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Issues Involved
1. Jurisdiction of the Company Court under Section 446 of the Companies Act, 1956. 2. Applicability of the Debt Recovery Act, 1993, in the context of company liquidation. 3. Conflict between the Companies Act and the Debt Recovery Act. 4. Legal principles regarding the priority of secured creditors and workmen's dues. 5. Harmonious construction of conflicting statutory provisions. Detailed Analysis 1. Jurisdiction of the Company Court under Section 446 of the Companies Act, 1956 The core issue is whether the jurisdiction of the company court under Section 446 of the Companies Act, 1956, to grant or refuse leave for any suit or legal proceedings, has been taken away by the Debt Recovery Act, 1993. Section 446(1) states, "When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceedings shall be commenced, or if pending at the date of winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose." The court holds that Section 446(2) confers special jurisdiction on the court winding up the company to entertain or dispose of any suit or proceeding by or against the company, notwithstanding anything contained in any other law for the time being in force. 2. Applicability of the Debt Recovery Act, 1993, in the Context of Company Liquidation The Debt Recovery Act, 1993, was enacted to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. Section 17 of the Debt Recovery Act states, "A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions." However, the court finds that the Debt Recovery Act does not lay down procedures for the recovery of amounts due from a company in liquidation or for the distribution of such amounts among various creditors. Therefore, the Debt Recovery Act and the Companies Act do not operate in the same field. 3. Conflict between the Companies Act and the Debt Recovery Act The court examines whether the provisions of the Debt Recovery Act override the provisions of the Companies Act, particularly Section 446. The Debt Recovery Act contains a non-obstante clause in Section 34, which states that the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law. However, the court concludes that the provisions of the Companies Act, particularly Section 446, are special laws dealing specifically with the winding up of companies and the distribution of their assets. Therefore, the provisions of the Companies Act should prevail in the context of company liquidation. 4. Legal Principles Regarding the Priority of Secured Creditors and Workmen's Dues The court refers to Sections 529 and 529A of the Companies Act, which deal with the application of insolvency rules in the winding up of insolvent companies and overriding preferential payments. The proviso to Section 529(1) creates a pari passu charge in favor of workmen on every security available to secured creditors. The court cites the Supreme Court's decision in UCO Bank v. Official Liquidator High Court, Bombay, which held that the legitimate dues of workmen must rank pari passu with those of secured creditors, even above the dues of the Government. 5. Harmonious Construction of Conflicting Statutory Provisions The court emphasizes the need for a harmonious construction of the provisions of the Companies Act and the Debt Recovery Act. It cites the Supreme Court's decisions in Sarwan Singh v. Kasturi Lal and Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd., which held that when two laws operate in the same field, efforts should be made to harmoniously construct the provisions to give effect to the objects of both Acts. The court concludes that the provisions of Section 446 of the Companies Act and the Debt Recovery Act can be harmoniously construed to give effect to the purpose, intent, and object of both Acts. Conclusion The court holds that there is no conflict between the provisions of the Debt Recovery Act and Section 446 of the Companies Act. Each case should be adjudged on its facts and merits, and the company court has the full power and jurisdiction to consider the best interests of the creditors, both secured and unsecured, as well as the workmen, and then pass necessary orders under Section 446. The matters are listed for further directions on July 26, 1997.
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