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TMI Blog2004 (10) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... junction restraining the respondent and/or his agents, officers, servants from making any payment/disbursement in any manner out of any of the sale proceeds that are available from the sale of assets/properties of the M/s. Ambica Mills Company Ltd. (in liquidation) hereinafter referred to as "the Company" (in Liquidation), (C)That this Hon ble Court may be pleased to grant an injunction restraining the respondent herein, and/or his agents, officers, servants from creating any charge, encumbrance, alienation and/or disposing of the immovable assets of the company (in liquidation) which are presently in charge of the respondent, (D)That this Hon ble Court may be pleased to direct the Respondent to make payment of Rs. 22.52 Lakhs [being the initial instalment deposited by the purchaser of Plot No. 307 TPS-16 belonging to M/s. Ambica Mills Company Limited (in liquidation) which has been disposed of for Rs. 90.11 Lakhs) to the Applicant ONGC pursuant to the order passed by the Hon ble Supreme Court which are annexed hereto with the Affidavit in support of Judges Summons filed by the Applicant-ONGC, (E)That such other and further orders and directions as may be deemed fit and prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims of the Secured Creditors and the Workmen. On behalf of ONGC it was submitted that considering order dated 15-4-1987 of Hon ble Supreme Court in Misc. Petition Nos. 7875 of 1987 to 7885 of 1987 in Civil Appeal Nos. 8530 of 1983 to 8540 of 1983 ONGC was a Secured Creditor like any other Secured Creditor and it had a preferential right; in light of the subsequent order dated 6-4-1993 its right was absolute. It was further submitted that the Official Liquidator had moved Review Application being I.A. Nos. 168 of 1997 to 178 of 1997 in Civil Appeal Nos. 8530 to 8540 of 1983 and by virtue of order dated 17-10-1997 made by Hon ble Supreme Court therein the dues of ONGC are required to be paid off first and the question of making any payment to any other creditor can arise only out of the surplus, if any, remaining after the full dues of ONGC have been paid off. 4. In light of the aforesaid submissions Mr. Sandeep Singhi, learned Advocate appearing on behalf of Industrial Credit and Investment Corporation of India Ltd. (ICICI), one of the Secured Creditors, raised a preliminary objection that the present application filed by ONGC was limited in its prayer regarding direction to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, except with the leave of the Apex Court, any of their immovable assets, included in the respective undertakings and that the consumers will make their immovable assets, available for discharging the respective liabilities on account of the difference in the price of all the gas supplied during the pendency of the appeals as determined by order made by the Court while disposing of the appeals. 7. In the judgment rendered in case of Textile Labour Association ( supra ) the petitioner before the Hon ble Supreme Court contended that the petitioners were not parties to the proceedings before the Supreme Court and on passing of the winding up order on 17-1-1997 the provisions of the Companies Act, 1956, (hereinafter referred to as the Act ) will come into force and will be effective in light of the decisions of the Supreme Court in case of UCO Bank v. Official Liquidator, High Court, Bombay [1994] 5 SCC 1, Industrial Credit and Investment Corpn. of India Ltd. v. Srinivas Agencies [1996] 4 SCC 165, Allahabad Bank v. Canara Bank [2000] 4 SCC 406, A.P. State Financial Corpn. v. Official Liquidator [2000] 7 SCC 291. On behalf of the petitioners it was submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply would have been at the price fixed by ONGC. The supply therefore was under aegis of the orders of the Supreme Court and the recovery of its dues was virtually assured through the process of the Court. That the effect of such conditional orders was to create a definite security in favour of party for its protection and, hence, ONGC was entitled to be treated as secured creditor in terms of sections 529 529A of the Act. 9.1 That by order of 6-4-1993 Supreme Court had laid down the mode and the manner in which ONGC was entitled to recover amounts due to ONGC from various industries including Company in liquidation. That as already seen, even by subsequent order of 17-10-1997 ONGC was to be paid off first and therefore on a conjoint reading of various orders passed by the Supreme Court the right of ONGC to recover its dues was absolute and unfettered; it was a right akin or superior to the right of a Secured Creditor. That such right could not be taken away or whittled down by anything, much less an act whereby the Company has been ordered to be wound up for its inability to discharge its liabilities. Thus, the right as contemplated under sections 529 529A of the Act can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that Review Petition being I.A. Nos. 300 to 310 of 2002 were filed by Bank of India and the same came up for hearing on 21-1-2003 wherein notice has been issued and thereafter ONGC has been granted time to file reply. It is stated that the said Review Petition is pending as on today. Affidavit dated 20-9-2004 of Shri K.K. Nair, Assistant General Manager, Ahmedabad Recovery Branch has been placed on record. 10.1 Responding to the submission regarding undertaking having been filed by the Management of the Company in liquidation at the relevant time before the Apex Court it was submitted by Mr. J.T. Trivedi that the property in question was already under charge created in favour of the Secured Creditor and if there was any failure/deficiency in filing the said undertaking, it was at the end of the person who filed such an undertaking, in not disclosing the pre-existing charge in relation to properties of the Company in liquidation. In the circumstances, even if ONGC was to be treated as a Secured Creditor a question as regards priority would arise: As to who amongst Secured Creditors is the first charge holder and who is the next in queue. 10.2 It was further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditor has an option to remain outside winding up proceedings and in such circumstances Secured Creditor is required to permit the Liquidator to enforce the charge on the security of the Secured Creditor to the extent of the Workmen s portion and the term "workmen s portion" had been defined in section 529(3)( c ) of the Act. That if the aforesaid principles are applied, ONGC has no right to claim any portion qua the security of the Secured Creditor when such a Secured Creditor has remained outside winding up, in absence of any statutory provision. 11. Mr. D.S. Vasavada, the learned Advocate appearing on behalf of Textile Labour Association submitted that order dated 17-10-1997 made by the Apex Court was in the Review Application filed by the Official Liquidator wherein the Workmen and the Secured Creditors were not joined as a party; and hence the need for preferring the Review Application by the Textile Labour Association which came to be decided by the Apex Court on 12-4-2004 in the reported decision in case of Textile Labour Association ( supra ). 11.1 That even if the entire bunch of orders compiled by ONGC are taken into consideration all that the said orders s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ONGC, had any doubt the proper Forum for seeking a clarification was the Apex Court. 12.2 It was further submitted that once the respondents were joined as partly respondents on the basis of being Secured Creditor, it was not open to ONGC to raise any dispute at this stage and ONGC was only required to succeed or fail on the basis of the evidence it could lead in support of its claim for being given priority at the time of disbursement. This submission was in response to stand of ONGC that the Secured Creditors had not placed on record the details of any charge in favour of the Secured Creditors. 12.3 Mr. Singhi emphatically submitted that the various orders of Supreme Court on which reliance has been placed on behalf of ONGC, will have to unequivocally show that ONGC is a Secured Creditor and that ONGC had in fact not been able to point out from the said orders that the Apex Court had any where laid down or observed that ONGC was Secured Creditor. Referring to order dated 15-4-1987 it was submitted that what was given by the respondent Consumers before the Apex Court was only an undertaking and no charge was created in favour of ONGC: in the circumstances, ONGC could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... best a decree holder i.e., the judgment creditor. 13. The learned Addl. Advocate General in rejoinder submitted that the necessity to claim status of Secured Creditor arose only after the order of 12-4-2004 and prior thereto ONGC was not required to make such a claim; therefore, ONGC had not made a specific prayer in the application, but this being a legal submission ONGC must be permitted to raise the same. He reiterated his basic submission that in light of the various orders made by the Apex Court, and more particularly, order dated 15-4-1987, ONGC was required to be treated as a Secured Creditor in light of the undertaking filed by the then existing company before the Apex Court. 14. The learned Addl. Advocate General is right in contending that prior to 12-4-2004 ONGC had no occasion to make claim as a Secured Creditor in light of the fact that by virtue of bunch of orders commencing from 15-4-1987 made by the Apex Court ONGC was under a belief that it had a preferential right at the time of disbursement of the funds of the company in liquidation considering the decision rendered by the Apex Court in favour of the ONGC. Therefore, the Court has permitted ONGC to rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Court for the purpose of pursuing its legal remedies in relation to recovery of outstanding dues. 18. Section 529(1) of the Act states that in the winding up of a Company for the purpose of provable debts; the valuation of annuities etc.; and the respective rights of Secured and Unsecured Creditors same rules as are in force for the time being under the Law of Insolvency shall prevail and be observed. Therefore, whether ONGC is a Secured creditor or an Unsecured Creditor, its rights will be governed by the Insolvency Rules as stipulated in section 529 of the Act. 19. The proviso under sub-section (1) of section 529 of the Act clearly provides that the security of every Secured Creditor shall be deemed to be subject to a pari passu charge in favour of the Workmen to the extent of the Workmen s portion therein, and where a Secured Creditor instead of relinquishing its security opts to stay outside winding up and realise its security, to the extent of pari passu charge in favour of workmen, provision of section 529A of the Act would come into play. But before that it must not be lost sight of the fact that the object of the provision is that the legitimate dues of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s free from the restraint of jurisdiction and operates as a valuable weapon in the hands of the Court to prevent clogging or obstruction of the stream of justice . It, however, needs to be remembered that the powers conferred on the Court by Article 142 being curative in nature cannot be construed as powers which authorise the Court to ignore the substantive rights of a litigant while dealing with a cause pending before it. This power cannot be used to supplant substantive law applicable to the case or cause under consideration of the Court. Article 142, even with the width of its amplitude, cannot be used to build a new edifice where none existed earlier, by ignoring express statutory provisions dealing with a subject and thereby to achieve something indirectly which cannot be achieved directly. Punishing a contemner advocate, while dealing with a contempt of court case by suspending his licence to practice, a power otherwise statutorily available only to the Bar Council of India, on the ground that the contemner is also an advocate, is therefore, not permissible in exercise of the jurisdiction under Article 142. The construction of Article 142 must be functionally informed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors to the extent such debts rank under clause ( c ) of the proviso to sub-section (1) of section 529 pari passu with such dues shall be paid in priority to all other debts. In other words where a Secured Creditor keeps himself outside the winding up proceedings as stated in the Proviso to section 529(1) of the Act and seeks to recover his dues from realisation of the security, if he loses part of his security towards workmen s dues, the Secured Creditor gets reimbursed to that extent as a Secured Creditor, with an overriding priority under section 529A(1)( b ) of the Act. The amount taken away by the Liquidator from the realisation of the Security outside winding up by the Secured Creditor is permitted to be recovered or reimbursed out of the monies that may be realised at the instance of other Creditors and for such reimbursement the Secured Creditor gets priority over all other creditors. Therefore, what the Secured Creditor loses towards Workmen s portion out of his security can be claimed by Secured Creditor as a secured amount with priority over other creditors out of other realisations made by other creditors when the Company Court directs disbursement of the funds. But at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decide as to whether the provision of section 29 of State Financial Corporations Act, 1951 can override the provisions of sections 529 529A of the Act. The contention raised on behalf of the appellant before the Apex Court was that the State Financial Corporations Act, 1951 being a Special Act, power of the Corporation to invoke provisions of section 29 of the Act of 1951 was absolute and cannot be restricted by any other law. The Apex Court in no uncertain terms, after referring the Non obstante clause with which section 529A of the Act opens, stated that "the above Proviso to sub-section (1) of section 529 and section 529A will control section 29 of the Act of 1951. In other words, the statutory right to sell the property under section 29 of the Act of 1951 has to be exercised with the rights of pari passu charge to the workmen created by the Proviso to section 529 of the Companies Act". If the statutory provision in State Financial Corporations Act, 1951 cannot prevail over provisions of the Companies Act, it is not possible to accept the contention raised on behalf of the applicant ONGC that it has any superior right on the basis of orders made by the Apex Court. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to establish that it is in possession of a security over which a charge in favour of ONGC that has been created merits acceptance. The order of 15-4-1987 on which great reliance and emphasis was placed on behalf of ONGC is only an interim order. The said order only states that ONGC will not disconnect the supply of gas to various respondents before the Apex Court and will continue to supply gas @ Rs. 1,000 per one thousand cubic metres "subject, however, to the undertaking by the respondents which has been given and has been accepted here, that the said respondents will not charge encumber or alienate, except with the leave of this Court, any of their immovable assets included in the respective undertakings and that they will make their immovable assets, available for discharging the respective liabilities on account of the difference in the price of all the gas supplied to and further during the pendency of the appeals as determined by order made by the Court while disposing of the appeals. The undertaking will be filed within four weeks". 27. On plain reading all that the aforesaid order can be read to mean is that the consumers will not charge and encumber or alienate any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods. Section 49 of the Sale of Goods Act, 1930 provides for situations in which lien gets terminated. The unpaid seller of goods loses his lien when he delivers the goods and the buyer obtains lawful possession. Hence "when the vendor has given the buyer possession under the contract of sale, all his rights in the goods are completely gone; he must recover the price exactly as he would recover any other debt ( u ), and has no longer any claims on the goods sold superior to those of any other creditor. The delivery and acceptance of possession complete the sale, and give the buyer the absolute unqualified and indefeasible rights of property and possession in the things sold, though the price be unpaid and the buyer insolvent unless, indeed, the whole transaction is vitiated by actual fraud ( v )." Source : Pollock Mulla - The Sale of Goods Act, Fifth Edition. 30. Therefore, ONGC having failed to establish any lien it cannot be treated as a Secured Creditor even on this Count. The dictionary meanings on which reliance is placed are either in context of the Bankruptcy Act or the Provincial Insolvency Act, and hence again in context of the three terms : mortgage, charge, lien, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the workers dues and such charge will be pari passu with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except section529A. This section overrides preferential claims under section 530 also. Under section 529A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues. 9. Therefore, the law is clear on the matter as held in UCO Bank case that section 529A will override all other claims of other creditors even where a decree has been passed by a court. 10. Therefore, claims, if any, of ONGC will have to be worked out in accordance with sections 529 and 529A of the Companies Act as well. The contention advanced on behalf of ONGC by Shri Raju Ramachandran that if a mandamus had been issued, it will prevail over any law is not tenable and is rejected. 11. In the result, we make it clear that order made by this Court on 17-10-1997 in IA Nos. 168-78 of 1997 in Civil Appeal Nos. 8530-40 of 1983 will have to be read subject to provisions of sections 529 and 529A of the Companies Act." 33. The dispute between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 35. The Apex Court in paragraph No. 7 has categorically stated that though the earlier order of 17-10-1997 may be read as having been made pursuant to the exercise of powers under Article 142 of the Constitution, yet the same will have to be read in light of the pronouncement of law in the case of Supreme Court Bar Association ( supra ). After stating thus in paragraph No. 7 the contention regarding mandamus raised on behalf of ONGC is rejected specifically in paragraph No. 10. 36. In paragraph No. 8 of the judgment the Apex Court has very succinctly analysed the provisions of sections 529 529A of the Act. However, the later portion of the said paragraph gives the indication as to how the Apex Court has considered the rival claims. It is stated that there is no other statutory provision overriding the claim of the Secured Creditors except section 529A and that the said section overrides preferential claims under section 530 also. That under section 529A the dues of the workers and debts due to the Secured Creditors are to be treated pari passu and have to be treated as prior to all other dues. This position is reiterated after referring to the earlier decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order of 17-10-1997 in priority to the Secured Creditors and the Workmen taking into consideration the provisions of sections 529 529A of the Act. Such preferential claim, if falling under section 530 of the Act would follow the claims of Secured Creditors and the Workmen under sections 529 529A of the Act. In case the claim of ONGC is not proved to be preferential under section 530 of the Act they would thereafter fall for consideration alongwith all other claims of other Creditors as ONGC, on its own saying, is a decree holder. 40. In view of what is stated hereinbefore this application cannot be granted at this stage, i.e. before claims of Secured Creditors and workmen are processed under sections 529 529A of the Act. Despite categorical statement at the Bar, under instructions, that ONGC did not want to lodge any claim before the Official Liquidator, it will be open to ONGC to lodge its claim in accordance with law and seek its satisfaction when claims of other Creditors of the Company in liquidation are taken up for consideration for distribution of the funds which may be available at that time. The application is accordingly rejected. Notice is discharged. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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