2004 (12) TMI 385 - HC - Companies Law

Rights of Financial Corporation in case of default, Procedure, powers and duties of authorities

Issues Involved:
1. Whether HPSIDC, after taking over and then handing back the hypothecated assets to the loanee company, can be termed as a successor or assign of the loanee company under Section 18(c) of the Industrial Disputes Act.
2. The legality of the recovery certificate issued under Section 33C(1) of the Industrial Disputes Act against HPSIDC for the dues payable to the workers of the loanee company.

Issue-wise Detailed Analysis:

1. Successor or Assign under Section 18(c) of the Industrial Disputes Act:
The primary question raised in this writ petition under Article 226 of the Constitution of India is whether the HPSIDC, having taken over the hypothecated assets of a loanee company under Section 29 of the State Financial Corporations Act and then handing over back such assets to the same loanee company after a one-time settlement, can be termed as a successor or assign of the loanee company within the meaning of Section 18(c) of the Industrial Disputes Act.

The court analyzed the factual matrix, noting that the HPSIDC took over the assets of the loanee company on February 24, 1995, due to default in loan repayment. Subsequently, the assets were handed back to the loanee company following a one-time settlement facilitated by a court order in Civil Writ Petition No. 119 of 1995. The court emphasized that the HPSIDC did not take over the management or business of the loanee company but only the hypothecated assets to secure its debt.

The court referred to Section 18 of the Industrial Disputes Act, which stipulates that an award by a Labour Court is binding on an employer, including his heirs, successors, or assigns. It concluded that the HPSIDC cannot be termed as a successor or assign of the loanee company because the assets were handed back to the loanee company, and the HPSIDC did not continue the business or become the owner of the assets. The action of taking over the assets was deemed non est (non-existent) after the settlement, and the ownership of the assets remained with the loanee company.

2. Legality of the Recovery Certificate under Section 33C(1) of the Industrial Disputes Act:
The Labour Commissioner issued a recovery certificate under Section 33C(1) of the Industrial Disputes Act, certifying that a sum of Rs. 5,06,137 was payable to the workers of the loanee company by the HPSIDC. The HPSIDC contended that it was not responsible for this payment as it was merely a creditor and not an employer or successor of the loanee company.

The court examined the provisions of Section 29 of the State Financial Corporations Act and the Supreme Court's interpretation in various cases, concluding that the HPSIDC, in taking over the assets, acted as a trustee to secure its debt and not as a successor or assign of the loanee company. The court emphasized that the purpose of taking over the assets was to recover the loan and not to run the business or assume liabilities towards the employees.

The court held that the recovery certificate issued by the Labour Commissioner was arbitrary, illegal, and without jurisdiction, as the HPSIDC could not be considered a successor or assign of the loanee company under Section 18(c) of the Industrial Disputes Act. Consequently, the recovery proceedings initiated against the HPSIDC were quashed.

Conclusion:
The court allowed the petition, quashing the recovery certificate issued by the Labour Commissioner and setting aside the subsequent recovery proceedings initiated against the HPSIDC. The judgment clarified that the HPSIDC, in taking over the hypothecated assets under Section 29 of the State Financial Corporations Act, did not become a successor or assign of the loanee company and was not liable for the dues payable to the workers of the loanee company under the Industrial Disputes Act.

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