2006 (1) TMI 260 - HC - Companies Law

Summary

Issues Involved:
1. Exclusive right of workmen under Section 529A of the Companies Act, 1956.
2. Priority of workmen's dues over other creditors.
3. Participation of secured creditors in the liquidation process.
4. Calculation and verification of workmen's claims.
5. Distribution of sale proceeds from the liquidation of the company's assets.

Issue-Wise Detailed Analysis:

1. Exclusive Right of Workmen Under Section 529A of the Companies Act, 1956:
The primary issue raised was whether workmen have an exclusive right under Section 529A of the Companies Act, 1956, to have their dues satisfied prior to any other creditors, either secured or unsecured. The court concluded that the claim of the unions regarding their exclusive right of satisfaction of their claim out of the sale proceeds of the assets of the company-in-liquidation in priority to all other creditors, secured as well as unsecured, is not tenable. The court emphasized that Section 529A mandates that workmen's dues and secured creditors' debts rank pari passu and should be paid in priority to all other debts.

2. Priority of Workmen's Dues Over Other Creditors:
The court analyzed the provisions of Sections 529 and 529A, alongside relevant case law, including the Supreme Court's judgment in Andhra Bank v. Official Liquidator and Allahabad Bank v. Canara Bank. It was clarified that secured creditors who do not relinquish their security and choose to remain outside the winding-up process still have a right to claim their dues. The court held that the workmen's dues do not have absolute priority over secured creditors who have not relinquished their security.

3. Participation of Secured Creditors in the Liquidation Process:
The court addressed the contention that secured creditors' participation in the sale committee constituted by the court does not amount to relinquishment of their security. It was held that relinquishment requires a positive action on the part of secured creditors, and mere participation in the sale process does not imply relinquishment. The court observed that secured creditors have the right to realize their security and participate in the liquidation process to ensure the sale proceeds are maximized.

4. Calculation and Verification of Workmen's Claims:
The court directed the official liquidator to reverify the claims of the workmen, taking into account objections raised by the secured creditors. The court noted that the chartered accountant's report had disallowed certain items like bonus, notice pay, and HRA, and that the official liquidator needed to provide comments on these aspects. The court emphasized the need for accurate verification of claims, including the exclusion of inadmissible items and casual workers, and ensuring claims are calculated up to the date of winding up, not closure.

5. Distribution of Sale Proceeds from the Liquidation of the Company's Assets:
The court had earlier ordered an ad hoc distribution of sale proceeds in the ratio of 40% to secured creditors and 60% to workmen. However, the court noted that the remaining amount was still with the official liquidator, and the correct ratio needed to be determined before further disbursement. The court directed the official liquidator to reverify the claims and work out the final ratio for distribution. The court also disposed of Company Application Nos. 362 and 375 of 2004, as the claims made therein were reflected in subsequent applications (Company Application Nos. 232 and 233 of 2005).

Conclusion:
The court concluded that workmen do not have an exclusive right to the sale proceeds of the company's assets in priority to secured creditors who have not relinquished their security. The court directed the official liquidator to reverify the claims of the workmen and determine the correct ratio for distribution of sale proceeds between workmen and secured creditors. The applications were disposed of accordingly, with instructions for further orders to be passed by the appropriate court.