Case: Andhra Bank Vs. Official Liquidator

2. By a scheme of amalgamation approved by the High Court of Calcutta on or about 317.1984, the assets and properties of Tobacco Division of Duncan Agro Industries Limited were transferred to its subsidiary New Tobacco Limited (the Company, for short). The company had been obtaining and enjoying diverse credit facilities from the Appellant-Bank upon hypothecation of all goods, raw materials, stocks of tobacco including movable properties situated at Biccavolu in the State of Andhra Pradesh3. The Appellant herein on or about 15.9.1987 filed a suit in the Calcutta High Court for recovery of Rs.2,69,54,228.15 along with interest at the rate of 18.5% p.a. against the company. In the same year, an application for winding up of the said company was filed before the Company Judge of the Calcutta High Court, which was marked as CP No.621 of 1987. The Appellant in the said suit filed an interlocutory application; whereupon the Joint Receivers were appointed for making inventory of hypothecated goods lying in the factories of the company at Agarpara in the State of West Bengal and Biccavolu. Upon such inventory having been made, the stock of tobacco lying in the godown at Guntur and Biccavolu were ordered by a learned Single Judge of the High Court to be sold by auction and the Joint Receivers were directed to keep separate accounts of the sale proceeds of the goods in the two godowns. The said sale was later on confirmed and the sale proceeds of Rs.135 lacks was directed to be deposited in a fixed deposit with the Appellant. The company was directed to be wound up by the learned Company Judge by an order dated 25.11.1991 and an Official Liquidator was directed to take possession of the assets of the company. The said order dated 25.11.1991 was, however, stayed in view of a scheme for revival of the company which was approved; whereupon a committee of management was appointed by the Calcutta High Court which was directed to reopen and run the factories of the company both at Agarpara and Biccavolu. The said scheme of management, however, ultimately having failed, the assets and properties of the company were directed to be sold by an order dated 23.9.1993 as an on-going concern. By reason of an order dated 12.10.1993, the Company Judge directed the Appellant to pay a sum of Rs.38 lakhs to the Official Liquidator on an ad hoc basis for the purpose of disbursing salaries to the officers, staff and workers of the company before the ensuing Puja vacation

Court's reasoning:
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