2005 (3) TMI 465 - SC - Indian Laws

Whether the statement of law contained in paragraph 76 of the judgment of this Court in Allahabad Bank s case (2000 (4) TMI 757 - SUPREME COURT OF INDIA) does not lay down a good law? Whether the impugned judgment could have been passed by way of an ad hoc measure in view of the fact that the company was sold as a going concern and the workers dues were to be paid from the sale proceeds of the assets of the company? Whether any payment could be made to the parties to the winding up proceedings only upon considering the claims of all the creditors and in terms of the certificate issued by the Debts Recovery Tribunal under the RDB Act? Held that - Appeal allowed. The learned Company Judge in its order dated 8-5-2002 has noticed that a substantive amount has been paid to the workers towards their past dues. Payments have also been made not only to the statutory authorities but also to the secured creditors and the Special Officers. The workmen since the sale of the assets of the company as a working concern have received substantial amounts towards their past dues and are being paid their current dues. A situation of starvation of the workmen does no longer prevail. The order passed by the learned Single Judge cannot moreover be sustained on amongst others the ground of not assigning any reason in support thereof. The Division Bench of the High Court also relied on the observation made in paragraph 76 of this Court s judgment in Allahabad Bank s case (supra). It did not advert independently to any other contention of the parties. The contention of Mr. Gupta that Debts Recovery Tribunal having been established in the West Bengal on 27-4-1994 the dispute has to be resolved without reference to the RDB Act also cannot be accepted. The rights and obligations of the parties would only be crystallized after the lis is adjudicated upon. The question of issuance of any certificate in terms of section 19 of the RDB Act would arise only upon the conclusion of the proceeding before it.

Summary

Issues Involved:
1. Correctness of the statement of law in paragraph 76 of the judgment in Allahabad Bank v. Canara Bank.
2. Validity of the ad hoc order passed by the High Court regarding the payment of workers' dues.
3. Whether payments to parties in winding-up proceedings can be made only after considering the claims of all creditors and in accordance with the certificate issued by the Debts Recovery Tribunal (DRT).

Issue-wise Detailed Analysis:

1. Correctness of the Statement of Law in Paragraph 76 of Allahabad Bank v. Canara Bank:
The Supreme Court examined the statement made in paragraph 76 of the Allahabad Bank case, which suggested that "workmen's dues" have priority over all other creditors, both secured and unsecured, under section 529A(1)(a) of the Companies Act. The Court clarified that this observation was not supported by the clear and unambiguous language of section 529A(1)(a) and was not necessary for the decision in that case, as Allahabad Bank was an unsecured creditor. Hence, the statement in paragraph 76 does not lay down the correct law. The Court emphasized that section 529A gives priority to workmen's dues and secured creditors' dues on a pari passu basis, and not over secured creditors.

2. Validity of the Ad Hoc Order Passed by the High Court:
The Supreme Court found that the High Court's ad hoc order directing the appellant bank to pay Rs. 38 lakhs to the Official Liquidator for disbursing salaries to the company's workers lacked reasoning and did not address the jurisdictional question. The Court noted that the High Court failed to consider whether the workmen could be paid on an ad hoc basis in light of the claims of the secured creditors. The Court also observed that the High Court's reliance on the Allahabad Bank case was misplaced. Therefore, the Supreme Court held that the High Court's order was unsustainable due to the absence of proper reasoning and consideration of relevant factors.

3. Payments to Parties in Winding-up Proceedings:
The Supreme Court highlighted that under section 446 of the Companies Act, the Company Judge has wide powers to decide any question arising between parties or any claim made under the Act. However, such powers should be exercised after considering the respective contentions of the parties involved. The Court pointed out that the claims of secured creditors and workmen's dues should be considered pari passu as per section 529A. The Court also noted that the Debts Recovery Tribunal (DRT) has exclusive jurisdiction to adjudicate the liabilities of the debtor company and issue recovery certificates. The Court concluded that payments to creditors should be made only after the DRT issues a certificate and the claims are adjudicated upon, ensuring that the rights and obligations of all parties are crystallized.

Conclusion:
The Supreme Court set aside the impugned judgment of the High Court, emphasizing the need for proper reasoning and adherence to the statutory provisions regarding the priority of claims in winding-up proceedings. The appeal was allowed, and the Court clarified the correct interpretation of sections 529 and 529A of the Companies Act, ensuring that the claims of secured creditors and workmen are treated on a pari passu basis.