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ONGC v. Official Liquidator of Ambica Mills

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 1746 of 2006)Decided 17 Apr 2014
Civil Appeal No. 1746 of 2006
Justice S.S. Nijjar · Justice A.K. Sikri

Background

ONGC was owed gas-supply charges by a company in liquidation. It claimed priority over other creditors based on an earlier court restraint against asset transfers and the company's undertaking to make its immovable assets available for the debt. Earlier directions about paying ONGC first had subsequently been made subject to statutory creditor and workmen priorities.

Decision Breakdown

The Supreme Court dismissed ONGC's appeals and upheld the High Court's refusal of preferential payment. The interim restraint and general undertaking did not create a charge over identified property or make ONGC a secured creditor. The earlier reviewed order could not override Sections 529 and 529A of the Companies Act, 1956. ONGC therefore had to pursue its debt alongside other unsecured creditors under the applicable liquidation process, rather than treat the undertaking as security giving it first payment.

Lesson Learnt

A promise not to dispose of assets is not automatically a security interest in those assets. Creditors seeking secured priority must establish a valid charge or other security and respect the statutory distribution rules.

Official source (sci.gov.in)View Judgment (PDF)

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