2010 (10) TMI 1258 - HC - Companies Law

Workmen's Priority in Asset Distribution Limited to Liquidation, Court Dismisses Claims to Halt SARFAESI, RDBFI Proceedings.

The HC dismissed the petitioners' claim to halt proceedings under the SARFAESI Act and RDBFI Act, as the company was not in liquidation. The court held ... - Issues:Claim of workmen for dues and benefits in a company facing financial distress and proceedings under SARFAESI Act and RDBFI Act.Analysis:The petitioners, claiming to be workmen of a company facing financial difficulties, sought relief due to potential job loss and unpaid benefits if the company's assets were auctioned under the SARFAESI Act. They argued that the bank should settle all dues, including gratuity and EPF contributions, as per section 13(9) of the SARFAESI Act. The petitioners also alleged collusion between the company and the bank to evade liabilities. However, the court noted that the petitioners were not parties to the loan transaction and their dues were not quantified by relevant labor authorities. The court questioned the entitlement of the petitioners to halt SARFAESI Act proceedings or claim priority in asset distribution without the company being in liquidation.The petitioners relied on section 13(9) of the SARFAESI Act and section 529A of the Companies Act, 1956 to support their claims. Section 13(9) addresses rights of secured creditors in case of multiple creditors, specifying distribution of sale proceeds in liquidation scenarios. Section 529A of the Companies Act deals with asset distribution priorities in winding-up cases. The court clarified that since the company was not in liquidation, the provisions of section 13(9) did not apply. Legal precedents highlighted that workmen's priorities in asset distribution are relevant only in winding-up situations, emphasizing the need for adherence to procedural requirements.The court rejected the writ petition's maintainability challenge raised by the respondent's counsel but delved into the legal complexities surrounding section 13(9) of the SARFAESI Act. It emphasized that workmen's claims for priority in asset distribution under the Companies Act were not enforceable unless the company faced liquidation proceedings. The court underscored the limited scope for workmen to obstruct SARFAESI Act or RDBFI Act proceedings without a winding-up order. Consequently, the petition to quash the Debts Recovery Tribunal proceedings and demand immediate payment of dues from recovered amounts was dismissed.The judgment clarified that if the company faced winding-up proceedings in the future, the petitioners could seek relief as per relevant laws. It ensured that the judgment did not hinder the petitioners from claiming surplus amounts recovered by the respondents in ongoing proceedings against the company. The court's decision highlighted the necessity for adherence to legal procedures and the limited scope for workmen to claim priority in asset distribution without the company being in liquidation.