2008 (12) TMI 405 - HC - Companies Law

Whether sections 529, 529A, 530 of Companies Act, 1956, read with Rules 6 and 9 of the Companies (Court) Rules, 1959, read with section 35 of the Civil Procedure Code, 1908 empower the Court to award interest to the workmen/employees from the date of winding up order? Held that - As far as the claim for interest is concerned it is only if the company is left with surplus funds after distribution of the dues of the secured creditors and the workers dues both pari passu as per the provisions of sections 529 and 529A of the Act and after distribution of preferential dues under section 530 of the Act that the question of awarding any interest on the dues of the secured creditors or the workmen s dues for the further period after the relevant date will arise. Under the aforesaid facts and circumstances, we answer the above question, to the effect that the Court is empowered to award interest strictly in accordance with Rule 179 of Companies (Court) Rules, 1959

Summary

Issues:
Interpretation of provisions of Companies Act, 1956 and Rules 6 and 9 of Companies (Court) Rules, 1959 regarding the Court's power to award interest to employees from the date of winding up order.

Analysis:
The matter was referred to a Division Bench due to conflicting opinions on the issue of awarding interest to workmen/employees from the date of winding up order. The Company Application sought direction for the Official Liquidator to pay interest to employees from the date of winding up until the actual payment of the amount due. The conflict arose post-liquidation regarding the payment to workers. The Counsel for the Applicant relied on a previous judgment highlighting the rights of workmen under sections 529, 529A, and 530 of the Companies Act, emphasizing the entitlement to claim interest under section 34 of the Civil Procedure Code in the absence of specific rules under the Companies (Court) Rules.

The Official Liquidator contended that Rule 6 only deals with the Practice and Procedure of the Code and cannot be invoked to claim interest under section 34 of the Civil Procedure Code. It was argued that there were no surplus funds available for payment of interest to workers, citing a judgment from the High Court of Gujarat limiting interest payment to 4% if there is a surplus after paying all creditors. Companies (Court) Rule 179 specified the conditions for payment of subsequent interest, emphasizing that interest can only be awarded if surplus funds are available after paying all admitted claims.

It was highlighted that the judgment of the Single Judge in a previous case did not consider Rule 179 of Companies (Court) Rules, 1959, and erroneously awarded interest without ensuring the existence of a surplus fund. The Court concluded that interest could be awarded in accordance with Rule 179 of Companies (Court) Rules, 1959, only if there is a surplus fund available after the distribution of dues to secured creditors and workers, as per the provisions of the Companies Act.