2004 (8) TMI 742 - HC - Income Tax

Summary

Issues Involved
1. Withdrawal of Rs. 3 crores by the secured creditor bank.
2. Prioritization of claims between secured creditors and workers.
3. Jurisdiction of the Debt Recovery Tribunal (DRT) versus the Company Court.
4. Adjudication and payment of workers' claims.
5. Implementation of guidelines for adjudication of workers' claims by the DRT.

Issue-wise Detailed Analysis

1. Withdrawal of Rs. 3 Crores by the Secured Creditor Bank
The petitioners, who are employees of the respondent No. 1 company, raised a grievance regarding the withdrawal of Rs. 3 crores by the respondent No. 2 bank from the sale proceeds of an auction. The bank had initiated recovery proceedings following a recovery certificate issued by the DRT for a sum of Rs. 25,50,91,756.94. The sale of the movable assets of the respondent No. 1 company resulted in the recovery of Rs. 4,70,55,000/-. Out of this amount, Rs. 3 crores were released to the bank, while Rs. 1,17,55,000/- was set aside for the workers' claims.

2. Prioritization of Claims Between Secured Creditors and Workers
The petitioners argued that, according to the Supreme Court's judgment in Allahabad Bank v. Canara Bank and subsequent rulings, workers' claims hold a pari passu charge with secured creditors under Section 529A of the Companies Act, 1956. They contended that the bank should not have withdrawn the Rs. 3 crores without addressing the workers' claims. The bank countered that Rs. 1,17,55,000/- had been reserved for workers' claims, and any payment should be adjudicated first.

3. Jurisdiction of the Debt Recovery Tribunal (DRT) Versus the Company Court
The Supreme Court in Allahabad Bank v. Canara Bank held that the DRT has exclusive jurisdiction over the adjudication and execution of recovery certificates under the RDB Act, 1993. The Company Court cannot interfere with these proceedings. The judgment emphasized that the DRT is responsible for determining the priorities among creditors, including workers, under Section 19(19) read with Section 529A of the Companies Act.

4. Adjudication and Payment of Workers' Claims
The Court directed that the petitioners should approach the DRT for the adjudication of their claims. The DRT was instructed to retain Rs. 1,17,55,000/- and adjudicate the workers' claims. If the amount set aside is insufficient, the DRT can call for additional funds from the Rs. 3 crores withdrawn by the bank. The DRT is to deposit the Rs. 1,17,55,000/- in a fixed deposit with a nationalized bank until the claims are adjudicated.

5. Implementation of Guidelines for Adjudication of Workers' Claims by the DRT
The Court recognized the need for procedural guidelines for the DRT to adjudicate workers' claims. It directed the Chairperson of the Debt Recovery Appellate Tribunal to frame such guidelines by December 31, 2004. Meanwhile, the Court provided interim guidelines for the DRT, including:
- Issuing advertisements for workers' claims.
- Notifying directors or ex-directors to submit records of workers' claims.
- Prescribing affidavit formats for workers to file claims.
- Scrutinizing and verifying claims against company records.
- Quantifying and prioritizing claims among workers, secured creditors, and statutory liabilities.
- Making payments to workers and obtaining receipts.

The Court disposed of the writ petition with no order as to costs and instructed parties to act on an authenticated copy of the order.

Conclusion
The judgment clarifies the prioritization of workers' claims alongside secured creditors under Section 529A of the Companies Act, emphasizing the exclusive jurisdiction of the DRT in such matters. The Court provided interim guidelines for the DRT to follow until formal procedures are established, ensuring that workers' claims are adjudicated and paid in a structured manner.