1993 (12) TMI 177 - HC - Companies Law

Workmen affirmed as secured creditors entitled to full compensation & interest.

S Anthony Raj Versus A. Shanmugam

The court affirmed the workmen's status as secured creditors from the winding-up order date, entitling them to full compensation and interest at 4% per ... Interest Issues Involved:1. Status of workmen as secured creditors.2. Cut-off date for dividing sale proceeds.3. Entitlement of workmen to interest.4. Closure compensation under Section 25FFF of the Industrial Disputes Act.5. Applicability of the proviso to Section 25FFF(1).6. Interpretation of 'unavoidable circumstances beyond the control of the employer.'7. Interest rate on unpaid wages.Detailed Analysis:1. Status of Workmen as Secured Creditors:The judgment confirmed that workmen become secured creditors by operation of law from the date of the winding-up order. They have a pari passu charge over the security held by the secured creditors under the contract.2. Cut-off Date for Dividing Sale Proceeds:The court held that the cut-off date for arriving at the ratio at which the sale proceeds should be divided on a pari passu basis, as per Section 529 of the Companies Act, 1956, should be the date of the winding-up order and not the date of sale.3. Entitlement of Workmen to Interest:The workmen are entitled to claim interest from the date of the winding-up order till the date of realization of security. The learned single judge set aside the official liquidator's order concerning the closure compensation and the payment of interest on the admitted amount.4. Closure Compensation under Section 25FFF of the Industrial Disputes Act:The court examined whether the closure of the company was due to unavoidable circumstances beyond the control of the employer. The learned single judge concluded that the closure was not due to unavoidable circumstances beyond the control of the employer. Therefore, the workmen were entitled to closure compensation as prescribed under the first part of Section 25FFF(1) of the Act.5. Applicability of the Proviso to Section 25FFF(1):The court analyzed the proviso to Section 25FFF(1), which limits compensation to three months' average pay if the closure is due to unavoidable circumstances beyond the control of the employer. The court found that the closure was not due to such circumstances, and thus, the workmen were entitled to full compensation under Section 25F(b) of the Act.6. Interpretation of 'Unavoidable Circumstances Beyond the Control of the Employer':The court reviewed various judgments to interpret the phrase 'unavoidable circumstances beyond the control of the employer.' It concluded that financial difficulties or accumulation of undisposed stocks do not qualify as unavoidable circumstances. The court emphasized that the employer's actions leading to the company's financial state should be scrutinized to determine if the closure was genuinely beyond their control.7. Interest Rate on Unpaid Wages:The learned single judge had awarded interest at the rate of 12% per annum on unpaid wages. However, the court modified this, stating that Rule 156 of the Companies (Court) Rules, 1959, caps the interest rate at 4% per annum from the date of the notice of payment up to the date of the winding-up order until paid.Conclusion:The appeals were dismissed, affirming the workmen's entitlement to full compensation under Section 25F(b) and interest at 4% per annum. The judgment emphasized the need to scrutinize the employer's role in the company's financial difficulties before applying the proviso to Section 25FFF(1). No costs were awarded due to the satisfactory assistance provided by the counsel for the appellants. The hearing fee for the liquidator's counsel was fixed at Rs. 6,000.