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2019 (12) TMI 171 - SC - Indian LawsRecovery of dues from company - employees dues - charge of recovery - priority claim on debts - Whether, in the facts of this case, employees dues can take precedence over the claim of the secured creditor in respect of the proceeds from sale of secured assets of the Karkhana under the SARFAESI Act? - HELD THAT - It is clear that Section 167 creates an express bar on the applicability of the Companies Act to societies registered under the Societies Act. Given that the Karkhana was a co-operative society registered under the said Act, we find that Section 167 is squarely applicable, and the High Court committed a grave error in relying upon Section 529A of the Companies Act. Thus, the employees cannot make use of Section 529A of the Companies Act to claim priority over all other debts of the Karkhana. Whether the employees dues can take priority over other claims by virtue of being recoverable as arrears of land revenue? - HELD THAT - It is evident that dues of employees in respect of which an order has been made by a Court under Chapter VI of the MRTU PULP Act are recoverable in the same manner as arrears of land revenue - On a close reading of sub-sections (1) and (2) of Section 169 of the Land Revenue Code, it becomes clear that Section 169(1) deals with the former category of claims and makes them a paramount charge on the land over all other claims. On the other hand, Section 169(2) deals with the latter category and gives them priority only over unsecured claims. The recovery certificate issued under Section 50 of the MRTU PULP Act only makes employees dues recoverable as arrears of land revenue. Thus, in view of the foregoing discussion, it is clear that such employees dues would fall under the category of claims captured by Section 169(2), and can only take priority over unsecured claims - However, this does not mean that the Appellant-Bank automatically holds a paramount charge over the proceeds from the sale of the secured assets. Under the scheme of the SARFAESI Act, there is nothing to show that a priority is created in favour of banks, financial institutions, and other secured creditors as against a first charge specifically created under any other statute. Thus, in the absence of a paramount charge created in favour of the employees dues under the MRTU PULP Act, it cannot be said that the Appellant-Bank automatically gets a first charge under the SARFAESI Act. In terms of Section 13(7) of the SARFAESI Act, the distribution of money received by the Appellant-Bank should be done as per the sale contract with Respondent No. 5. In other words, the Appellant-Bank is liable to satisfy the employees dues as per its undertaking in the sale letter dated 08.03.2010. However, in view of the fact that all other liabilities, including statutory liabilities were agreed to be borne by the subsequent purchaser, statutory liabilities in respect of employees, such as provident fund, gratuity, bonus etc., would have to be borne by Respondent No. 5 herein. Section 529A of the Companies Act, which gives workers dues a priority over all other debts, cannot be applied to the instant case in view of Section 167 of the Societies Act - Merely by virtue of being recoverable as arrears of land revenue, the employees dues, in respect of which a recovery certificate had been issued by the Industrial Court, cannot be treated as a paramount charge in terms of Section 169(1) of the Land Revenue Code. Instead, under 169(2) of the Land Revenue Code, they would take precedence only over unsecured claims. Appeal disposed off.
Issues Involved:
1. Applicability of Section 529A of the Companies Act. 2. Priority of employees' dues as arrears of land revenue. 3. Paramount charge over sale proceeds under the SARFAESI Act. 4. Contractual obligations regarding the distribution of sale proceeds. 5. Execution of the recovery certificate against the Appellant-Bank. Detailed Analysis: 1. Applicability of Section 529A of the Companies Act: The High Court erred in applying Section 529A of the Companies Act to this case. Section 167 of the Maharashtra Co-operative Societies Act (Societies Act) explicitly bars the application of the Companies Act to co-operative societies. Since the Karkhana was a registered co-operative society, Section 167 is applicable, and thus, Section 529A of the Companies Act cannot be invoked to claim priority for employees' dues over other debts of the Karkhana. 2. Priority of Employees' Dues as Arrears of Land Revenue: Section 50 of the Maharashtra Recognition of Trade Unions & Prevention of Unfair Labour Practices Act (MRTU & PULP Act) makes employees' dues recoverable as arrears of land revenue. However, Section 169 of the Maharashtra Land Revenue Code distinguishes between arrears of land revenue due on account of land (which are a paramount charge) and other monies recoverable as arrears of land revenue (which have priority only over unsecured claims). The employees' dues fall under the latter category and thus do not take precedence over the claims of secured creditors like the Appellant-Bank. 3. Paramount Charge Over Sale Proceeds Under the SARFAESI Act: The SARFAESI Act does not create a paramount charge in favor of banks and secured creditors over other statutory first charges. This was clarified in the Central Bank of India v. State of Kerala, where it was held that only expressly created statutory first charges can take precedence over the claims of secured creditors. Since the MRTU & PULP Act does not expressly create a first charge for employees' dues, the Appellant-Bank does not automatically hold a paramount charge over the sale proceeds. 4. Contractual Obligations Regarding the Distribution of Sale Proceeds: Section 13(7) of the SARFAESI Act provides the manner of distributing sale proceeds, but this can be overridden by a contract to the contrary. In this case, the sale letter dated 08.03.2010 and the sale certificate dated 14.09.2010 constitute such a contract. The sale letter explicitly states that the Appellant-Bank would take responsibility for employees' dues, while other liabilities, including statutory liabilities, would rest on the purchaser. This agreement constitutes a contract to the contrary, which must be honored. 5. Execution of the Recovery Certificate Against the Appellant-Bank: The Industrial Court's recovery certificate issued on 08.08.2011 can be executed against the Appellant-Bank to the extent of employees' dues. The Appellant-Bank is obligated to pay these dues from the sale proceeds as per its contractual undertaking. The recovery should be executed by the Collector within six months from the date of the order. Other statutory liabilities related to employees, such as provident fund, gratuity, and bonus, must be paid by the subsequent purchaser (Respondent No. 5) within the same timeframe. Summary of Findings: 1. Section 529A of the Companies Act does not apply due to Section 167 of the Societies Act. 2. Employees' dues, recoverable as arrears of land revenue, do not have a paramount charge over secured creditors' claims. 3. The Appellant-Bank does not hold a paramount charge over sale proceeds under the SARFAESI Act. 4. The sale contract between the Appellant-Bank and the purchaser overrides the statutory order of distribution of sale proceeds. 5. The recovery certificate can be executed against the Appellant-Bank for employees' dues, and other statutory liabilities must be settled by the purchaser. The appeal is disposed of with these directions, ensuring the execution of the recovery certificate and settlement of all dues within six months.
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