2006 (5) TMI 565

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....10 lacs for meeting liability of 52 workers who have not yet filed their claims. 4. The committee has recommended full payment of Rs. 1,07,01,546/- to the workmen and Rs. 22,83,000/- to IFCI (including Rs. 7,50,000/- already paid). 5. The Committee held that the payment of Rs. 2,92,50,000/- has already been made to Indian Bank against the total claim of Rs. 8,96,21,880/- (Rs.1,74,84,486 first charge and Rs. 7,17,88,954/- second charge) and Therefore no further amount is payable to Indian Bank against the first charge. 6. inspire of recommending full payment of Rs. 1,07,01,546/- to workmen, on the question whether only first charge or both first charge and second charge in favor of Indian Bank should be taken into consideration while calculating amount payable to workmen under Sections 529 and 529A of the Companies Act,1956 (hereinafter referred to as the Act), the committee opined that the matter be placed before the court for appropriate orders. 7. Indian bank has filed objections to the report stating that the Committee has misconstrued and misinterpreted Section 529A of the Act and has erred in holding that Indian Bank though a secured creditor is not entitled to pro....

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.... by virtue of the foregoing provisions of this proviso on 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 529-A. 11. The aforesaid provision Therefore provides that the insolvency rules shall equally apply when a company is being wound up in respect of Clauses (a), (b) and (c) of Sub-section (1). Under the proviso, a secured creditor has been given liberty to realize his security but the amount so realized is subject to pari passu charge to the extent of 'workmen's portion' and has to be proportionately applied for payment of the 'workmen's portion'. This charge in favor of the 'workmen portion' is created by the operation of the law from the date of the winding up order. The liquidator is entitled to represent the workmen and enforce the charge and amount realized has to be applied rateably for discharge of the workmen's dues. 12. The expression 'workmen's portion' has been defined in Section 529(3) of the Act. The said provision is as under: (3) For the purposes of this Section, Section 529-A and Section 530,'....

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....b-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 14. Section 529 A of the Act, Therefore, deals with two different types of creditors: (i) the workmen and (ii) debt due to the secured creditors, which is subject matter of pari passu charge in favor of the workmen also. Pari passu' means with equal steps, equally, without preference' (Jowitt's Dictionary, volume II, 1959 edition 1294). Black's Law Dictionary, sixth edition, page 115 defines it as `by an equal progress ... used especially of creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other'. It is also defined as `with equal steps, that is to say, proceeding side by side at the same place' (Prem's Judicial Dictionary, volume III, 1964 edition, page 1217). 15. The rights of the pari passu charge in favor of the workmen would run equally, temporally and potently, with the rights of the secured creditors. The official liquidator, as the representative of the workmen, to enforce such pari passu charge has the right of representing the workmen e....

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....(3)(c) also aggregate of debts of all secured creditors whether having first charge or second charge have to be taken into account. Section 529A does not make any difference between the secured creditors having the first charge or the second charge. A secured creditor having a second charge does not cease to be a secured creditor within the meaning of Sections 529(3) and 529A of the Act because dues of the secured creditors having first charge have to be paid before payment is made to a secured creditor having a second charge. Secured creditors are treated as one group and the amount payable to the workmen under Section 529(3)(c) of the Act i.e. workmen's portion is accordingly ascertained. 17. Section 529A does not provide for and specify how payment is to be made between the secured creditors having the first charge and/or the second charge. For that one has to refer to Section 48 of the Transfer of Property Act, 1882. The said Section determines the priority between the secured creditors, as this aspect is not determined by Section 529A. Section 529A does not at all deal with how the amount is to be apportioned between the secured creditors having the first charge and the....

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....on, 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. 18. In the case of Andhra Bank v. the Official Liquidator reported in AIR 2005 SC 1814, the Supreme Court while examining Section 529 and 529A of the Act, has held as under: 22. ... The 'workmen's portion' as contained in proviso to (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 to all the (six secured) creditors. The submission of Mr. Gupta is that in a situation of this nature, what was necessary to be considered by the learned Single Judge was to find out the amount in relation whereto the appellant was raising its claim as a secured creditor, namely, Rs. 135 lakhs vis-a-vis the aggregate of the amount of the workmen's dues of Rs. 19 crores and the claim of any other secured creditor was not required to be taken into consideration. We cannot ac....