrender his security to the official assignee and prove for the whole debt or to value his security and prove for the balance due to him after deducting the value so assessed. The relevant rules are: "(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 re&ve a dividend only in respect of the balance due to him after deducting the value so assessed."
5. Rule 12 of the Second Schedule confers upon the official assignee the option, in a case where the secured creditor values his security instead of either realising or surrendering it, to redeem the security or to require that it be realised; Rules 13, 14 and 15 deal with amendment of valuation and its consequences; and Rule 16 provides that:-- "If a secured creditor does not comply with the foregoing rules, he shall be excluded from all shares in any dividend."
6. ' It would appear from the provisions of Second Schedule, cited above, that if a secured creditor does not either realise or surrender or value his security, he would not be entitled to any dividend in the assets of the company.
7. ' It is an admitted position that the petitioner in this case has not valued his security; and, in view of the fact that the petitioner delivered the documents of title to the mortgaged property to the Official Liquidator without prejudice to its rights as a secured creditor and without surrendering any of its rights as mortgagee, it would seem that it did not surrender its security; and Mr. Bashir Memon concedes that the petitioner did not surrender its security. The question, therefore, is whether the petitioner realised its security.
8. ' While it is true that the property has not been sold directly by the petitioner, Mr. Afsar Abidi, the learned counsel for the petitioner submits that it was sold by the Official Liquidator with the consent of the petitioner and Mr. Memon agrees that this was so. It may be noted that while Rule 9 of the Second Schedule provides that a secured creditor may realise his security, it does not prescribe the manner in which he may do so; and Mr. Memon points out that it is the invariable practice of this Court that the properties of the company which are mortgaged to creditors are sold by the official Assignee and sale proceeds are paid, subject to relevant rules, to the secured creditor concerned.
9. This practice is not inconsistent with any of the relevant rules. Besides, even the rules in the Second Schedule provide for a situation where a mortgaged property may be sold by the official Assignee and- sale proceeds paid to the mortgagee. Rule 18 of the Second Schedule, provides that upon application by any person claiming to be mortgagee of any part of the insolvent's real or leasehold estate or by the official Assignee with the consent of such person, the Court shall make the inquiries enumerated therein and, "if satisfied that there ought to be a sale", shall direct that sale be made. The proceeds of such sale, as provided by Rule 20, are to be applied, after payment of costs, charges and expenses of sale and a commission (if any) of the official Assignee, in payment of what shall be found due to such mortgagee, and surplus, if any, shall be paid to the official Assignee, and in the event of sale proceeds not being sufficient to pay the mortgagee, he would be entitled to prove for such deficiency. It will be seen that the security of a secured creditor thus remains unaffected even if the property is sold in pursuance of an order under Rule 18 and that the result is the same as if the secured creditor had realised his security. For these reasons, it appears to me that the sale in the present case by the Official Liquidator, with the consent of the petitioner, is tantamount to realization by it of its security.
10. ' Mr. Abidi submits, and Mr. Memon agrees, that the amount of money lying with Mr. Memon in fact represents a part of the sale proceeds of the mortgaged property, after defraying the necessary expenses and charges. The petitioner is, in the circumstances, entitled to be paid that amount. The reference is answered accordingly.