2004 (4) TMI 296 - SC - Companies Law

Winding up - Overriding preferential payments - Held that - The effect of sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen s dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under section 529A to the extent of the workmen dues. Thus even section 529A will override all other claims of other creditors even where a decree has been passed by a court.

Summary

Issues:
1. Priority of payment to creditors in a winding-up order.
2. Application of sections 529 and 529A of the Companies Act.
3. Effect of a mandamus issued by the Court on priority of claims.
4. Review of a previous order in light of statutory provisions.

Analysis:

1. The judgment addresses the priority of payment to creditors in a winding-up order. The Court examined the case where the Official Liquidator was directed to pay off the dues of ONGC Ltd. before making any payments to other creditors. The petitioners, representing the workmen of the company under liquidation, argued that they were not included in the proceedings and sought intervention due to non-payment of dues amounting to over Rs. 40 crores. The Court considered the provisions of the Companies Act and previous decisions to determine the order of payment to creditors in a winding-up scenario.

2. The application of sections 529 and 529A of the Companies Act was a crucial aspect of the judgment. These sections establish the priority of claims, especially concerning the dues of workmen in case of liquidation. The Court clarified that workmen become secured creditors by law to the extent of their dues and emphasized that their claims override other creditors' claims. The purpose of section 529A is to ensure that workmen are not deprived of their legitimate claims during liquidation, and their dues are treated pari passu with secured creditors' claims.

3. The judgment discussed the effect of a mandamus issued by the Court on the priority of claims. It was argued that the mandamus should prevail over any law; however, the Court rejected this contention. Referring to previous decisions, the Court highlighted that the power under Article 142 of the Constitution is complementary to statutory provisions and is intended to ensure complete justice between parties without obstructing the legal framework.

4. In reviewing a previous order, the Court emphasized that the order must be read in conjunction with sections 529 and 529A of the Companies Act. The judgment clarified that these statutory provisions govern the payment priority in a winding-up scenario, and any previous orders must align with these provisions. The review petitions were allowed based on the interpretation of the Companies Act and the precedence of workmen's dues over other creditors' claims.