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of <h1>Court prioritizes statutory dues over secured creditor's claims, directing separate handling and intimation upon realization.</h1> <h3>Central Bank of India Versus Recovery Mamlatdar</h3> The court ruled in favor of the statutory dues under the Employees' State Insurance Act and Payment of Gratuity Act, holding that the amount deducted from ... Winding up - Preferential payments Issues:- Priority of claim between a secured creditor and statutory dues under the Employees' State Insurance Act and Payment of Gratuity Act.- Whether the amount deducted from employees' wages by the company is held in trust and has priority over other claims.Analysis:The judgment involves a dispute between the Central Bank of India, as a secured creditor, and statutory dues under the Employees' State Insurance Act and Payment of Gratuity Act. The bank sought a direction to prevent further recovery actions by respondents regarding the company's assets. The bank had initiated a civil suit for recovery of dues against a company under liquidation, and the Recovery Mamlatdar issued a notice for payment of statutory dues. The bank argued that as a secured creditor, it should have priority in recovering its dues by selling the mortgaged properties. On the other hand, the respondent representing the Employees' State Insurance Corporation contended that the amount deducted from employees' wages was held in trust and should take precedence over other claims, citing legal provisions and precedents.The respondent relied on Section 40 of the Employees' State Insurance Act and Section 66 of the Indian Trusts Act to argue that the amount deducted from employees' wages was held in trust by the company. Referring to a previous case, the respondent highlighted that such amounts should be kept separate and not mingled with the company's assets. The court agreed with this argument, acknowledging that the deducted amount was held in trust and should be returned to the employees or the corporation. This ruling established the priority of the statutory dues over other claims, including those of secured creditors.The bank, while not disputing the claim of the Employees' State Insurance Corporation, sought permission to realize its dues by selling the securities and requested court approval before appropriating the sale proceeds. The court granted the application, restraining respondents from further recovery proceedings. However, it directed that the amount equivalent to the statutory dues should be kept apart from the sale proceeds and intimated to the corporation upon realization. This decision balanced the rights of the secured creditor and the statutory dues, ensuring compliance with legal obligations while allowing the bank to recover its dues through proper channels.In conclusion, the judgment resolved the conflict by recognizing the priority of statutory dues held in trust over the claims of a secured creditor. It provided a framework for the realization of dues, ensuring that both parties' interests were safeguarded within the legal boundaries.
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