1984 (10) TMI 170 - HC - Companies Law

Issues Involved:
1. Directions for release of funds to pay wages of watch and ward staff.
2. Continuation of the school run by the company.
3. Jurisdiction of the winding-up court to direct secured creditors to contribute towards expenses.
4. Application of the proviso to Section 529(2) of the Companies Act.
5. Interim orders for payment to employees.

Detailed Analysis:

1. Directions for Release of Funds to Pay Wages of Watch and Ward Staff:
The official liquidator requested directions against nine respondents to release sufficient funds to pay wages of the watch and ward staff working at New Swadeshi Mills and Manjushri Textiles. The staff included a watchman, head jamadar, and security officer with monthly consolidated salaries of Rs. 350, Rs. 400, and Rs. 450, respectively, from the date of the provisional liquidation order. The respondents were four nationalized banks and four financial institutions.

2. Continuation of the School Run by the Company:
The official liquidator also sought directions regarding whether the school previously run by the company should continue operations. However, the judgment does not provide a detailed analysis of this issue, focusing primarily on the financial aspects related to the liquidation process.

3. Jurisdiction of the Winding-Up Court to Direct Secured Creditors to Contribute Towards Expenses:
The primary legal contention was whether the winding-up court had the jurisdiction to direct secured creditors, who stand outside the winding-up process, to contribute towards the financial requirements of the liquidator. The secured creditors argued that they were not subject to the winding-up proceedings and could not be compelled to make any contributions without their consent.

4. Application of the Proviso to Section 529(2) of the Companies Act:
The court examined Section 529(2) of the Companies Act, particularly its proviso, which states that if a secured creditor proceeds to realize his security instead of relinquishing it and proving his debt, he shall be liable to pay the expenses incurred by the liquidator for the preservation of the security before its realization. The court concluded that the provisional liquidator or liquidator must spend significant amounts to preserve the security, benefiting the secured creditors. Consequently, the secured creditors must contribute towards these expenses.

5. Interim Orders for Payment to Employees:
The court had previously issued two interim orders directing the secured creditors to release funds for paying the watch and ward staff. The first interim order, dated August 9, 1984, directed the financial institutions and secured creditors to release sufficient funds to pay Rs. 150 per head to the unpaid watchmen. The second interim order, dated August 17, 1984, directed further payments of Rs. 100 per head. These amounts were paid to the employees on an ad hoc basis, subject to final adjustment of claims.

In the current judgment, the court decided to pass a third interim order due to the upcoming Diwali festival and the urgent need to pay the employees who had not received their wages. The court ordered the secured creditors to deposit their respective contributions to cover the wage bill from July to October 1984, as well as unpaid wages from June 22, 1984, to June 30, 1984. The four banks were directed to contribute 50% of the total amount, with each bank contributing 12.5%. Similarly, the four financial institutions were directed to contribute 12.5% each. The official liquidator was instructed to calculate the required contributions and the net amount payable to the employees, considering previous ad hoc payments. The secured creditors were to deposit their contributions by October 19, 1984, and the liquidator was to distribute the collected amount to the employees by October 21, 1984.

The court rejected the request for a stay of the interim order, emphasizing the urgency of the situation and the need to provide relief to the unpaid employees.

Conclusion:
The court overruled the objections of the secured creditors and held that, under the proviso to Section 529(2) of the Companies Act, the winding-up court had the jurisdiction to direct secured creditors to contribute towards the expenses incurred by the liquidator for the preservation of the security. The interim order for payment to the employees was deemed necessary and urgent, with the final decision on the application adjourned to November 6, 1984.

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