2009 (8) TMI 703 - HC - Companies Law

Winding up - Overriding preferential payments - Held that - It would be in keeping with the legislative intent to hold that the sale proceeds now in the hands of the 4th respondent are liable to be directed to be made available for distribution in accordance with section 529A of the Companies Act read with the 2nd proviso to section 13(9) of the Securitisation Act. In that view the Company Application is allowed and all the members of the Consortium represented by the 4th respondent bank are directed to deposit with the liquidator the workers dues out of the sale proceeds of the secured assets of the company in liquidation in accordance with the provisions of section 529A of the Companies Act. This shall be done within two months from today. The official liquidator shall assess the workers dues and intimate the 4th respondent the dues to be deposited by the Consortium. The 4th respondent who admittedly represents the Consortium shall collect the proportionate shares of all the members of the Consortium and deposit the same with the official liquidator. It is made clear that all the members of the Consortium shall be bound by this direction and all of them shall be duty bound to see that the workers dues are deposited with the official liquidator within the stipulated time without default.

Issues Involved:
1. Interpretation of the Companies Act, 1956, SICA, and the Securitisation Act, 2002.
2. Claim of workmen under section 529A of the Companies Act against a secured creditor.
3. Validity of the sale of assets by the secured creditor under the Securitisation Act before the winding-up order.
4. Abatement of reference under SICA due to actions under the Securitisation Act.
5. Applicability of the 2nd proviso to section 13(9) of the Securitisation Act.

Issue-wise Detailed Analysis:

1. Interpretation of the Companies Act, 1956, SICA, and the Securitisation Act, 2002:
The judgment addresses the complex interplay between the Companies Act, 1956, the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act). The primary legal question was the interpretation of these acts concerning the claims of workmen of a company in liquidation under section 529A of the Companies Act against a secured creditor who sold the company's assets under the Securitisation Act before the winding-up order.

2. Claim of workmen under section 529A of the Companies Act against a secured creditor:
The workmen of the company in liquidation sought a direction for the secured creditor to deposit the proceeds from the sale of the company's assets with the official liquidator to enforce the charge for workmen's dues. The Labour Court had determined the amount due to the workmen, and the contention was that under the second proviso to section 13(9) of the Securitisation Act, the bank could retain the sale proceeds only after depositing the workmen's dues.

3. Validity of the sale of assets by the secured creditor under the Securitisation Act before the winding-up order:
The bank argued that the sale took place before the winding-up order, and thus, the second proviso to section 13(9) did not apply. The sale occurred on 29-6-2006, while the winding-up order was passed on 2-11-2007. The court noted that the bank did not challenge the proceedings of the BIFR or the winding-up order, which had become final. The court held that the proceedings under the SICA culminating in the winding-up order were valid and binding on the bank.

4. Abatement of reference under SICA due to actions under the Securitisation Act:
The bank contended that the reference under SICA abated because they had taken measures under section 13(4) of the Securitisation Act. However, the court opined that the abatement would not come into operation unless the secured creditor informed the BIFR of the measures taken under section 13(4). The bank failed to inform the BIFR or the court about their actions, rendering the proceedings under SICA and the winding-up order valid.

5. Applicability of the 2nd proviso to section 13(9) of the Securitisation Act:
The court addressed whether the proviso to section 13(9) applied, considering the company was not 'being wound up' at the time of the sale. The court referred to the Karnataka High Court's judgment, which held that the sale proceeds should be distributed in accordance with section 529A of the Companies Act, protecting the workmen's interests. The court also noted that BIFR remains the custodian of the company's assets until the winding-up order is passed, as per the Supreme Court's decision in NGEF Ltd. v. Chandra Developers (P.) Ltd.

Conclusion:
The court concluded that the sale proceeds from the assets of the company in liquidation should be made available for distribution in accordance with section 529A of the Companies Act. The members of the Consortium represented by the 4th respondent bank were directed to deposit the workers' dues with the official liquidator within two months. The official liquidator was tasked with assessing the workers' dues and informing the 4th respondent, who would then collect the proportionate shares from all Consortium members and deposit them accordingly.

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