TMI Blog1992 (4) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Shanmugham in his personal capacity. C.A. No. 207 of 1992 was filed by him in his capacity as vice-president of Madras Pen and Ink Factory Workers' Union and representing the workmen of the company in liquidation. In the annexure to C.A. No. 207 of 1992, the names of the claimants and other particulars, viz. , claim number, claim amount, amount granted and amount rejected, have been furnished with reference to the company in liquidation. Both the matters were heard together by consent of parties. Originally, the learned official liquidator alone was impleaded as respondent in these applications. In view of the importance of the questions of law raised by the applicant herein and also by the learned official liquidator assisting the court at the time of hearing, the legal heirs of the late Sanjeevi, viz. , respondents Nos. 2 to 7, were ordered to be impleaded. The State Bank of Hyderabad was also ordered to be impleaded as the eighth respondent since the issue raised has to be decided in the presence of the State Bank of Hyderabad who is a secured creditor. The brief facts of the case are as follows : The company in liquidation was ordered to be wound up by an order dated O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree months. Explanation. An undertaking which is closed down by reason merely of ( i )financial difficulties (including financial losses) ; or ( ii )accumulation of undisposed of stocks ; or ( iii )the expiry of the period of the lease or licence granted to it ; or ( iv )in a case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which such operations are carried on ; shall not be deemed to be closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section. (1-A) Notwithstanding anything contained in sub-section (1), where an undertaking engaged in mining operations is closed down by reason merely of exhaustion of the minerals in the area in which such operations are carried on, no workman referred to in that subsection shall be entitled to any notice or compensation in accordance with the provisions of section 25-F, if- ( a )the employer provides the workman with alternative employment with effect from the date of closure at the same remuneration as he was entitled to receive, and on the same terms and conditions of service as were applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alai Central Bank Ltd. [1965] 35 Comp Cas 279 ; [1965] II Comp LJ 110, by a Division Bench of the Kerala High court, came to the conclusion that the passing of a winding up order resulted in the closing down of the undertaking and hence the closure is due to unavoidable circumstances beyond the control of the company in liquidation and consequently restricted the claim of the workmen for closure compensation to the extent provided in the proviso to section 25-FFF(1) of the Industrial Disputes Act not only to the applicant herein but also to the other claimants/workers who were in the employment of the company in liquidation on the date of passing of the winding up order. In this connection, it is relevant to refer to the judgment of the Kerala High Court (Division Bench), which held that a closure under a winding up order is a closure on account of unavoidable circumstances beyond the control of the employer. Following the Division Bench of the Kerala High court, the learned official liquidator came to the conclusion as stated above. With regard to the claim for interest at 18 per cent, per annum, the official liquidator submits that, under rule 179 of the Companies (Court) Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company in respect of this suit are the company's factory and land measuring about 12.17 acres with superstructure thereon located at G.N.T. Road, Puzhal and Kathivedu Villages, Madras. The State Bank of Hyderabad have elected to remain outside the liquidation and they are relying on the securities offered by the company in liquidation. The State Bank of Hyderabad can claim interest at the rates specified in the above suit till the date of realisation of the security. But the right of workmen for interest from the date of the winding up order till the date of payment of dividend to them or till the date of realisation of security, whichever is earlier, has not been specified either in section 529 or 529-A of the Companies Act, 1956, or under the Companies (Court) Rules, 1959. In view of the importance of the questions of law that arise for consideration in this case, the learned official liquidator was also requested by this court to assist the court on the legal issues. Likewise, this court also heard the arguments of Mr. M.K. Kabhir, Mr. M.S. Sundararajan and Mr. Shree Krishnan, learned counsel appearing for the legal heirs of the founder of the company and the State Bank o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Bonus 465.00 465.00 5. Leave salary 387.50 387.50 6. Salary dues 5,618.00 5,115.00 503.00 7. P.F. dues 3,523.00 3,523.00 22,083.50 13,640.00 8443.50 *Less : Khadi dues (-) 416.75 (+) 416.75 Total 22,083.50 13,223.25 8,860.25 *This amount is payable to Tamilnadu Khadi and Village Industries Board towards purchase of clothes by you from the Board, vide Bill Nos. 316212 and 50100. According to the applicant, the learned official liquidator, while considering the claim, has taken into consideration only a period of three years for closure compensation instead of ten years and that he ought to have fixed the closure compensation only for a period of ten years because the company went into liquidation only on a creditor's petition and not by an act of God or for reasons beyond the control of the directors. It is further contended by the applicant through his counsel, Mr. K. Gopal, that the learned official liquidator ought to have awarded interest at 18 per cent, per annum on the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised by the applicant herein. Mr. Shree Krishnan, learned counsel appearing for the bank, argued the case on behalf of the bank. According to the bank, they are the secured creditors of the company in liquidation and stand outside the liquidation. The counter-affidavit also refers to two suits filed by them. The properties under mortgage the sale of which has been claimed in the two suits, viz. , a property in Anna Salai, Madras, called Vanavil and the factory lands and building and plant and machinery in Puzhal and Kathivedu Villages and certain hypothecated goods, machines. According to the bank, the claim now made in the two suits will exceed Rs. 70,00,000. It is useful to reproduce paragraphs 5 to 7 of the counter-affidavit hereunder : "5. I state that the closure of the business and working of the company was due to unavoidable reasons beyond the control of the company, that the claim for payment of closure compensation exceeding 3 months' wages is untenable and that it cannot be allowed. 6. I further state that the claim for payment of any interest on the sums due and payable to the ex employees is without any legal basis. 7. As regards the question as to the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unless the order of the court was obtained by collusion or fraud, every case of closure following an adjudication in insolvency or a compulsory winding up must necessarily come within the proviso to sub-section (1) of section 25-FFF of the Industrial Disputes Act, 1947. The carrying on of the business of the company in so far as it is necessary for the beneficial winding up of the company is not continuing the business of the company. Therefore, it is clear that the winding up work by the liquidator is not a continuation of the business of the bank. Held, on facts, there is no evidence to show that there was any subsequent agreement whatever between the official liquidator and the employees that they should go on under a new contract similar in terms to the old one. In the absence of such evidence, the winding up order operated as discharge of the employees as contemplated by section 445(3) of the Companies Act, 1956." The Kerala High Court held that the closure of a company under an order of winding up would be on account of unavoidable circumstances beyond the control of the employer and would fall within the proviso to section 25-FFF(1) of the Industrial Disputes Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company. The ex-employees claimed retrenchment bonus on the footing that the provisions of section 25-FFF of the Industrial Disputes Act were applicable to the facts of their case. The company carried on the business of textile mills. Gill and Co. Private Ltd. applied to the court for a winding up order against the company. The company failed to pay to the sellers a huge amount on sale transactions, whereas particulars were mentioned in the petition to show that the company was in huge financial difficulties and unable to pay its debts. By order dated August 5, 1959, the company was ordered to be wound up. The ex-employees' claim for retrenchment compensation was based on the provisions in section 25-FFF and section 25-F of the Industrial Disputes Act. The case of the employees/claimants before the liquidator and in the appeal before the High Court was that there was nothing to show and no one had contended on the record that the undertaking of the mill's company was closed down on account of unavoidable circumstances beyond the control of the company. In the result, all workmen who were employed in the service of the company continuously for not less than one year prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be considered to be due to unavoidable circumstances beyond the control of the company. Of the two decisions of the High Courts referred to above, one in Palai Central Bank Employees' Union v. Official Liquidator, Palai Central Bank Ltd. [1965] 35 Comp Cas 279 ; [1965] 2 Comp LJ 110 (Ker) and the other in Shree Madhav Mills Ltd., In re, AIR 1967 Bom 219,1 am inclined to accept the view of the learned single judge of the Bombay High Court in preference to that of the Division Bench of the Kerala High Court. The company in the instant case was ordered to be wound up pursuant to a petition for winding up filed by a creditor of the company. Hence, the root cause for the closure was the undischarged debts of the company which is due to the financial difficulties of the company. The Explanation to the proviso to sub-section (1) of section 25-FFF of the Industrial Disputes Act specifically provides that the closure of an undertaking due to financial strain, etc., shall not be deemed to be due to unavoidable circumstances beyond the control of the employer. Hence, I am of the opinion that, in the instant case, though the closure of the company was pursuant to an order of wind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an would be entitled to closure compensation at the rate of 15 days' pay for every year's continuous service, as prescribed under the first part of section 25FFF(1) of the Industrial Disputes Act. This question is answered accordingly. By Amendment Act No. 35 of 1985, Parliament had brought about very important and significant changes in the provisions of the Companies Act. By virtue of sections 529, 529A and 530, conferring substantial rights and benefits on the workmen of the closed undertaking, the workmen get rights pari passu with those of the secured creditors over the assets of the company in liquidation. Rule 179 of the Companies (Court) Rules, 1959, applies to unsecured creditors in the matter of payment of interest from the date of the winding up order till the date of dividend. The said rule cannot be applied to workers who, under the amended provisions of the Act, are treated on par with secured creditors. By virtue of the provisions of sections 529 and 529A, the workmen of the company have to be treated on par with secured creditors. The status of secured creditors is conferred on the workmen by operation of law. In State of Kerala v. M. Padmanabhan Nair, AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t question that arises for consideration is with regard to the date from which interest has to be granted to the workman. Under section 445(3) of the Companies Act, an order of winding up shall be deemed to be notice of discharge to the officers and employees of the company, except when the business of the company is continued. Therefore, once the company is wound up, there is an automatic discharge of officers and employees of the company. If this statutory provision is borne in mind then the employees of the company should be deemed to be on par with secured creditors from the date of winding up. Then naturally it follows that the amounts due to the workmen like closure compensation, notice pay, etc., become payable from the date of winding up order. Hence, in my opinion, the workmen are entitled to claim interest from the date of the winding up order till the date of realisation of security. Thus, I hold that ( i ) the workmen become secured creditors by operation of law from the date of the winding up order, ( ii ) the workmen have a pari passu charge over the security which is held by the secured creditor under the contract, and ( iii ) the cut off date for arriving at the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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