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2019 (12) TMI 171 - SC - Indian LawsRecovery of dues from company - employees dues - charge of recovery - priority claim on debts - Whether, in the facts of this case, employees’ dues can take precedence over the claim of the secured creditor in respect of the proceeds from sale of secured assets of the Karkhana under the SARFAESI Act? - HELD THAT:- It is clear that Section 167 creates an express bar on the applicability of the Companies Act to societies registered under the Societies Act. Given that the Karkhana was a co-operative society registered under the said Act, we find that Section 167 is squarely applicable, and the High Court committed a grave error in relying upon Section 529A of the Companies Act. Thus, the employees cannot make use of Section 529A of the Companies Act to claim priority over all other debts of the Karkhana. Whether the employees’ dues can take priority over other claims by virtue of being recoverable as arrears of land revenue? - HELD THAT:- It is evident that dues of employees in respect of which an order has been made by a Court under Chapter VI of the MRTU & PULP Act are recoverable in the same manner as arrears of land revenue - On a close reading of sub-sections (1) and (2) of Section 169 of the Land Revenue Code, it becomes clear that Section 169(1) deals with the former category of claims and makes them a paramount charge on the land over all other claims. On the other hand, Section 169(2) deals with the latter category and gives them priority only over unsecured claims. The recovery certificate issued under Section 50 of the MRTU & PULP Act only makes employees’ dues recoverable as arrears of land revenue. Thus, in view of the foregoing discussion, it is clear that such employees’ dues would fall under the category of claims captured by Section 169(2), and can only take priority over unsecured claims - However, this does not mean that the Appellant-Bank automatically holds a paramount charge over the proceeds from the sale of the secured assets. Under the scheme of the SARFAESI Act, there is nothing to show that a priority is created in favour of banks, financial institutions, and other secured creditors as against a first charge specifically created under any other statute. Thus, in the absence of a paramount charge created in favour of the employees’ dues under the MRTU & PULP Act, it cannot be said that the Appellant-Bank automatically gets a first charge under the SARFAESI Act. In terms of Section 13(7) of the SARFAESI Act, the distribution of money received by the Appellant-Bank should be done as per the sale contract with Respondent No. 5. In other words, the Appellant-Bank is liable to satisfy the employees’ dues as per its undertaking in the sale letter dated 08.03.2010. However, in view of the fact that all other liabilities, including statutory liabilities were agreed to be borne by the subsequent purchaser, statutory liabilities in respect of employees, such as provident fund, gratuity, bonus etc., would have to be borne by Respondent No. 5 herein. Section 529A of the Companies Act, which gives workers’ dues a priority over all other debts, cannot be applied to the instant case in view of Section 167 of the Societies Act - Merely by virtue of being recoverable as arrears of land revenue, the employees’ dues, in respect of which a recovery certificate had been issued by the Industrial Court, cannot be treated as a paramount charge in terms of Section 169(1) of the Land Revenue Code. Instead, under 169(2) of the Land Revenue Code, they would take precedence only over unsecured claims. Appeal disposed off.
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