IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM MONDAY, THE 4TH OCTOBER 2010 / 12TH ASWINA 1932 WP(C).No. 7216 of 2010(B) ------------------------ PETITIONER(S): --------------- 1. K.V.SASIDHARAN PILLAI, S/O.LATE K.N.VASUDEVAN PILLAI, KACHIRA HOUSE, PADINJANTTUMCHERRY, KAVIYOOR, THIRUVALLA. 2. K.I.ALEXANDER, S/O.LATE K.C.IDICULA, KONDORY HOUSE, CHAKOBHAGAM, KADAMANKULAM P.O., KALLOOPPARA. 3. M.N.VIJAYAN, S/O.M.N.NARAYANAN NAIR, MELAMPARAMBIL HOUSE, PADINJATTUMCHERRY, KAVIYOOR P.O., THIRUVALLA. 4. P.V.BIJU, S/O.LATE PHILIP.D., JAMMATHU KALATHIL HOUSE, NJALIBHAGAM MURIYIL, KAVIYOOR P.O., THIRUVALLA. 5. P.M.BIJU, S/O.P.C.MATHAI, PALLADU HOUSE, NJALIBHAGAM MURIYIL, KAVIYOOR P.O., THIRUVALLA. 6. ANIL KUMAR.V.K., S/O.KARUNAKARAN PILLAI VAZHAKALAYIL HOUSE, PADINJATTUMCHERRY, KAVIYOOR P.O., THIRUVALLA. 7. VINOD.T.A., S/O.KUTTAPPAN NAIR, KEEZHMANCHERRIL PADINJARETHIL, PADINJATTUMCHERRY, KAVIYOOR P.O., THIRUVALLA. 8. T.K.PRADEEP, S/O.T.G.KUTTAPPAN, KAKKANATTIL HOUSE, PADINJATTUMCHERRY, ANJILITHANAM P.O., KAVIYOOR P.O., THIRUVALLA. 9. RENJITH GOPAL, S/O.GOAPALAKRISHNAN.K.K., KUZHIYILETHU HOUSE, CHAKOBHAGAM, KALLOOPARA P.O. ...2/ WP(C).No. 7216 of 2010(B) -2- 10. ABRAHAM MATHEW, S/O.LATE MATHEW ABRAHAM, MUNDAKKEL HOUSE, ERAVIPEROOR, VALLAKULAM EAST P.O. 11. ABRAHAM THOMAS, S/O.LATE P.A.THOMAS, PLACKEEZHU PURAKKEL, VADAKETHIL HOUSE, ERAVIPEROOR MURIYIL, ERAVIPEROOR P.O., THIRUVALLA. 12. P.V.JOSE, S/O.LATE PHILIP.D., JAMMATHU KALATHIL HOUSE, NJALIGHAGAM MURIYIL, KAVIYOOR P.O., THIRUVALLA. 13. K.N.KUTTAN, S/O.LATE K.P.NARAYANA PILLAI KAILATHU VADAKKETHIL HOUSE, NJALIBHAGAM MURIYIL, KAVIYOOR P.O., THIRUVALLA. 14. T.P.SUNIL, S/O.THANKAPPAN P.K., PUTHENPURAKKEL PARAYIL HOUSE, PADINJATTUMCHERRY, ANJILITHANAM P.O., KAVIYOOR, THIRUVALLA. 15. K.J.ABRAHAM, S/O.LATE OOMMEN JOHN, KONKARA HOUSE, CHALAKUZHI MURI, PERUMTHURUTHY P.O., MUTHOOR, THIRUVALLA. 16. THOMAS MATHEW, S/O.LATE M.P.MATHEW, MADAPPALLIL HOUSE, KUTTOOR P.O., KAVIYOOR, THIRUVALLA. 17. T.C.ABRAHAM, S/O.LATE C.ABRAHAM, THYIPARAMBIL HOUSE, MEENTHALAKKARA, KATTODU, MANJADI P.O., THIRUVALLA. 18. N.A.SAMUEL, S/O.LATE PHILIPOSE ABRAHAM NACHUMANNIL HOUSE, KATTATHAN, VELLIYARA P.O., RANNI. 19. JAYA P.J., D/O.JANARDHANAN, ELAYADATHU PADINJARETHIL, ANJILITHANAM P.O., PADINJATTUMCHERRY, THIRUVALLA. 20. ALI KUMAR.M.M., S/O.MADHAVAN NAIR, MELAMPARAMBIL HOUSE, PADINJATTUMCHERRY KAVIYOOR P.O., THIRUVALLA. ...3/- WP(C).No. 7216 of 2010(B) -3- 21. RAVIKUMAR T.K., S/O.T.N.KESAVAN, THATTARUPARAMBIL HOUSE, NJALIBHAGAM MURIYIL, KAVIYOOR P.O., THIRUVALLA. 22. P.M.VARGHESE, S/O.LATE P.V.MATHEW, PATHALIL PUTHENPURACKAL (PAZHAMANNIL) VALIYAKUNNAM MURIYIL, VELLAYIL P.O., THEODICAL (VIA), THIRUVALLA. 23. DAVID K.S., S/O.LATE SEBASTIAN PHILIP JAMMATHUKALATHIL HOUSE, NJALIBHAGAM MURIYIL, KAVIYOOR P.O., THIRUVALLA. 24. SUNIL KUMAR K.S., S/O.LATE SUKUMARAN K.K KANJIRAM KALAYIL HOUSE, NJALIBHAGAM MURIYIL KAVIYOOR P.O., THIRUVALLA. 25. SUDHEESH.S., S/O.V.B.SREEKUMAR, SREEBHAVAN, NJALIBHAGAM MURIYIL, KAVIYOOR P.O., THIRUVALLA. 26. V.G.LAMBODHARAN, S/O.K.S.GOVINDAN ACHARI, GOVINDAMANDIRAM, THRICKODITHANAM P.O., THRIKODITHANAM MURIYIL, CHANGANACHERRY. 27. SANTHAMMA M.V., D/O.LATE VASU P.K., MELAMPARAMBIL HOUSE, PADINJATTUMCHERRY KAVIYOOR P.O., THIRUVALLA. 28. LALITHA SATHIYAM, D/O.BHASKARAN, KAKKANATTIL HOUSE, PADINJATTUMCHERRY, ANJILITHANAM P.O., KAVIYOOR P.O., THIRUVALLA. 29. T.P.VISWANATHAN PILLAI, S/O.LATE KRISHNA PILLAI, THRIKKAMAPURATHU HOUSE, PADINJATTUMCHERRY, KAVIYOOR P.O., THIRUVALLA. 30. GEORGE MATHEW, S/O.LATE W.M.GEORGE, WATTACHERIL HOUSE, THIRUMULLAPURAM P.O., ERAVALIPRA, THIRUVALLA. 31. THOMAS GEORGE, S/O.M.A.GEORGE, MANNATHU HOUSE, KOLLATHUR P.O., AIROOR, RANNI. 32. SAJEEV.K.K., S/O.LATE K.K.KARUNAKARAN, ERUNNAKUZHI POLAKKEL, PADINJATTUMCHERRY KAVIYOOR P.O., THIRUVALLA. ...4/- WP(C).No. 7216 of 2010(B) -4- 33. KOZHY JACOB, S/O.JACOB KOSHY, MURIGAYIL HOUSE, NJALIBHAGAM, KAVIYOOR P.O., THIRUVALLA. 34. EAPPEN MATHAI, S/O.LATE MATHAI PHILIP PALAKUNNEL PUTHENPARAMBIL, VALLAMKULAM EAST P.O., ERAVIPEROOR. 35. KARUN KUMAR THOMAS, S/O.LATE M.P.THOMAS, MAVELIMALAYIL, PADINJATTUMCHERRY, KAVIYOOR P.O., THIRUVALLA. 36. KURIEN THOMAS, S/O.LATE K.K.THOMAS, KONDOOR NJALIYIL HOUSE, CHAKOOMBHAGAM, KALLOOPPARA P.O. 37. LILLY THOMAS, D/O.A.T.THOMAS, KONDOOR NJALIYIL HOUSE, CHAKOOMBHAGAM, KALLOOPPARA P.O. 38. P.J.SEBASTIAN, S/O.LATE JOHN JOSEPH, POLACHIRA MANNEL, PADINJATTUMCHERRY PAREKUNNATHARA, KAVIYOOR P.O., THIRUVALLA. 39. R.DAN BHADUR, S/O.LATE RAM BHADUR, UNITEDTROPICAL VENEERS (QUARTERS) PADINJATTUMCHERRY, KAVIYOOR P.O., THIRUVALLA. BY ADV. SRI.P.HARIDAS RESPONDENT(S): ----------------------- 1. INDIAN OVERSEAS BANK, REPRESENTED BY ITS AUTHORIZED OFFICER, ASSET RECOVERY MANAGEMENT BRANCH, CENTRAL OFFICE, ANNEX BUILDING, 1ST FLOOR, 763, ANNA SALAI, CHENNAI-600 002. 2. THE CHIEF MANAGESR, INDIAN OVERSEAS BANK, SOWCARPET BRANCH, CHENNAI. 3. THE DISTRICT LABOUR OFFICER, PATHANAMTHITTA. 4. UNITED TROPICAL VENEERS (PVT.) LIMITED KAVIYOOR, THIRUVALLA, REPRESENTED BY ITS MANAGING DIRECTOR. ...5/- WP(C).No. 7216 of 2010(B) -5- 5. SMT.BHARATHI SUDHARIYA, MANAGING DIRECTOR, UNITED TROPICAL VENEERS (PVT) LTD., 12-D, LINK LEKSHMAN APPARTMENT, NEAR SOUTH OVERBRIDGE, VALANJAMBALAM, KOCHI. R1 & R2 BY ADV. SRI.P.B.SURESH KUMAR, SC, I.O.BANK R3 BY GOVERNMENT PLEADER SRI. MATHEW VADAKKEL THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 06/09/2010, THE COURT ON 04/10/2010 DELIVERED THE FOLLOWING: Mn C.R. C. K. ABDUL REHIM, J. =~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~= W.P.(C) No. 7216 of 2010 =~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~= Dated this the 4th day of October, 2010 JUDGMENT Petitioners claim to be workmen of the 4th respondent company, which is engaged in manufacture of veneers and allied products. The 4th respondent company availed financial assistance from the 1st respondent Bank by mortgaging its assets, including the factory building and land appurtenant thereto, having an extent of 4.5 Acres. It is stated that the Directors of the company are co-obligants in the loan transaction and properties belonging to them were also mortgaged for securing financial assistance. Consequent to default committed by the 4th respondent in repayment, respondents 1 and 2 initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short SARFAESI Act) and the assets of the 4th respondent company, including the factory and industrial land, were put W.P.(C) No. 7216/2010 2 to auction as per Ext.P1 notification. 2. Contention of the petitioners is that, if the factory is closed down pursuant to the sale proposed, the petitioners will be rendered jobless and their families will be put to starvation. It is contended that respondents 1 and 2 are bound to satisfy all dues of the workmen, including benefits due as gratuity and E.P.F. contribution etc., based on provisions contained in Section 13(9) of the SARFAESI Act. The petitioners had submitted a representation to the District Labour Officer in this regard and a conciliation proceedings was initiated thereon. According to petitioners, huge amounts are due to them from the 4th respondent company pertaining to various eligible benefits under the employment and that the 4th respondent is making a collusive attempt with respondents 1 & 2 to get rid of such liabilities. It is mentioned that the 1st respondent Bank had filed application before the Debts Recovery Tribunal, Chennai, and obtained Recovery Certificate and DRC No:115/2010 is pending disposal before that Tribunal. W.P.(C) No. 7216/2010 3 Under the above circumstances, the petitioners are seeking to quash the proceedings under the SARFAESI Act as well as the proceedings initiated by the 1st respondent Bank before the Debts Recovery Tribunal, Chennai. On the alternative the petitioners are seeking directions for payment of benefits due to them, in case of closure of the company. 3. The petitioners are total strangers, as far as the loan transaction is concerned. The loan in question was availed by the 4th respondent company and its Directors. The loan is secured through mortgage of various assets of the company and the Directors. Respondents 1 and 2 are now proceeding against those secured assets by resorting to provisions under the SARFAESI Act. The petitioners are now raising claims based on amounts allegedly due to them from the 4th respondent. Admittedly, the alleged dues are not adjudicated or quantified by any competent authority empowered under the relevant labour legislations. Even assuming that there is any amount due to the petitioners W.P.(C) No. 7216/2010 4 from the 4th respondent, which stands adjudicated and quantified, question arises as to whether the petitioners are entitled to restrain the proceedings initiated under the SARFAESI Act or to claim priority in distribution with respect to amounts realized in proceedings under the SARFAESI Act or under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for short RDBFI Act). 4. The petitioners are placing reliance on Section 13 (9) of the SARFAESI Act as well as Section 529A of the Companies Act, 1956 to substantiate their contentions. Section 13(9) of the SARFAESI Act deals with a situation wherein more than one secured creditor financing with respect to a particular financial asset. It stipulates that, in such case no secured creditor shall be entitled to exercise any or all of the rights conferred under Section 13(4), unless exercise of such right is agreed upon by other secured creditors representing not less than 3/4th in value of the amount outstanding as on date. The first proviso to section 13(9) provides that, the proceeds out of sale of the secured W.P.(C) No. 7216/2010 5 assets with respect to a company in liquidation shall be distributed in accordance with provisions contained under section 529A of the Companies Act, 1956. The second proviso to section 13(9) deals with a situation where the company is wound up. It specifies that in such cases the secured creditors can proceed with sale of the secured assets, subject to appropriation of the sale proceeds only after depositing the workmen's dues. In the subsequent proviso it is mentioned that, in such case the Liquidator should intimate the secured creditors about the workmen's dues, for the above said purpose. Section 529A of the Companies Act, 1956 deals with distribution of assets and its priorities in case of companies which are ordered to be wound up. The said provision prescribes priority with respect to workmen's dues. 5. In the case at hand, neither the 4th respondent company has been wound up nor any proceedings has been initiated for winding up of the said company. Therefore it is evident that none of the provisos to Section 13(9) is W.P.(C) No. 7216/2010 6 applicable in this case. The learned counsel for the petitioners had placed reliance on the decision of the apex Court in National Textile Workers Union V. P.R.Ramakrishnan, (AIR 1983 SC 75), and also on the decision in Allahabad Bank V. Canara Bank and another, ((2004) 4 SCC 406). The former decision deals with rights of workers to have a say in the matter of winding up of the company. The latter one deals with the procedure to be followed by the Recovery Officer in the case of a company with respect to which a winding up proceedings is pending, while enforcing recovery certificate issued under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. In such cases also it is held that, the provisions in the Companies Act will not oust jurisdiction of the authorities under the Recovery of debts due to Banks and Financial Institutions Act, and the priorities among various creditors can be decided by the Debts Recovery Tribunal, taking into consideration of the priorities fixed under Section 529A of the Companies Act. It W.P.(C) No. 7216/2010 7 is further held that wherever there are inconsistencies between the provisions of the Recovery of debts due to Banks and Financial Institutions Act and the Companies Act, the provisions of the Companies Act will over ride the other Statute. 6. Sri. P.B.Suresh Kumar, learned counsel for respondents 1 & 2 expressed strong resistance in entertaining the writ petition itself, contending that even assuming that the petitioners are persons aggrieved in any manner by the coercive steps initiated under the SARFAESI Act, they can only invoke appellate remedies available under section 17(1) of the said Act and this writ petition cannot be entertained in any manner. He further points out that in paragraph 54 of the Judgment in Allahabad Bank's case (cited supra) it is clearly mentioned that if a company, which is implicated as a defendant in a proceedings under the RDBFI Act, against which no order of winding up has been issued, is only like any other defendant, and if in such case any question arises before the Tribunal with respect to W.P.(C) No. 7216/2010 8 priority in distribution of any amount realized, the Tribunal need to decide such questions bearing in mind only the principles underlying in Section 73 of the CPC. It is observed that Section 22 of the RDBFI Act confers wider powers on the Tribunals to decide such questions of priorities, subject only to principles of natural justice. Therefore, it is evident that in a case where there is no proceedings pending before the Company Court or in case where the company is not under liquidation, any claimant or the workmen, that too with respect to unliquidated amounts, are not entitled to cause any hindrance against proceedings under the SARFAESI Act or under the RDBFI Act, is the contention. 7. Eventhough I am in perfect agreement with contention raised by Sri.P.B. Suresh Kumar on the aspect of maintainability of the writ petition, I am inclined to consider the larger legal question posed, based on the provisos to Section 13(9) of SARFAESI Act. On a plain reading of the first and second provisos to Section 13(9) as well as on W.P.(C) No. 7216/2010 9 consideration of the legal precedents as quoted above, it is clear that the workmen of a company, who claim priority in distribution of assets by virtue of Section 529A of the Companies Act, are not entitled to raise any objection against proceedings initiated by the secured creditor against the secured assets of the company, unless the company is ordered to be wound up or any proceedings for winding up of the company is pending. Likewise, they are also not entitled to claim priority in distribution of the amounts realized under the RDBFI Act based on the provisions of the Companies Act as long as no winding up order is passed against the company. Therefore the prayer in the writ petition to quash the proceedings in DRC No:115/2010 of the Debts Recovery Tribunal-2, Chennai could not be allowed. So also this court will not be justified in directing the respondents to effect payment of any sum to the petitioners as workmen's dues, out of amounts if any recovered in proceedings initiated against the secured assets under the SARFAESI Act. Therefore the writ petition W.P.(C) No. 7216/2010 10 deserves no merit and the same is accordingly dismissed. However, it is made clear that on the event of the 4th respondent company being wound up or any proceedings for winding up being initiated against the company, the petitioners will be at liberty to seek appropriate reliefs in accordance with provisions of the Companies Act, read with relevant provisions in the SARFAESI Act and RDBFI Act. It is further made clear that this Judgment will not stand in the way of the petitioners seeking claim over any surplus amounts if recovered by respondents 1 & 2 through the proceedings now initiated against the 4th & 5th respondents, as permissible under law. C. K. ABDUL REHIM, JUDGE. mn.