1986 (7) TMI 347 - HC - Companies Law

Court permits sale of attached goods to pay workers' wages under exceptional circumstances.

Gendalal Bhaggaji Versus Shree Sajjan Mills Ltd.

Gendalal Bhaggaji Versus Shree Sajjan Mills Ltd. - [1989] 65 COMP. CAS. 480 (MP) Issues Involved1. Winding-up petition against the respondent company.2. Appointment of a provisional liquidator.3. Report of the provisional liquidator regarding the company's liabilities and assets.4. Application by the President, Mill Mazdoor Sangh, under section 530(1)(b) of the Companies Act, 1956.5. Objections by the State Bank of India regarding the sale of attached goods.6. Prioritization of workers' dues under amended sections 529, 529A, and 530 of the Companies Act, 1956.Detailed Analysis1. Winding-up Petition Against the Respondent CompanyThe petitioner firm, Gendalal Bhaggaji, filed a winding-up petition against the respondent company under sections 433, 434, and 439 of the Companies Act, 1956, on the grounds that the respondent company is unable to pay its debts. Upon issuance of a show cause notice, the respondent company filed a reply opposing the petition.2. Appointment of a Provisional LiquidatorThe petitioner filed I.A. No. 949 of 1986 for the appointment of a provisional liquidator. The court appointed the official liquidator as the provisional liquidator on April 4, 1986, as the respondent did not oppose the appointment.3. Report of the Provisional LiquidatorThe provisional liquidator submitted a report dated May 8, 1986, detailing the company's financial status. The report indicated that the company's fixed assets were mortgaged/hypothecated to the Industrial Development Bank of India and M.P. Financial Corporation, while movable assets were hypothecated to the State Bank of India. The total liabilities exceeded Rs. 1,000 lakhs, with significant amounts owed to various creditors, including Rs. 792 lakhs to the State Bank of India and Rs. 200 lakhs to the Industrial Development Bank of India and M.P. Financial Corporation.4. Application by the President, Mill Mazdoor SanghThe President, Mill Mazdoor Sangh, Ratlam, filed I.A. No. 2032 of 1986 under section 530(1)(b) of the Companies Act, 1956, requesting permission for the Tahsildar to sell the attached goods of the company and pay the workers their due wages from the sale proceeds. This application was based on a decree passed by the Labour Commissioner for Rs. 9,99,955.45 in favor of the workers.5. Objections by the State Bank of IndiaThe State Bank of India opposed the application, arguing that no winding-up order had been passed and that all movable goods were hypothecated to the bank. They contended that the Tahsildar could not sell the attached goods. The bank cited several judgments to support their position, including M.K. Ranganathan v. Govt. of Madras and Bank of Bihar v. State of Bihar.6. Prioritization of Workers' DuesThe President, Mill Mazdoor Sangh, argued that the amended sections 529, 529A, and 530 of the Companies Act, 1956, provided workers with priority over other creditors. The amendments introduced a pari passu charge in favor of workmen's dues and established that such dues should be paid in priority to all other debts. The counsel for the State Bank of India countered that the workers' priority could not be enforced as no winding-up order had been passed and the bank was not a party to the decree by the Labour Commissioner.JudgmentThe court acknowledged the force in the submissions made by the State Bank of India but noted the exceptional circumstances, including the closure of the mill, unpaid wages, and the tense situation among the workers. The court referenced the National Textile Workers' Union v. P.R. Ramakrishnan case, which affirmed the workers' right to be heard in winding-up petitions.Given the peculiar facts and the need to prevent further deterioration of the attached goods, the court partially allowed the application. The Tahsildar, Ratlam, was permitted to sell the attached goods in the presence of the provisional liquidator by public auction. The sale proceeds were to be deposited by the provisional liquidator in a nationalized bank until further orders.