1992 (4) TMI 182 - HC - Companies Law

Official Liquidator's Order on Closure Compensation & Interest Set Aside. Workmen Entitled to Compensation & Interest.

The court set aside the official liquidator's order regarding closure compensation and interest on the admitted amount. Workmen were entitled to closure ... Winding up - Copy o winding up order to be filed with Registrar, Winding up – Overriding preferential payments, Payment of subsequent interest Issues Involved:1. Closure Compensation2. Interest on Admitted Amount3. Pari Passu Charge and Distribution of Sale ProceedsIssue-wise Detailed Analysis:1. Closure Compensation:The applicant, A. Shanmugham, sought to set aside the official liquidator's order regarding closure compensation. The key question was whether the closure of the company was due to unavoidable circumstances beyond the control of the employer. The company was ordered to be wound up due to its inability to pay debts, which led to the closure. The court referred to Section 25-FFF of the Industrial Disputes Act, which provides compensation to workmen in case of closing down of undertakings. The proviso to this section limits compensation to three months' average pay if the closure is due to unavoidable circumstances beyond the employer's control. The Kerala High Court's decision in Palai Central Bank Employees' Union v. Official Liquidator, Palai Central Bank Ltd. was considered, which held that closure due to a winding-up order is an unavoidable circumstance. However, the court preferred the Bombay High Court's view in Shree Madhav Mills Ltd., which stated that financial difficulties leading to winding up are not unavoidable circumstances. Consequently, the court held that the closure was not due to unavoidable circumstances and the workmen were entitled to closure compensation at the rate of 15 days' pay for every year's continuous service under Section 25-FFF(1).2. Interest on Admitted Amount:The applicant also sought interest at 18% per annum on the admitted amount. The official liquidator argued that under Rule 179 of the Companies (Court) Rules, 1959, unsecured creditors are entitled to interest at 4% per annum from the date of winding up till the date of the dividend. However, the court noted that workmen, by virtue of Sections 529 and 529A of the Companies Act, 1956, are treated on par with secured creditors. The court referred to the Supreme Court's decision in State of Kerala v. M. Padmanabhan Nair, which granted interest at 15% per annum for delayed settlement of pension and gratuity. Based on this, the court held that the workmen are entitled to interest at 12% per annum from the date of the winding up order till the date of realization of security.3. Pari Passu Charge and Distribution of Sale Proceeds:The court addressed the question of the cut-off date for arriving at the ratio at which the sale proceeds should be divided on a pari passu basis under Section 529 of the Companies Act, 1956. The official liquidator and the State Bank of Hyderabad, a secured creditor, were heard on this matter. The court held that the cut-off date should be the date of the winding up order, not the date of sale. The workmen, being secured creditors by operation of law, have a pari passu charge over the security held by the secured creditor under the contract. The workmen are entitled to claim interest from the date of the winding up order till the date of realization of security.Conclusion:The court set aside the official liquidator's order dated December 11, 1991, in claim No. 194 regarding closure compensation and interest on the admitted amount. The workmen were held entitled to closure compensation at the rate of 15 days' pay for every year's continuous service and interest at 12% per annum from the date of the winding up order till the date of realization of security. The cut-off date for the pari passu distribution of sale proceeds was determined to be the date of the winding up order.