2008 (2) TMI 620 - HC - Companies Law

Court Orders Applicant to Deposit Balance for Workmen Dues; Sale Proceeds Appropriation Allowed

AP State Financial Corpn. Versus Magna Hard Tempt Ltd. (In Liquidation)

AP State Financial Corpn. Versus Magna Hard Tempt Ltd. (In Liquidation) - [2008] 86 SCL 238 (AP) Issues Involved:1. Appropriation of sale proceeds by the A.P. State Financial Corporation.2. Determination of workmen dues and their priority under section 529A of the Companies Act.3. Validity and applicability of Rule 156 of the Companies (Court) Rules, 1959.4. Jurisdiction of the High Court to examine the vires of statutory rules.Comprehensive, Issue-wise Detailed Analysis:1. Appropriation of Sale Proceeds by the A.P. State Financial Corporation:The A.P. State Financial Corporation (Applicant) sought permission to appropriate Rs. 50 lakhs deposited in Andhra Bank from the sale of the land and buildings of a company in liquidation. The Court had earlier directed that the sale proceeds be kept in interest-bearing deposits, subject to further orders. The Applicant argued that they were unaware of the dues payable to the workmen and that the Official Liquidator had not quantified these dues. The Applicant sought permission to appropriate the sale proceeds, subject to the enforcement of the workmen's dues by the Official Liquidator.2. Determination of Workmen Dues and Their Priority Under Section 529A of the Companies Act:The Official Liquidator quantified the workmen dues as Rs. 8,07,035, based on the statement of outstanding dues filed by the Applicant. The Official Liquidator stated that the dues should be calculated up to the date of the winding-up order and that no interest was payable on the outstanding dues thereafter. The Court emphasized that Section 529A of the Companies Act provides overriding preferential payments to workmen's dues and debts due to secured creditors, ensuring that these are paid in priority to all other debts. The Court underscored the statutory scheme that mandates the distribution of sale proceeds under the supervision of the Company Court, ensuring that workmen's dues are paid pari passu with secured creditors.3. Validity and Applicability of Rule 156 of the Companies (Court) Rules, 1959:The Applicant contended that Rule 156, which restricts payment of interest after the winding-up order to 4% per annum, was ultra vires the Indian Contract Act. The Official Liquidator countered that the Companies (Court) Rules, 1959, are statutory rules with presumed constitutional validity, and that the Company Court must exercise its jurisdiction in accordance with these rules. The Court highlighted that Rule 156 limits interest payable to secured creditors after the winding-up order, ensuring that the workmen's dues are not adversely affected. The Court concluded that Rule 156 protects the interests of workmen and that no provision of the Indian Contract Act contravenes this rule.4. Jurisdiction of the High Court to Examine the Vires of Statutory Rules:The Court noted that it is not within its jurisdiction, while exercising powers under the Companies Act, to adjudicate on the vires of the provisions of the Act or the rules made thereunder. The jurisdiction of the High Court under the Companies Act is limited to resolving disputes in accordance with the provisions of the Act. The Court cited precedents establishing that a tribunal constituted under a statute cannot challenge the constitutional validity of that statute. Consequently, the Court dismissed the Applicant's contention regarding the invalidity of Rule 156.Conclusion:The Court directed the Applicant to deposit the balance of Rs. 3,97,035 towards the workmen dues with the Official Liquidator within four weeks. The Applicant was permitted to appropriate the remaining sale proceeds, subject to the enforcement of any further amounts liable to be paid towards workmen dues. The company application was disposed of accordingly.