1 IN IN IN THE HIGH COURT OF JUDICATURE OF BOMBAY THE HIGH COURT OF JUDICATURE OF BOMBAY THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION COMPANY APPLICATION NO.1067 OF 2007 IN COMPANY PETITION NO.743 OF 1990 WITH OFFICIAL LIQUIDATOR’S REPORT DATED 21ST JULY, 2008. United Merchant Pvt.Ltd. ..Petitioner V/s. M/s.Mafatlal Engineering Union Industries Ltd. ..Respondent. And Bambai Mazdoor Union. ..Applicant. V/s. Official Liquidator & Anr. ..Respondents. Mr.N.M.Ganguli for applicant. Mr.S.Ramakanta, Dy. O.L. Mr.Ashish Kamat a/w Mr.Birendrad Saraf, Ms.Meenakshi Mhapurkar & Mr.Nikhil Rajani i/b. Kotak Mahindra Bank-secured creditor. Mr.Kalpesh Parekh i/b. Pragna Thakkar for IDBI-secured creditor. CORAM: CORAM: CORAM: A.M.KHANWILKAR,J A.M.KHANWILKAR,J A.M.KHANWILKAR,J DATE DATE DATE : OCTOBER 23, 2008. : OCTOBER 23, 2008. : OCTOBER 23, 2008. P.C. P.C. P.C. : : : 1. Perused the Official Liquidator’s report as well as pleadings in the subject application. The principal grievance of the applicants is that the secured creditor to whom the Official Liquidator proposes to disburse the amount of sale proceeds 2 available for distribution are not entitled to get any payment there from. This is so because the secured creditors have charge in respect of some other assets which are yet to be sold. Whereas the secured creditors have no charge in respect of assets which have been sold and sale proceed recovered by the Official Liquidator which is now available for disbursal. The argument clearly overlooks the purport of section 529, in particular, 529(1)(c) r/w 529A of the Companies Act. The scope of the said provision is no more res-integra. The Apex Court in the case of Textile Labour Association and Anr. V/s. Textile Labour Association and Anr. V/s. Textile Labour Association and Anr. V/s. Official Official Official Liquidator and ors. reported in Liquidator and ors. reported in Liquidator and ors. reported in 2004(Vol.120) 2004(Vol.120) 2004(Vol.120) Company Cases, 505 Company Cases, 505 Company Cases, 505 has observed thus: "The effect of sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen’s dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under section 529A to the extent of the workmen dues. The purpose of section 529A is to ensure that the workmen should not be deprived of their legitimate claims in the event of the liquidation of the company and the assets of the company would remain charged for the payment of the workers’ dues and such charge will be pari passu with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except section 529A. This section overrides preferential claims under section 530 also. Under section 529A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all 3 other dues. . Therefore, the law is clear on the matter as held in UCO Bank’s case that section 529A will override all other claims of other creditors even where a decree has been passed by a court." It will be useful to refer to another decision of Division Bench of the Madras High Court in the case of Indian Bank V/s. V.S.Perumal Raja & Ors. Indian Bank V/s. V.S.Perumal Raja & Ors. Indian Bank V/s. V.S.Perumal Raja & Ors. reported reported reported in 1993 Vol.76 Company Cases page 787. in 1993 Vol.76 Company Cases page 787. in 1993 Vol.76 Company Cases page 787. At page 792-793, the Court observed thus: ". Section 529(1) of the Act, inter alia, states that, in the winding-up of an insolvent company, the same rules shall prevail and be observed, with regard to the debuts provable and 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 Proviso (c) therein, inter alia, states 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, so much of the debt due to such secured creditor as could not be realised by him by virtue of what is stated above 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 purpose of section 529A of the Act. The illustration*, to section section 529 further makes the position clear by stating as follows: . "The value of the security of a secured creditor of a company is Rs.1,00,000. The total amount of the workmen’s dues is Rs.1,00,000. The amount of the debts due from the company to its secured creditors is Rs.3,00,000. The aggregate of the amount of 4 workmen’s dues and of the amounts of debts due to secured creditor is Rs.4,00,000. The workmen’s portion of the security is, therefore, one-fourth of the value of the security, that is, Rs.25,000." . So, if, in the above said suit, the appellant is declared as a secured creditor and the decree is granted accordingly, the decree amount in that suit can be realised only subject to the abovesaid section 529A read with section 529(1), proviso(c), of the Act. In other words, the workmen will be secured creditors ranking pari passu with the charge of other secured creditors. That is, the assets of the company in liquidation would remain charged for payment of the workmen’s dues but such charge will be pari passu with the charge of the secured creditors. The unrealised portion of the claim of the secured creditors or the amount which has been paid to the workmen out of the realisation of securities, whichever is less, shall have a preferential claim over other creditors of the company under section 529A of the Act. . So, section 529A of the Act enables the secured creditor who has suffered in paying the workmen’s dues from out of the realisation of his security, to recover what he has so suffered from the other assets in the hands of the official liquidator, preferentially. That is, the said amount suffered by him shall be paid in priority to all other debts. But, this does not mean that he cannot recover at all any other unrealised portion of the debt due to him. In view of the fact that section 529(1) of the Act says that, in the winding up of an insolvent company, the insolvency law will apply, section 47 of the Provincial Insolvency Act has to be applied in the present case since the suit that has been laid by the applicant is in Tanjore." 2. Counsel for the workmen however, would rely on the exposition of the Apex Court in the case of Allahabad Allahabad Allahabad Bank V/s. Canara Bank and Anr. reported Bank V/s. Canara Bank and Anr. reported Bank V/s. Canara Bank and Anr. reported 5 inin in AIR 2000 Supreme Court 1535, AIR 2000 Supreme Court 1535, AIR 2000 Supreme Court 1535, from paragraph-54 onwards, in particular, paragraph-67. As a matter of fact in paragraph-67, the Apex Court while construing the relevant proviso to clause-(c) of Section 529(1) of Companies Act observed thus: "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 monies available in the Tribunal, claiming priority over all creditors, by virtue of section 529A(1)(b)." The statement of law that can be discerned on this aspect is that, even if the secured creditor have no charge on the properties and assets of the Company in liquidation, which have been sold, are entitled for reimbursement to the extent provided in clause-(c) of Section 529(1) of the Act. It is therefore, not possible to countenance the submission of the applicants that no payment can be made to the secured creditors out of the sale proceeds available for distribution. In my opinion, the Official Liquidator 6 has rightly reckoned the claim of the secured creditors for distribution of available amount as of now. 3. Needless to observe that disbursal of the sale proceeds by the Official Liquidator in terms of direction claimed in the Official Report under consideration will be subject to the outcome of the sale of assets involved in suit filed by ICICI Bank Ltd. which is referred to earlier. In the event, the sale of the assets involved in the said suit were to realise lesser value than the secured claim of the concerned secured creditors, obviously they would be entitled for reimbursement from the sale proceeds of other assets as preferential claim pari passu with the workmen. The workmen would also get pari passu disbursal from the sale proceed from the assets secured with the concerned bank. 4. Accordingly, the Application preferred by the workmen is rejected, whereas, the directions are issued in terms of prayer clauses-(a) to (e) of the Official Liquidator Report dated 21st July, 2008. Ordered accordingly. (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J)