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2023 (7) TMI 834
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.... Applicant in CA 1313/2018. Mr. Anil Nauriya and Ms. Sumita Hazarika, Advocates for Kundli Unit. Mr. Hemendra Jailiya, Advocate for Jalna Workers Union. JUDGMENT SANJEEV NARULA, J. CO. APPL. 1313/2018 (on behalf of Dena Bank/ secured creditor seeking appropriate directions) 1. Despite explicit court directives issued on 10th July 2018 instructing the Official Liquidator ("OL") to disburse payments towards the admitted claims of workmen, the situation remains largely unchanged with a majority of such claims yet to be settled. The key contributor to the present of affairs is the above-captioned application filed by Dena Bank,^1 a secured creditor and the Lead Bank of a consortium of banks^2 ("Consortium"). Dena Bank's instant application pertains to Consortium's second charge on certain assets belonging to the company in liquidation i.e., Jhalani Tools India Limited ("JTIL" or "Company"). They assert that this second charge ranks at par with their first charge. Consequently, this judgment will address Dena Bank's aforenoted contention, but at the same time also deal with the claims of interest on outstanding dues, presented by the Company's workmen, while contesting Dena ....
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..../2001 and was consequently listed alongside the instant petition. Subsequently, on 01st March 2003, the instant petition was revived, and the OL attached with this Court as appointed as Provisional Liquidator vide order dated 18th March, 2003. The OL took over the custody and assumed possession of various properties belonging to JTIL and under Court's directions, proceeded to auction the same, details whereof are provided below: S.NO. PROPERTY DATE OF POSSESSION AUCTION DATE & AMOUNT 1. Unit I- 10,11,12, New Industrial Area, Faridabad, Haryana Possession taken on 05.10.2004 * Movables & Building auctioned for Rs. 6,55,00,000/- vide order dated 16.01.2014. * Immovable land auctioned for Rs. 43,82,28,090/- vide order dated 11.04.2022. 2. Unit II- 4, New Industrial Area, Faridabad, Haryana Possession taken on 07.10.2004 Auctioned for Rs. 59 Crores vide order dated 20.10.2005 & 11.08.2005 3. Unit III - 1, 2, New Industrial Area, Faridabad, Haryana Possession taken on 07.10.2004 4. Unit IV - Narela Road, Village Kundli Distt. Sonepat, Haryana Possession taken on 08.10.2004 5. Unit-V - E-29, 30, Chikalithanu Industrial Area,....
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....nd to the Ex. Management. The OL who is appearing in person states that there are enough funds available to meet the admitted claims of the workmen and payment shall be released within four weeks to those workmen who provide the necessary details. He further submits that regarding the issue of interest which some of the workmen claim, that aspect can be gone into after sale of the immovable property which is yet to be sold. Report is taken on record and stands disposed of." 8. Later, OL's office recomputed the figures on the basis of OLR No. 165/2018 and convened a meeting of representatives of workmen and the secured creditors on 24th August 2018. The payments were calculated on the principle of treating first charge holders and the workmen pari passu, which was accepted by all parties involved, including Dena Bank. Following this meeting, OL filed C.A. No. 1103/2018 based on the agreed-upon computations, seeking directions from this Court to allow disbursement of payments among all the stakeholders. The Court considered this request on 19th September 2018 and granted permission to the Official Liquidator to disburse payments amounting to Rs. 4,53,85,682/- to the secured credit....
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....any prejudice to the pending adjudication of CA No. 1313/2018." The OL may take into account the above submission made by the representative of the Dena Bank/secured creditor and takes steps accordingly regarding payment of the dues of the workers only. Report is disposed of." 11. OL submitted the Minutes of the Meetings that took place on the 14th and 16th January and 1st February 2019, along with OLR No. 95/2019. These minutes reveal that all stakeholders were present at these meetings. We note that despite some disagreements concerning the computation, the representative from Dena Bank concurred with the disbursement plan to the workmen, IFCI and IDBI. Contentions of Applicant-Bank 12. Dena Bank/ Consortium holds first charge over the immovable properties and fixed assets of the Company in respect of its TL/ WCTL amounting to Rs. 5.74 crores, ranking pari passu with the TL advanced by the Financial Institutions, and a second charge in respect of additional working capital facilities of Rs. 32 crores. Applicant-Bank contends that for the purpose of calculation of workmen's portion under Section 529 of the Companies Act, 1956 ("the Act") amounts due under the ....
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....tely Rs. 5.74 crores. Furthermore, Dena Bank suggests that the Consortium also holds a second charge regarding the additional working capital facilities of roughly Rs. 32 crores. OL, in their written submission, counters this claim by stating that the Consortium's first charge pertains to the stock and inventories and that a second charge is held over the land, building, and plant and machinery associated with the six properties. Notwithstanding this factual dispute, for the present purposes, the Court is adjudicating whether the Consortium's second charge can be considered equivalent to their first charge as well as those held by the Financial Institutions for the purpose of pari passu distribution of dues. 16. The methodology adopted by OL for determining pari passu shares, dues of the workmen and secured creditors holding first charge were prioritized. OL maintains that admitted amounts due to workmen and first charge secured creditors can be settled in full, given the availability of sufficient funds. Subsequently, the residual amount is to be disbursed towards the debt of the second charge holder. According to the OL, the balance is insufficient for full payment to ....
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.... statutory charge favouring the workmen has been established under the first limb of the proviso to Section 529(1)(c) of the Act, which covers workers' dues from a company. This charge is pari passu with that of each secured creditor and extends to the workers' share relative to the security of any secured creditor of the company, as provided under Section 529(3)(c) of the Act. Therefore, every property offered as security in favour of the creditors implicitly carries a pari passu charge favouring the workmen, which is at par with the secured creditors. This interpretation implies that, under Sections 529 and 529A of the Act, JTIL's workmen hold a pari passu first charge over the assets of JTIL at par with the first charge of the secured creditors. Consequently, the workmen's admitted claims would be paid in priority over the amounts due against second charge held by the Consortium. 19. Furthermore, accepting Dena Bank's interpretation of Sections 529 and 529A would effectively undermine the two crucial legislative provisions. Firstly, Section 48 of the Transfer of Property Act, 1882 ("TP Act"), which establishes a clear hierarchy of charges. Secondly, Section 529 of the Compani....
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....f 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 deprivation of the secured creditor of his right over the security and would bring him at par with an unsecured creditor. The logical sequitor of such an inference would be that even unsecured creditors would be placed at par with the secured creditors. This could not have been the intendment of the legislation. The provisions of the Companies Act may be a special statute but if the special statute does not contain any specific provision dealing with the contractual and other statutory rights between different kinds of the secured creditors, the specific provisions contained in the general statute shall prevail." 22. As can be seen from the above excerpt, the Supreme Court has held that the absence of explicit provisions in Section 529 of the Act regarding priority rights over mortgaged assets does not exclude the application of Section 48 of the TP Act in cases of company liquidation. The Court has reasoned that....
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....na Bank's reliance on Bokiyu Tanneries (supra) is misplaced. 24. In view of the aforenoted discussion and holding in ICICI Bank Ltd. (supra), it becomes evident that the first and second charge holders cannot be treated equally. Upholding the objection of the second charge holder would upset the priority of the first charge holder, which would go against the provisions of Section 48 of the TP Act. The OL position on this issue, as stated in paragraph 10 of its compliance report OLR No. 109/2019, is thus accepted. 25. Having resolved the aforementioned issue, the inevitable outcome is the dismissal of the present application. However, the Court believes that a simple rejection would be insufficient given that Dena Bank has caused significant delay in the proceedings, thereby depriving the workmen of their rightful dues. Thus, the conduct of the Bank necessitates imposition of costs. (II) IMPOSITION OF COSTS 26. In addition to disputing the disbursal of claims on a misconceived legal premise, the Applicant-Bank also challenges the priority given to the disbursement of the OTS reached between the former management and the workmen of the Faridabad Units, as well as the ....
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.... definitive resolution to the issues at hand. Consequently, the Applicant-Bank has purposefully caused delays by attempting to undermine the overriding priority granted by law to the first charge holders, namely the workmen and their admitted claims. 28. For the foregoing reasons, the present application is dismissed with a cost of Rs. 10 lakhs on the Consortium, to be deposited in terms of the directions issued later in the judgment. (III) WORKMEN'S CLAIM FOR INTEREST ON WAGES 29. The Court shall now analyse the claim of interest on outstanding wages, which has been raised by workmen's unions of the Aurangabad, Jalna and Faridabad Units. The aforenoted parties claim interest at the rate of 12 percent p.a. on pending wages, calculated from the date of notice of payment till the date of winding up, as applicable to the secured creditors. On this issue, reliance has been placed on In Re: Crips Laboratories Limited MANU/AP/0166/2008, wherein the Andhra Pradesh High Court has made the following observations: "14. ...For all practical purposes, a workman is treated as a co-charge holder along with the secured creditor and would, therefore, be entitled to claim the same....
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....rkmen have been deprived of their rightful wages for a substantial period, and denying them interest while providing it to the secured creditors would create an imbalance in the distribution of funds. In light of these arguments, Ms. Vaid emphasizes the importance of granting interest to the workmen to ensure a fair and equitable resolution in accordance with the provisions of Section 529A of the Act. 31. No formal application has been submitted on behalf of the workmen seeking the aforementioned relief regarding the entitlement to interest. When claims were invited against JTIL, the workmen presented their claims, which were subsequently reviewed and approved by the Dhingra Committee. Rules 156-178 of the Companies (Court) Rules, 1959 ("Rules") outline the procedure for processing claims for interest, when it has not been explicitly provided for. Rule 163 of the Rules, provides the process of admission of debt, requiring submission of evidence, which is followed by a decision by OL. If dissatisfied with this decision, the creditor, in this instance, the workmen, has the option to file an appeal under Rule 164 before the Company Judge. However, it is pertinent to note that the w....
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....nding-up order, as per Rule 179, for subsequent interest is not in dispute. The OL has confirmed that once the admitted claims have been settled, any surplus funds will be utilized to declare dividends in accordance with Rule 179. These dividends will be distributed to all relevant parties, including the workmen. 35. Based on the aforementioned reasons, Ms. Vaid's claim for payment of interest to the workmen at a rate of 12 percent lacks merit and is rejected. Additionally, it should be noted that Ms. Vaid has also argued that no interest has been added to the gratuity payment. However, the Official Liquidator disputes this allegation and maintains that interest on gratuity has indeed been paid to the workmen. Ms. Vaid has not provided any evidence to substantiate her claim or refute the Official Liquidator's assertion. (IV) DIRECTIONS 36. In view of the foregoing, the following directions are issued: (i) CO. APPL. 1313/2018 is dismissed. (ii) Costs of Rs. 10 lakhs is imposed on Dena Bank and other members of the Consortium. Said banks are directed to collectively deposit the same with OL, in proportion to their claims admitted by OL within a peri....