2000 (8) TMI 986 - SC - Companies Law

Supreme Court affirms workmen's dues priority over secured creditors in winding up cases

The Supreme Court upheld the legality of conditions imposed by the High Court on a Corporation under The State Financial Corporations Act, emphasizing the ... Pari passu charge in favour of workmen - overriding preferential payments - rights of Financial Corporation under section 29 to take over and realise security - liquidator entitled to represent workmen and enforce charge - later enactment prevailing over earlier conflicting non obstante clauseRights of Financial Corporation under section 29 to take over and realise security - pari passu charge in favour of workmen - overriding preferential payments - later enactment prevailing over earlier conflicting non obstante clause - liquidator entitled to represent workmen and enforce charge - Whether the appellant Corporation's statutory power under section 29 of the State Financial Corporations Act, 1951 to take possession and realise security can be exercised ignoring the pari passu charge in favour of workmen created by the proviso to section 529 and by section 529A of the Companies Act, 1956, and whether the High Court lawfully imposed conditions to protect workmen's rights. - HELD THAT: - The Act of 1951 is a special enactment granting financial corporations rights to take over management or realise security under section 29. However, the Companies (Amendment) Act, 1985 inserted the proviso to subsection (1) of section 529 and section 529A, which create a pari passu charge in favour of workmen and declare workmen's dues (and certain secured debts to the extent specified) to be paid in priority by means of a non obstante provision. Where two provisions contain competing non obstante clauses, the subsequent enactment controls; accordingly the proviso to section 529 and section 529A, being later, prevail over the non obstante language in section 29. Consequently the statutory right under section 29 must be exercised subject to the pari passu charge in favour of workmen; the liquidator is entitled to represent the workmen and enforce that charge. The Company Court therefore had jurisdiction to impose conditions (requiring notice to the Official Liquidator, securing the workmen's dues and court permission before finalising tenders) so as to enable the Official Liquidator to discharge duties and to ensure statutory protection of workmen's rights, and to prevent frustration of those rights by secured creditors acting under section 29. [Paras 10, 12]The High Court lawfully imposed the conditions; the appellant's power under section 29 must be exercised subject to the pari passu charge and the protections afforded by the proviso to section 529 and section 529A.Final Conclusion: The appeals are dismissed; the High Court rightly conditioned the Financial Corporation's exercise of rights under the State Financial Corporations Act, 1951 so as to protect the pari passu charge and the statutory priority of workmen's dues created by the Companies (Amendment) Act, 1985. Issues:1. Interpretation of provisions under The State Financial Corporations Act, 1951 and Companies Act in the context of liquidation proceedings.2. Legality of conditions imposed by the High Court on the Corporation.3. Priority of workmen's dues and rights of secured creditors in winding up proceedings.Analysis:Issue 1:The appellant, a Corporation under The State Financial Corporations Act, invoked section 29 to recover dues from two companies under liquidation. The High Court imposed conditions, raising the question of the Corporation's absolute power under the Act of 1951. The Companies Act provisions, including section 529 and 529A, were crucial in determining the legality of the Corporation's actions.Issue 2:The High Court's conditions were challenged, arguing that the Corporation's powers under section 29 should not be restricted. However, the Court highlighted the importance of the proviso to section 529 and section 529A, inserted by the Companies (Amendment) Act, 1985. These provisions ensured a pari passu charge in favor of workmen and prioritized their dues in winding up proceedings.Issue 3:The Court analyzed the interplay between section 29 of the Act of 1951 and the subsequent provisions of the Companies Act, emphasizing the priority of workmen's dues as per section 529A. The judgment clarified that the Corporation's rights under section 29 must align with the workmen's pari passu charge. The conditions imposed by the High Court were deemed lawful to safeguard the workmen's rights and prevent secured creditors from undermining their priority.In conclusion, the Supreme Court upheld the legality of the conditions imposed by the High Court, emphasizing the need to protect workmen's dues in line with the provisions of the Companies Act. The judgment clarified the hierarchy of dues in winding up proceedings and affirmed the Corporation's obligation to respect the rights of workmen in such situations.