2006 (5) TMI 565 - HC - Companies Law

Summary

Issues Involved:
1. Claims of secured creditors and workmen under Sections 529 and 529A of the Companies Act, 1956.
2. Interpretation of "pari passu" charge in favor of workmen.
3. Priority of payment between secured creditors with first and second charges.
4. Application of Section 48 of the Transfer of Property Act, 1882.

Issue-wise Detailed Analysis:

1. Claims of Secured Creditors and Workmen under Sections 529 and 529A of the Companies Act, 1956:
- Background: M/s. Bokiyu Tanneries Ltd. was ordered to be wound up on 17th August 1999. A Committee was appointed to scrutinize the claims of secured creditors and workers, which recommended full payment to workmen and partial payment to secured creditors.
- Committee's Recommendations: The Committee accepted claims of Rs. 1,07,01,546/- for workmen and Rs. 22,83,000/- for IFCI. The Indian Bank had already received Rs. 2,92,50,000/- against a total claim of Rs. 8,96,21,880/-.
- Controversy: The Committee opined that the matter of whether only the first charge or both first and second charges should be considered for workmen's payment should be placed before the Court.

2. Interpretation of "Pari Passu" Charge in Favor of Workmen:
- Legal Provisions: Sections 529 and 529A were examined to understand the rights of workmen and secured creditors. Section 529A provides for overriding preferential payments to workmen and secured creditors.
- Court's Interpretation: The Court emphasized that the "pari passu" charge means that the rights of workmen and secured creditors run equally. The liquidator represents the workmen to enforce this charge, and any realized amount is applied rateably for the discharge of workmen's dues.

3. Priority of Payment between Secured Creditors with First and Second Charges:
- Court's Analysis: The Court held that Sections 529 and 529A create two classes of priority preferential creditors: workmen and secured creditors. No distinction is made between first and second charge holders.
- Legal Precedents: The Court referred to judgments like ICICI Bank Ltd. v. Sidco Leathers Ltd. and Andhra Bank v. Official Liquidator to assert that all secured creditors, irrespective of their charge priority, should be treated equally under Sections 529 and 529A.

4. Application of Section 48 of the Transfer of Property Act, 1882:
- Court's Ruling: The Court clarified that Section 529A does not specify payment distribution between first and second charge holders. Therefore, Section 48 of the Transfer of Property Act, which determines priority among secured creditors, applies.
- Implication: The dues of secured creditors with first charge are to be paid before those with second charge, but all secured creditors are considered as one group for calculating the workmen's portion.

Conclusion:
- Final Decision: The Court held that the Committee incorrectly excluded Indian Bank's second charge from consideration. The Committee must recalculate the proportion and ratio of payments to be made to workmen and secured creditors, including those with second charges.
- Outcome: The report and objections were disposed of, directing the Committee to follow the Court's observations for recalculating the dues.

This detailed analysis ensures that all relevant legal terminologies and significant phrases are preserved while providing a comprehensive understanding of the judgment.