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TMI Blog2023 (5) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... t which the secured creditor realised his security standing outside the liquidation process - HELD THAT:- It is well recognized that the filing of a Petition for winding up of a company does not preclude the secured creditor from enforcing his security. It is only when Liquidator is appointed, the secured creditor becomes liable to associate the Liquidator in sale assets of the company in liquidation. The fact that after the sale of the assets of the company in liquidation by the secured creditor by resorting to the provisions contained in the Recovery of Debts Due to banks and Financial Institutions Act, 1993 and/or The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Company goes into liquidation does not warrant the reopening of the sale and appropriation of the sale proceeds by the secured creditor. The Supreme Court in the case of Bank of Maharashtra Vs. Pandurang Keshav Gorwadkar and Others [ 2013 (5) TMI 269 - SUPREME COURT] has ruled in clear and explicit terms that if the company goes into the liquidation, before the sale proceeds are fully and finally disbursed, Section 529A read with Section 529(1) proviso com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Official Liquidator has filed this report seeking, inter alia, directions to Kotak Mahindra Bank Ltd., the secured creditor of Malhotra Steel (Bombay) Ltd., (in liquidation) to deposit an amount of Rs. 86,89,421/-, towards workers dues. 2) The report arises in the backdrop of the following facts:- (a) Pursuant an order dated 15th October, 2008 passed in Company Petition No. 753 of 2004 in B.I.F.R. Case No. 50 of 1994, the Official Liquidator came to be appointed as the Provisional Liquidator of Malhotra Steel (Bombay) Ltd., with usual powers under the Companies Act, 1956 ( the Act, 1956 ). By a further order dated 16th July, 2009, the company was ordered to be wound up and the Official Liquidator came to be appointed as the Liquidator of the company in liquidation. (b) The Official Liquidator, based on the inspection of the records maintained by the Registrar of Companies, claimed to have had correspondence with the secured creditors of the company, the Ex-directors of the company and meetings with the Ex-directors and secured creditors of the company in liquidation. Kotak Mahindra bank Ltd., ( the Bank ), the Noticee, informed the Official Liquidator under cover of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch it became assignee of prior lenders of the company in liquidation and the particulars of the Deed of Assignments. 6) The Bank filed an additional affidavit dated 29th August, 2022, furnishing the requisite details. In the context of the controversy, the averments in paragraph Nos. 12, 14, 15 and 19 of the affidavit become relevant. 7) A conjoint reading of these paragraphs would indicate that the Bank received total sum of Rs. 11,32,95,352/-. Out of this sum of Rs. 6,71,79,912/-, was received from sale of assets of the company in liquidation, a sum of Rs. 3,93,84,855/- from the sale of the assets belonging to the guarantors, a sum of Rs. 18,06,210/- by way of rent, which was deposited pursuant to the order of this Court in Suit No .4928 of 1993 and interest thereon, and Rs. 49,24,375/- towards reimbursement of expenses. Out of this a sum of Rs. 90,50,124/-, was received by Bank from the sale of the other properties of the company in liquidation on 29th April, 2008 and a sum of Rs. 18,06,210/-, was paid to Bank by the Tribunal-Receiver on 12th November, 2008. 8) In response to the additional affidavit, the Official Liquidator filed an additional affidavit-in-reply. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Liquidator, the statutory charge created in respect of the workmen s dues over the security of the secured creditor operates over the sale proceeds. Thus, the Bank cannot avoid the liability to bring back the workmens portion of Rs. 2,53,977.20/-. 12) Mr. Pimple would further urge that the receipt of a sum of Rs. 18,06,210/- by the Bank from the receiver of DRT on 12th November, 2008, much after the appointment of the Provisional Liquidator, is indubitable. Since the said amount represented the rent which was receivable by the company in liquidation, the character of the said amount as the asset of the company in liquidation can not be put in contest, urged Mr. Pimple. 13) Mr. Gupta, countered the submissions on behalf of the Official Liquidator. It was urged that all the assets of the company in liquidation were sold and proceeds realised prior to the date of the appointment of the Provisional Liquidator, except the sum of Rs. 18,06,210/- which was received on 12th November, 2008. Controverting the character of the said amount, as the asset of the company in liquidation, Mr. Gupta would urge that the said amount came to be deposited with the receiver appointed by this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of secured creditors. Where a company is in liquidation, a statutory charge is created in favour of workmen in respect of dues over the security of every secured creditor and this charge is pari passu with that of the secured creditor. Such statutory charge is to the extent of workmen s portion in relation to the security held by the secured creditors of the company as illustrated by Section 529 of the Act. 19) A useful reference in this context can be made to a three Judge Bench judgment of the Supreme Court in the case of Jitendra Nath Singh Vs. Official Liquidator and Others (2013) 1 SCC 462 , wherein the postulates with emerge on interpretation of the provisions contained in Section 529 and 529A of the Act, 1956 were enunciated as under:- .16. Our conclusions on interpretation of the provisions of Sections 529 and 529A of the Companies Act, therefore, are as follows: 16.1 A secured creditor has only a charge over a particular property or asset of the company. The secured creditor has the option to either realize his security or relinquish his security. If the secured creditor relinquishes his security, like any other unsecured creditor, he is entitled to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial Assets and Enforcement of Security Interest Act, 2002, the Company goes into liquidation does not warrant the reopening of the sale and appropriation of the sale proceeds by the secured creditor. 21) With the incorporation of Section 529 A of the Act, 1956, the workmen s dues rank pari passu with secured creditors. To put it differently, the workmen of the company in winding up acquire the status of secured creditors. This position is further reinforced by the proviso to Sub Section (1) of Section 529 of the Act, 1956 which 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. This would imply that the workmen become entitled to distribution of sale proceeds in the ratio as explained in the illustration appended to Section 529 (3) (c) of the Act, 1956. The moot question is as to at what point the workmen become entitled to distribution of sale proceeds ? 22) A three Judge Bench judgment of the Supreme Court in the case of Bank of Maharashtra Vs. Pandurang Keshav Gorwadkar and Others (2013) 7 SCC 754 wherein the legal position was expounded by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k or financial institution, the subsequent event of the debtor company going into liquidation is no ground for reopening disbursement by the DRT. 67.7. However, before full and final disbursement of sale proceeds, if the debtor company has gone into liquidation and a liquidator is appointed, disbursement of undisbursed proceeds by DRT can only be done after notice to the liquidator and after hearing him. In that situation if there is claim of workmen s dues, the DRT has two options available with it. One, the bank or financial institution which made an application before DRT for recovery of debt from the debtor company may be paid the undisbursed amount against due debt as per the recovery certificate after securing an indemnity bond of restitution of the amount to the extent of workmen s dues as may be finally determined by the liquidator of the debtor company and payable to workmen in the proportion set out in the illustration appended to Section 529(3)(c) of the Companies Act. The other, DRT may set apart tentatively portion of the undisbursed amount towards workmen s dues in the ratio as per the illustration following Section 529(3)(c) and disburse the balance amount to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of prayer Clause (a) is granted only in relation to the property described in Exh. A-2. The Receiver is appointed only for the purpose of receiving the lease money being paid to Defendant No. 1 by the lessee of the machinery. Ad-interim injunction in terms of prayer Clause (b) is granted, restricted to the property described in Exh. A-2. 26) The submissions on behalf of the Bank that the said amount did not retain the character of the property of the company in liquidation does not merit acceptance. The provisions of Section 456 of the Act, 1956 provide an answer. 456. Custody of company' s property.- (1) Where a winding up order has been made or where a provisional liquidator has been appointed, the liquidator 2 [or the provisional liquidator, as the case may be,] shall take into his custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled. (2) All the property and effects of the company shall be deemed to be in the custody of the court as from the date of the order for the winding up of the company. 27) Indisputably, the amount which came to be accumulated constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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