Case: Andhra Bank Vs. Official Liquidator

Fund etc. vs. Kartick Das etc. [(1994) 4 SCC 225] . An unreasoned order does not subserve the doctrine of fair play [See M/s. Mangalore Ganesh Beedi Works Vs. The Commissioner of Income Tax, Mysore and Anr. JT 2005 (2) SC 442 ]. 32. In UCO Bank vs. Official Liquidator, High Court, Bombay and Another [(1994) 5 SCC 1] , whereupon Mr. Gupta placed strong reliance, this Court although noticed the legislative intent in enacting Sections 529 and 529-A did not lay down the law that the claim of the workers ranked higher in priority than the secured creditors. It merely states that for achieving the purpose for which the said amendment was made, it is necessary that the amended provisions must apply to all available securities which form part of the assets of the company in liquidation on the date of the amendment. 33. Submission of Mr. Gupta, that the impugned order having been passed by the learned Single Judge in the year 1993, the considerations which prevailed at that time only should be considered, cannot be accepted as it is trite that even the appellate court while passing its order may take into consideration, the subsequent events. 34. In Rajesh D. Darbar and Others Vs. Narasingrao Krishnaji Kulkarni & Ors. [(2003) 7 SCC 219] , this Court noticed: 4. The impact of subsequent happenings may now be spelt out. First, its bearing on the right of action, second, on the nature of the relief and third, on its importance to create or destroy substantive rights. Where the nature of the relief, as originally sought, has become obsolete or unserviceable or a new form of relief will be more efficacious on account of developments subsequent to the suit or even during the appellate stage, it is but fair that the relief is moulded, varied or reshaped in the light of updated facts. Patterson v. State of Alabama [1934] 294 U.S. 600, illustrates this position. It is important that the party claiming the relief or change of relief must have the same right from which either the first or the modified remedy may flow. Subsequent events in the course of the case cannot be constitutive of substantive rights enforceable in that very litigation except in a narrow category (later spelt out) but may influence the equitable jurisdiction to mould reliefs. Conversely, where rights have already vested in a party, they cannot be nullified or negated by subsequent events save where there is a change in the law and it is made applicable at any stage. Lachmeshwar Prasad Shukul v. Keshwar Lal Choudhuri AIR 1941 FC 5 falls in this category. Courts of justice may, when the compelling equities of a case oblige them, shape reliefs - cannot deny rights - to make them justly relevant in the updated circumstances. Where the relief is discretionary, Courts may exercise this jurisdiction to avoid injustice. Likewise, where the right to the remedy depends, under the statute itself, on the presence or absence of certain basic facts at the time the relief is to be ultimately granted, the Court, even in appeal, can take note of such supervening facts with fundamental impact. This Courts judgment in Pasupuleti Venkateswarlu v. Motor & General Traders AIR 1975 SC 1409 read in its statutory setting, falls in this category. Where a cause of action is deficient but later events have made up the deficiency, the Court may, in order to avoid multiplicity of litigation, permit amendment and continue the proceeding, provided no prejudice is caused to the other side. All these are done only in exceptional situations and just cannot be done if the statute, on which the legal proceeding is based, inhibits, by its scheme or otherwise, such change in cause of action or relief. The primary concern of the court is to implement the justice of the legislation. Rights vested by virtue of a statute cannot be divested by this equitable doctrine - See V.P.R.V. Chockalingam Chetty v. Seethai Ache AIR 1927 PC 252 . [See also Board of Control for Cricket, India and Anr. Vs. Netaji Cricket Club and Ors. [JT 2005 (1) SC 235 ]. 35. Correctness of an equitable order like the impugned one may be judged upon taking into consideration the subsequent events. Subsequent events as pointed out by Mr. Rao, furthermore, are not disputed. 36. The learned Company Judge in its order dated 8.5.2002 has noticed that a substantive amount has been paid to the workers towards their past dues. Payments have also been made not only to the statutory authorities but also to the secured creditors and the Special Officers. The workmen since the sale of the assets of the company as a working concern, have received substantial amounts towards their past dues and are being paid their current dues. A situation of starvation of the workmen does no longer prevail. The order passed by the learned Single Judge cannot moreover be sustained on amongst others, the ground of not assigning any reason in support thereof. The Division Bench of the High Court also relied on the observation made in paragraph 76 of this Courts judgment in Allahabad Bank.(supra) It did not advert independently to any other contention of the parties. 37. The contention of Mr. Gupta that Debts Recovery Tribunal having been established in the West Bengal on 27.4.1994, the dispute has to be resolved without reference to the RDB Act, also cannot be accepted. 38. The rights and obligations of the parties would only be crystallized after the lis is adjudicated upon. 39. The question of issuance of any certificate in terms of Section 19 of the RDB Act would arise only upon the conclusion of the proceeding before it. 40. In view of our findings aforementioned, it may not be necessary for us to consider the question as to whether the claim of the company having been underwritten by the Duncan Agro Industries Limited in favour of the Bank, it has suffered any prejudice or not.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]26. Such an observation was, thus, neither required to be made keeping in view the fact situation obtaining therein nor does it find support from the clear and unambiguous language contained in Section 529-A(1)(a). We have, therefore, no hesitation in holding that finding of this Court in Allahabad Bank (supra) to the aforementioned extent does not lay down the correct law29. No reason has been assigned in support of the said direction. The contentions of the parties had not been noticed. What impelled the learned Judge in issuing the said directions is not discernible. The jurisdictional question had also not been addressed30. Whether the workmen could be directed to be paid on an ad hoc basis having regard to their claim of past dues vis-a-vis the claim of the Appellants had not been deliberated upon. When a matter is not pending before the Tribunal under the RDB Act, in terms of Section 19(19) thereof, the secured creditors would not get priority per se as it is qualified by the words in accordance with the provisions of Section 529-A. The claims of the secured creditors are, thus, required to be considered giving priority over unsecured creditors but their claim would be pari passu with the workmen38. The rights and obligations of the parties would only be crystallized after the lis is adjudicated upon39. The question of issuance of any certificate in terms of Section 19 of the RDB Act would arise only upon the conclusion of the proceeding before it40. In view of our findings aforementioned, it may not be necessary for us to consider the question as to whether the claim of the company having been underwritten by the Duncan Agro Industries Limited in favour of the Bank, it has suffered any prejudice or not22. In terms of the aforementioned provisions, the secured creditors have two options (i) they may desire to go before the Company Judge; or (ii) they may stand outside the winding up proceedings. The secured creditors of the second category, however, would come within the purview of Section 529- A(1)(b) read with proviso (c) appended to Section 529(1). The workmens portion as contained in proviso (c) of sub-section (3) of Section 529 in relation to the security of any secured creditor means the amount which bears to the value of the security in the same proportion as the amount of the workmens dues bears to the aggregate of (a) workmens due, and (b) the amount of the debts due to all the creditorssubmission of Mr. Gupta is that in a situation of this nature, what was necessary to be considered by the learned Single Judge was to find out the amount in relation whereto the appellant was raising its claim as a secured creditor, namely, 135 lakhs vis- a-vis the aggregate of the amount of the workmens dues of 19 crores and the claim of any other secured creditor was not required to be taken into consideration23. The language of Section 529-A is also clear and unequivocal, in terms whereof the workmens due or the debts due to the 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 have priority over all other debts. Once the workmens portion is worked out in terms of proviso (c) of sub-section (1) of Section 529, indisputably the claim of the workmen as also the secured creditors will have to be paid in terms of Section 529-A23. The language of Section 529-A is also clear and unequivocal, in terms whereof the workmens due or the debts due to the 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 have priority over all other debts. Once the workmens portion is worked out in terms of proviso (c) of sub-section (1) of Section 529, indisputably the claim of the workmen as also the secured creditors will have to be paid in terms of Section 529-A25. While determining the Point No.6, however, a stray observation was made to the effect that the workmens dues have priority over all other creditors, secured and unsecured because of Section 529-A(1)(a). Such a question did not arise in the case as the Allahabad Bank was indisputably an unsecured creditor26. Such an observation was, thus, neither required to be made keeping in view the fact situation obtaining therein nor does it find support from the clear and unambiguous language contained in Section 529-A(1)(a). We have, therefore, no hesitation in holding that finding of this Court in Allahabad Bank (supra) to the aforementioned extent does not lay down the correct law27. The court also wrongly placed reliance on National Textile Workers Union and Others vs. P.R. Ramakrishnan and Others [(1983) 1 SCC 228] . The question which arose therein was only as regard the right of the workers be heard in the winding up proceeding. The said decision was, therefore, not applicable25. While determining the Point No.6, however, a stray observation was made to the effect that the workmens dues have priority over all other creditors, secured and unsecured because of Section 529-A(1)(a). Such a question did not arise in the case as the Allahabad Bank was indisputably an unsecured creditor26. Such an observation was, thus, neither required to be made keeping in view the fact situation obtaining therein nor does it find support from the clear and unambiguous language contained in Section 529-A(1)(a). We have, therefore, no hesitation in holding that finding of this Court in Allahabad Bank (supra) to the aforementioned extent does not lay down the correct law27. The court also wrongly placed reliance on National Textile Workers Union and Others vs. P.R. Ramakrishnan and Others [(1983) 1 SCC 228] . The question which arose therein was only as regard the right of the workers be heard in the winding up proceeding. The said decision was, therefore, not applicable31. Section 446 of the Companies Act indisputably confers a wide power upon the Company Judge, but such a power can be exercised only upon consideration of the respective contentions of the parties raised in a suit or a proceeding or any claim made by or against the company. A question of determining the priorities would also fall for consideration if the parties claiming the same are before the court. Section 446 of the Companies Act ipso facto confers no power upon the court to pass interlocutory orders. The question as to whether the courts have inherent power to pass such orders, in our opinion, does not arise for consideration in this proceeding. Assuming such a power exists, it was imperative that the same should have been exercised on consideration of the factors laid down by this Court in Morgan Stanley Mutual Fund etc. vs. Kartick Das etc. [(1994) 4 SCC 225] . An unreasoned order does not subserve the doctrine of fair play [See M/s. Mangalore Ganesh Beedi Works Vs. The Commissioner of Income Tax, Mysore and Anr. JT 2005 (2) SC 442 ]31. Section 446 of the Companies Act indisputably confers a wide power upon the Company Judge, but such a power can be exercised only upon consideration of the respective contentions of the parties raised in a suit or a proceeding or any claim made by or against the company. A question of determining the priorities would also fall for consideration if the parties claiming the same are before the court. Section 446 of the Companies Act ipso facto confers no power upon the court to pass interlocutory orders. The question as to whether the courts have inherent power to pass such orders, in our opinion, does not arise for consideration in this proceeding. Assuming such a power exists, it was imperative that the same should have been exercised on consideration of the factors laid down by this Court in Morgan Stanley Mutual Fund etc. vs. Kartick Das etc. [(1994) 4 SCC 225] . An unreasoned order does not subserve the doctrine of fair play [See M/s. Mangalore Ganesh Beedi Works Vs. The Commissioner of Income Tax, Mysore and Anr. JT 2005 (2) SC 442 ]35. Correctness of an equitable order like the impugned one may be judged upon taking into consideration the subsequent events. Subsequent events as pointed out by Mr. Rao, furthermore, are not disputed36. The learned Company Judge in its order dated 8.5.2002 has noticed that a substantive amount has been paid to the workers towards their past dues. Payments have also been made not only to the statutory authorities but also to the secured creditors and the Special Officers. The workmen since the sale of the assets of the company as a working concern, have received substantial amounts towards their past dues and are being paid their current dues. A situation of starvation of the workmen does no longer prevail. The order passed by the learned Single Judge cannot moreover be sustained on amongst others, the ground of not assigning any reason in support thereof. The Division Bench of the High Court also relied on the observation made in paragraph 76 of this Courts judgment in Allahabad Bank.(supra) It did not advert independently to any other contention of the parties37. The contention of Mr. Gupta that Debts Recovery Tribunal having been established in the West Bengal on 27.4.1994, the dispute has to be resolved without reference to the RDB Act, also cannot be accepted37. The contention of Mr. Gupta that Debts Recovery Tribunal having been established in the West Bengal on 27.4.1994, the dispute has to be resolved without reference to the RDB Act, also cannot be