2004 (10) TMI 331 - HC - Companies Law

Issues Involved:
1. Whether ONGC is a Secured Creditor.
2. Whether ONGC has a preferential right over other creditors.
3. Applicability of sections 529 and 529A of the Companies Act, 1956.
4. Validity of ONGC's claim based on various Supreme Court orders.
5. ONGC's entitlement to pari passu distribution with workmen and secured creditors.

Detailed Analysis:

1. Whether ONGC is a Secured Creditor:
The court examined whether ONGC could be considered a Secured Creditor based on the orders of the Supreme Court and the undertakings given by the gas-consuming industries. The court noted that ONGC supplied gas under the aegis of interim orders from the Supreme Court, which included undertakings from the consumers not to alienate their immovable assets. However, the court concluded that these undertakings did not amount to creating a mortgage, charge, or lien in favor of ONGC. Additionally, ONGC failed to demonstrate that any charge was registered as required under section 125 of the Companies Act. Therefore, ONGC could not be considered a Secured Creditor.

2. Whether ONGC has a preferential right over other creditors:
The court addressed ONGC's claim of having a preferential right based on various Supreme Court orders. It was argued that ONGC had a superior right due to the conditional orders of the Supreme Court, which allowed ONGC to recover its dues preferentially. However, the court held that the statutory provisions of sections 529 and 529A of the Companies Act take precedence over any preferential claims. The judgment emphasized that the claims of workmen and secured creditors have a statutory priority under these sections, and ONGC could not override these provisions based on the Supreme Court orders.

3. Applicability of sections 529 and 529A of the Companies Act, 1956:
The court analyzed the provisions of sections 529 and 529A, which provide that the dues of workmen and secured creditors rank pari passu and have priority over other debts. The court reiterated that any claims, including those of ONGC, must be worked out in accordance with these sections. The court rejected ONGC's contention that it had a superior right over secured creditors and workmen, stating that ONGC's claims must be processed in line with the statutory scheme laid down in sections 529 and 529A.

4. Validity of ONGC's claim based on various Supreme Court orders:
The court scrutinized the orders of the Supreme Court, particularly the order dated 17-10-1997, which stated that ONGC's dues should be paid off first. However, the court noted that the Supreme Court, in its subsequent order dated 12-4-2004, clarified that all claims, including those of ONGC, must be subject to the provisions of sections 529 and 529A. The court concluded that the earlier orders did not grant ONGC a superior right over the statutory provisions governing the distribution of assets in liquidation.

5. ONGC's entitlement to pari passu distribution with workmen and secured creditors:
The court considered ONGC's alternative plea for pari passu distribution with workmen and secured creditors. The court held that even if ONGC were to be treated as a secured creditor, it would still have to accept a pari passu charge in favor of the workmen. The court emphasized that ONGC had not opted to stay outside the winding-up proceedings and realize its security, nor had it relinquished its security. Therefore, ONGC could not claim a position superior to that of secured creditors and workmen.

Conclusion:
The court rejected ONGC's application, holding that ONGC is not a secured creditor and does not have a preferential right over the claims of secured creditors and workmen. The court directed that ONGC's claims must be processed in accordance with sections 529 and 529A of the Companies Act, and ONGC is not entitled to any preferential treatment. The application was dismissed, and ONGC was advised to lodge its claim in accordance with the law when the claims of other creditors are considered for distribution.

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