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TMI Blog2020 (3) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured Creditor, instead of relinquishing his security and proving his debts, opts to realize his security without participating in the winding-up proceedings, and in case he participates effectively in the winding-up proceedings then Section 529A(1)(b) will not be available to the Secured Creditor for want of applicability of clause (c) of proviso to Section 529(1) of the Companies Act. Payment under Sections 529A(1)(a) and 529A(1)(b) shall be made in priority to all other dues. Amount of debt payable under Section 529A(1)(b) is to be determined, in terms of clause (c) of the proviso to Section 529(1). As held by the Apex Court, for such debt ranking pari passu with the workmen s dues for the purpose of Section 529A, two limbs of proviso to Section 529(1) are to be satisfied - In absence of security and exercise of option by Secured Creditor to realize the same, there will not be any debt equivalent to workmen s portion, realization whereof could not be made by the Secured Creditor and in such eventuality there will be no right of overriding preferential payments under Section 529A(1)(b) in favour of Secured Creditor. In the present case, there is no debt due to the Secured Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Application No.13 of 2018, identical, in fact verbatim, to Company Application No.32 of 2016, has also been preferred on behalf of Punjab National Bank (for short PNB). Therefore, these two applications are being disposed of together. 2. No reply has been filed by anyone to Company Application No.32 of 2016, whereas Official Liquidator has filed reply to Company Application No.13 of 2018, admitting therein that an amount of ₹ 3,08,11,316/-, available for disbursement, was to be disbursed to PNB and State Bank of India (for short SBI), on the basis of report of Chartered Accountant and that in his first report dated 14.1.2013, the Chartered Accountant has determined the share of PNB as 67.64% and SBI as 32.36%, i.e. ₹ 1,85,20,576/- and ₹ 1,22,90,740/- respectively, in the amount of ₹ 3,08,11,316/- but in subsequent meeting of Secured Creditors, held on March 15, 2013, representative of PNB had pointed out a clerical mistake/omission in the said report of Chartered Accountant, with respect of verification in their claimsharing- ratio, whereupon the Chartered Accountant had submitted revised report on May 18, 2013, verifying the sharing-ratio of PNB and SBI a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Application that in view of order passed on December 29, 2014, matter should be listed only after decision of Company Appeal No.2 of 2014, preferred by International Asset Reconstruction Company (in short IARC), pending before Division Bench of this Court. 8. In the year 2018, Company Applications No.21 of 2018 and 22 of 2018 have also been preferred by other sets of 14 and 63 Workmen for release of workmen's dues, out of the sale proceeds, lying with the Official Liquidator, in their favour as per their entitlement. 9. In Company Application No.7 of 2018, it has been stated on behalf of IFCI and IARC that assets of M/s Him Ispat Ltd (under liquidation) were sold for total consideration of ₹ 14.52 Crore and after various initial disbursements and payments, balance amount of ₹ 9.16 Crore is lying with the Official Liquidator and even if IARC succeeds in the said Appeal the amount involved in Company Appeal No.2 of 2014, in any case, shall not exceed ₹ 1.5 Crore and, therefore, it has been prayed in this application that instead of holding entire amount with the Official Liquidator, remaining amount, i.e. ₹ 9.16 Crore minus ₹ 1.5 Crore, alongwith in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2001 alongwith CWP No.604 of 2001, as also mentioned in report dated September 26, 2018 filed on behalf of Official Liquidator. 15. Actual date of winding-up in the present case is December 30, 2005. Therefore, all calculations are to be and have been made with reference to this date for all intents and purposes, except the amount to be added in workmen's dues on account of orders passed by Courts, including Labour Court, as contemplated in the Companies Act for calculation of workmen's dues, under Section 529, as, as a matter of fact, workmen were also agitating their respective claims in various Courts, including Labour Court, since 1993, and proceedings in those claims have been finalized on date(s) subsequent to the winding up order. All such claims are also to be considered and added at the time of calculating and verifying the claims of Workmen, including those claims which have been permitted by this Court to be submitted/preferred by Workmen before the Official Liquidator and which have also been verified through Chartered Accountant. 16. Vide Annexure 'K' to the report of Chartered Accountant dated October 10, 2014, it has been placed on record that claims of Workmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen's dues; and (c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section: Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to 2 [pay his portion of the expenses] incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor. Explanation.-For the purposes of this proviso, the portion of expenses incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of this Act, or any other law for the time being in force, in the winding up of a company- (a) workmen's dues; and (b) debts due to secured creditors 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. (2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them in which case they shall abate in equal proportions. 530. Preferential payments. - (1) In a winding up subject to the provisions of section 529A, there shall be paid in priority to all other debts- (a) all revenues taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable within the twelve months next before that date; (b) all wages or salary (including wages payable for time or piece work and salary earned wholly or in part by way of commission) of any employee, in respect of services rendered to the company and due for a period not exceeding four mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accrued holiday remuneration, out of money advanced by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which the sum in respect of which the employee or other person in his right would have been entitled to priority in the winding up has been diminished by reason of the payment having been made. (5) The foregoing debts shall- (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (6) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the foregoing debts shall be discharged forthwith so far as the assets are sufficient to meet them, and in the case of the debts to which priority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anara Bank and another, (2000) 4 SCC 406, has held that Secured Creditors fall under two categories, i.e. one who desire to go before the Company Court and the other who like to stand outside the winding-up. Relevant paragraphs are as under: "62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding up. 63. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in section 529. The insolvency rules are those contained in sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in section 529(2). Till today, the Canara Bank has not made it clear whether it wants to come under this category. 64. The second class of secured cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing-up proceedings. The secured creditors of the second category, however, would come within the purview of Section 529-A(1)(b) read with proviso (c) appended to Section 529(1). The "workmen's portion" as contained in proviso (c) of sub-section (3) of Section 529 in relation to the security of any secured creditor means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of (a) workmen's due, and (b) the amount of the debts due to all the (sic secured) creditors. ….." "23. The language of Section 529-A is also clear and unequivocal, in terms whereof the workmen's dues or the debts due to the secured creditors, to the extent such debts rank under clause (c) of the proviso to subsection (1) of Section 529 pari passu with such dues, shall have priority over all other debts. Once the workmen's portion is worked out in terms of proviso (c) of sub-section (1) of Section 529, indisputably the claims of the workmen as also the secured creditors will have to be paid in terms of Section 529-A." 22. Considering the aforesaid pronouncements, the Apex Court in Jitendra Nath Singh v. Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kmen in respect of their dues from the Company over the security of every Secured Creditor and also workmen's dues have been categorized as 'overriding preferential payments'. 24. As per reply to Company Application No.7 of 2018, filed by the Official Liquidator, as on March 31, 2018, an amount of ₹ 14,75,59,374/- (sale proceeds + interest) is available with the Official Liquidator and out of that amount he has proposed to disburse ₹ 12.00 Crore to the Secured Creditors and the workmen, provisionally, as per the ratio determined by the Chartered Accountant in his report dated October 10, 2014, by taking claim of the Workmen pari passu to the claim of Secured Creditors and to keep the remaining amount to be disbursed after the decision of the appeal, pending before a Division Bench of this Court, preferred by IARC. Official Liquidator has also proposed to disburse claim of Workmen to the extent of 75% of the claim adjudicated (verified) by the Chartered Accountant and calculated as pari passu with the Secured Creditors. 25. In this regard, discussion in judgment of the Apex Court in Jitendra Nath Singh's case supra in following paragraphs is relevant: "11. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to sub-section (1) of Section 529 of the Companies Act is statutorily subjected to a pari passu charge in favour of the workmen by the first limb of the proviso to sub-section (1) of Section 529 of the Companies Act. 13. The second limb of the proviso to subsection (1) of Section 529 of the Companies Act states the consequences which follow where a secured creditor, instead of relinquishing his security and proving his debt, opts to realize his security. These are: (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realized by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen's dues; and (c) so much of the debt due to such secured creditor as could not be realized by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of Section 529A of the Companies Act. What is relevant in this case is the consequence in clause (c) which provides that the portion of the debt due to the secured creditor as could not be realized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of Section 529 of the Companies Act. The proviso to sub-section (2), however, states that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realize his security, he shall be liable to pay his portion of the expenses incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor. This provision in subsection (2) of Section 529 of the Companies Act makes it amply clear that all creditors, secured and unsecured, of the insolvent company are entitled to prove for and receive dividends out of the assets of the company but so far as secured creditors are concerned, they have the option either to relinquish their security in which case they like any unsecured creditor would only be entitled to prove for and receive the dividends out of the assets of the company or to realize the security instead of relinquishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption by Secured Creditor to realize the same, there will not be any debt equivalent to workmen's portion, realization whereof could not be made by the Secured Creditor and in such eventuality there will be no right of overriding preferential payments under Section 529A(1)(b) in favour of Secured Creditor. 29. In present case, on March 6, 2019, a supplementary affidavit has been filed on behalf of IFCI and IARC, wherein it is stated that the said Secured Creditors have not relinquished their security and have opted to realize securities as detailed in the affidavit, as existing immovable properties, whereupon mortgage has been created by the Company in their favour and it is further stated in the affidavit that IFCI has also filed claim with the Official Liquidator vide its claim dated December 15, 2010, as one of the Secured Creditors of the Company specifically stating in Para-7 of the said claim letter that it has not relinquished its securities and, therefore, it continues to be a Secured Creditor (first charge holder) on the assets of the Company, which are being sold and charges will shift to sale proceeds of the fixed assets on finalization of the sale and, therefore, IFCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therein as security but not of the assets of the Company sold by the Official Liquidator and, therefore, the Secured Creditors cannot claim right over the sale proceeds as 'security' referred in proviso to Section 529(1) and when there is no security, there is no question of preventing the Secured Creditors from realizing the amount equivalent to workmen's portion in terms of clause (c) of proviso to Section 529(1) for calculating the amount for the purpose of Section 529A(1)(b). Even if it is considered that the assets of the Company were also kept as security with any of the Secured Creditors, then also accepting the order of the High Court to sale out those assets, the Secured Creditors are deemed to have submitted their respective claims, in pursuance to the order of the High Court, before the Official Liquidator, more particularly for receiving dividend from the sale proceeds, the said security stands submitted to the domain of winding-up, losing the character of 'security' in terms of Sections 529 and 529A. Further, it is not the case of Secured Creditors herein that there is certain amount which they could not realize as security on account of pari passu charge created in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidator. 37. Payment to the Workmen, whose claims have been vertified, shall be made in their favour by remitting the same in their Bank Accounts or Bank Accounts of legal heirs in the event of death of the Workman. The Official Liquidator shall release the payment immediately after receiving particulars of individual Bank Accounts of the Workmen applicants herein or their legal heirs, as the case may be, through their Advocate(s). 38. The workmen, who are not applicants herein, shall also be entitled for release of amount as indicated by the Chartered Accountant, in his report dated October 10, 2014, placed on record, by the Official Liquidator, but after filing an appropriate application before the Official Liquidator with complete details of their individual Bank Accounts and the Official Liquidator shall release the payment after ascertaining correct identity of the workmen and/or legal heir(s) in case of deceased workman. 39. No amount shall be paid to any workman except remitting the same by way of transfer in his Bank Account. No middleman, including Office Bearer of Trade Unions need to be associated in payment process and every workman shall be made known that nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency namely M/s Jai Jawan Security Agency 5,79,487 45. In prayer clause of aforesaid report dated 24.12.2018, , request has been made to permit Official Liquidator to reimburse the advance of ₹ 10,20,279/- received from Secured Creditors to them and pay balance amount of ₹ 5,79,487/- to the Security Agency, namely M/s Jai Jawan Security Agency. No objection has been filed by any party to it. Therefore, the Official Liquidator is also permitted to reimburse ₹ 10,20,279/- to Secured Creditors and to pay ₹ 5,79,487/- to Security Agency, namely Jai Jawan Security Agency, as referred in the report of the Official Liquidator. 46. The Official Liquidator has also prayed for fixing the fee to be payable to the Chartered Accountant, namely Shri Ravi Chand Sood. The said prayer has been considered, separately, during adjudication of Company Application No.23 of 2018 filed by Chartered Accountant Shri Ravi Chand Sood for payment of his fee. 47. Company Applications No.35 of 2016, 21, 22 and 7 of 2018 stand disposed of in the aforesaid terms, with direction to the Official Liquidator to file compliance report with appropriate application on or before 30.5.2020. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree Interim Claims, total amounting to ₹ 7.18 Crore, as stated by him in Para-4 of his Report dated 26.10.2018, remains unpaid by the Official Liquidator till date. He has also stated that total Bills of ₹ 1,99,500/- for travel and sitting fee to visit and attend the meeting in the Office of Official Liquidator from 19.10.2012 to 18.5.2013 and from 22.7.2013 to 19.12.2014 are also unpaid till date. 52. It is clarified in the rejoinder that in the order dated 5.9.2018, passed by Hon'ble High Court of Bombay, wherein fee for re-adjudication of workmen claims at the rate of ₹ 250/- per claim has been allowed, complete facts have not been narrated in the order and also that fee at the rate of ₹ 250/- per claim was for re-adjudication of the claims of workmen and not for adjudication of original claims of workmen and the said order is irrelevant for determining the issue of payment of fee to Chartered Accountant in present case. Lastly, prayer for payment of total Bills of ₹ 9,23,220/- (99,000 + 1,99,500 + 6,24,720) has been made. 53. A Supplementary Affidavit dated 5.1.2019 has also been filed by the Chartered Accountant in support of his averments ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest letters dated March 23, 2018 received from Principal Commissioner of Income Tax (2), Chandigarh, for launching prosecution under Section 276C(2) of Income Tax Act, 1961, in case of M/s Him Ispat Ltd. (Under Liquidation), Chandigarh, for the Assessment Years 2013-14 & 2014-15 respectively, have been treated as Company Applications No.16 & 17 of 2018. 60. The allegation in their applications is that Return for the Assessment Year 2013-14 was due on September 30, 2013 but the Tax has been deposited on December 26, 2017 and Return with respect to Assessment Year 2014-15 was due on September 30, 2015, but Tax has been deposited on August 26, 2016. It is asserted that the Official Liquidator cannot claim immunity from prosecution under Section 635A of the Companies Act, for the reason that omission and commission of the Official Liquidator is not in good faith and non-compliance of provisions of Income Tax Act is a willful and deliberate failure to deposit sovereign dues within time. Lastly, prayer for permission for launching prosecution against the Company/ Official Liquidator has been made. 61. In reply to Company Application No.16 of 2018, it is submitted on behalf of Offici ..... X X X X Extracts X X X X X X X X Extracts X X X X
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