Workers' statutory priority under insolvency law permits pro rata distribution of realised sale proceeds despite a pending secured creditor claim.
In the absence of a recovery certificate, the company court could still protect workers' statutory priority under section 529A of the Companies Act, 1956 by directing deposit of the workers' proportionate share of realised sale proceeds with the official liquidator, while leaving the secured creditor's pending claim for adjudication. The court noted that section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 applied only where a decree, award or recovery certificate had been issued. On the available fund, the court applied a pro rata allocation between the secured creditor and workers and permitted distribution of the workers' share, with the balance retained for final determination.
Issues: (i) Whether, in the absence of a recovery certificate and while the bank's suit remained pending, the company court could direct deposit of part of the realised sale proceeds with the official liquidator for distribution of the workers' share under section 529A of the Companies Act, 1956. (ii) Whether the workers were entitled to a pro rata distribution out of the available fund, with the balance retained for adjudication of the secured creditor's claim.
Issue (i): Whether, in the absence of a recovery certificate and while the bank's suit remained pending, the company court could direct deposit of part of the realised sale proceeds with the official liquidator for distribution of the workers' share under section 529A of the Companies Act, 1956.
Analysis: Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was held to operate where a recovery certificate had been issued against the company. As no decree, award, or recovery certificate had been issued in the pending suit, the Tribunal's power of distribution under that provision was not available. In that situation, the company court could still give effect to the statutory protection of workers under section 529A and secure the workers' portion of the realised amount without disturbing the creditor's pending claim before the Tribunal.
Conclusion: The company court had jurisdiction to direct deposit of the workers' share with the official liquidator despite the pending suit and absence of a recovery certificate.
Issue (ii): Whether the workers were entitled to a pro rata distribution out of the available fund, with the balance retained for adjudication of the secured creditor's claim.
Analysis: The secured creditor's claim was taken at about Rs. 1.32 crore and the workers' admissible claim at about Rs. 32.24 lakh. On that basis, the court applied an approximate 80:20 allocation between the secured creditor and the workers. From the available fund, Rs. 10 lakh was treated as the workers' proportionate share, while the remaining amount was left with the Tribunal subject to the final result of the suit and any recovery certificate that might later be issued.
Conclusion: The workers were entitled to receive Rs. 10 lakh on a pro rata basis, and the balance was to remain with the Tribunal for final adjudication.
Final Conclusion: The report of the official liquidator was allowed in part by protecting the workers' statutory priority under section 529A and by preserving the secured creditor's claim for determination in the pending proceedings.
Ratio Decidendi: In the absence of a recovery certificate under section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the company court may still direct distribution of the workers' proportionate share under section 529A of the Companies Act, 1956 from realised assets, while retaining the balance for adjudication of the secured creditor's pending claim.
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