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TMI Blog2019 (12) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 paramoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter SARFAESI Act ). Later, on 13.06.2005, the Appellant-Bank took physical possession of the mortgaged properties of the Karkhana as per Section 13(4) of the SARFAESI Act. 2.2 Owing to its poor financial condition, on 24.01.2006, the Karkhana issued a notice to its employees directing them to proceed on leave without salary w.e.f. 24.02.2006. This was challenged by representatives of the Karkhana employees (Respondent Nos. 1 to 3 herein) in ULPA No. 65/2006 filed under Section 28 read with items 9 and 10 of Schedule IV of the Maharashtra Recognition of Trade Unions Prevention of Unfair Labour Practices Act, 1971 (hereinafter MRTU PULP Act ). Vide order dated 24.08.2006, the Industrial Court quashed the notice and held that it amounted to an unfair labour practice. Further, noting that Karkhana had not paid salaries to its employees since July 2003, the Industrial Court directed the Karkhana to pay the unpaid salaries on top priority basis from any funds that may become available with it. 2.3 On the basis of this order, Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-issuance of a recovery certificate against the Appellant, Respondent Nos. 1 to 3 filed W.P. No. 3879/2012. During the pendency of this petition, on 19.01.2013, an order was passed by the competent authority under the Societies Act directing the liquidation of the Karkhana. Finally, vide the impugned judgment dated 01.12.2015, the High Court disposed of W.P. No. 3879/2012. It was observed that in terms of Section 50 of the MRTU PULP Act, the recovery certificate should have been issued to the Collector for recovering the amount from the Karkhana and its Managing Director. Thus, the order of the Industrial Court dated 08.08.2011 was modified to this extent to clarify that the certificate is to be issued to the Collector first, who would then proceed to recover the sum as per the recovery certificate. On the question of whether the Collector could effectuate such recovery from sale proceeds of the attached property of the Karkhana, it was held that after the auction sale, the Appellant-Bank held the proceeds in trust as per Section 13(7) of the SARFAESI Act and did not have a first charge over them. Further, it was found that upon the liquidation of the Karkhana on 19.01.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In addition to this, learned Counsel for Vainganga Sahakari Sakhar Karkhana Mazdoor Sangh (Respondent No. 8 herein) relied on the sale letter dated 08.03.2010, which was issued by the Appellant-Bank prior to the sale of the properties of the Karkhana. In this letter, the Appellant-Bank had stated that it would take responsibility for employees dues. In light of this, it was argued that the Appellant cannot be absolved of its liability towards the payment of employees dues. Learned Counsel for the subsequent purchaser of the property (Respondent No. 5 herein) similarly relied on this letter to submit that the liability for the payment of employees dues must be placed on the Appellant. 7. In view of the arguments raised and the material on record, the issue that arises for our consideration in this appeal is 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. 8. At the outset, we find merit in the argument raised by learned Senior Counsel for the Appellant that the High Court erred in applying Section 529A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars of land revenue, but recoverable as a revenue demand under the provisions of this Chapter, shall have priority over all unsecured claims against any land or holder thereof. 10. From a reading of these provisions, 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. It was argued by learned Senior Counsel for Respondent Nos. 1 to 3 that such treatment of employees dues as arrears of land revenue makes it a charge paramount to all other claims in view of Section 169(1) of the Land Revenue Code. In response, learned Senior Counsel for the Appellant contended that the instant case falls under Section 169(2) of the Land Revenue Code, which deals with monies other than arrears of land revenue but which is recoverable as a revenue demand. Since Section 169(2) only accords priority over unsecured claims, he submitted that the Appellant s claim, being that of a secured creditor, would still have priority over employees dues recoverable as arrears of land revenue. 10.1 It is important to appreciate that there is a material diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears in question as if the said arrears were arrears of land revenue. We have already seen that other alternative remedies for the recovery of arrears of land revenue are prescribed by sub-sections (3) and (5) of s. 46. In making a provision for the recovery of arrears of tax, it cannot be said that s. 46 deals with or provides for the principle of priority of tax dues at all; and so, it is impossible to accede to the argument that s. 46 in terms displaces the application of the said doctrine in the present proceedings. (emphasis supplied) This difference in the scope of sub-sections (1) and (2) of Section 169 of the Land Revenue Code was again noted by the High Court of Bombay in City Co-op Credit Capital Ltd. Anr. v. Official Liquidator of Satwik Electric Controls Pvt Ltd., (2019) 4 Bom CR 274. 10.3 When we look to the facts of the instant case, it is seen that 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), a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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. 12. In this light, what becomes relevant for the instant case is the scheme of the SARFAESI Act in relation to the manner of distributing the money received by the secured creditor through the sale of secured assets. The following parts of Section 13 of the SARFAESI Act are relevant in this regard: 13. Enforcement of security interest (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset xxx (7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Limited, had been renamed as M/s Wainganga Sugar and Power Private Limited as notified on 05.04.2010. Subsequently, on 03.06.2010, M/s Wainganga Sugar and Power Private Limited was converted to a public limited company and its name was changed to M/s Wainganga Sugar and Power Limited, which is also the name of the purchaser indicated on the sale certificate. These interim developments between March 2010 and September 2010 explain why the sale letter dated 08.03.2010 and the final sale certificate issued on 14.09.2010 reflect different names. However, since it is only a case of change in name of the company, we find that the two entities are the same and the subsequent purchaser, Respondent No. 5 herein (successor of Wainganga Sugar and Power Ltd.) would be bound by the terms of the sale letter dated 08.03.2010. 13.2 Further, it cannot be said that the sale letter dated 08.03.2010 is an external document and cannot be relied upon to interpret the sale certificate. This is because the sale certificate specifically references the sale letter by providing that the purchaser accepts all the encumbrances presently there on the property and may arise in future and agreed to to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted so in the sale letter, which clearly prescribes the terms and conditions of the sale between the Appellant and the purchaser. It is important to bear in mind that at the time of entering into this sale, the Appellant-Bank was well aware of the unpaid salaries due to the employees of the Karkhana in view of the orders of the Industrial Court dated 24.08.2006 and 27.04.2007. Hence, it cannot be said that the Appellant-Bank agreed to use the term employees dues in the sale letter despite intending to limit it to provident fund dues only. 13.5 Thus, on facts, we find that 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. We reiterate here th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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