2023 (5) TMI 1085 - HC - Companies Law

Seeking secured creditor of Malhotra Steel (Bombay) Ltd., (in liquidation) to deposit towards workers dues - at what point the workmen become entitled to distribution of sale proceeds? - HELD THAT - Recourse to Sections 529 and 529A of the Act, 1956 becomes imperative. A conjoint reading of the provisions contained in Section 529 and 529A, would indicate that a secured creditor has the option to realise his security or relinquish his security. If the secured creditor exercises the option to realise his security, he is entitled to do so in a proceedings other than the winding up proceedings. The workmen of the company in winding up also acquire the status of secured creditors. Where a company is in liquidation, a statutory charge is created in favour of workmen in respect of dues over the security of every secured creditor and this charge is pari passu with that of the secured creditor. Such statutory charge is to the extent of workmen s portion in relation to the security held by the secured creditors of the company as illustrated by Section 529 of the Act. Point at which the secured creditor realised his security standing outside the liquidation process - HELD THAT - It is well recognized that the filing of a Petition for winding up of a company does not preclude the secured creditor from enforcing his security. It is only when Liquidator is appointed, the secured creditor becomes liable to associate the Liquidator in sale assets of the company in liquidation. The fact that after the sale of the assets of the company in liquidation by the secured creditor by resorting to the provisions contained in the Recovery of Debts Due to banks and Financial Institutions Act, 1993 and/or The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Company goes into liquidation does not warrant the reopening of the sale and appropriation of the sale proceeds by the secured creditor. The Supreme Court in the case of Bank of Maharashtra Vs. Pandurang Keshav Gorwadkar and Others 2013 (5) TMI 269 - SUPREME COURT has ruled in clear and explicit terms that if the company goes into the liquidation, before the sale proceeds are fully and finally disbursed, Section 529A read with Section 529(1) proviso come into operation and statutory charge is created in favour of workmen in respect of their dues over such proceeds. The Supreme Court has made it clear that the relevant date to arrive at the ratio at which the sale proceeds are to be disbursed among the workmen and secured creditors of the company is the date of winding up order and not the date of sale. These principles apply even where the Provisional Liquidator has been appointed in respect of the company. Reverting to the facts of the case, it is pertinent to note that so far as the quantum of workmen s portion i.e. Rs. 2,53,977.20/- which the Bank is stated to be liable to contribute, there is not much controversy. From the affidavit of the Bank especially averments in paragraph No. 15 under the, caption dates on which amount was received it becomes evident that all the amounts except a sum of Rs. 18,06,210/- were received by the Bank even before the appointment of the Provisional Liquidator. Indisputably, the amount which came to be accumulated constituted the lease rent which the company in liquidation was entitled to receive. The lease rent clearly falls within the ambit of the property which forms part of the assets of the company in liquidation. In the circumstances, distribution qua the said amount paid to the Bank by the Tribunal-Receiver can not be said to have been fully and finally complete before the appointment of the provisional liquidator. The analogy of sale proceeds of the assets sold by secured creditor standing outside winding up can be applied to the said amount. Consequently, the provisions contained in Section 529 A read with the proviso to Section 529 (1) of the Act come into play and the charge of the workers dues operates on the said amount as well. The report stands partly allowed - The Kotak Mahindra Bank Ltd., Noticee shall deposit a sum of Rs. 2,53,977.20/- with the Official Liquidator towards the workmen s dues, within four weeks from today.

Summary

Issues Involved:
1. Liability of Kotak Mahindra Bank Ltd. to deposit workers' dues.
2. Applicability of Section 529A of the Companies Act, 1956.
3. Character of the amount received by the Bank post the appointment of the Provisional Liquidator.

Summary:

1. Liability of Kotak Mahindra Bank Ltd. to deposit workers' dues:
The Official Liquidator sought directions for Kotak Mahindra Bank Ltd. to deposit Rs. 86,89,421/- towards workers' dues. The Bank disputed the liability, arguing that the properties were sold prior to the appointment of the Official Liquidator, thus negating the application of Section 529A of the Companies Act, 1956. However, the Official Liquidator maintained that the workers have a pari-passu charge under Section 529A, necessitating the Bank to deposit the said amount.

2. Applicability of Section 529A of the Companies Act, 1956:
The court examined the statutory charge created in favor of workmen under Sections 529 and 529A, which mandates that workmen's dues rank pari-passu with secured creditors' claims. The Bank's argument that the sale of assets prior to the appointment of the Provisional Liquidator exempted it from this obligation was rejected. The court cited Supreme Court judgments to affirm that the relevant date for determining the distribution ratio is the date of the winding-up order, not the date of sale.

3. Character of the amount received by the Bank post the appointment of the Provisional Liquidator:
The Bank received Rs. 18,06,210/- on 12th November 2008, after the Provisional Liquidator's appointment. The court held that this amount, representing lease rent, constituted an asset of the company in liquidation. Hence, the statutory charge for workers' dues under Section 529A applied to this amount as well.

Conclusion:
The court ordered Kotak Mahindra Bank Ltd. to deposit Rs. 2,53,977.20/- with the Official Liquidator towards the workmen's dues within four weeks. The application for a stay of this order was rejected.