1998 (11) TMI 680 - HC - Companies Law

Summary

Issues Involved:
1. Distribution of funds realized from the security held by secured creditors.
2. Rights of secured creditors versus rights of workmen under the Companies Act, 1956.
3. Application of Sections 529, 529A, and 530 of the Companies Act, 1956.
4. Determination and enforcement of workmen's charge on the security.
5. Procedural requirements for proving claims in winding up proceedings.

Detailed Analysis:

1. Distribution of Funds Realized from Security Held by Secured Creditors:
The appeals challenge the order directing the distribution of Rs. 1,500 per workman on an adhoc basis from the Rs. 2.6 crores realized from the security held by secured creditors. The secured creditors were not granted access to an equivalent amount. The secured creditors sought the release of a like amount in their favor, arguing that the realization of security should be accessible to them, as it is their money subject to the workmen's charge under Section 529 of the Companies Act.

2. Rights of Secured Creditors versus Rights of Workmen under the Companies Act, 1956:
The secured creditors argued that the money realized from the security is primarily theirs, except for the portion statutorily charged in favor of the workmen. The court noted that the secured creditors have a right to the money until their dues are fully satisfied, and if the workmen's share is undetermined, no amount should be released to either party.

3. Application of Sections 529, 529A, and 530 of the Companies Act, 1956:
Section 529 creates a charge in favor of workmen on the security held by secured creditors. The charge is proportionate to the outstanding dues of the workmen and the secured creditors. Section 529A gives priority to workmen's dues and the unsatisfied portion of secured creditors' dues due to workmen's participation in the security. Section 530 deals with preferential payments, excluding workmen from the definition of employees for this purpose, as their dues are covered under Section 529A.

4. Determination and Enforcement of Workmen's Charge on the Security:
The court emphasized that before enforcing the workmen's charge, the extent of their proportion in the security must be determined. This determination is necessary to know the amount to be appropriated for workmen's dues. The Official Liquidator is responsible for this determination and for enforcing the workmen's charge.

5. Procedural Requirements for Proving Claims in Winding Up Proceedings:
The court highlighted the necessity for workmen to lodge and prove their claims before the Official Liquidator. This process ensures that the claims are verified and admitted, facilitating the determination of workmen's proportion in the security. The court criticized the delay in initiating this process, stressing that it should begin promptly to expedite the winding-up process and distribution of realizations.

Conclusion:
The court found substance in the secured creditors' contention that they should have access to an equivalent amount disbursed to the workmen. It directed that an amount equal to what was disbursed to the workmen be paid to the secured creditors on a rateable basis. The payment to the workmen was subject to the Official Liquidator verifying the genuineness of their claims. The appeals were disposed of as partly allowed, with no order as to costs.