TaxTMI 
TaxTMI 
2013 (1) TMI 226
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....7 and allied matters and further be pleased to make 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 Ho....
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....om the date of receipt of the copy of the order. The copy of the oral 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....
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....e shall be required to be disbursed to the workers. The mode of the disbursement 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 dis....
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.... 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). 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....
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....or should refer the documents which may be submitted by secured creditors and the workmen and forward all 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....
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....13 After the submission of the said reports the said Chartered Accountant also submitted another report dated 14.3.2009 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....
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.... 1.1.1985 of 47 workers. Though as per salary slips joining date is 1.4.1990. In our report we have considered joining date is 1.4.1985 only for the calculation of gratuity and retrenchment compensation. 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....
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.... 47.69 110,87,67,038/- 100.00 A copy of the letter dated 13.11.2009 along with annexure-A to the said letter of the chartered accountants is annexed and marked as annexure-H." 2.17 It is also relevant and necessary to mention that on various occasions controversy about 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 presenc....
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....orkmen would claim that the amounts/items which ought not have been and could not have been taken into consideration while considering and calculating the claims of the secured creditors, have been considered and included which has adversely affected the claim of the workmen and more importantly it has affected the quantum 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 an....
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....ecured creditors are concerned, in view of one of the orders passed during hearing of the application, all secured creditors have raised/submitted common points of objections as summary of the objections mentioned in their respective affidavits. The learned Counsel appearing for the secured creditors have disputed the calculation 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 prop....
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....ce to the secured creditors objections as regards calculation of gratuity, learned Counsel for official liquidator has submitted that the said calculation is in accordance with the decision in case of Official Liquidator of Jubilee Mills Ltd. (supra) particularly the observations in para 16.3 of said decision. With reference to the 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 givi....
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.... 152 of 2008] (6) Gujarat Steel Tubes Employees Union v. Official Liquidator, Gujarat Steel Tubes Ltd. [2006] 70 SCL 407 (Guj.) (7) Official Liquidator of Raipur Mfg. Co. Ltd. v. ICICI Bank Ltd. [OLR No. 138 of 2006 in Company Application No. 475 of 2006] (V) Relevant Provisions:- 5. Before taking up the submissions for consideration, it is 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 secure....
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....neration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution; (iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of 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 amo....
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....he order for winding up of the company (i.e. 27.12.2001) came to be passed. 6.2 Amongst various orders the orders dated 6.3.2007 and 27.9.2007 were also passed by the Court. After the order dated 27.9.2007 another order dated 18.11.2008 has been passed which directed the Official Liquidator to appoint another Chartered Accountant and to call for fresh report from said another Chartered Accountant because in view of submissions 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-c....
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....s which have been submitted pursuant to and as per the order dated 18.11.2008 are i.e. the reports dated 10.1.2009 and 17.2.2009 (and subsequent clarificatory reports) are relevant and will provide the base for disbursement, but of course after examining the said reports as against the objections raised by the parties. 6.6 The above mentioned details related to the factual aspects and developments which took place after 27.9.2007 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....
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....e month of April-1997 2. Date of Birth 3. Date of Joining 4. Leave Records 5. 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). 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.&n....
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....kmen have been calculated, are incorrect. 8.3 Unless contrary is proved by the secured creditors with aid of relevant document (e.g. unless it is proved in case of particular workman that the birth date mentioned in birth certificate is different from the DoB accepted by chartered Accountant or that certain other workman was dead before the date accepted in his case as his date of retirement), there is no reason to disbelieve the details and clarifications stated in the reports. 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 ....
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....he Act. 10.4 Therefore the submission that all those persons who were drawing Basic wages exceeding Rs. 2000/- should have been excluded, without having regard to the issue as to whether they were employed "mainly" in managerial or administrative capacity or were employed in supervisory capacity with wages exceeding prescribed limit, or not is not in consonance with the relevant provision. 10.5 The secured creditors would claim that the submission is made in light of the order dated 6.3.2007. 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 a....
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....related to staff members is concerned, it is relevant to take into account the observations and directions made by the Court in the judgment in the case of Official Liquidator Jubilee Mills Ltd. (supra). In the decision in case of Official Liquidator Jubilee Mills Ltd. (supra) this Court, while considering the pattern and practice of employment and designation/nomenclature in textile industry in Ahmedabad adopted the formula which was evolved in [company petition No.92 of 1993 in case of Aruna Mills Ltd.] and the 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 e....
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....working out the dues of workmen running into thousands of employees in each textile mill under liquidation and a large number of textile mills being in liquidation, the process of determining the ratio and ultimate distribution of sale proceeds will be delayed if the Official Liquidator is required to undertake inquiries into the nature of duties and functions of a number of individual employees drawing salary exceeding Rs. 1600/ per month. Looking to the fact that the number of employees admittedly falling within the definition of workmen under 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/designati....
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.... and to treat them as "workmen" without holding any inquiry to avoid delay to be caused while undertaking the inquiries into the nature of duties and functions of number of individual employees drawing salary exceeding Rs. 1600/- per month and in background of the same, this Court has held that even with regard to the category (xi) i.e. administrative officers and other officers drawing basic wages exceeding Rs. 2000/-, without undertaking any inquiry into the nature of duties and functions of the administrative officers and other officers drawing basic 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 of....
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....of all "workmen" within the meaning of ID Act, irrespective of any wage limit are required to be considered while making the payment under section 529A of the Act. Meaning thereby, any workman within the meaning of ID Act drawing basic salary exceeding Rs. 2000/- will also be entitled to the payment pari passu along with other secured creditors as per section 529A of the Act. 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)." [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 ....
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....hin the meaning of I.D. Act are to be considered irrespective of wage limit. Even otherwise, in light of the foregoing discussion, the decision of Chartered Accountant not excluding persons employed in the said categories i.e. engineer (finishing) and engineer (Q.A.) cannot be faulted. 10.18 However the grievance of the secured creditors as regards head of department and/or supervisor Senior Officer, drawing "Basic Wage" in excess of Rs. 2000/- appears justified. The case of persons employed as senior engineer and senior programmer and senior engineer (project) is 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....
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....n is made, the workers' dues would approximately come to Rs. 58 crore." From the said observations it becomes clear that while passing the said order the Court had taken into account the report dated 12.8.2007 as well as the court's order dated 6.3.2007. In the same order dated 27.9.2007 the Court further observed that:- "11. Ultimately, it will be for the OL to refer the matter to the Chartered Accountant for reverification in light of the contents of the application being Company Application No. 444 of 2007 and it will be for the concerned Chartered Accountant to reexamine 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.....
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.... the Chartered Accountant's report is not at all reliable and on the basis of that report the claim of the workers cannot be denied nor the adhoc disbursement which was ordered earlier more or less on consensus cannot be flouted by any secured creditor............. Since repeated directions are issued and Chartered Accountant has not examined the claim the Official Liquidator is directed to refer this matter for re-verification to other Chartered Accountant and when the concerned Chartered Accountant has developed the tendency of ignoring the direction of this Court no work should be entrusted 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 I....
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....ch allowances (including dearness allowance) as the workman is, for the time being, entitled to; (ii) the value of any house accommodation, or of supply of light, water, medical attendance or other amenity, or of any service or of any concessional supply of foodgrains or other articles; (iii) any travelling concession; (iv) any commission payable on the promotion of sales or business or both; but does not include - (a) any bonus; (b) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the workman under any law for 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)(....
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....ave been examined and relied on and on the other hand the secured creditors have instead of demonstrating the alleged error with help of document reflecting the basic wage and the rate of VDA/FDA prevailing and applicable at the relevant time merely relied on the comparison with (the amounts mentioned in) previous report dated 12.8.2007. 12.9 Similar is the position as regards the allegation with reference to Basic Wage. The Chartered Accountant has explained that (a) the wages paid for the month of April 1997 have been taken into account; and (b) for that purpose the wage slips for April 1997 are taken into account. The Chartered 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 abov....
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.... has given effect to it then such action cannot be faulted. 12.12 With reference to the objection regarding quantification of claim for wages (Basic + VDA and increments) it would be appropriate to take into account the observations made by the Court in the decision in case of Official Liquidator of Jubilee Mills Ltd. (supra) wherein it is observed that:- "11.9 The inescapable conclusion is that the expression all wages or salary. ..... in respect of services rendered to the company in Sec. 529(3)(b)(i) of the Companies Act includes all wages of salary payable by the Company to the workmen for the period of all illegal closure." 12.13 When the report is 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 ha....
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....hus:- "C. GRATUITY Gratuity has been calculated as per section 4(2) of the Payment of Gratuity Act, 1972. Gratuity shall be payable to an employee on employee on the termination of his employment after he has rendered continuous service for not less than five years. For every completed year of service or part thereof in excess of Six months, the employer shall pay gratuity to an employee at rate of 15 days wages/salary last drawn by the employee concerned. Workers/Staff members who have completed five years of service are eligible for gratuity for a period from the date of joining to the date of liquidation/retirement age or date of death whichever is applicable. 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 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 calcu....
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....e observations by the Court in case of Official Liquidator of Jubilee Mills Ltd. (supra) wherein the Court has observed, inter alia, that:- "14.4 However, in the aforesaid decision, this court does not appear to have been concerned with the question whether unclaimed privilege leave would be admissible for the period of closure also. In this case we are not directly concerned with legal closure i.e. closure for which permission or deemed permission is obtained under sub-section (2) or (3) of Section 25-O of the I.D. Act. However, as far as the period of illegal closure is concerned, while the unpaid wages of the workmen would certainly be entitled to priority under Sections 529 and 529A 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 tha....
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....he period from the date of closure until the date of order of winding up which is quantified/assessed to the extent of Rs. 2,25,02,748/- and is admitted for preferential payment under Section 529A of the Act. According to the said decision, there cannot be any fiction or assumption that the workmen would not have availed the privilege leave or that the employer would have refused to grant privilege leave, thus such claim cannot be acknowledged and admitted for overriding priority (and preferential payment) which is granted to the workmen's dues under Section 529A. In this view of the matter, the Chartered Accountant could and should not have entertained such claim in present case while determining 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 quantificat....
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.... determined. In the said report, the Chartered Accountant has also suggested the "disbursement ratio" for the purpose of disbursement of the dividend amongst secured creditors and the workmen by way of preferential payment under section 529-A of the Act. On perusal of the said report dated 17.2.2009, it comes out that besides the relevant material/documents e.g. the certificate by Registrar of Companies and other documents required to establish that the charge created by the company was registered in accordance with section 125 of the Ac, the Chartered Accountant has also taken into account the order/s, in the cases where it was made available, passed by the Debts Recovery Tribunal, for verifying the claims of 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 App....
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.... date of winding up order either on the dues of the secured creditors or on the dues of the workmen. The question of payment of interest thereon after the relevant date would arise only if there is surplus. 20.2 As far as charging interest prior to the relevant date (generally, the date of winding up order) is concerned, the debts will carry interest only as per the terms of the contract. In the facts of the instant case, no contract or statutory provision is brought to the notice of this Court on the basis of which the workmen will be entitled to claim interest which can be considered for the payment of priority u/s 529, 529A and 530 of the Act, whereas secured creditors have relied upon the contracts providing for 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.....
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....that therefore the said claim cannot be entertained at the stage when the disbursement is to be made according to and under the provisions under Section 529A read with section 529 of the Act. 15.8 On behalf of the Bank of Baroda it is submitted that during the pendency of the proceedings the respondent Bank had paid, on behalf of the official liquidator a sum of Rs. 50,000/- towards expenses on the understanding that the said amount will be reimbursed by official liquidator at the time of payment of its debts under Section 529A of the Act, however, the chartered accountant has not taken into account the said debts. The official liquidator has, therefore, directed to verify the said aspect and if such payment is made by respondent 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 pay....
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....d creditors who hold first charge. The phrase "secured creditor" is preceded by the word "every" and it is not qualified by the words "who hold first charge". If the contentions on behalf of the workmen were to be accepted then it would amount to reading something additional into the said section which is neither provided nor intended by legislature. 16.6 The scheme under the Act, particularly provisions under sections 529, 529A, 530 and section 125, makes it abundantly clear that for the purpose of said sections all secured creditors are clubbed together and they form one common class without any inter-se distinction and irrespective of the nature or category of charge held by each one of them, fall within one common class viz. "secured creditors". 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 ....
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.... Transfer of Property Act. 16.12 At this stage it is relevant to note that so far as the said objection is concerned, while considering and deciding company application no. 362 of 2004 with other connected/allied applications, the Court has already considered and dealt with the said contention/objection on behalf of the workmen in the order dated 9.1.2006 and the Court has observed that:- "29. Considering the above referred legal position, the Court is of the view that the claim made by the Unions in these applications with regard to their exclusive right of satisfaction of their claim out of the sale proceeds of the assets of the Company in liquidation in priority of all other creditor secured as well as unsecured is not tenable. The Court is also of the 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 req....
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....the effect that the secured creditors for the purpose of distribution can be considered for only those who are secured creditors for the first charge and secured creditors having second charge or having charge other than first charge are required to be included for the purpose of giving effect to charge as per Section 529 read with Section 529-A of the Companies Act, 1956, this Court has held that the said contention deserves to be rejected because the language is "every secured creditors" and not "the secured creditor having first charge". Reliance placed on the decision of the Hon'ble Supreme Court in the case of ICICI Bank Limited (Supra) by Mr. Yadav, does not lead the case of the Official Liquidator any further. Firstly, the said decision has already been taken 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 secu....
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....y. Right to property is a constitutional right. Right to recover the money lent by enforcing a mortgage would also be a right to enforce an interest in the property. The provisions of the Transfer of Property Act provide for different types of charges. In terms of Section 48 of the Transfer of Property Act claim of the first charge holder shall prevail over the claim of the second charge holder and in a given case where the debts due to both, the first charge holder and the second charge holder, are to be realized from the property belonging to the mortgagor, the first charge holder will have to be repaid first. There is no dispute as regards the said legal position. 42. Such a valuable right, having regard to the legal position as obtaining in common law as also under the 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]....
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....sufficient to meet them and if they are not sufficient, in equal proportions." 16.16 The question as to whether the inter-se rights are lost or obliterated for the purpose of considering priority or for the purpose of disbursement amongst them (i.e. the secured creditors holding first charge and second charge) has been considered by the Hon'ble Apex Court in the case of SIDCO Leathers Ltd. (supra). The following observations by the Hon'ble Apex Court in the said decision are relevant:- "20. The questions therefor which arise for our consideration are : (a) Whether significance is lost in respect of inter se right of priority between two sets of secured creditors in view of Section 529A of the Companies Act? (b) Whether Section 48 of the Transfer of Property Act stands over-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 ....
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....nd the second charge holder, are to be realized from the property belonging to the mortgagor, the first charge holder will have to be repaid first. There is no dispute as regards the said legal position. 42. Such a valuable right, having regard to the legal position as obtaining in common law as also under the 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....
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.... recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529-A of that Act in a case where the debtor is a company-in-liquidation. As far as we can see, there is no conflict on the question of the applicability of Section 529-A read with Section 529 of the Companies Act to cases where the debtor is a company and is in liquidation. The conflict, if any, is in the view that the Debts Recovery Tribunal could sell the properties of the Company in terms of the Recovery of Debts Act. This view was taken in Allahabad Bank v. Canara Bank and Anr. (supra) in view of Recovery of Debts Act being a subsequent legislation and being a special law would prevail over the general law, the Companies Act. This argument 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....
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....certain circumstances the secured creditors can come before the Company Court and claim priority over other creditors even though the said creditor is standing outside the winding up. On the premise that the secured creditor is standing outside the winding or that it has not relinquished its security, the disbursement under section 529-A of the Act cannot be denied to the secured creditors on the said ground, when the property over which the said secured creditors has a charge and such charge is registered under Section 125 of the Act is sold by the official liquidator and sale proceeds are received by official liquidator and are put up for disbursement under section 529-A of the Act. 16.19 At this stage it is relevant to refer to the observations in the decision in the case between Allahabad Bank (supra) wherein the Hon'ble Apex Court observed 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 t....
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...., the total amount due to all of them comes to Rs. 4 lakhs. Therefore, the workmen's share come to 25% (Rs. 1 lakh out of Rs. 4 lakhs). Now if the value of the security of a secured creditor (like Canara Bank) is Rs. 1 lakh, the 'workmen's portion' will be Rs. 25,000 which is the pro-rata amount to be shared by the said secured creditor. By virtue of section 529A(1)(b) his priority over all others out of other monies available in the Tribunal is restricted to Rs. 25,000 only. 67. In our opinion, the words "so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of the proviso" obviously mean the amount taken away from the private realisation of the secured creditor by the liquidator by way of enforcing the charge for workmen's dues under clause (c) of the proviso to section 529(1) "rateably" 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 s....
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....ned, 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." 16.22 The above quoted observations also clarify that 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 r....
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....amount of claim/debt determined by the chartered accountant for State Bank of Patiala. 18.1 The workmen have also submitted that the dues of the mutual fund do not enjoy first charge over the properties and therefore the said claim should not have been included. In view of the earlier discussions whereby the objection against inclusion of the debt of secured creditors holding second charge is rejected, the aforesaid objection also stands rejected. 19. In view of the above discussion, clarifications and directions the "distribution ratio" will have to be respondent-calculated and shall have to be determined afresh. Thus, the chartered accountant shall complete the entire process within two weeks and for that purpose official liquidator shall forward appropriate intimation with copy of this order to the chartered accountant. 20. As a result of the foregoing discussion 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 t....