Home Case Index All Cases Companies Law Companies Law + SC Companies Law - 2012 (11) TMI SC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (11) TMI 529 - SC - Companies LawClaim of secured creditors and the workmen to balance due - company became sick - BIFR recommended for winding up of the company - Held that:- It is worthwhile to note that the proviso to Section 529 creates a deeming fiction in law and makes it clear 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 workman's portion thereunder. Section 529A of the Act opens with non-obstante clause, giving the workmen's dues and secured creditors' dues, as defined under the proviso to Section 529(1), an over-riding effect over the other provisions of the Act as well as any other law in the matter of priority of payment of dues. A secured creditor who has a charge over the assets of a company in winding up, merely by instituting an application before the DRT or any other special forum without effectively pursuing that remedy and taking effective steps to realize his security would not stand outside the winding up proceedings. If the sale of secured assets is effected by the Official Liquidator subject to control of the Company Court and such amounts are utilized for discharging the debts of the secured creditor as well as statutory charge of the workmen created under Sections 529 and 529A, then, in effect, the secured creditor would be deemed to have participated in the winding up proceedings and not stood outside the same. It is for the reason that a secured creditor has to take steps by filing petition before any other forum just to protect his legal right and to prevent the claim from getting barred by time. Thus one fact is clear that respondent No.8 has realized its security without prejudice to the proceedings taken by it before the Debts Recovery Tribunal. Furthermore, the security was realized strictly within the scope of Section 529(1) and its proviso. That has to be protected in terms of Section 529A(1)(b) because the secured creditor has not relinquished its security for the general benefit of the creditors but realized the same in terms of Section 47(1) of the Insolvency Act. Once the twin requirements stated in the proviso to Section 529(1) are satisfied, the scheme contemplated under clause (c) of the proviso to Section 529 read with Section 529A of the Act would come into play. The Court cannot overlook the reality & the scheme of these provisions, thus, has to be understood to make it practicable and in consonance with the accepted commercial principles. It is precisely for these reasons that it is to be accepted that workmen's charges as well as that of the secured creditors have to be paid in preference to all others, but with inter se pari passu charge on the amounts realized from the sale of the security or otherwise. As in the present case, the secured creditor has realized its security but without putting the security or the receipts thereof in the common hotch potch of the winding up proceedings for the general benefit of the creditors. Thus, in terms of Section 47(1) of the Insolvency Act, the secured creditor in the present case is entitled to the balance due to it, deducting the net amounts realized. If the secured creditor would have participated in the winding up proceedings in its entirety with the security being realized and/or relinquished for the general benefit of the creditors and not restricted to the compliance of Section 529 it would not be entitled to the benefit of Section 529A. As already discussed, it is not the case herein. It may also be noticed that the amounts, by the consent of the parties, have already been disbursed and utilized by the workmen as well as the secured creditors in terms of Section 529 which obviously are subject to adjustment as per the orders of the Court. Thus reiterating the view expressed in Andhra Bank Versus Official Liquidator (2005 (3) TMI 465 - SUPREME COURT OF INDIA) the High Court should re-compute the amounts payable pari passu between the secured creditors and the workmen in accordance with the principles stated above.
|