THE HON’BLE SRI JUSTICE B PRAKASH RAO AND THE HON’BLE SRI JUSTICE R KANTHA RAO O.S.A. No. 18 of 2009 JUDGMENT: (Per Sri Justice B Prakash Rao) This appeal is at the instance of the appellant M/s. Stressed Assets Stabilization Fund (IDBI) represented by its Deputy General Manager, Mumbai, filed under clause 15 of the Letters of Patent read with section 483 of the Companies Act, 1956, interalia assailing the orders of the learned single Judge in Company Application No.1457 of 2007 in C P No. 31 of 2000 dated 2.5.2008 insofar as awarding interest at 15 % per annum while allowing the claim in respect of the dues to the employees and secured creditors as pari passu. Heard Mr P V Markandeyulu, learned counsel appearing on behalf of the appellant, Mr M Anil Kumar, learned standing counsel for Official Liquidator and Mr K Gopalakrishna Murthy, learned counsel for contesting respondent no.2. Without going into the much details of the checkered events which give raise to various claims and proceedings in winding up of the company in liquidation viz., M/s. Cripps Laboratories Limited, suffice to say that the said company was ordered to be wound up as per the orders in C.P. No. 31 of 2000 dated 9.3.2005 and earlier to such proceedings, the appellant had sanctioned a term loan of Rs.400 lakhs to the company which was reduced to Rs.200 lakhs since the mortgage was not created on the immovable properties in spite of execution of hypothecation of movable properties. That apart, the second respondent which is State Bank of India sanctioned a loan of Rs.137.74 lakhs to the company on security of first charge on the land and building and plant and machinery situated at Pendurthi junction with it, being a secured creditor. In the process of winding up and liquidation, the assets were ordered to be sold by the Official Liquidator as per the orders of the learned single Judge dated 9.3.2005 and accordingly the same was sold at Rs.5.30 crores and after following the procedure the sale was confirmed. Later a sum of Rs.83.35 lakhs was disbursed to the appellant as per the orders of the learned single Judge dated 30.9.2006 and a sum of Rs.1.87 lakhs to the second respondent as interim disbursement, pending adjudication of the probe of the debts. The official liquidator filed an application in C A No.1457 of 2007 to disburse the balance monies to the secured and unsecured creditors as mentioned in the annexure to said application. The said application was contested by the appellant by filing a counter affidavit. Earlier in an application in C A No. 1400 of 2006 a claim was made for interest at the agreed contract rate till the date of realization at 4 % per annum. As per the orders dated 2.5.2008, it was held that State Bank of India/second respondent is entitled for interest from the due date till the date of sale of assets at the contracted rate from the sale proceedings. Therefore the present appeal. The case of the appellant in brief is to the effect that having regard to the contract, it is only the said rate as prescribed therein viz., 4 % but not at 15 % to which the second respondent should be entitled to. However in spite of such contract the learned single Judge ordered for payment of 15 % per annum rate of interest which is wholly unsustainable. Repelling the said contention, the case of the second respondent is to the effect that having regard to the specific provisions as contained under section 529 and 529 (A) of the Companies Act, both the claimants viz., the employees as well as the secured creditors stand on equal footing and therefore dehors any such contract, they would be entitled to the interest as awarded by the learned single judge. In view of the aforesaid submissions made, when various claims as set forth as to their entitlement on the principal amount, the question that falls for consideration as to the rate of interest, the second respondent would be entitled to. For consideration of the said plea it requires for reference to relevant provisions under section 529 and 529 (A ) of the Companies Act, which reads as follows; 529 Application of insolvency rules in winding up of insolvent companies (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to- (a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (c) 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: 1551 Inserted by the Companies (Amendment) Act, 1985. [Provided 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,- (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen's dues; and (c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso 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 purposes of section 529A.] (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section : 1552 Inserted by the Companies (Amendment) Act, 1960.1553 Inserted by the Companies (Amendment) Act, 1960.[provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay 1554 Inserted by the Companies (Amendment) Act, 1985.[his portion of] the expenses incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.] 1555 Inserted by the Companies (Amendment) Act, 1985. [Explanation: For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmen's portion in relation to the security bears to the value of the security.] 1556 Inserted by the Companies (Amendment) Act, 1985.[(3) For the purposes of this section, section 529A and section 530,- (a) "workmen", in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947); (b) "workmen's dues", in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:- (i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947; (ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution; (iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company; (iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company; (c) "workmen's portion", in relation to the security of any secured creditor of a company, 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- (i) the amount of workmen's dues; and (ii) the amounts of the debts due to the secured creditors. Illustration 529A [Overriding preferential payments. (1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company- (a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub- section (1) shall be paid in full, unless the assets are insufficient to meet Before the main issue is taken up for consideration, it is necessary to take note of the fact that the entire claim of the workers appears to have been already fully paid and there is no dispute in this regard. Admittedly the second respondent is secured creditor. On a bare reading of the above provisions, a restriction is clearly drawn as to the situation before and after the orders of winding up. Section 529(A) commences with a non- obstante clause, where the workers dues and debt dues to the secured creditors are put on pari passu and given priority to over other debts. Therefore there is no restriction on the entitlement, squarely compassing within the four corners of the contract. Learned single Judge after considering the respective submissions and the principle laid down in ICICI BANK LTD Vs SIDCO LEATHERS LTD[1], B.L. WADHERA Vs. UNION OF INDIA [2], RAJASTAN FINANCIAL CORPORATION Vs. OFFICIAL LIQUIDATOR, JAIPUR SPINNING AND WEAVING MILLS LTD[3], A. SHANMUGHAM Vs. OFFICIAL LIQUIDATOR, MADRAS[4], has upheld the claim for the interest. Further, there being now no dispute in regard to the fact that the entire claim of the employees has already been paid up and only claim remaining is with that of the second respondent, the award of interest can no longer be restricted to that of contractual, certainly left to the right discretion at the time of payment subject to the availability of funds. As far as funds are concerned, there is no dispute and same are still available and can be utilized for payment of all such dues. The other relevant rules which have a bearing on the above aspect are Rules 174 and 179 apart from Rule 156 of the Companies (Court) Rules, 1959, which reads as under; Rule 156: Interest:- On any debt or certain sum payable at a certain time or otherwise, whereon interest is not reserved or agreed for, and which is overdue at the date of the winding up order, or the resolution as the case may be, the creaditor may prove for interest at a rate not exceeding four per cent per annum up to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed from the date of demand until the time of payment. Rule 174: Settlement of list of creditors:- On the date fixed or on any adjourned date, the Court shall after hearing such evidence as may be tendered, adjudicate upon the claims and settle the list of creditors. The settlement of the list of creditors shall be recorded in a certificate signed by the judge in Form No.75. Rule 179: Payment of subsequent interest:- In the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted shall be paid interest from the date of the winding up order or of the resolution as the case may be, up to the date of the declaration of the final dividend, at a rate not exceeding 4 % p a on the admitted amount of the claim after adjusting against the said amount the dividends declared as on the date of the declaration of the dividend.” On a consideration of these provisions, the learned single Judge has found that the legitimate dues of the workers shall rank pari passu with the secured creditors and above even the dues payable to the Government. There is thus a preference to the workmen dues and the debts due to the secured creditors. Even it goes to show that in the event the securities are insufficient, the claims of both workmen and secured creditors abate in equal proportion. Therefore, for all purposes the dues to the workmen and that of the secured creditors run on same lines and to the same benefit and prior to all other dues. Similarly the situation towards the entitlement for interest and therefore putting both these liabilities over and above the principal amounts due to them, the learned single Judge has awarded 15 % per annum interest. Therefore, having regard to the detailed reasons as rightly given by the learned single Judge and there being no such bar and more so that a clear distinction being drawn from the date of winding up in respect of the secured assets, we do not find any error in the approach of the learned single Judge in awarding the interest at 15 % per annum. In the circumstances there are absolutely no merits in the appeal and the same is accordingly dismissed. No costs. _______________ B PRAKASH RAO,J ______________ R KANTHA RAO,J DATE: -06-2010 TVK THE HON’BLE SRI JUSTICE B PRAKASH RAO AND THE HON’BLE SRI JUSTICE R KANTHA RAO O.S.A. No. 18 of 2009 DATE: 18-06-2010 [1] AIR 2006 SC 2088 [2] 2002(9)SCC 108 [3] 1997 (88) COMPANY CASES 192 (Raj) [4] 1992 (75) COMPANY CASES 181 (Madras)