TaxTMI 
TaxTMI 
2013 (1) TMI 226
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....ake the order of final disbursement on the basis of such report. (B)** ** **" 1.1 Heard Mr. Sinha, learned advocate for the applicant union and Mr. Hemang Shah, learned Advocate for the other union and Mr. Baxi, learned advocate for some of the workmen concerned in the proceedings (who claim that certain benefits to which they were entitled are not taken into consideration while calculating the total claim of the workmen) and Ms. Yagnik, learned advocate for official liquidator and Mr. Singhi and Ms. Shah for ICICI i.e. respondent No. 7. Mr. A.C. Gandhi, learned advocate for respondent No. 6. Ms. Lodha, learned advocate for respondents No. 3, 4 and 8. (II) Factual Backdrop:- 2. The factual background is found in the affidavit dated 17.3.2008 filed in support of the Judges Summons. In the said affidavit the applicant union has stated, inter alia, that:- "2. The applicants submit that by an order dated 27.12.2001, passed in Company Petition No. 7 of 2001 by this Hon'ble Court, the above named company has been ordered to b....
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....l orders dated 27.9.2007 is annexed herewith and marked as annexure-B. 8. The applicants submit that the disbursement as directed vide order dated 27.9.2007 has already been made however fact remains that despite more than five months time have been elapsed, no OL report has been filed there by submitting verification report and proposing final disbursement ratio as direction by this Hon'ble Court by order dated 27.9.2007. The applicants submit that upon aforesaid order dated 27.9.2007 having been passed, OL has already provided necessary details including copy of company application No. 444 of 2007 the learned chartered accountant requesting them to reverify the claims and submit report vide letter dated 3.12.2007, copy of the said communication is annexed herewith and marked as annexure-C to this application." 2.1 In view of the relief prayed for by the applicant union it would be appropriate and relevant, at this stage to take note of the directions passed by the Court in the said order dated 27.9.2007 in Company Application No. 444 of 2007. The directions read thus: "10. Considering the aforesaid facts and circumstances and keeping in view the earlier order passed by this Co....
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.... shall be as under:- (a) It will be required for the secured creditors to produce proof of debts, including the documents which may be required by the OL for prima facie satisfaction of the outstanding dues of the secured creditors. It will also be required for all the secured creditors to nominate the lead Secured Creditor, which is stated as that of Bank of Baroda and it will be required for the Bank of Baroda to produce the authority letters of other remaining Secured Creditors together with the details of, inter se, ratio amongst them. Further all secured creditors will be required to file an usual undertaking to this Court, copy whereof shall be produced before the OL, to the effect that in the event it is so directed by this Court, the amount shall be returned or refunded within the time, as may be ordered by this Court. (b) After the aforesaid formality is completed, OL shall disburse the amount to the lead secured creditor within two weeks from the completion of such formality. (c) As regards disbursement to the workers are concerned, OL shall be at liberty to make disbursement by opening a separate Dividend Account and the payment by cheque shall be gi....
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....e claims of all the workmen who are "workmen" within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/-, their claims are required to be considered for the purpose of making the payment under section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case). 22. So far as other objections raised on behalf of the secured creditors, such as considering the claims of those workmen who have not produced their age proof and/or birth date certificate; their actual date of retirement and/or superannuation and/or those persons who have died prior to the date of closure, the secured creditors are justified in making the grievance. Thus, before reverifying the claims of the workers as stated above, the Official Liquidator and/or the Chartered Accountant is required to call for such particulars and in fact it is for the concerned workers' union who have submitted their claims to furnish necessary particulars with regard to date of birth. All those employees whose particulars are not g....
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....l such documents to chartered accountant for re-verification and after the report from the chartered accountant is received, fresh report should be submitted by the Official Liquidator. 2.8 The effect of the said directions by order dated 27.9.2007 would be that all other/previous reports would not be relevant for any purpose and the report which the Chartered Accountant may submit after taking into account the directions contained in the order dated 27.9.2007 would be the relevant report. By the said order the Court directed that the calculation of the claims by the workmen should be undertaken in light of the judgment by the learned Single Judge in case of Textile Labour Association v. Official Liquidator of Jubilee Mills Ltd. [2000] 99 Comp. Cas. 189 (Guj.) and to consider claims of all workmen irrespective of any age limit and of the staff members drawing wages not exceeding Rs. 2000/-. 2.9 It was in pursuance of the said order that the chartered accountant forwarded a communication dated 11.3.2008 purporting to be part report which was followed by his letters dated 6.6.2008 (addressed to the secured creditors) and further communication/report dated 18.7.2008 wherein the char....
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....009 giving details/calculation about the ratio of claims (for disbursement) by the secured creditors. 2.14 Since some grievance with reference to about 49 workmen was raised, more particularly about their entitlement for allowance @ Rs. 5 in view of the order by Industrial Tribunal, the matter was referred for further clarification/report by the Chartered Accountant and that therefore he submitted supplementary report 15.7.2009 dealing with the aforesaid aspect. As the said aspect resulted into variation in ratio of claims, the Chartered Accountant submitted the details of variations in his report dated 15.7.2009. The said details read thus:- Sr. No. Particulars Claim Amount Rs. Ration% 1 Bank of Baroda 22,75,29,578/- 20.47 2 State Bank of India 3,64,75,275 3.28 3 Indian Overseas Bank 4,68,00,212 4.21 4 State Bank of Patiala 10,39,22,907 9.35 5 ICICI Bank Ltd. 6,43,59,726 5.79 6 SBI/BOB Mutual Fund 10,10,19,274 9.08 7 Workers and Staff Members 53,16,35,626 47.82 111,17,42,598 100.00 2.15 After the above referred reports by the Chartered Accountant, the secured creditors, particularly res....
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....tion. We have not considered any other benefit except salary and leave wages. Thus from the above you will appreciate that we cannot ignore the settlement agreement signed by the Executive Director of GST Ltd., representative of Workers Union, Labour Contractor, Workers of Labour Contractor and Advocate of the company and the same is approved by the Hon'ble Judge of Industrial Court (Ref No. 222/85) on 23.7.1990." A copy of the letter dated 16.4.2010 is annexed and marked as annexure-G. 4. The official liquidator further most respectfully submits that M/s. Ajay J Shah and company chartered accountants vide letter dated 13.11.2009 submitted his report with regard to 49 workers of the company as under:- Mainly two issues are raised in the said application viz. (i) joining dates and (ii) Rs. 5/- raise in salary. We have made the detailed study of the documents and give our comments as under:- (1) Regarding joining date of 49 workers referred in the said application it is noticed that settlement agreement signed by the Executive Director of GST Ltd., representative Workers Union, Labour Contractor, Workers of Labour Contractor and Advocate of the company, which is approved by the H....
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....bout the total number of workmen i.e. claimant workmen was being raised. The learned advocate for Official Liquidator had also made grievance about the said aspect. Therefore, order dated 6.7.2011 was passed which was followed by another order dated 14.7.2011. 2.18 In response to the order dated 14.7.2011 the official liquidator filed report dated 18.7.2011 along with which a list containing names of the claimant workmen was placed on record by official liquidator. In view of the order dated 14.7.2011 the said details concerning the names and total number of concerned workmen mentioned therein, are to be treated as final. This aspect has been made clear in the subsequent order dated 25.7.2011. Below mentioned paragraph No. 5 of the said order dated 25.7.2011 deals with and clarifies the issue:- "5. As noted hereinabove earlier, the order dated 14.7.2011 was passed in presence of all learned advocates representing the concerned parties, including Mr. Shah who has raised objection today. In the said order, as noted hereinabove earlier, it was clarified that ".....any claim by any person whose name does not figure in the said list may not be entertained, except in rare case with com....
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....antum of amount available for disbursement to workmen. 3.2 Whereas, the secured creditors would submit that there are serious errors in considering the total number of workmen, their actual salary, the period for which claim can be entertained and the category of employees/workmen who ought to have been excluded from consideration and as a consequence of such errors and misconception on part of chartered accountant the amount available for disbursement to secured creditors is adversely affected. 3.3 Thus, it becomes necessary to take into account the objections submitted by the learned Counsel for the workmen and the secured creditors. (IV) Submissions:- 4. Mr. Sinha, learned Counsel for the workmen has, inter alia, submitted that for the purpose of working out the ratio for purpose of disbursement of amount (i.e. disbursement ratio") amongst the workmen and the creditors, the dues of only those secured creditors who hold first charge can be taken into account and only after the payment of total claim of the workmen is completed and the claim of the first charge holder secured creditors is taken care of, the claim of the second charge holder secured creditors can be taken into ....
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....on and determination of the total claim amount which is considered eligible by the chartered accountant with reference to the workmen. It is contended that errors have crept in while considering the total number of workmen and their claims inasmuch as cases of some workmen have been considered for the entire period though they, reportedly, died before the date of closure or the date of winding up order and cases of even those workmen who would not fall within purview of the term workmen have also been taken into account and that certain items/heads (e.g. earned leave, leave encashment amount, other allowances) which could not have been taken into account for determining the eligible claim, have been included by the chartered accountant. It is also alleged that the date of joining and/or the date of superannuation in cases of certain workmen have not been properly examined in light of relevant documents i.e. birth certificate or such other authentic document. It is also alleged that cases of staff members drawing wages exceeding Rs. 2000/- have also been included as a result of which additional claim amount of Rs. 14,13,47,503/- is wrongly identified as eligible claim. It is also cl....
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.... secured creditors' objection that claims of senior programmer, senior engineer, marketing officer should have been excluded, learned counsel for official liquidator has submitted that the C.A's report make it clear that the claims have been considered on the basis of the wages drawn by the person and not his designation. Learned Counsel official liquidator has submitted that the objections raised by the secured creditors against the report by the chartered accountant are misconceived and unsustainable. With reference to the reports submitted by the two chartered accountants and the submissions by the secured creditors and workmen the learned Counsel for Official Liquidator has, in its affidavit, that:- "2. C.A. Kiran Shah has given several Reports but all of them are in parts and have not clearly show that secured creditors have not cooperated in giving relevant documents. The report is given on affidavit of proof and not actual documents comprising the proof of debt. His letter dated 20.8.2008 at page 200 shows that he required to re-examine ratio. Also see page 244 whereby mention regarding C.A.'s application before the High Court is made matter is still pending. 3. Before goi....
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....s appropriate to take into account Section 529, 529-A of Companies Act and section 47 of Provincial Insolvency Act. The said provisions read thus:- "529. Application of insolvency rules in winding up of insolvent companies. - (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to- (a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent: [Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,- (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied ratably for the discharge of workmen's dues; and (c) so much of th....
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....the winding up, under such contract with insurers as is mentioned in section 14 the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company; (iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company; (c) "workmen's portion", in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of- (i) the amount of workmen's dues; and (ii) the amounts of the debts due to the secured creditors. Illustration "..................... " 529A. Overriding preferential payment. - Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force in the winding up of a company- (a) workmen's dues; and (b) debts due to secured creditors to the ....
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....missions and objections by the workmen and the secured creditors the Court considered it appropriate to direct re-verification of claims by another chartered accountant. The said order dated 18.11.2008 has not been challenged by any one and it has been acted upon. 6.3 In the said order the Court inter alia observed and directed, in paragraph No. 7 and 8 of the order that:- "7. If we consider this report of the Chartered Accountant it becomes very obvious that the Chartered Accountant has not considered specific direction issued by this Court time and again nor he has considered the binding judgment of this Court in the case of Textile Labour Association v. Official Liquidator of Jubilee Mills Ltd., 2000 (4) GLR 2923, wherein this Court has observed that Sub-clause (i) of Section 529(3)(b) of the Act includes wages or salary payable to the workmen for the period of illegal closure and the fiction contained in sub-sec. (6) of Section 25-O of the I.D. Act is not limited to the workmen having a right to get wages for the period of illegal closure, but it also confers upon the workmen the right to get priority under Sections 529 and 529A of the Act in respect of their claim for unpaid....
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....go to show that after the order dated 27.9.2007 (i.e. the order on strength of which present application is preferred) certain other directions have been passed which have to be taken into account while making orders for further/final disbursement. Actually, in view of the directions passed by the Court vide order dated 18.11.2008 all previous reports submitted by the chartered accountant prior to 18.11.2008 will pale into insignificance. More particularly in light of the observations in paragraph No. 8 of the order dated 18.11.2008. Hence, any directions now cannot be passed only on the basis of or in light of order dated 27.9.2007 passed in application No.444 of 20007 and/or by overlooking the above referred two reports. 6.7 Actually in view of the nature and scope of the relief and direction prayed for in the summons which is registered as Company Application No. 264 of 2008, the application can be disposed of in view of the above referred order dated 18.11.2008 because as mentioned earlier now any order including order for interim or final disbursement cannot be passed merely on the basis of or in light of order dated 27.9.2007. However in view of the request and submissions m....
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....tioned record produced for verification. We have considered name of workers of whom the complete details are made available for verification. We have also taken into consideration the date of joining date, date of birth and date of death of workers and staff members for the preparation of fresh list of payable Claim Amount. The said list are attached herewith as per Annexure-A for workers (Sr. No.1 to 1120) and Annexure-B for staff members (Sr. No. 1 to 307). 2. We have also perused the order dated 18.11.2008 of Honourable Gujarat High Court and it is noticed. .......... 3. We have also perused the order dated 06.03.2007 of Honourable Gujarat High Court and it is noticed. .......... 4. On perusal of the records of the company it is noticed that the practice of the company to issue letter before one month to the concerned employee that he is attaining the age of sixty and will be retired on such and such date. Hence we have considered the age of retirement is sixty for the calculation of claim amount. We have verified the date of joining of each person. We have verified the date of retirement of each person. We have checked the date of death ....
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....orts. Merely on unsubstantiated allegations, the entire report cannot be set aside or ignored. 9. The secured creditors have also raised question about the total number of concerned/claimant workmen. Having regard to the allegations about some discrepancies which the respondents tried to demonstrate from the record, order dated 14.4.2011 was passed whereby the official liquidator was directed to place on record final list reflecting total numbers of concerned/claimant workmen and their names. In response to the said order the official liquidator has filed report dated 18.7.2011 to which the final list reflecting total number and names of the concerned/claimant workmen is attached. In view of the said order dated 14.7.2011 and subsequent order dated 25.7.2011 the said list is to be treated as final list reflecting total numbers and names of the concerned/claimant workmen. 10. The secured creditors have then alleged that the Chartered Accountant has committed error in considering and including the claim made by the staff members drawing Basic Wages exceeding Rs. 2000/-. 10.1 The allegation-contention runs counter to section 529(3)(a) of the Act inasmuch as the said provision only ....
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.... However on plain reading of said order dated 6.3.2007, it becomes clear that, that is not the purport of said order. In the order dated 6.3.2007 the Court, relying on the judgment in case of Official Liquidator of Jubilee Mills Ltd. (supra), observed and directed that:- "21. In view of the above finding, the Chartered Accountant is now required to reverify the claims of the workers. Thus, now the Chartered Accountant is required to consider the claims of all the workmen who are "workmen" within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/-, their claims are required to be considered for the purpose of making the payment under section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case). 10.6 In light of the said observation if the report dated 10.1.2009 by the chartered accountant and more particularly para 3 thereof is examined it becomes clear that the chartered accountant has taken care of the said observations by the Court in the order dated 6.3.2007. The sa....
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....e Court observed that:- "19.2 The controversy whether all the employees of the Company for whom the claims for priority are being made should be given the benefit of ad-hoc distributions from out of sale proceeds of the assets of the Company in liquidation was raised in a few applications filed by the Textile Labour Association earlier. In Company Application No. 159/96 in Company Petition No. 92 of 1993 in the matter of Aruna Mills Ltd. (in liquidation), a formula was evolved for the purpose of being followed in all textile mills where the Textile Labour Association appears as a representative union. As per the formula, the following 11 categories of the employees were excluded for the grant of benefit of ad-hoc distribution:- (i) Manager (ii) Factory Manager (iii) Secretary (iv) Spinning Master/Manager (v) Weaving Master/Manager (vi) Processing Master/Manager (vii) Printing Master/Manager (viii) Sales Manager (ix) Sales Executive (x) Doctor (xi) Administrative Officers and other Officers drawing the basic wages exceeding Rs. 2000/-. There can be no controversy for exclusion of the first 9 c....
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....nder the I.D. Act is always much larger than the number of employees working in a supervisory capacity and drawing salary in excess of Rs. 1600/- per month, it appears to the Court that in any case adoption of such a rough and ready formula will not significantly alter the ratio of workmen's dues and the dues of the secured creditors." 10.9 It can be noticed from the above quoted observations that the said observations have been made having regard to the pattern of employment and the nomenclature/designations in textile industry in Ahmedabad whereas the company in liquidation was an engineering undertaking where similar nomenclature/designation may not have relevance or applicability inasmuch as in an engineering undertaking the pattern and employment and the nomenclature/designations would be differed and there would not be person employed in the category or on the post of spinning manager or weaving master etc. 10.10 Another aspect which would emerge from the said observation is about the common factor between the first 8 out of the total 11 categories mentioned by the Court. The said categories exclude only head of each department i.e. head of the factory, head of spinning dep....
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....ic wages not exceeding Rs. 2000/- can be said to be a "workman" for the purpose of considering their claims while making the payment under section 529A of the Act. This Court in the said decision has never held that a "workman" drawing basic wages exceeding Rs. 2000/- will not be entitled to any payment towards their dues while making the payment under section 529A of the Act. On the contrary, on fair reading of the decision in Jubilee Mills case, it appears that in fact this Court has widened the scope in respect of the employees i.e. administrative officers and other officers and has directed that all employees i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/- are required to be considered as "workmen" while making the payment under section 529A of the Act and their claims are required to be included and this Court has further observed that while considering the scope of "expression workmen", the employees i.e. administrative officers and the other officers drawing basic wages exceeding Rs. 2000/- are to be excluded. Under the circumstances and on fair reading of the decision in Jubilee Mills case, the submissions on behalf of the secure....
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....aims of all the workmen who are "workmen" within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/-, their claims are required to be considered for the purpose of making the payment under section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case)." [Emphasis Supplied] 10.13 Thus as per the order dated 6.3.2007 the claims of all persons who are "workmen" within meaning of ID Act, irrespective of any wage limit, are to be considered and claims only of administrative officers and other officers drawing basic wage not exceeding Rs. 2000/- are to be excluded. The said order does not direct that all persons drawing salary more than Rs. 2000/- are to be excluded. The order merely directs that claims of "administrative officer" and "other officers" drawing basic wage not exceeding Rs. 2000/- has to be excluded. 10.14 The order does not exclude the persons employed to do skilled, technical, operational work i.e. it does not refer to engineers and other technical persons. The....
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.... in grey area. The possibility that the persons employed in said category might be employed in supervisory category cannot be ruled out. Since as per the decision of Jubilee Mills further inquiry by official liquidator/chartered accountant is not contemplated and at this stage of proceedings it would not be possible either, having regard to the fact that the said positions are senior positions, it would not be improper to exclude persons engaged in said category and to accept the objection. Hence the objection qua the persons employed as senior engineer and senior programmer and senior engineer (project) is accepted. If claim of any person employed on the said post or in the said category is included by Chartered Accountant in the verified and eligible claim then it will have to be excluded/taken out after examining the record (e.g. wage register and/or wage slip) and any secured creditor or even any other workmen/staff member may, within two weeks, may submit objection against inclusion of claim of any particular persons being member of staff and drawing Basic Wage of more than prescribed limit and also employed as administrative officer or senior programmer or senior engineer (pr....
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....ne the matter and to give appropriate report. Similarly, even on the claim of the secured creditors, it will be for the concerned secured creditors to produce the proof of debts for prima facie examination by the Chartered Accountant and it will be for the concerned Chartered Accountant to finalize the figures of the outstanding amount of the secured creditors. In my view, such exercise can be completed at later stage. However, as the huge fund is available and no disbursement has taken place after the last disbursement of Rs. 4 crore, substantial amount can be made available for disbursement on adhoc basis. Keeping in view the alleged claim by the workers' Union and the secured creditors, I find that the amount of Rs. 35 crore may be disbursed on the ratio of 50:50 amongst secured creditors and the workers. The remaining amount may be invested by the OL in a nationalized Bank until the final report, which may be submitted by the Chartered Accountant after verification of the workers' claim as well as the proof of debts of the secured creditors." Thereafter, while directing interim/ad-hoc disbursement the Court also observed in para 14 of the said order that:- "14. The OL shall r....
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....usted to that Chartered Accountant either for verification or for any other work of the Official Liquidator." [Emphasis Supplied] 11.5 Thus, conjoint reading of the order dated 27.9.2007 (in COMA 444 of 2007) and 18.11.2008 (in COMA 584 of 2008) gives out that the report dated 12.8.2007 was not approved and accepted by the Court and the Court had to direct reverification of claims. Thus, the said report or the quantification therein cannot be said to be fit for comparison or for other purpose. Also it cannot be overlooked that the parties had objections against the said report as well. 11.6 In this view of the matter the objection by the secured creditors against the determination - quantification made by the chartered accountant vide report dated 10.1.2009 and 17.1.2009 by merely comparing the said reports with the report dated 12.8.2007 is not justified and cannot be accepted more particularly because the secured creditors have not supported and substantiated their allegations with help of any independent relevant and cogent documents. 12. Now, so far as the secured creditors' objection against the quantification of workmen's claim and the components included in "wage" and tot....
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....r the time being in force; (c) any gratuity payable on the termination of his service;" According to the definition, the term "Wages" includes "dearness allowance" without only distinction. Thus, both categories of D.A. i.e. variable and Fixed D.A. is included. 12.3 The definition includes, within the said term, all remuneration which would be payable to a workmen in respect of his employment or work done in such employment and includes such allowances including dearness allowance as the workmen would be entitled to. Furthermore, in view of Section 529(3)(b)(i) even the payment as "compensation" is also includible. Therefore the Chartered Accountant is justified in including VDA and FDA for the entire period until the date of winding up. 12.4 The secured creditors have failed to establish from the record that the rate of Basic Wage and VDA/FDA taken into account by Chartered Accountant is more than the rate of VDA/ FDA which was prevailing and applicable at the relevant time. Actually the report is assailed only by comparing it with the previous report dated 12.8.2007. 12.5 While making such allegation the secured creditors have not cited any particular instance and they....
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.... Accountant has clarified that: "With regard to verification and calculations of claim amount payable, We have relied on followings: 6. Salary Slips for the month of April-1997 7. Date of Birth 8. Date of Joining 9. Leave Records 10. Death Certificate (In the cases of persons who are expired) Note: Wages/salary for the month of May 1997 was disbursed to Workers/Staff members on ad-hoc Basis. Hence, we have taken base for the month of April 1997. (B) GENERAL 1. We have checked the list of workers and staff members with the abovementioned record produced for verification. We have considered name of workers of whom the complete details are made available for verification. We have also taken into consideration the date of joining date, date of birth and date of death of workers and staff members for the preparation of fresh list of payable Claim Amount. The said list are attached herewith as per Annexure-A for workers (Sr. No. 1 to 1120) and Annexure-B for staff members (Sr. No. 1 to 307)." 12.10 From the said explanation and clarification it becomes clear that the chartered accountant has taken into account wage (basic wage, VDA and FDA) of the concerned workman by referring....
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....s examined in light of the abvoementioned facts and material and in light of the discussion in case of Official Liquidator of Jubilee Mills Ltd. (supra) and the provisions under section 529(3)(b)(i) of the Act and section 2(s) of the Act of 1947, it appears that the determination/quantification is based on the details derived and gathered from relevant record and it is in consonance with applicable provisions and discussion in case of Official Liquidator of Jubilee Mills Ltd. (supra). 12.14 When the chartered accountant has clearly mentioned which details and material have been taken into account the secured creditors cannot expect that their allegations, which are unsubstantiated and any material has not been placed on record to controvert and disprove or dislodge the details mentioned by the chartered accountant, may be entertained. The report and the working by the chartered accountant cannot be faulted only on the basis that the report dated 12.8.2007 reflects different amount/figure as basic wage and it cannot be claimed, much less established and justified, that the details mentioned and considered in the report dated 10.1.2009 are incorrect (or that the details mentioned in....
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.... have verified the date of joining of each person. We have verified the date of retirement of each person. We have checked the date of death with the Death Certificate where ever it is applicable. Accordingly the amount of Gratuity in the case of workers Rs. 6,43,28,373/- as per Annexure A and Rs. 3,14,75,891/- in the case of staff members as per Annexure B. Total amount of Gratuity of comes to Rs. 9,58,04,264/-". 13.2 From the report dated 10.1.2009 it transpires that the chartered accountant has calculated the amount payable towards gratuity until the date of order of winding up in case of the workmen who had not expired and/or retired before the date of order of winding up and in case of the workmen who had either expired or retired before the date of order of winding up, the amount payable towards gratuity has been restricted until the date of death or retirement and for the said purpose the chartered accountant has, as expressly clarified in the report, relied on the record of the company/birth certificate or death certificate (in cases where applicable). Any material to prove contrary is not placed on record and/or calculation in case of any workmen is not shown to be inco....
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....A of the Act, it cannot be said that the same priority will be available to the wages in lieu of unclaimed privilege leave during the period of illegal closure. The fiction that during the period of illegal closure the workmen had rendered services to the Company cannot be extended to mean that during the period of illegal closure the Company is not only deemed to have been carrying on its business operations but also that the workmen must be deemed to have not availed of the privilege leave or that the employer must be deemed to have refused to grant the privilege leave. Suppose privilege leave available to a workman is one month's leave in a year and the undertaking remained illegally closed for one full year. Did the Legislature intend that the workmen's dues should be given priority not only for the unpaid wages for the period of 12 months of illegal closure, but also that even though actually the workmen could not render services on account of illegal closure, the workmen should be paid the 13th month's wages by way of wages in lieu of unclaimed privilege leave ? The answer must be in the negative. While the priority for 12 month's wages is in view of legislative fiction conta....
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....ing the amount of workmen's claim for preferential disbursement under Section 529-A of the Act. 14.4 Hence, at this stage, the claim in the sum of Rs. 2,25,02,748/- which is included by Chartered Accountant will have to be taken out. The Chartered Accountant is directed to make necessary correction, within two weeks, in the report dated 10.1.2009. 14.5 There is, however, an addendum to this issue. As another limb of this objection it is also claimed by the creditors that the quantification includes claim for leave encashment and since it is allowed, the report is incorrect. On this count it is necessary to take into account the below mentioned observation in the decision in case of Jubilee Mills:- "The Court would, of course, hasten to add that if under a contract of employment or any statutory provision the workman is entitled to get wages in lieu of unavailed/refused privilege leave during the period when the Company was carrying on its manufacturing or business activities (i.e. for the period prior to the date of closure), the claim for such pre-closure unclaimed/refused privilege leave would fall within the definition of workmen's dues under Section 529(3)(b)(ii) for the pur....
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.... the secured creditors and the said report dated 17.2.2009 and the determination made by the Chartered Accountant are based on such material/documents and the order/s by the learned Tribunal. 15.3 So far as the claim of respondent No.7 for trusteeship fees is concerned, it is relevant to note that from the observations by the chartered accountant in the report dated 17.2.2009, it appears that the said claim is covered under the learned Tribunal's order dated 7.1.2009 in Application No. 40 of 2003 and since the chartered accountant has determined total claim of respondent No. 7 after taking into account the said order by learned tribunal the said claim is not sustainable. In this context it is relevant to mention that on perusal of the said report dated 17.2.2009 it transpires that while considering the claim by the secured creditors including respondent No. 7 ICICI Bank the chartered accountant has taken into account and relied on the order passed by the learned tribunal and the effect of the amount allowed by the learned tribunal has been given by the chartered accountant while determining the total debt/claim of the secured creditors whose claims have been considered in the said....
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....payment of interest." It follows from the above-quoted observations that the relevant date for the purpose of determination of the ratio as well as for the purpose of preferential payment is the date of the order of winding up and appointment of provisional liquidator. 15.5 Hence, so far as the claim for interest component of respondent No. 7 (any other respondent has not made such claim) is concerned, the said claim could be considered as on the relevant date. The report dated 17.2.2009 gives out that the Chartered Accountant has calculated the secured creditors' claim for interest component as on the relevant date and that, therefore, the said decision, to the said extent, cannot be faulted. However the dispute is about the rate. Now, so far as the grievance about the rate of interest allowed by the Chartered Accountant is concerned, it is relevant to note that from the material available on record and particularly the report of the Chartered Accountant, it appears that the eligible claim amount of respondent No. 7 is adjudicated and determined by the learned Tribunal and the Chartered Accountant has relied on and taken into account the order passed by the learned Tribunal with....
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....ent bank and if it it not included by the chartered accountant at the time of determining debt of respondent bank then the said amount shall have to be included. (VII) Objections by the workmen: Now, the objection by workmen against the debt/claim of secured creditors may be considered. 16. So far as the workmen's objection to the effect that dues of only those secured creditors who hold first charge can be taken into account and only after the payment of total claim of the workmen and the claim of the first charge holder secured creditors is taken care of, the claim of second charge holder secured creditors can be taken into account and while determining the disbursement ratio the amount claimed by the secured creditors holding second charge should be excluded is concerned, it is necessary to take into account the provision under Section 529 and Section 529A of the Act. 16.1 Section 529A of the Act confers preference and priority in matter of disbursement of the proceeds received from sale of properties of company and it further provides that the debts payable to the workmen and secured creditors (to the extent such debts rank under clause (c) of proviso to subsection (1) of s....
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....ors". 16.7 So far as creditors are concerned the Act and particularly the provisions related to winding up of limited company, recognize and contemplate two class of creditors viz. secured creditors and unsecured creditors and the said provisions do not distinguish the secured creditors by identifying or categorizing them on the basis of the nature/category of charge against security held by them i.e. in further sub division or further classification such as secured creditors holding first charge and secured creditors holding second charge. 16.8 The illustration under section 529(3)(c) indicates and explains in effective manner that the aggregate of "entire debt" of "all secured creditors" and the aggregate of "entire debt" of "all workmen" has to be taken into account. The provision does not differentiate between the nature or category of the charge held by the secured creditor. Merely on account of the nature or category of charge held by it a secured creditor does not lose his status and identity as a secured creditor i.e. it does not cease to be a secured creditor, so long as the requirements and condition prescribed under Section 125 of the Act are complied. The said content....
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.... view that simply because the secured creditors participate in the sale proceedings undertaken by the Court and they also became the members of the Sale Committee constituted pursuant to the directions issued by the Court does not mean that they have exercised their option of remaining outside the winding up and they have relinquished their security. As a matter of fact, relinquishment of security by the secured creditors require a positive action on the part of the secured creditors. They have never stated in any of the proceedings that they are relinquishing their securities. On the contrary, they have made it clear that they remain outside the winding up and they participate in the sale proceeds only with a view to facilitate the sale proceeds so as to get the auction proceedings completed as expeditiously as possible. There is also substance in the say of the secured creditors that as soon as the assets of the companies are sold and realization is taken place, their securities are converted from the specified assets into cash and they have equal right in cash which is realized on sale of the assets of the Company in liquidation. In the above view of the matter, the ratio betwee....
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....into consideration by this Court while deciding the case of IDBI v. Official Liquidator of M/s. Rustom Mills & Industries Limited and others, and secondly, in that case, it was not the issue whether the dues of the secured creditor having second charge should be taken into consideration. While dealing with the said decision, the Court has held that even if distribution takes place after considering the claim of the secured creditors having second charge, the rights of the secured creditors may have to be considered by the appropriate forum as per the provisions of the Transfer of Property Act. The Court has specifically held that in any event, there is no dispute brought to the notice of this Court against the inter-se secured creditors and further, the workmen would not be entitled to additional amount on the basis of the claim of the secured creditors having second charge be excluded. The Court, therefore, clearly held that the said decision should not help either the Official Liquidator or to the Textile Labour Association. 16. This very issue was dealt with by the Delhi High Court and after elaborate discussion, the Delhi High Court has taken the view that there is no question....
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....provisions of the Transfer of Property Act, must be deemed to have been known to the Parliament. Thus, while enacting the Companies Act, the Parliament cannot be held to have intended to deprive the first charge holder of the said right. Such a valuable right, therefore, must be held to have been kept preserved. [See Workmen of M/s. Firestone Tyre and Rubber Co. of India (P.) Ltd. v. Management and Ors. [1973] 1 SCC 813]. 43. If Parliament while amending the provisions of the Companies Act intended to take away such a valuable right of the first charge holder, we see no reason why it could not have stated so explicitly. Deprivation of legal right existing in favour of a person cannot be presumed in construing the statute. It is in fact the other way round and thus, a contrary presumption shall have to be raised. 44. Section 529(1)(c) of the Companies Act speaks about the respective rights of the secured creditors which would mean the respective rights of secured creditors vis-a-vis unsecured creditors. It does not envisage respective rights amongst the secured creditors. Merely because Section 529 does not specifically provide for the rights of priorities over the mortgaged asset....
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....er-ridden by Section 529A of the Companies Act. (c) Whether the Appellant can be said to have relinquished his right to claim as a secured creditor as it had not opted in terms of Section 47 of the Provincial Insolvency Act. 26. For those who desire to go before the Company Court for dividend by relinquishing their security, in accordance with the Insolvency Rules, Section 529 of the Companies Act would be attracted. 27. The relevant portion of Section 47 of the Provincial Insolvency Act reads as under : "47. Secured creditors.-(1) Where a secured creditor realises his security, he may prove for the balance due to him; after deducting the net amount realized. (2) Where a secured creditor relinquishes his security for the general benefit of the creditors, he may prove for his whole debt. (3) Where a secured creditor does not either realise or relinquish his security, he shall, before being entitled to have his debt entered in the Schedule, state in his proof the particulars of his security and the value at which he assesses it and shall be entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed. &....
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....way such a valuable right of the first charge holder, we see no reason why it could not have stated so explicitly. Deprivation of legal right existing in favour of a person cannot be presumed in construing the statute. It is in fact the other way round and thus, a contrary presumption shall have to be raised. 44. Section 529(1)(c) of the Companies Act speaks about the respective rights of the secured creditors which would mean the respective rights of secured creditors vis-a-vis unsecured creditors. It does not envisage respective rights amongst the secured creditors. Merely because Section 529 does not specifically provide for the rights of priorities over the mortgaged assets, that, in our opinion, would not mean that the provisions of Section 48 of the Transfer of Property Act in relation to a company, which has undergone liquidation, shall stand obliterated. 45. If we were to accept that inter se priority of secured creditors gets obliterated by merely responding to a public notice wherein it is specifically stated that on his failure to do so, he will be excluded from the benefits of the Dividends that may be distributed by the Official Liquidator, the same would lead to dep....
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....is not available as far as the SFC Act is concerned, since Section 529-A was introduced by Act 35 of 1985 and the overriding provision therein would prevail over the SFC Act of 1951 as amended in 1956 and notwithstanding Section 46-B of the SFC Act. As regards distribution of assets, there is no conflict. It seems to us that whether the assets are realized by a secured creditor even if it be by proceeding under the SFC Act or under the Recovery of Debts Act, the distribution of the assets could only be in terms of Section 529-A of the Act and by recognizing the right of the liquidator to calculate the workmen's dues and collect it for distribution among them pari passu with the secured creditors. The Official Liquidator representing a ranked secured creditor working under the control of the company Court cannot, therefore, be kept out of the process." Thus, the provisions under section 529-A(1)(b) of the Act recognizes the class of the secured creditors who opt to stand outside the winding up to realise their security. The Apex Court has observed that such secured creditors also can, in certain circumstances, go before the Company Court. 16.17 On behalf of the workmen it is also ....
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....served that the secured creditors fall under two categories viz. (i) those who desire to go before the Company Court; and (ii) those who like to stand outside the winding up. From the said observations by the Apex Court it follows that the option of standing outside the winding up is not a prohibited or impermissible option. In paragraph No.62 to 64 and 67 of the said decision the Hon'ble Apex Court has observed thus:- "62. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in section 529. The insolvency rules are those contained in sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in section 529(2). Till today, the Canara Bank has not made it clear whether it wants to come under this category. 63. The se....
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....teably" against each secured creditor. To that extent, the secured creditor - who has stood outside the winding up and who has lost a part of the monies otherwise covered by security - can come before the Tribunal to reimburse himself from out of other monies available in the Tribunal, claiming priority over all creditors, by virtue of section 529A(1)(b)." 16.20 The said observations by the Apex Court, particularly the observations in paragraph No.67 where the apex court has observed that the secured creditors who stood outside the winding up and lost a part of the monies otherwise covered by security can claim to be reimbursed from out of other monies available while claiming priority over all creditors, by virtue of section 529 -A (1)(b) leave no room to entertain the said objection of the workmen. The observation in paragraph No.63 of the said decision, particularly the observation "These secured creditors in certain circumstances can come before the Company Court (here the Tribunal) and claim priority over all other creditors for release of amounts out of the other monies lying in the Company Court (here, the Tribunal). This limited priority is declared in section 529A(1) but ....
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....hat the right of secured creditors to claim payment on priority/preferential basis under Section 529A is not lost and cannot be denied on the ground that the secured creditor has not relinquished the security or has stood outside the winding up. 16.23 It follows from the observations by the Apex Court and it emerges from the reading of the provisions under section 529 and 529A of the Act with section 47 of the Provincial Insolvency Act that the said provisions do not admit the contention or interpretation that without opting in terms of section 47 of Provincial Insolvency Act or while standing outside the winding up the secured creditors cannot lodge their claim for payment under Section 529A of the Act. The said objection is not sustainable and deserves to be rejected. 17. In view of the foregoing discussion and in light of the above quoted observations by the Hon'ble Apex Court the said contention of the workmen deserves to be rejected and is accordingly rejected. The claim/debt of the secured creditors holding second charge is not to be excluded at the time of determining the distribution ratio for the purpose of distribution/payment between the secured creditors and the workm....
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....ussion and for the aforesaid reasons the objection by the secured creditors against the report dated 10.1.2009 and 17.2.2009 are not accepted except with regard to (i) the objection against inclusion of the workmen's claim towards privilege/earned leave and (ii) the inclusion of claim, if any, of persons employed in the categories of/employed as Senior Engineer, Senior Programmer, Senior Engineer (project) and Senior Officer, subject to production of proof in support of the complaint. The official liquidator shall consider such cases and get them verified by chartered accountant within period of two weeks from receipt of such details. 20.1 So far as the secured creditor's claim (claim of respondent No.7) that the Official Liquidator/Chartered Accountant should have included the claim for liquidated damages, trusteeship fees and penal/compound interest while determining the admissible claim for purpose of section 529-A, is concerned, the said claim is also not accepted. 20.2 It is clarified that two weeks time is granted to the secured creditors and the workmen to submit the details with supporting documents, to point out case of particular workmen, if any, in whose cases any erro....