TaxTMI 
TaxTMI 
TaxTMI 
1992 (4) TMI 182
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....esident of Madras Pen and Ink Factory Workers' Union and representing the workmen of the company in liquidation. In the annexure to C.A. No. 207 of 1992, the names of the claimants and other particulars, viz., claim number, claim amount, amount granted and amount rejected, have been furnished with reference to the company in liquidation. Both the matters were heard together by consent of parties. Originally, the learned official liquidator alone was impleaded as respondent in these applications. In view of the importance of the questions of law raised by the applicant herein and also by the learned official liquidator assisting the court at the time of hearing, the legal heirs of the late Sanjeevi, viz., respondents Nos. 2 to 7, were ordered to be impleaded. The State Bank of Hyderabad was also ordered to be impleaded as the eighth respondent since the issue raised has to be decided in the presence of the State Bank of Hyderabad who is a secured creditor. The brief facts of the case are as follows : The company in liquidation was ordered to be wound up by an order dated October 27, 1978, in C.P. No. 11 of 1978 on the ground that the company was unable to pay its debts. Consequent....
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....ing financial losses) ; or (ii)accumulation of undisposed of stocks ; or (iii)the expiry of the period of the lease or licence granted to it ; or (iv)in a case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which such operations are carried on ; shall not be deemed to be closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section. (1-A) Notwithstanding anything contained in sub-section (1), where an undertaking engaged in mining operations is closed down by reason merely of exhaustion of the minerals in the area in which such operations are carried on, no workman referred to in that subsection shall be entitled to any notice or compensation in accordance with the provisions of section 25-F, if- (a)the employer provides the workman with alternative employment with effect from the date of closure at the same remuneration as he was entitled to receive, and on the same terms and conditions of service as were applicable to him, immediately before the closure ; (b)the service of the workman has not been interrupted by such alternative employment ; and ....
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....of a winding up order resulted in the closing down of the undertaking and hence the closure is due to unavoidable circumstances beyond the control of the company in liquidation and consequently restricted the claim of the workmen for closure compensation to the extent provided in the proviso to section 25-FFF(1) of the Industrial Disputes Act not only to the applicant herein but also to the other claimants/workers who were in the employment of the company in liquidation on the date of passing of the winding up order. In this connection, it is relevant to refer to the judgment of the Kerala High Court (Division Bench), which held that a closure under a winding up order is a closure on account of unavoidable circumstances beyond the control of the employer. Following the Division Bench of the Kerala High court, the learned official liquidator came to the conclusion as stated above. With regard to the claim for interest at 18 per cent, per annum, the official liquidator submits that, under rule 179 of the Companies (Court) Rules, 1959, unsecured creditors of the company in liquidation, whether preferential or ordinary, are entitled to payment of interest at the rate of 4 per cent, pe....
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....thivedu Villages, Madras. The State Bank of Hyderabad have elected to remain outside the liquidation and they are relying on the securities offered by the company in liquidation. The State Bank of Hyderabad can claim interest at the rates specified in the above suit till the date of realisation of the security. But the right of workmen for interest from the date of the winding up order till the date of payment of dividend to them or till the date of realisation of security, whichever is earlier, has not been specified either in section 529 or 529-A of the Companies Act, 1956, or under the Companies (Court) Rules, 1959. In view of the importance of the questions of law that arise for consideration in this case, the learned official liquidator was also requested by this court to assist the court on the legal issues. Likewise, this court also heard the arguments of Mr. M.K. Kabhir, Mr. M.S. Sundararajan and Mr. Shree Krishnan, learned counsel appearing for the legal heirs of the founder of the company and the State Bank of Hyderabad, respectively. The learned official liquidator, at the time of hearing, has raised the following two questions of law for my consideration : (1)Whether....
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....amount is payable to Tamilnadu Khadi and Village Industries Board towards purchase of clothes by you from the Board, vide Bill Nos. 316212 and 50100. According to the applicant, the learned official liquidator, while considering the claim, has taken into consideration only a period of three years for closure compensation instead of ten years and that he ought to have fixed the closure compensation only for a period of ten years because the company went into liquidation only on a creditor's petition and not by an act of God or for reasons beyond the control of the directors. It is further contended by the applicant through his counsel, Mr. K. Gopal, that the learned official liquidator ought to have awarded interest at 18 per cent, per annum on the amounts admitted because the claims were long pending. Hence, the applicant has prayed that the order dated December 11, 1991, made in Claim No. 194 may be set aside in so far as it relates to the closure compensation and the learned official liquidator may be directed to award interest at 18 per cent, per annum on the admitted amount. Mr. S. Anthony Raj, one of the legal heirs of late Sanjeevi, who was the founder of the Pilot Pen Comp....
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....alled Vanavil and the factory lands and building and plant and machinery in Puzhal and Kathivedu Villages and certain hypothecated goods, machines. According to the bank, the claim now made in the two suits will exceed Rs. 70,00,000. It is useful to reproduce paragraphs 5 to 7 of the counter-affidavit hereunder : "5. I state that the closure of the business and working of the company was due to unavoidable reasons beyond the control of the company, that the claim for payment of closure compensation exceeding 3 months' wages is untenable and that it cannot be allowed. 6. I further state that the claim for payment of any interest on the sums due and payable to the ex employees is without any legal basis. 7. As regards the question as to the basis on which the pari passu formula determining the amounts due to the secured creditor and to the workmen has to be worked out, I state that so far as the secured creditor is concerned, the amount due has to be calculated as on the date the security is actually realised and payment made to the secured creditor and that so far as the employees are concerned, it is the date of the winding-up order." Similar allegations have also been raised i....
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.... clear that the winding up work by the liquidator is not a continuation of the business of the bank. Held, on facts, there is no evidence to show that there was any subsequent agreement whatever between the official liquidator and the employees that they should go on under a new contract similar in terms to the old one. In the absence of such evidence, the winding up order operated as discharge of the employees as contemplated by section 445(3) of the Companies Act, 1956." The Kerala High Court held that the closure of a company under an order of winding up would be on account of unavoidable circumstances beyond the control of the employer and would fall within the proviso to section 25-FFF(1) of the Industrial Disputes Act and, consequently, the workman would be entitled to closure compensation on the basis of his average pay for a maximum period of three months. However, a learned single judge of the Bombay High Court in the decision Shree Madhav Mills Ltd., In re, AIR 1967 Bom 219, has held as follows (headnote) : "In all cases of claims for compensation, the only important issue which arises for decision having regard to the provisions in section 25-FFF would be whether the ....
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....how that the company was in huge financial difficulties and unable to pay its debts. By order dated August 5, 1959, the company was ordered to be wound up. The ex-employees' claim for retrenchment compensation was based on the provisions in section 25-FFF and section 25-F of the Industrial Disputes Act. The case of the employees/claimants before the liquidator and in the appeal before the High Court was that there was nothing to show and no one had contended on the record that the undertaking of the mill's company was closed down on account of unavoidable circumstances beyond the control of the company. In the result, all workmen who were employed in the service of the company continuously for not less than one year prior to the closure and retrenchment are entitled to payment of retrenchment compensation equivalent to 15 days' average pay for every completed year of service. The learned official liquidator held that, having regard to the provisions in section 445(3) of the Companies Act, the winding up order must be deemed to be notice of discharge to the employees. According to him, the termination of services of the employees was statutory and was not an act. of the employer. He....
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....ision Bench of the Kerala High Court. The company in the instant case was ordered to be wound up pursuant to a petition for winding up filed by a creditor of the company. Hence, the root cause for the closure was the undischarged debts of the company which is due to the financial difficulties of the company. The Explanation to the proviso to sub-section (1) of section 25-FFF of the Industrial Disputes Act specifically provides that the closure of an undertaking due to financial strain, etc., shall not be deemed to be due to unavoidable circumstances beyond the control of the employer. Hence, I am of the opinion that, in the instant case, though the closure of the company was pursuant to an order of winding up of court, it cannot be held to be due to unavoidable circumstances beyond the control of the employer. The closure was due to the inability of the company to pay its debts. This cannot be considered to be an unavoidable circumstance. The situation could have well been averted had the company acted prudently. I am inclined to take the view that the proviso to section 25-FFF of the Industrial Disputes Act should be strictly construed bearing in mind the Explanation which clear....
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....undertaking, the workmen get rights pari passu with those of the secured creditors over the assets of the company in liquidation. Rule 179 of the Companies (Court) Rules, 1959, applies to unsecured creditors in the matter of payment of interest from the date of the winding up order till the date of dividend. The said rule cannot be applied to workers who, under the amended provisions of the Act, are treated on par with secured creditors. By virtue of the provisions of sections 529 and 529A, the workmen of the company have to be treated on par with secured creditors. The status of secured creditors is conferred on the workmen by operation of law. In State of Kerala v. M. Padmanabhan Nair, AIR 1985 SC 356, the Supreme Court has held as follows while granting interest at 15 per cent, per annum (headnote) : "Pension and gratuity are no longer any bounty to be distributed by the Government to its employees on their retirement but are valuable rights and property in their hands and any culpable delay in settlement and disbursement thereof must be visited with the penalty of payment of interest at the current market rate till actual payment. The liability to pay penal interest on these ....