Closure compensation and pari passu workmen rights computed from the winding-up order, with interest payable on admitted claims.

Closure following a winding-up order on a creditor's petition was not treated as closure due to unavoidable circumstances beyond the employer's control; the company's inability to pay debts fell within financial difficulty under the Explanation to the proviso to section 25-FFF(1), so workmen received full closure compensation and not merely three months' average pay. Workmen were also treated as secured creditors by operation of law under sections 529 and 529A of the Companies Act, 1956, giving them pari passu rights with the secured creditor. The relevant distribution date was the winding-up order date, not the sale date, and interest on admitted claims was payable at 12% per annum from the winding-up order until realisation.

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Issues: (i) Whether workmen were entitled to closure compensation on the footing that the closure was not due to unavoidable circumstances beyond the control of the employer, and if so whether compensation was confined to three months' average pay; (ii) Whether workmen were entitled to interest on admitted claims, at what rate, and from what date the pari passu distribution between workmen and secured creditors had to be worked out.

Issue (i): Whether workmen were entitled to closure compensation on the footing that the closure was not due to unavoidable circumstances beyond the control of the employer, and if so whether compensation was confined to three months' average pay.

Analysis: Closure following a winding-up order passed on a creditor's petition was held not to be, by that fact alone, a closure on account of unavoidable circumstances beyond the control of the employer. The cause of the closure was the company's inability to pay its debts, which fell within the financial difficulty contemplated by the Explanation to the proviso to section 25-FFF(1) of the Industrial Disputes Act, 1947. Since the provision is beneficial legislation, the proviso limiting compensation to three months' average pay was held inapplicable on these facts.

Conclusion: The workmen were entitled to full closure compensation under the main part of section 25-FFF(1) of the Industrial Disputes Act, 1947, and not merely to three months' average pay.

Issue (ii): Whether workmen were entitled to interest on admitted claims, at what rate, and from what date the pari passu distribution between workmen and secured creditors had to be worked out.

Analysis: The workmen, by virtue of sections 529 and 529A of the Companies Act, 1956, were treated as secured creditors by operation of law and stood on a pari passu footing with the secured creditor. The cut-off date for working out the ratio of distribution was the date of the winding-up order, not the date of sale. Rule 179 of the Companies (Court) Rules, 1959, dealing with unsecured creditors, was held inapplicable. Interest was therefore payable on the admitted amount from the date of the winding-up order until realisation of the security, and the rate adopted was 12 per cent per annum.

Conclusion: The workmen were entitled to interest at 12 per cent per annum from the date of the winding-up order till realisation of security, and the pari passu computation date was the date of the winding-up order.

Final Conclusion: The order of the official liquidator was interfered with to the extent that the workmen obtained full closure compensation and interest on the admitted claims, with the distribution between workmen and the secured creditor to be worked out from the winding-up date.

Ratio Decidendi: A closure caused by a winding-up order passed on a creditor's petition for inability to pay debts is not, without more, closure on account of unavoidable circumstances beyond the employer's control; and upon winding up, workmen rank as secured creditors by operation of law, so the pari passu distribution and interest entitlement are computed from the date of the winding-up order.

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