Supreme Court ruling: DRT lacks jurisdiction over workmen's claims in liquidation cases

The Supreme Court held that the Debt Recovery Tribunal (DRT) does not have jurisdiction to adjudicate workmen's claims, which should be handled by the official liquidator. Workmen's dues are to be paid pari passu with secured creditors, with the distribution based on the winding-up order date. Sections 529 and 529A of the Companies Act apply in liquidation cases, with the DRT distributing sale proceeds according to Section 529A. The DRT must involve the liquidator in distributing undisbursed proceeds, following the Company Court's directions. The Court set aside the previous judgment, directing the liquidator to handle workmen's claims, with further proceedings to involve the DRT and official liquidator.

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Issues Involved:
1. Jurisdiction of the Debt Recovery Tribunal (DRT) vs. Official Liquidator in adjudicating workmen's claims.
2. Distribution of sale proceeds between secured creditors and workmen.
3. Applicability of Sections 529 and 529A of the Companies Act in cases handled by DRT.
4. Impact of winding up proceedings on the distribution of assets.
5. Role of the Official Liquidator and Company Court in liquidation proceedings.

Detailed Analysis:

1. Jurisdiction of the Debt Recovery Tribunal (DRT) vs. Official Liquidator in adjudicating workmen's claims:
The Supreme Court addressed whether the DRT has the jurisdiction to adjudicate the claims of workmen or if such claims should be considered by the official liquidator. The Court concluded that the claims of the workmen who claim to be entitled to payment pari passu have to be considered and adjudicated by the liquidator of the debtor company and not by the DRT. This is because the DRT's jurisdiction is limited to the recovery of debts due to banks and financial institutions and does not extend to adjudicating the dues of workmen.

2. Distribution of sale proceeds between secured creditors and workmen:
The Court held that where a company is in liquidation, a statutory charge is created in favor of workmen in respect of their dues over the security of every secured creditor, and this charge is pari passu with that of the secured creditor. This means that the workmen's dues and the secured creditors' dues are to be paid in equal proportions. The relevant date for arriving at the ratio at which the sale proceeds are to be distributed is the date of the winding-up order and not the date of sale.

3. Applicability of Sections 529 and 529A of the Companies Act in cases handled by DRT:
The Supreme Court clarified that Sections 529 and 529A of the Companies Act come into operation immediately when a company goes into liquidation, creating a statutory charge in favor of workmen over the proceeds realized from the sale of security. The distribution of sale proceeds must be done by the DRT in accordance with Section 529A of the Companies Act. However, the DRT does not have the jurisdiction to determine the workmen's claims against the debtor company; this is the responsibility of the liquidator.

4. Impact of winding up proceedings on the distribution of assets:
The Court emphasized that if the debtor company goes into liquidation before the final disbursement of sale proceeds, the distribution of undisbursed proceeds must be done after notice to the liquidator and after hearing him. The DRT has two options: either secure an indemnity bond from the bank or financial institution for restitution of the amount to the extent of workmen's dues or set apart a portion of the undisbursed amount towards workmen's dues and disburse the balance to the applicant bank or financial institution.

5. Role of the Official Liquidator and Company Court in liquidation proceedings:
The Court reiterated that once a company is in winding up, the only competent authority to determine the workmen's dues is the liquidator, who acts under the supervision of the Company Court. The DRT must distribute the sale proceeds in accordance with the directions of the liquidator and the Company Court.

Conclusion:
The Supreme Court set aside the impugned judgment and directed that the claims of the workmen be adjudicated by the liquidator of the debtor company. The DRT and the official liquidator are to proceed further concerning workmen's dues as indicated in the judgment. The appeals were allowed with no order as to costs.

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