2016 (2) TMI 645 - HC - Companies Law

Calculation of dues of the workers on winding up - from the date of actual winding up or from the date of appointment of the Provisional Liquidator with full powers to sell the assets or from the date on which there is cessation of work on account of various valid legal reasons? - Held that - While calculating the cut off date the facts in each case have to be taken into consideration. The Amendment Act of 1985 which amended various provisions of winding up proceedings is a beneficial piece of legislation which was brought about to give equal priority to the workers who had contributed to accumulation of capital and revenue of the Company. The Parliament amended the Act and held that the workers dues had a pari passu charge over the secured creditors dues. The import of the said amendment was to give equal status to workers as that of secured creditors. In a winding up proceedings, there could be two possible results viz (1) that after selling the assets of the Company and distributing the assets for paying off liabilities, the Company may still have surplus amount or in the alternative the liabilities would outweigh the amount realized by the sale of assets in which case even though both, workers and secured creditors had priority would have to accordingly rateably get their share out of assets and whatever remains would be distributed ratably amongst the other creditors. Therefore, in our view, the Official Liquidator would have to then consider whether there would be any surplus of assets over liabilities to see whether paripasu benefit could be given to the workers and take it to its logical conclusion. The Official Liquidator in such a case therefore would have to consider the last order of actual winding up of the Company as the order from the date of which the workers dues would have to be calculated. In our view, such purposive interpretation or purposes & objectives approach could harmonize the intention of the legislature in giving paripasu benefit to workers alongwith the secured creditors. Since the immovable property of Svadeshi Mills admittedly has not been sold and it has a land of almost about 50 acres in the heart of the City which is a prime residential and commercial area, the Official Liquidator would receive substantial amount (approximately ₹ 1000 crores) to say the least by sale of these assets. The Grandview Estates Private Limited which is a majority shareholder of the Company and whose SLP is pending in the Apex Court, if it is permitted to develop this property it would make substantial profit by developing the said land since it is a developer and builder and earn profit and also get its dues as per the decree passed by DRT wherein they are entitled to get the decretal amount with compound interest. Taking into consideration these facts, in our view, the legislative intention therefore would be taken to its logical conclusion. Therefore, it will have to be held that the date of the last order of the winding up of the Company would be the date from which the workers dues would be calculated and not the earlier date on which much emphasis is laid by the learned Senior Counsel appearing on behalf of the Appellants.

Summary

Issues Involved:
1. Determination of the cut-off date for calculating workers' dues.
2. Application and interpretation of relevant provisions of the Companies Act, including Sections 445, 529, 529A, and 530.
3. The impact of cessation of work and appointment of the Provisional Liquidator on workers' entitlements.
4. The role of the Official Liquidator in adjudicating workers' claims.

Detailed Analysis:

1. Determination of the Cut-off Date for Calculating Workers' Dues:
The primary issue was whether workers' dues should be calculated from the date of the actual winding-up order by the Company Court, the date of appointment of the Provisional Liquidator, or from the date of cessation of work due to valid legal reasons.

The learned Single Judge held that the workers were entitled to their dues from the date of the actual winding-up order (05/09/2005), relying on Section 445(3) of the Companies Act. The appellants (Grandview Estates Private Ltd and Forbes & Company Ltd) challenged this, arguing that the dues should be calculated from the date of appointment of the Provisional Liquidator (13/02/2002) or earlier cessation of work.

The court noted that the deeming fiction in Section 445(3) does not necessarily mean that it is the only date for cessation of the employer-employee relationship. It acknowledged that other dates, such as the cessation of work or the appointment of the Provisional Liquidator, could also be considered depending on the facts of the case.

2. Application and Interpretation of Relevant Provisions of the Companies Act:
The court examined Sections 529, 529A, 530, and 445 of the Companies Act. Before the Amendment Act of 1985, workers did not get priority in the distribution of assets. The amendment introduced Sections 529 and 529A, giving workers' dues a pari passu charge along with secured creditors.

Section 530(1)(b) provided for preferential payment of wages for a period not exceeding four months within the twelve months before the relevant date, defined in Section 530(8)(c) as the date of appointment of the Provisional Liquidator or the winding-up order.

The court concluded that the combined reading of Sections 529, 529A, and 530 did not support the cut-off date for payment of workers' dues being the date of appointment of the Provisional Liquidator.

3. Impact of Cessation of Work and Appointment of the Provisional Liquidator:
The appellants argued that the workers had stopped rendering services from 01/08/2000, and the Provisional Liquidator was appointed with full powers on 13/02/2002. They contended that these dates should be considered for calculating workers' dues.

The court noted that the cessation of work and the appointment of the Provisional Liquidator did not necessarily terminate the employer-employee relationship. It emphasized that the facts of each case must be considered to determine the appropriate cut-off date.

4. Role of the Official Liquidator in Adjudicating Workers' Claims:
The Official Liquidator initially held that the workers were entitled to their dues from the date of appointment of the Provisional Liquidator. The learned Single Judge set aside this order, directing that the dues should be calculated from the date of the winding-up order.

The court agreed with the learned Single Judge's conclusion but provided different reasoning. It emphasized that the Official Liquidator must consider whether there would be any surplus of assets over liabilities to ensure pari passu benefit to workers and secured creditors.

Conclusion:
The court held that the cut-off date for calculating workers' dues depends on the facts and circumstances of each case. In this case, it affirmed the learned Single Judge's decision that the date of the winding-up order (05/09/2005) was the appropriate cut-off date. The appeals were dismissed, and the judgment and order of the learned Single Judge were upheld.