AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (3) TMI 528
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....ant in Company Applications No.16 & 17 of 2018. ORDER Vivek Singh Thakur, Judge Company Applications No.32/2016 & 13/2018 Company Application No.32 of 2016 has been preferred by Punjab National Bank (Secured Creditor), for payment of correct share in its favour, in terms of share determined by the Chartered Accountant, with regard to disbursement of Rs. 3.08 Crore, in terms of order dated July 14, 2014, passed by this Court. On April 9, 2018, one more application, being Company Application No.13 of 2018, identical, in fact verbatim, to Company Application No.32 of 2016, has also been preferred on behalf of Punjab National Bank (for short PNB). Therefore, these two applications are being disposed of together. 2. No reply has been filed by anyone to Company Application No.32 of 2016, whereas Official Liquidator has filed reply to Company Application No.13 of 2018, admitting therein that an amount of Rs. 3,08,11,316/-, available for disbursement, was to be disbursed to PNB and State Bank of India (for short SBI), on the basis of report of Chartered Accountant and that in his first report dated 14.1.2013, the Chartered Accountant has determined the share of PNB as 67.64%....
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....ial Finance Corporation of India (in short IFCI) and IARC, for release of the second dividend on the sale proceeds, on pro-rata basis, to the applicants, lying with the Official Liquidator. 7. Company Application No.35 of 2016 has been filed by 14 Workmen on May 16, 2016 for disbursement of amount, out of the sale proceeds in their favour, for which they are entitled as per law. On May 24, 2016, it has been ordered, by this Court, in this Company Application that in view of order passed on December 29, 2014, matter should be listed only after decision of Company Appeal No.2 of 2014, preferred by International Asset Reconstruction Company (in short IARC), pending before Division Bench of this Court. 8. In the year 2018, Company Applications No.21 of 2018 and 22 of 2018 have also been preferred by other sets of 14 and 63 Workmen for release of workmen's dues, out of the sale proceeds, lying with the Official Liquidator, in their favour as per their entitlement. 9. In Company Application No.7 of 2018, it has been stated on behalf of IFCI and IARC that assets of M/s Him Ispat Ltd (under liquidation) were sold for total consideration of Rs. 14.52 Crore and after various initial....
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.... and Official Liquidator, appointed, was permitted to visit the premises of the Company for physical verification only and the employees were permitted to continue and draw salary from the employer-Company. It indicates that despite order dated November 8, 2001, on account of stay, the Company was actually wound-up on December 30, 2005, after vacation of the aforesaid interim order, on decision of the Company Petition No.7 of 2001 alongwith CWP No.604 of 2001, as also mentioned in report dated September 26, 2018 filed on behalf of Official Liquidator. 15. Actual date of winding-up in the present case is December 30, 2005. Therefore, all calculations are to be and have been made with reference to this date for all intents and purposes, except the amount to be added in workmen's dues on account of orders passed by Courts, including Labour Court, as contemplated in the Companies Act for calculation of workmen's dues, under Section 529, as, as a matter of fact, workmen were also agitating their respective claims in various Courts, including Labour Court, since 1993, and proceedings in those claims have been finalized on date(s) subsequent to the winding up order. All such claims are....
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.... 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 rateably for the discharge of workmen's dues; and (c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of....
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....lfare 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.- (1) 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 extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them in which case they shall abate in equal proportions. 530. Preferential payments. - (1) In a winding up subject to the provisions of section 529A, there shall ....
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....nt in the Official Gazette]. (3) Where any compensation under the Workmen's Compensation Act, 1923 (8 of 1923), is a weekly payment, the amount due in respect thereof shall, for the purposes of clause (e) of sub-section (1), be taken to be the amount of the lump sum for which the weekly payment could, if redeemable, be redeemed if the employer made an application for that purpose under the said Act. (4) Where any payment has been made to any employee of a company,- (i) on account of wages or salary; or (ii) to him, or in the case of his death, to any other person in his right, on account of accrued holiday remuneration, out of money advanced by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which the sum in respect of which the employee or other person in his right would have been entitled to priority in the winding up has been diminished by reason of the payment having been made. (5) The foregoing debts shall- (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet t....
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....er, unless in either case the company had commenced to be wound up voluntarily before that date; and (ii) in any case where sub-clause (i) does not apply, the date of the passing of the resolution for the voluntary winding up of the company. (9) This section shall not apply in the case of a winding up where the date referred to in sub-section (5) of section 230 of the Indian Companies Act, 1913 (7 of 1913), occurred before the commencement of this Act, and in such a case, the provisions relating to preferential payments which would have applied if this Act had not been passed, shall be deemed to remain in full force." 20. The Apex Court in Allahabad Bank v. Canara Bank and another, (2000) 4 SCC 406, has held that Secured Creditors fall under two categories, i.e. one who desire to go before the Company Court and the other who like to stand outside the winding-up. Relevant paragraphs are as under: "62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding up. 63. The first category of secured creditors mentioned above are those who go before the Company Court ....
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....w 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." 21. In Andhra Bank v. Official Liquidator, (2005) 5 SCC 75, the Apex Court has discussed the rights of Secured Creditors as under: "22. In terms of the aforementioned provisions, the secured creditors have two options (i) they may desire to go before the Company Judge; or (ii) they may stand outside the winding-up proceedings. The secured creditors of the second category, however, would come within the purview of Section 529-A(1)(b) read with proviso (c) appended to Section 529(1). The "workmen's portion" as contained in proviso (c) of sub-section (3) of Section 529 in relation to the security of any secured creditor 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 (a) workmen's due, and (b) the amount of the debts due ....
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....or the purposes of Section 529A of the Companies Act. 16.4 The workmen's dues and where the secured creditor opts to realize his security, the debt to the secured creditor to the extent it ranks pari passu with the workmen's dues under clause (c) of the proviso to sub-section (1) of Section 529 of the Companies Act shall be paid in priority over all other dues of the company." 23. In present case, it is undisputed that some amount, out of sale proceeds of assets of the Company, already stands released in favour of Secured Creditors without taking into consideration the provisions of Sections 529 and 529A of the Companies Act, wherein statutory charge has been created in favour of workmen in respect of their dues from the Company over the security of every Secured Creditor and also workmen's dues have been categorized as 'overriding preferential payments'. 24. As per reply to Company Application No.7 of 2018, filed by the Official Liquidator, as on March 31, 2018, an amount of Rs. 14,75,59,374/- (sale proceeds + interest) is available with the Official Liquidator and out of that amount he has proposed to disburse Rs. 12.00 Crore to the Secured Creditors and the workme....
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....insolvent company, which is being wound up and which has been offered as a security to a secured creditor is subject statutorily to a pari passu charge in favour of the workmen to the extent of the workmen's portion by virtue of the proviso to sub-section (1) of Section 529 of the Companies Act. Therefore, the first limb of the proviso to sub-section (1) of Section 529 does not create any pari passu charge in favour of secured creditor over property or asset of the company which has not been given as security by the company to the secured creditor. Rather, the language of the first limb of this proviso makes it crystal clear that the security of every secured creditor created dehors the proviso to sub-section (1) of Section 529 of the Companies Act is statutorily subjected to a pari passu charge in favour of the workmen by the first limb of the proviso to sub-section (1) of Section 529 of the Companies Act. 13. The second limb of the proviso to subsection (1) of Section 529 of the Companies Act states the consequences which follow where a secured creditor, instead of relinquishing his security and proving his debt, opts to realize his security. These are: (a) the liqui....
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.... of Section 529 pari passu with the workmen's dues. The effect of the non-obstante clause in the opening part of Section 529A of the Companies Act, therefore, is that notwithstanding anything in the Companies Act and any other law including the Insolvency Act, workmen's dues and dues of the secured creditor which could not be realized because of the pari passu charge in favour of the workmen under the proviso to sub-section (1) of Section 529 and only to the extent such dues rank pari passu with the dues of the workmen under clause (c) of the said proviso are paid in priority over all other dues. 15. We may now refer to sub-section (2) of Section 529 of the Companies Act which states that all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of Section 529 of the Companies Act. The proviso to sub-section (2), however, states that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realize his security, he shall be liable to pay his....
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....ion 529(1). As held by the Apex Court, for such debt ranking pari passu with the workmen's dues for the purpose of Section 529A, two limbs of proviso to Section 529(1) are to be satisfied. In first limb, there must be security of Secured Creditor, whereupon pari passu charge shall be deemed in favour of workmen to the extent of workmen's portion therein and in the second limb the Secured Creditor must have opted to realize his security and during realization of security, the Secured Creditor must have been prevented from realizing the amount of workmen's portion in his security so as to rank the said debt pari passu with the workmen's dues for the purpose of Section 529A. In absence of security and exercise of option by Secured Creditor to realize the same, there will not be any debt equivalent to workmen's portion, realization whereof could not be made by the Secured Creditor and in such eventuality there will be no right of overriding preferential payments under Section 529A(1)(b) in favour of Secured Creditor. 29. In present case, on March 6, 2019, a supplementary affidavit has been filed on behalf of IFCI and IARC, wherein it is stated that the said Secured Creditors have no....
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....er Section 529A, workmen's dues have to be paid in priority over all other dues. As there is no other debt having right of overriding preferential payment, there is no reason to withhold any portion of workmen's dues pending adjudication the dispute/claim of Secured Creditors who have no debut to claim disbursement under Section 529A(1)(b) of the Companies Act. 33. Also, it is case of none of the parties that the assets of the Company, from sale whereof sale proceeds are lying with the Official Liquidator, were securities of any of the Secured Creditor, muchless of the IFCI as in above referred supplementary affidavit dated March 6, 2019, filed on behalf of IFCI, there is reference of other existing assets referred therein as security but not of the assets of the Company sold by the Official Liquidator and, therefore, the Secured Creditors cannot claim right over the sale proceeds as 'security' referred in proviso to Section 529(1) and when there is no security, there is no question of preventing the Secured Creditors from realizing the amount equivalent to workmen's portion in terms of clause (c) of proviso to Section 529(1) for calculating the amount for the purpose of Section....
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.... Workmen, in consonance with the provisions of Section 529A of the Companies Act, and the remaining amount shall be disbursed amongst the Secured Creditors on pro rata basis, taking into consideration sharing ratio of the amount verified by the Chartered Accountant in his report dated October 10, 2014, referred supra. 36. Amount in favour of SBI shall be released only after refund of excess amount received by it, in terms of order passed in Company Applications No.32 of 2016 and 7 of 2018 and before releasing share of SBI, the said amount or any other amount, mutually agreed as refundable amount between SBI and PNB shall be deducted from the share of SBI and paid to the PNB by the Official Liquidator. 37. Payment to the Workmen, whose claims have been vertified, shall be made in their favour by remitting the same in their Bank Accounts or Bank Accounts of legal heirs in the event of death of the Workman. The Official Liquidator shall release the payment immediately after receiving particulars of individual Bank Accounts of the Workmen applicants herein or their legal heirs, as the case may be, through their Advocate(s). 38. The workmen, who are not applicants herein, shall....
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.... Application No.7 of 2018, the Official Liquidator has also filed report dated 24.12.2018, supported by an affidavit, wherein details of amounts to be released to Secured Creditors from whom advance was received for payment on account of watch and ward, valuation fee, insurance, etc. and to Security Agency, has been given as under: Sr. No. Particulars Amount (In Rs.) 1. Amount received from secured creditors on account of watch & watch exp., valuation fee, insurance, and pre- exp. etc. mentioned in para 4 & 5 (except IFCI, because an amount of Rs. 27,39,457=00 has been paid in terms of Hon'ble High Court order dated 05.11.2012) 10,20,279 2. Amount to be released to the security agency namely M/s Jai Jawan Security Agency 5,79,487 45. In prayer clause of aforesaid report dated 24.12.2018, , request has been made to permit Official Liquidator to reimburse the advance of Rs. 10,20,279/- received from Secured Creditors to them and pay balance amount of Rs. 5,79,487/- to the Security Agency, namely M/s Jai Jawan Security Agency. No objection has been filed by any party to it. Therefore, the Official Liquidator is also permitted to reimburse Rs. 10,20,279/- ....
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....983 and, therefore, prayer for allowing payment of fee to the Chartered Account at the rate of Rs. 250/- per claim or as may be fixed by the Court, has been made. 51. The Chartered Accountant has filed rejoinder to the reply and has submitted that he had submitted Final Report to the Official Liquidator on 10.4.2014, which was placed in the meeting of Secured Creditors on 15.10.2014 and bill of Final Report, amounting to Rs. 6,24,720/-, was submitted to the Official Liquidator on 7.7.2015, which amount also remains unpaid by the Official Liquidator till date. He has further submitted that total bills of Rs. 99,000/- for preparation of three Interim Reports and for verification of three Interim Claims, total amounting to Rs. 7.18 Crore, as stated by him in Para-4 of his Report dated 26.10.2018, remains unpaid by the Official Liquidator till date. He has also stated that total Bills of Rs. 1,99,500/- for travel and sitting fee to visit and attend the meeting in the Office of Official Liquidator from 19.10.2012 to 18.5.2013 and from 22.7.2013 to 19.12.2014 are also unpaid till date. 52. It is clarified in the rejoinder that in the order dated 5.9.2018, passed by Hon'ble High Cou....
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.... work to be performed/assigned. 57. In aforesaid circumstances, it would not be just and fair to deduct any amount from the fee claimed by the Chartered Accountant, that too in the year 2020, with respect to the bills submitted by him to the Official Liquidator, during the years 2012 to 2015. Therefore, the Official Liquidator is also directed to make payment of bills of the Chartered Accountant within one month from receipt of a copy of this order, compliance whereof shall be reported by the Official Liquidator in his report to be filed on or before 30.5.2020 as already ordered. 58. Application stands disposed of. Company Applications No.16 & 17 of 2018 59. Request letters dated March 23, 2018 received from Principal Commissioner of Income Tax (2), Chandigarh, for launching prosecution under Section 276C(2) of Income Tax Act, 1961, in case of M/s Him Ispat Ltd. (Under Liquidation), Chandigarh, for the Assessment Years 2013-14 & 2014-15 respectively, have been treated as Company Applications No.16 & 17 of 2018. 60. The allegation in their applications is that Return for the Assessment Year 2013-14 was due on September 30, 2013 but the Tax has been deposited on Decemb....