2023 (7) TMI 834 - HC - Companies Law

Disbursal of payments towards the admitted claims of workmen - Consortium s second charge on certain assets belonging to the company in liquidation - pari passu rank of the second charge - second charge ranks at par with their first charge or not - levy of costs - workmen's claim for interest on wages. Whether the entirety of dues owed to the secured creditors must be computed as a single unit against the dues owed to the workmen for calculating the pro rata shares? HELD THAT - The priority between two sets of secured creditors has been elucidated in the judgment in ICICI BANK LTD. VERSUS SIDCO LEATHERS LTD. 2006 (4) TMI 264 - SUPREME COURT wherein the Supreme Court addressed the relationship between various types of secured creditors and determined their respective rights and priorities - Supreme Court has held that the absence of explicit provisions in Section 529 of the Act regarding priority rights over mortgaged assets does not exclude the application of Section 48 of the TP Act in cases of company liquidation. The Court has reasoned that if inter se priority rights of secured creditors were disregarded, it would result in their exclusion from dividend distribution and unjustly treat them as unsecured creditors. This would also unjustly deprive the secured creditor of their rights over the security, which surely is not the legislature's intent. In view of the discussion and holding in ICICI Bank Ltd., it becomes evident that the first and second charge holders cannot be treated equally. Upholding the objection of the second charge holder would upset the priority of the first charge holder, which would go against the provisions of Section 48 of the TP Act. Imposition of costs - HELD THAT - During the proceedings, a mutual agreement was reached among the secured creditors, including Dena Bank, to implement the payments outlined in OLR No. 165/2018. This understanding is evidenced by the Minutes of Meeting dated 24th August, 2018, which were signed by Mr. Rahul Pratap, Chief Manager of Dena Bank. However, the Applicant-Bank has chosen to backtrack on this commitment. The delay in releasing the dues to the workmen can thus be attributed solely to the actions of the Applicant-Bank/Consortium - The Court even directed a meeting between all stakeholders to facilitate an amicable resolution regarding the payment of dues. Subsequent meetings were held between the OL and the parties involved, but these discussions did not bring about a definitive resolution to the issues at hand. Consequently, the Applicant-Bank has purposefully caused delays by attempting to undermine the overriding priority granted by law to the first charge holders, namely the workmen and their admitted claims - the present application is dismissed with a cost of Rs. 10 lakhs on the Consortium, to be deposited in terms of the directions issued later in the judgment. Workmen's claim for interest on wages - HELD THAT - The contractual provisions outlined in the facility documents of the secured creditors serve as the basis for their entitlement of interest. On the other hand, the workmen do not present any comparable contractual stipulation or statutory basis for the payment of interest on their overdue salaries or other remuneration. Their claim for interest is grounded in equity, which cannot serve as a sufficient foundation for the Court to approve such a claim. Unless debts explicitly carry interest as per the terms of a contract, interest cannot be awarded, except in specific situations outlined under the relevant rules. Therefore, without a valid contractual provision or statutory basis supporting the payment of interest, and considering the nature of the workmen's claim, it is not justifiable to equate their situation with that of the secured creditors for the purpose of interest payment. Interest payment for workmen would only arise if there is a surplus, which triggers the application of Rule 179 and not otherwise. It is also noteworthy that the entitlement to interest from the date of the winding-up order, as per Rule 179, for subsequent interest is not in dispute. The OL has confirmed that once the admitted claims have been settled, any surplus funds will be utilized to declare dividends in accordance with Rule 179. These dividends will be distributed to all relevant parties, including the workmen - the claim for payment of interest to the workmen at a rate of 12 percent lacks merit and is rejected. Application dismissed.

Summary

Issues Involved:
1. Disbursement of payments to workmen.
2. Determination of the priority of claims between secured creditors and workmen.
3. Imposition of costs on Dena Bank.
4. Workmen's claim for interest on wages.

Summary:

Disbursement of Payments to Workmen:
Despite explicit court directives issued on 10th July 2018 instructing the Official Liquidator (OL) to disburse payments towards the admitted claims of workmen, the situation remains largely unchanged with a majority of such claims yet to be settled. The key contributor to the present state of affairs is the application filed by Dena Bank, a secured creditor and the Lead Bank of a consortium of banks (Consortium). Dena Bank's application pertains to the Consortium's second charge on certain assets belonging to the company in liquidation, Jhalani Tools India Limited (JTIL), asserting that this second charge ranks at par with their first charge.

Determination of the Priority of Claims:
The primary contention is that the entirety of dues owed to the secured creditors must be computed as a single unit against the dues owed to the workmen for calculating the pro rata shares. Dena Bank argues that for the purpose of calculation of workmen's portion under Section 529 of the Companies Act, 1956, amounts due under the second charge must be combined with amounts due under the first charge. The Court, however, held that the debt associated with the second charge cannot be at par with the first charge. The Supreme Court's ruling in Jitendera Nath Singh v. Official Liquidator & Ors. (2013) 1 SCC 462 emphasized that JTIL's workmen hold a pari passu first charge over the assets of JTIL at par with the first charge of the secured creditors. Consequently, the workmen's admitted claims would be paid in priority over the amounts due against the second charge held by the Consortium.

Imposition of Costs on Dena Bank:
The Court noted that Dena Bank has caused significant delay in the proceedings, thereby depriving the workmen of their rightful dues. The conflicting stance taken by the Applicant-Bank clearly demonstrates their obstructive stance in the ongoing proceedings. The delay in releasing the dues to the workmen can be attributed solely to the actions of the Applicant-Bank/Consortium. Consequently, the present application is dismissed with a cost of Rs. 10 lakhs on the Consortium, to be deposited with OL.

Workmen's Claim for Interest on Wages:
The workmen's unions of the Aurangabad, Jalna, and Faridabad Units claim interest at the rate of 12 percent p.a. on pending wages. However, the Court found that no formal application has been submitted on behalf of the workmen seeking the aforementioned relief regarding the entitlement to interest. The Court also noted that the workmen do not present any comparable contractual stipulation or statutory basis for the payment of interest on their overdue salaries or other remuneration. Their claim for interest is grounded in equity, which cannot serve as a sufficient foundation for the Court to approve such a claim. Therefore, the claim for payment of interest to the workmen at a rate of 12 percent lacks merit and is rejected.

Directions:
1. CO. APPL. 1313/2018 is dismissed.
2. Costs of Rs. 10 lakhs is imposed on Dena Bank and other members of the Consortium, to be deposited with OL within two weeks.
3. OL is directed to resume disbursement of admitted dues to the first charge holders and workmen, as also the second charge holders, in terms of the calculation sheet filed by the OL on 16th January 2023.