IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 12.07.2010 CORAM THE HONOURABLE MR.JUSTICE D.MURUGESAN AND THE HONOURABLE MR.JUSTICE M.SATHYANARAYANAN W.P.No.11308 of 2010 1. K.Karunakaran 2. N.Subramaniam 3. G.Raju 4. A.Sekar 5. S.Sekar 6. P.Rajendiran .. Petitioners -vs- 1. The Chief Manager/Authorised Officer Assets Management Branch State Bank of India No.32, Montieth Road Egmore, Chennai 600 008 2. The Manager Overseas Branch No.13, Musif Srinivasapuram Oothukuli Road Thirupur 641 601 3. The Management of Sikora Knits (P) Ltd., No.15, Velampalayam Village Palladam Taluk, Thirupur .. Respondents Petition under Article 226 of the Constitution of India, praying for the issue of a Writ of Mandamus, directing the 1st respondent to pay the dues entitled by the petitioners as computed by the Labour Court at Coimbatore in C.P.Nos.215 to 220 of 2008 dated 19.11.2008 and back wages upto 31.12.2009 a total sum of Rs.13,86,450/- from and out of the sale proceeds of the properties secured for the debts of the 3rd respondent. For Petitioners :: Mr.K.C.Karl Marx For Respondents :: Mr.Shivakumar for R1 No appearance for others ORDER (Order of the Court was delivered by M.SATHYANARAYANAN, J.) The petitioners are the workmen of the third respondent. They raised industrial disputes before the Labour Court at Coimbatore in I.D.Nos.142 to 147 of 2001 against the termination of their service. https://hcservices.ecourts.gov.in/hcservices/ The Labour Court has passed an award holding that the termination of the petitioners-workmen is illegal and unjustified and ordered the reinstatement with 50% of backwages and other benefits vide judgment dated 24.8.2006. The workmen, after getting such an order, approached the third respondent-Management seeking for reinstatement and also backwages. They also issued legal notices in this regard. Since the above said award of the Labour Court has not been complied with, the petitioners-workmen filed Claim Petitions in C.P.Nos.215 to 220 of 2008 for computation of the money value of benefits. The Labour Court, vide order dated 19.11.2008, had computed the money value of the benefits for each of the petitioners to be paid by the third respondent upto 30.4.2008. 2. Subsequently, in respect of the loans availed by the third respondent which has not been paid on due dates, the first respondent had initiated action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "the SARFAESI Act") and also brought the properties for auction on 6.6.2010. 3. The grievance of the petitioners is that in the event of the properties being sold, they will be left with no other remedy or security to be proceeded with to realise the amount which has been computed as per the order dated 19.11.2008 made in C.P.Nos.215 to 220 of 2008. Learned counsel for the petitioners would submit that if the first respondent-bank is allowed to proceed with the auction of the properties, they will be left with no other remedy and they will be put to grave hardship and irreparable loss. 4. The Court heard the submissions of the learned counsel for the first respondent-bank. 5. In Allahabad Bank v. Canara Bank, (2000) 4 SCC 406, the Supreme Court, while considering the issue relating to the impact of the provisions of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 on the provisions of the Companies Act, 1956 and also the decision with regard to non winding up order vis-a-vis the dues payable to other creditors, has held as follows:- "Alternatively, the Companies Act, 1956 and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, Section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts. Therefore, it has to be held that at the stage of adjudication under Section 17 and execution of the certificate under Section 25 etc. the provisions of the RDB Act, 1993 confer exclusive jurisdiction on the Tribunal and the Recovery Officer in respect of debts payable to banks and financial https://hcservices.ecourts.gov.in/hcservices/ institutions and there can be no interference by the Company Court under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with Section 19(19) read with Section 529-A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the Companies Act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding-up petition against the debtor Company and also after a winding-up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Where the defendant company is a company against which no winding-up order is passed, the company, in our view, is like any other defendant and if in such a situation a question of priority arises before the Tribunal, in respect of any monies realised under the RDB Act, as between the bank or financial institutions on the one hand and the other creditors on the other, it will, in our opinion, be necessary for the Tribunal to decide such questions of priority bearing in mind principles underlying Section 73 of the Code of Civil Procedure. Section 22 of the RDB Act, in our view, gives sufficiently wide powers to the Tribunal and the Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. This Court has explained that the powers under Section 22 are wider than those of civil courts and the only restriction on its powers is that principles of natural justice have to be followed. But under Section 73 CPC, sharing in the sale proceeds (here, sale proceeds realised under the RDB Act) is permissible only if a person seeking such share has obtained a decree or an order of adjudication from the Tribunal and has also complied with other conditions laid down under Section 73. In the present case, Canara Bank is not in a position to invoke the principles underlying Section 73 CPC because it has not yet obtained any decree or adjudication of its debt from the Tribunal. Nor has it complied with other provisions underlying Section 73 CPC. Hence no relief can be granted on the basis of the said principles. Section 19(19) gives priority to all “secured creditors” to share in the sale proceeds before https://hcservices.ecourts.gov.in/hcservices/ the Tribunal/ Recovery Officer cannot, in our opinion, be accepted. The said words are qualified by the words “in accordance with the provision of Section 529-A”. Hence, it is necessary to identify the above limited class of secured creditors who have priority over all others in accordance with Section 529-A. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding- up. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in Section 529. The insolvency rules are those contained in Sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in Section 529(2). Till today, Canara Bank has not made it clear whether it wants to come under this category." Therefore, as per the ratio laid down in the above cited decision, in the event of non passing of the winding up order, the adjudication has to be made with regard to the priority on the basis of the principles underlying under Section 73 of the C.P.C. Under Section 73 of C.P.C. sharing in the sale proceeds is permissible only if a person seeking such share obtained a decree or an adjudication from the Tribunal and also has complied with other conditions laid down under Section 73 of C.P.C. 6. In A.P. State Financial Corpn. v. Official Liquidator, (2000) 7 SCC 291, the A.P.State Financial Corporation had invoked the provisions of Section 29 of the State Financial Corporation Act, 1951 against two companies and since both companies were in liquidation, had filed two applications under Section 446(1) of the Companies Act r/w Sections 29 and 46 of the State Financial Corporation Act, 1951 before the learned Company Judge for staying out side the liquidation proceedings. The learned Judge had granted an order to A.P.State Financial Corporation subject to certain conditions and two appeals were preferred and those appeals were also dismissed. The A.P.State Financial Corporation being aggrieved by the same, preferred appeals before the Hon'ble Supreme Court of India. The Hon'ble Supreme Court of India in the said decision, has held as follows:- "The Act of 1951 is a special Act for grant of financial assistance to industrial concerns with a view to boost up industrialisation and also recovery of such financial assistance if it becomes bad and similarly the Companies Act deals https://hcservices.ecourts.gov.in/hcservices/ with companies including winding up of such companies. The proviso to sub-section (1) of Section 529 and Section 529-A being a subsequent enactment, the non-obstante clause in Section 529-A prevails over Section 29 of the Act of 1951 in view of the settled position of law. We are, therefore, of the opinion that the above proviso to sub-section (1) of Section 529 and Section 529-A will control Section 29 of the Act of 1951. In other words the statutory right to sell the property under Section 29 of the Act of 1951 has to be exercised with the rights of pari passu charge to the workmen created by the proviso to Section 529 of the Companies Act. Under the proviso to sub-section (1) of Section 529, the liquidator shall be entitled to represent the workmen and force (sic enforce) the above pari passu charge. Therefore, the Company Court was fully justified in imposing the above conditions to enable the Official Liquidator to discharge his function properly under the supervision of the Company Court as the new Section 529-A of the Companies Act confers upon a Company Court the duty to ensure that the workmen’s dues are paid in priority to all other debts in accordance with the provisions of the above section. The legislature has amended the Companies Act in 1985 with a social purpose viz. to protect dues of the workmen. If conditions are not imposed to protect the right of the workmen there is every possibility that the secured creditor may frustrate the above pari passu right of the workmen. The High Court's opinion that it was not necessary for the Financial Corporation to approach this Court for permission to stay outside the winding-up proceedings was uncalled for as the power under Section 29 of the Act of 1951 can be exercised subject to the above provisions of the Companies Act." 7. In view of the ratio laid down in the above said decisions, unless the company is wound up, the workmen cannot be made entitled to recover the money value of the computation passed in C.P.Nos.215 to 220 of 2008. Following the above said judgment, this Court, vide judgment dated 29.3.2010 made in W.A.No.588 of 2006, has held as follows: "40. In the case on hand, the winding up proceedings are yet to take place and consequently, the invocation of Section 529A of the Companies Act does not arise for consideration. The Hon'ble Supreme Court of India in a decision reported in 2000(4) SCC 406 (cited supra) has also laid down a ratio to the effect https://hcservices.ecourts.gov.in/hcservices/ that subject to the principles enumerated under Section 73 of C.P.C., there must be a decree or order of adjudication from the Tribunal." 8. However, this Court, taking into consideration of the award of the Labour Court and the subsequent computation in C.P.Nos.215 to 220 of 2008 by the Labour Court, Coimbatore, is of the considered view that the respondents 1 and 2 may take into consideration the plight of the petitioners and explore the possibility of the payment of part of the dues of the workmen out of the sale proceeds of the assets of the third respondent-company. With these observations, the writ petition is disposed of. Consequently, M.P.No.2 of 2010 is closed. No costs. Sd/- Asst. Registrar //true copy// Sub Asst.Registrar ss To 1. The Chief Manager/Authorised Officer Assets Management Branch State Bank of India No.32, Montieth Road Egmore, Chennai 600 008 2. The Manager Overseas Branch, State Bank of India, No.13, Musif Srinivasapuram Oothukuli Road Thirupur 641 601 1 cc to Mr.M.Christopher, Advocate, Sr.No.49870 1 cc to Mr.Shivakumar, Advocate, Sr.No.49722 W.P.No.11308 of 2010 AKR {CO} TP/19.7.2010. https://hcservices.ecourts.gov.in/hcservices/