The First and Second Charge Holders cannot be treated equally in cases of Company Liquidation – M/s Tata Iron & Steel Co. Ltd. Vs. M/s Jhalani Tools India Ltd. – Delhi High Court
In this case, Dena Bank’s instant application pertains to Consortium’s second charge on certain assets belonging to the company in liquidation i.e., Jhalani Tools India Limited (JTIL).
The Hon’ble High Court held that Dena Bank’s attempt to prioritize their claims above the claims of the workmen lacks a valid basis. They cannot contend that the Consortium’s second charge should be merged with their first charge. Therefore, to maintain the integrity of the statutory framework and ensure equitable treatment of all creditors, it is crucial to distinguish between first and second charge holders when applying the pari passu principle under Sections 529 and 529A of the Act.
Further, the Hon’ble Court referred judgment in ICICI Bank Ltd v. SIDCO Leathers Ltd & Ors. (2017) ibclaw.in 103 SC and held that it becomes evident that the first and second charge holders cannot be treated equally. Upholding the objection of the second charge holder would upset the priority of the first charge holder, which would go against the provisions of Section 48 of the TP Act.
