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TMI Blog2023 (7) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of explicit provisions in Section 529 of the Act regarding priority rights over mortgaged assets does not exclude the application of Section 48 of the TP Act in cases of company liquidation. The Court has reasoned that if inter se priority rights of secured creditors were disregarded, it would result in their exclusion from dividend distribution and unjustly treat them as unsecured creditors. This would also unjustly deprive the secured creditor of their rights over the security, which surely is not the legislature s intent. In view of the discussion and holding in ICICI Bank Ltd., it becomes evident that the first and second charge holders cannot be treated equally. Upholding the objection of the second charge holder would upset the priority of the first charge holder, which would go against the provisions of Section 48 of the TP Act. Imposition of costs - HELD THAT:- During the proceedings, a mutual agreement was reached among the secured creditors, including Dena Bank, to implement the payments outlined in OLR No. 165/2018. This understanding is evidenced by the Minutes of Meeting dated 24th August, 2018, which were signed by Mr. Rahul Pratap, Chief Manager of Dena Bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit and is rejected. Application dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ed additional facilities such as cash credit/ overdraft/ packing credit/ bills purchased/ IPRS claim bills purchase/ letter of credit etc. with an aggregate limit of approximately Rs. 32 crores. By 1998, the Company had settled all outstanding amounts owed to SICOM Ltd., Punjab & Sind Bank and Bank of America. As a result, SICOM Ltd. returned the original title deeds of various immovable properties of the Company that had been mortgaged. These deeds were subsequently transferred to Dena Bank to secure the outstanding loans. Revival of proceedings before the Company Court 4. In view of BIFR proceedings, hearings in the present company petition were indefinitely postponed. On 17th July 2000, the BIFR recommended winding up of JTIL under Section 20(2) of SICA. This reference was registered as CO. PET. 18/2001 and was consequently listed alongside the instant petition. Subsequently, on 01st March 2003, the instant petition was revived, and the OL attached with this Court as appointed as Provisional Liquidator vide order dated 18th March, 2003. The OL took over the custody and assumed possession of various properties belonging to JTIL and under Court's directions, proceeded to auc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. On 08th May 2017, OL was directed by this Court to give a comprehensive report detailing the funds available with the OL and the dues owed to both the workmen and the secured creditors. A year later, on 08th May 2018, the Court noted that the report had not been filed and the workmen had been waiting for an extended period to receive their unpaid dues. In response, OL filed OLR No. 165/2018 on 06th July 2018 providing the computation of dues payable to both, workmen and secured creditors. Subsequently, the court passed the following order on 10th July 2018: "OLR 165/2018 This OLR is filed pursuant to order of this court dated 8.5.2018 Copy of this Report be supplied to learned counsel appearing for the Workmen, Secured Creditors and to the Ex. Management. The OL who is appearing in person states that there are enough funds available to meet the admitted claims of the workmen and payment shall be released within four weeks to those workmen who provide the necessary details. He further submits that regarding the issue of interest which some of the workmen claim, that aspect can be gone into after sale of the immovable property which is yet to be sold. Report is taken on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disputes between the secured creditors and the workmen. My attention has been drawn to the meeting held on 01.02.2019 between the OL, secured creditors and the learned counsel for the workers of Jalna Unit and that of Kundli Unit. Para 3 of the minutes of the meeting read as follows: "3. Representative of Dena Bank has submitted one calculation and according to that calculation he has agreed to disburse to the ex-workers (non-OTS) amounting to Rs. 6,97,48,399/- and OTS workers amounting to Rs. 3,73,71,299/-. Also in the said calculation he proposed to pay the amount to financial institutions amounting to Rs. 1,40,10,047/- of IFCI and Rs. 89,86,891/- to IDBI. This proposal of him does not cause any prejudice to the pending adjudication of CA No. 1313/2018." The OL may take into account the above submission made by the representative of the Dena Bank/secured creditor and takes steps accordingly regarding payment of the dues of the workers only. Report is disposed of." 11. OL submitted the Minutes of the Meetings that took place on the 14th and 16th January and 1st February 2019, along with OLR No. 95/2019. These minutes reveal that all stakeholders were present at these mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould disregard the distinctions between the first and second charges held by various creditors under Section 529 of the Act, as the Act does not provide for such differentiation. (I) SECOND CHARGE VIS-À-VIS SECTION 529A OF THE ACT 15. Upon review of the pleadings on record, it emerges that the Financial Institutions, i.e., IFCI (assignee of IIBI) and IDBI, hold the first charge over the land, building, and plant and machinery of the Company's six units. Dena Bank contends that the Consortium similarly holds the first charge over the land, buildings, and plant and machinery of the six units pertaining to its term loan/working capital term loan of approximately Rs. 5.74 crores. Furthermore, Dena Bank suggests that the Consortium also holds a second charge regarding the additional working capital facilities of roughly Rs. 32 crores. OL, in their written submission, counters this claim by stating that the Consortium's first charge pertains to the stock and inventories and that a second charge is held over the land, building, and plant and machinery associated with the six properties. Notwithstanding this factual dispute, for the present purposes, the Court is adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the statutory framework and ensure equitable treatment of all creditors, it is crucial to distinguish between first and second charge holders when applying the pari passu principle under Sections 529 and 529A of the Act. 18. The Supreme Court's ruling in the case of Jitendera Nath Singh v. Official Liquidator & Ors. (2013) 1 SCC 462, elaborated on the distinct hierarchy of claims and charges in the winding-up proceedings, particularly in the light of the 1985 amendment6 ("1985 Amendment") to the Act. The Supreme Court emphasized that a secured creditor holds a charge solely over a specific asset or property of the company, which is their secured asset. A statutory charge favouring the workmen has been established under the first limb of the proviso to Section 529(1)(c) of the Act, which covers workers' dues from a company. This charge is pari passu with that of each secured creditor and extends to the workers' share relative to the security of any secured creditor of the company, as provided under Section 529(3)(c) of the Act. Therefore, every property offered as security in favour of the creditors implicitly carries a pari passu charge favouring the workmen, which is at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "44. Section 529(1)(c) of the Companies Act speaks about the respective rights of the secured creditors which would mean the respective rights of secured creditors vis-à-vis unsecured creditors. It does not envisage respective rights amongst the secured creditors. Merely because Section 529 does not specifically provide for the rights of priorities over the mortgaged assets, that, in our opinion, would not mean that the provisions of Section 48 of the Transfer of Property Act in relation to a company, which has undergone liquidation, shall stand obliterated. 45. If we were to accept that inter se priority of secured creditors gets obliterated by merely responding to a public notice wherein it is specifically stated that on his failure to do so, he will be excluded from the benefits of the Dividends that may be distributed by the Official Liquidator, the same would lead to deprivation of the secured creditor of his right over the security and would bring him at par with an unsecured creditor. The logical sequitor of such an inference would be that even unsecured creditors would be placed at par with the secured creditors. This could not have been the intendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt's ruling in ICICI Bank Ltd. (supra). In ICICI Bank Ltd. (supra), the Supreme Court did not declare that all secured creditors are equal. Instead, it acknowledged that while the Act does not explicitly differentiate between first and second charge holders, it does not eliminate the existing rights and hierarchies defined by the TP Act. Thus, the interpretation put forth in Bokiyu Tanneries (supra) does not align with the reasoning and interpretation provided by the Supreme Court in ICICI Bank Ltd. (supra), which emphasized the preservation of the rights of first charge holders over second charge holders. Therefore, Dena Bank's reliance on Bokiyu Tanneries (supra) is misplaced. 24. In view of the aforenoted discussion and holding in ICICI Bank Ltd. (supra), it becomes evident that the first and second charge holders cannot be treated equally. Upholding the objection of the second charge holder would upset the priority of the first charge holder, which would go against the provisions of Section 48 of the TP Act. The OL position on this issue, as stated in paragraph 10 of its compliance report OLR No. 109/2019, is thus accepted. 25. Having resolved the aforementioned issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cient funds to meet the admitted claims of the workmen, and directed the payment to be released within four weeks. Despite this directive and the withdrawal of CA No. 2061/2013, the present application was filed. On 13th December, 2018, the Court observed that the disbursement of payments was unnecessarily being delayed due to the filing of the instant application by Dena Bank. The Court even directed a meeting between all stakeholders to facilitate an amicable resolution regarding the payment of dues. Subsequent meetings were held between the OL and the parties involved, but these discussions did not bring about a definitive resolution to the issues at hand. Consequently, the Applicant-Bank has purposefully caused delays by attempting to undermine the overriding priority granted by law to the first charge holders, namely the workmen and their admitted claims. 28. For the foregoing reasons, the present application is dismissed with a cost of Rs. 10 lakhs on the Consortium, to be deposited in terms of the directions issued later in the judgment. (III) WORKMEN'S CLAIM FOR INTEREST ON WAGES 29. The Court shall now analyse the claim of interest on outstanding wages, which has been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis Supplied] 30. Ms. Neeru Vaid, the counsel representing the workmen of Faridabad, Jalna, and Aurangabad units, asserts that under Section 529A of the Act, the workmen should be entitled to receive interest, as they are considered to be on an equal footing with the secured creditors. She argues that the failure to award interest would not only misconstrue the legislative intent behind Section 529A but also result in a miscarriage of justice. Furthermore, Ms. Vaid contends that granting interest solely to the secured creditors would confer a double benefit upon them. This is because the workmen have been deprived of their rightful wages for a substantial period, and denying them interest while providing it to the secured creditors would create an imbalance in the distribution of funds. In light of these arguments, Ms. Vaid emphasizes the importance of granting interest to the workmen to ensure a fair and equitable resolution in accordance with the provisions of Section 529A of the Act. 31. No formal application has been submitted on behalf of the workmen seeking the aforementioned relief regarding the entitlement to interest. When claims were invited against JTIL, the workmen pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract, interest cannot be awarded, except in specific situations outlined under the relevant rules. Therefore, without a valid contractual provision or statutory basis supporting the payment of interest, and considering the nature of the workmen's claim, it is not justifiable to equate their situation with that of the secured creditors for the purpose of interest payment. Interest payment for workmen would only arise if there is a surplus, which triggers the application of Rule 179 and not otherwise. It is also noteworthy that the entitlement to interest from the date of the winding-up order, as per Rule 179, for subsequent interest is not in dispute. The OL has confirmed that once the admitted claims have been settled, any surplus funds will be utilized to declare dividends in accordance with Rule 179. These dividends will be distributed to all relevant parties, including the workmen. 35. Based on the aforementioned reasons, Ms. Vaid's claim for payment of interest to the workmen at a rate of 12 percent lacks merit and is rejected. Additionally, it should be noted that Ms. Vaid has also argued that no interest has been added to the gratuity payment. However, the Officia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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