COMA/291/2001 1/34 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD . COMPANY APPLICATION No 291 of 2001 : For Approval and Signature . . . HONOURABLE MR JUSTICE M R SHAH ===================================== ============ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation , of the constitution of India 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ===================================== ============ . . . .- . O L OF JUBILLE MILLS EMP CO OP CREDIT . - ( ) SOCIETY LTD Applicant s Versus . . . & - ( ) O L OF JUBILLE MILLS LTD 5 Respondent s ===================================== ============ : Appearance ( ) : , MR DS VASAVADA for Applicant s 1 ( ) : , OFFICIAL LIQUIDATOR for Respondent s 1 & ( ) : , SINGHI CO for Respondent s 2 ( ) : , MR RD DAVE for Respondent s 3 ( ) : , , MR PRANAV G DESAI for Respondent s 4 6 ( ) : , NOTICE SERVED BY DS for Respondent s 5 ===================================== ============ COMA/291/2001 2/34 JUDGMENT : CORAM . . . HONOURABLE MR JUSTICE M R SHAH : / / Date 19 06 2006 CAV JUDGMENT . 1 The present application has been filed by the - - applicant Jubilee Mills Employees' Co operative Credit Society Limited for appropriate order directing the respondents to pay an amount of . , , = . Rs 10 65 902 00 to the applicant society . 2 Short facts stated on behalf of the applicant in the ; Company Application are as under . 3 The applicant Cooperative Society was set up with the object of providing credit to the employees of ( ). Jubilee Mills Limited in Liquidation As per the , arrangement with the erstwhile management the management was deducting the amount from the . wages of each of the employees per month The management was required to remit the amount so – - . deducted to the applicant Co operative Society That / / . the such deductions were effected upto 30 1 1988 That although the deductions were effected from the , wages of the employees the said deductions were COMA/291/2001 3/34 JUDGMENT . not remitted to the applicant That the Jubilee Mills / / . was ordered to be wound up on 5 9 1989 In the , initial period the assets were sold and the assets in , the form of loose stock plant and machinery have . . been sold and an amount of Rs 4 25 Crores approximately have been realised from the sale of . the assets That the money due and payable to the applicant cooperative societie has been held to be “ ”. the Trust Money In the case of Baroda Spinning , Mills Limited reported in 17 GLR 555 this Court has - held that the moneys due and payable to the Co operative Society is Trust Money and receives the . thumbing priority That the erstwhile management has filed Statement of Affairs as required to be filed . , under sec 454 of the Companies Act 1956 and it has been stated in the said Statement of Affairs that the . , , = amount of Rs 7 72 392 00 is due and payable to the / / . society as on 30 1 1988 The society is also entitled / / . to charge interest upto 5 9 1989 as Jubilee Mills Ltd . , was ordered to be wound up on that day Thus . , , = , adding interest of Rs 2 93 510 00 the amount comes . , , . to Rs 10 65 902 The applicant has heavily relied upon the order passed by the learned Single Judge of this . / / . Court dtd 30 9 1999 in Company Application No 405 of COMA/291/2001 4/34 JUDGMENT - 1998 in the case of Nutan Mills Employees Co . operative Credit Society Limited Vs Official ( Liquidator of Nutan Mills Limited hereinafter referred “ ). to as the Nutan Mill's case The present application came up for hearing before the learned Single Judge ( : . . , .) / / of this Court Coram M S Shah J on 6 2 2002 and considering the fact that against the judgement and order passed in the case of Nutan Mills OJ Appeal . No 49 of 1999 was pending and considering the order . / / dtd 6 9 2000 passed by the Division Bench of this . Court in Civil Application No 192 of 1999 in OJ Appeal . , No 49 of 1999 involving similar issue the learned Single Judge by way of interim order directed that . , , = the amount of Rs 7 72 392 00 shall be paid by the official liquidator to the applicant society on condition that the applicant society shall keep the same in Fixed Deposit with a Nationalised Bank during the pendency of this application and subject to the further condition that the applicant society shall not . encumber such deposit It appears that accordingly the said amount is lying with the applicant society . in a fixed deposit with a Nationalised Bank That , . / / , thereafter by order dtd 25 10 2005 the Official Liquidator was directed to file Report clarifying the COMA/291/2001 5/34 JUDGMENT position as to whether the amount over which the claim is made by the applicant was reflected in the Books of Accounts or Statement of Affairs of the Company in Liquidation and as to whether the said amount is transferred to Official Liquidator when the properties of the Company in Liquidation were taken . , over by the Official Liquidator That thereafter the Official Liquidator submitted his Report which will be . dealt with hereinafter That the present application came up for hearing before the learned Single Judge / / , of this Court on 10 1 2006 and in the meantime the ( : . . Division Bench of this Court Coram R S Garg and . . , ) R R Tripathi JJ had an occasion to consider the , . . . similar issue in the case of Regional Director E S I . , Corporation Vs Official Liquidator Prasad Mills Limited ( ”" ") hereinafter referred to as the Prasad Mill's Case and it was submitted on behalf of the respondent that in view of certain observations made by the , Division Bench the said judgement delivered in the - . case of Nutan Mill deserves to be re considered The ( : . . , .) learned Single Judge Coram R S Garg J directed the registry to place this application before the Hon'ble Chief Justice for appropriate orders by ;- observing as under COMA/291/2001 6/34 JUDGMENT " After hearing the parties and on going through both , these judgements I am of the considered opinion that certain observations made in the matter of the Regional , . . . ( ) Director E S I Corporation Supra would certainly run contrary to the judgement in the matter of Nutan Mills - . . ( ). , Employees Co Op Credit Society Ltd Supra Ordinarily , following the Division Bench's judgement I would ignore , the other judgements of the learned Single Judge but propriety demands that the judgements of the learned Single Judge be examined by the Division Bench in light , of the judgement in the matter of Regional Director . . . ( )..." E S I Corporation Supra . 4 , It appears from the record that thereafter the present application was placed before the Hon'ble the Chief Justice to pass order to place the matter before the appropriate Bench and the Hon'ble Chief Justice has passed an order to place the matter before the Single Judge Bench and that is why the present . application is heard by the learned Single Judge At , this stage it is also required to be noted that even in the case of Prasad Mills in Company Application . NO 216 of 1997 which came to be decided and , disposed of by the Division Bench it was initially placed before the learned Single Judge which came up for hearing before the learned Single Judge of this ( ; . . , .) Court Coram K M Mehta J and considering the fact that Nutan Mill's Case was pending before the , Division Bench wherein similar issue was involved the learned Single Judge directed that it will be COMA/291/2001 7/34 JUDGMENT appropriate that the said application is heard by the . Division Bench It is also required to be noted that the OJ Appeal in the case of Nutan Mill being OJ . Appeal No 49 of 1999 came up for hearing before the Division Bench which came to be dismissed for . , default However the matter in the case of Prasad Mills came to be heard by the Division Bench which . will be referred to hereinafter . 5 Before considering the rival submissions made on , behalf of the respective parties the judgement of the Division Bench in the case of Prasad Mills reported in ( ) . 2005 3 GLR 2019 in Company Application No 216 of . 1997 in Company Petition No 205 of 1996 and other allied Company Applications are required to be . considered and referred to The dispute before the Division Bench was as to whether the amount standing to the credit of the workers regarding their contribution to the Employees State Insurance Act in ( ) the Books of Mill Company in Liquidation is , , impressed with character of a trust and hence it does not form part of the assets of the Company and the Liquidator is bound to pass the same in priority before any distribution of assets of the Company is made by him? After considering the rival COMA/291/2001 8/34 JUDGMENT , submissions made on behalf of the parties and considering the various provisions of the Companies , Act the Division Bench in para 13 and 14 of the said ; judgement observed as under " . 13 . So far as question Nos 2 and 3 referred for answer , , are concerned in our considered opinion before taking any priority in the matter of recovery or to get the , money straight from the Official Liquidator it would be . . . necessary for E S I Corporation to prove to the satisfaction of the Court that the amount due to them . ( ) comes within the scope of Sec 530 A of the Companies . , Act After the Company Court is satisfied then it will , , have to enquire that whether the amount so deducted from the wages payable to the employees was kept in a separate account and whether such amount was . , transferred to the Official Liquidator In a given case if no cash amount is transferred to or is received by the , Official Liquidator then the question of the amount standing to the credit of the workers would lost its . , . . . importance Even otherwise if the E S I Corporation wants to say that certain properties were purchased from the amount of the contribution received by the , , employer and thereafter a mortgage was created over , the same and that became the subject of security for , the secured creditors then the Corporation will have to lead positive evidence to the satisfaction of the learned , , Company Judge who if records a finding that a particular property was purchased from the contribution , , , money and thereafter a mortgage was created over it would certainly be entitled to give priority to the dues . . . . of the E S I Corporation Simply because certain amounts have been deducted from the wages payable / , to the workmen employees the same would not become . the security in the hands of the Official Liquidator In , the present case it is to be seen that the mortgages were created somewhere in the year 1975 and the . deductions are from the year 1979 to the year 1993 Much before the liability to make the payment of the , ." contribution arose mortgages were already created " . . , 14 In reference to question NO 2 we shall only say that if the amount is kept in a separate account with , the Company then the same shall be treated to be in trust and it shall not form part of the assets of the Company and the Liquidator will be required to bound . . . to pay the said amount in priority to the E S I Corporation before any distribution of the assets of the , Company is made by him but in a case where such amount is not kept in cash in any separate account and , the Official Liquidator does not receive the said amount , . ( ), then the procedure provided under Sec 529 A read COMA/291/2001 9/34 JUDGMENT . with Sec 530 of the Companies Act will have to be ." followed ” , Thus the Division Bench has specifically held that if the amount is kept in a separate account with the company and it shall not form part of the assets of the Company and the liquidator will be bound to pay the said amount in priority to the ESI Corporation before any distribution of the assets of the Company ; , , is made by him but in case where the said amount is not kept in cash in any separate account and the , official liquidator does not receive the said amount , . then the procedure provided under sec 529 and ( ) . 530 A of the Companies Act will have to be followed In backdrop of the order passed by the Division , Bench the contentions on behalf of the rival parties . are required to be considered . 6 . . . , Mr D S Vasavada learned advocate for the applicant - society has submitted that tri parte arrangement , between the management credit society and the workers was that the amount was to be deducted . from the wages towards the installment of loan He has also further submitted that so long as the amount is not remitted it partakes the character of wages and consequently it is a trust money or at COMA/291/2001 10/34 JUDGMENT . the worst it is the wages The Statement of Affairs . . filed by the Directors show the entry at Sr No 57 that . , , /- an amount of Rs 7 72 329 as on the date of / / - 30 1 1988 is shown due and payable by the ex . directors This is nothing but deduction which was effected and it is also proved by the deduction in the - . Wage Register It is also further submitted that in view of the judgement in Nutan Mill's case which has , become final and the facts being same the judgement in the Nutan Mill's Case will squarely , apply to the facts of the present case and therefore . . , the Company Application be allowed Mr Vasavada learned advocate for the applicant has further submitted that the Division bench while deciding the , , Prasad Mill's Case had in fact remitted the matter to , , the learned Single Judge and therefore the dues of the cooperative societies cannot be equated with the . dues of ESI Corporation He has also further , submitted that in the case of Nutan Mill the learned Single Judge has specifically held that the dues of the credit cooperative society are trust money even if the liquidator has not received the said amount in form of cash while taking the possession of the Company ( ). in Liquidation It is also further submitted that COMA/291/2001 11/34 JUDGMENT against the judgement of the learned Single Judge in , the case of Nutan Mill OJ Appeal was preferred being . , OJ Appeal NO 49 of 1999 in which even Civil . , Application No 192 of 1999 for interim relief was filed which came up for hearing before the Division Bench and the Division Bench directed that the amount in question may be handed over to the respondent society and the respondent shall deposit the amount in Fixed Deposit Receipt with Nationalised Bank and , according to him the said amount has been paid . over to the said society It is also further submitted . that the said OJ Appeal No 49 of 1999 came up for hearing before the Division Bench and the appellant did not prosecute the appeal and the appeals were . dismissed It is also further submitted that the very counsel who are appearing in the present Company Application on behalf of the respondent were appearing in the said OJ Appeal and if they were , present they could have also submitted that they are also supporting the appeal and they could have made . , their submissions However they invited order and . , the appeal came to be dismissed Thus according to him the order passed by the learned Single Judge in . the case of Nutan Mill has attained finality It is also COMA/291/2001 12/34 JUDGMENT further submitted by him that since the order passed , in the case of Nutan Mill has become final the respondents are estopped from raising any contention that dues of the ESI Corporation and the dues of the . cooperative societies are the same He has also further submitted that the dues of the ESI Corporation are held to be the revenue by the . , Division Bench under sec 530 of the Companies act 1956 and the observations made in para 13 of the judgement are obitterdicta and they are side , observations but the ratio of the judgement is that “ ”, the dues of the Corporation are revenue whereas the dues of the credit society acquires character of “ ”, trust money despite the fact that the liquidator had . not received the money in cash He has also further submitted that whether the money was utilized for the purchase of machinery or for working capital is of no consequence but the fact is proved that the money was deducted from the wages and the deductions have been shown to the official , . , liquidator but according to Mr Vasavada the official liquidator has filed hasty report in not indicating that . in fact the deduction has been effected The Wage Register is the conclusive proof that the deduction COMA/291/2001 13/34 JUDGMENT . has been effected He has also further submitted that , in view of Nutan Mill Case the application deserves . to be allowed When a pointed question was asked to . , Mr Vasavada learned advocate appearing on behalf of / - the applicant to produce and or to point out the tri parte agreement under which the amount was , deducted it is submitted by him that such . . arrangement of remittance i e deducting the amount from the wages and sending it to the credit society , was uniformly applied in all textile units and , therefore it may be presumed that the arrangement in the cases of Nutan Mill and Jubilee Mill is the . same He has also further submitted that the fact in ( ) the cases of ESI Corporation Prasad Mill's Case and , , facts in the present case are different and therefore the judgement of the Division Bench cannot be . applied to the facts of the present case Relying upon the judgement in the case of the State Financial . / . Corporation and another Vs M s Jagdama Oil Mills and , another reported in AIR 2002 SC 834 more - - , particularly Head Note E it is submitted that the judgement is required to be read in the facts of the . case on hand Relying on para 19 of the said judgement he has submitted that Courts should not COMA/291/2001 14/34 JUDGMENT place reliance on decisions without discussing as to how the factual situation fits in with the facts situation of the decision on which reliance is . placed The observations must be read in the . context in which they appear Judgements of Courts . are not to be construed as statutes Submitting , accordingly it is requested to read the judgement . of the Division Bench in the facts of that case only . 7 It is further submitted that assuming worst against the applicant since the amount was not remitted by the erstwhile management to the society as on / / , 30 1 1998 it partakes character of the wages and , therefore it should also be paidover to the workmen and it should be added in the total claim of the . workmen . 8 , . In short Mr Vasavada learned advocate for the applicant society has relied upon the judgement of , the learned Single Judge in the case of Nutan Mill wherein it is held that the money in the hand of Company on deduction of the amount under the / arrangement agreement had been impressed with a character of trust money and the credit society can , make a preferential claim and therefore it is requested to allow the present application and grant COMA/291/2001 15/34 JUDGMENT . relief as prayed for . 9 The application is seriously opposed and contested by . . , the respondents Mr Singhi learned advocate . , . appeared on behalf of the respondent No 2 Mr Rajesh , Dave learned advocate is appeared on behalf of . , . . . , respondent No 3 Mr P G Desai learned advocate . appeared on behalf of respondent Nos 4 and 6 as well as the learned official liquidator was appeared on behalf of the Company in Liquidation and this court has also considered Report filed by the Official . Liquidator . 10 , In the aforesaid Report official liquidator has submitted that the applicant society has moved an , application for seeking certain directions out of which one of the directions is to direct the official liquidator . , , = to pay an amount of Rs 7 72 392 00 being the amount deducted by the erstwhile management from the wages of the workers on behalf of the credit , society which was deducted by the management but . not deposited with the credit society It is also further submitted in the Report that looking to the Statement - , of Affairs filed by the Ex Director of the Company it . - is seen from page No 199 that Ex Director disclosed . . . at Sr No 57 Account No 109064 that a sum of COMA/291/2001 16/34 JUDGMENT . , , = . . . / Rs 7 72 392 00 is due and payable w e f 30 1/1988 to the applicant society under the head of unsecured . creditors It is also further submitted by him that such type of claim is not considered as secured claim . ( ) and does not attract the provisions of Sec 529 A of , . the Companies Act 1956 It is also further submitted by the official liquidator in his