TMI Blog2013 (1) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... uded, without having regard to the issue as to whether they were employed "mainly" in managerial or administrative capacity or were employed in supervisory capacity with wages exceeding prescribed limit, or not is not in consonance with the relevant provision. As the matter is required to be examined from the perspective that the company in liquidation was an engineering undertaking and that therefore while excluding the persons from the purview of the term "workmen", regard is required to be had to the definition under section 2(s) of the Act of 1947. Differently put all persons who were employed in supervisory category would not stand excluded only because they were employed in supervisory category unless each was drawing wages exceeding prescribed limit. Similarly merely because a person was drawing wages exceeding prescribed limit, he would not stand excluded (according to section 2(s) of Act of 1947), unless he was employed in supervisory category. Of course all persons employed mainly and purely in administrative or managerial capacity/category, would stand excluded. Out of the total claim amount which is determined by the chartered accountant i.e. quantification of wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate intimation with copy of this order to the chartered accountant. Two weeks time is granted to the secured creditors and the workmen to submit the details with supporting documents, to point out case of particular workmen, if any, in whose cases any error with regard to date of birth (and consequently in determining date of superannuation) or date of joining or date of death (in cases where any workman has died) or with regard to the wage as on relevant date (basic wage or VDA/FDA) have actually occurred. The chartered accountant shall verify as to whether cases of any person employed as senior engineer, senior engineer (project), senior programmer and senior officer treating basic wage of more than Rs. 2000/- or not and if any case of such category is found then claim of such person shall be taken out of the total claim of workmen and necessary correction shall be accordingly made. Claim of State Bank of Patiala - the claim in the sum of Rs. 27,19,360/- which is allowed by the chartered accountant vide report dated 17.2.2009 is not permissible at this stage of disbursement under Section 529A of the Act and that therefore the said amount will have to be taken out from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956. 3** ** ** 4. That this Hon'ble Court vide its order dated 27.11.2003 passed in OLR No. 87 of 2003 confirmed the sale of all assets and properties except land for Rs. 12.31 Crores and as per the information of the applicant herein, said amount has already been received by the official liquidator. 5** ** ** 6. The applicants submit that the applicants had filed company applications seeking disbursement out of the amount realized and last such application was filed which was registered as company application No. 444 of 2007. It is submitted that in the said company application the applicants have submitted the details of the development of winding up proceedings of the present matter till the date of filing said application. The copy of the said application along with all its annexure is annexed herewith and marked as Annexure-A. The applicants crave leave to refer to and rely upon all the submissions and averments made in the said application at the time of hearing. 7. The applicants submit that the said company application No. 444 of 2007, with other company application No. 174 of 2006, 379 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter to the Chartered Accountant for reverification in light of the contents of the application being Company Application No. 444 of 2007 and it will be for the concerned Chartered Accountant to reexamine the matter and to give appropriate report. Similarly, even on the claim of the secured creditors, it will be for the concerned secured creditors to produce the proof of debts for prima facie examination by the Chartered Accountant and it will be for the concerned Chartered Accountant to finalize the figures of the outstanding amount of the secured creditors. In my view, such exercise can be completed at later stage. However, as the huge fund is available and no disbursement has taken place after the last disbursement of Rs. 4 crore, substantial amount can be made available for disbursement on adhoc basis. Keeping in view the alleged claim by the workers' Union and the secured creditors, I find that the amount of Rs. 35 crore may be disbursed on the ratio of 50:50 amongst secured creditors and the workers. The remaining amount may be invested by the OL in a nationalized Bank until the final report, which may be submitted by the Chartered Accountant after verification of the workers' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person concerned, he shall be at liberty to make payment. At the time of disbursement the claim made by the applicants of Company Application Nos. 438 and 439 of 2007 shall be considered in the workmen's dues for proportionate payment to the concerned applicants. The aforesaid process shall be completed on or before 26th October, 2007. 14. The OL shall refer the documents, which may be produced by all the Secured Creditors as well as the claim made by the applicant(s) of Company Application No. 444/2007 to the Chartered Accountant for reverification and after the report is received by him, a fresh OLR shall be submitted for final disbursement of the amount. The aforesaid exercise shall be completed with a period of three months from the date of receipt of the order." 2.2 Before proceeding further, it is relevant to note that according to Official Liquidator all properties and assets have been disposed of and now there are no more assets and properties of the company available for sale/disposal and total sum of Rs. 12,85,33,258/- is available with Official Liquidator for disbursement amongst the workers and the secured creditors. 2.3 It appears that there is a common grievan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as the objections raised on behalf of the workers' union under different heads, the Chartered Accountant is required to consider the claims under different heads as per the decision of this Court in Jubilee Mills case. The Official Liquidator and the Chartered Accountant are directed to complete the entire process of fresh verification of the claims of respective workmen in light of the observations made hereinabove within a period of four months from today and thereafter, the Official Liquidator is directed to submit the report before this Court for making necessary payment accordingly. It appears that the amount which is realized by the Official Liquidator/Sale Committee by selling the properties of the company in liquidation is at present lying idle without fetching any interest. Under the circumstances, the Official Liquidator is directed to invest the entire amount realized by selling the properties of the company in liquidation in a fixed deposit in nationalized bank initially for a period of six months." 2.6 In pursuance of the said order dated 6.3.2007, the Chartered Accountant M/s. Kiran Shah and associates submitted a report dated 12.8.2007 (at page 107 to 149). 2.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all claims by another Chartered Accountant. 2.11 Consequently, official liquidator appointed another Chartered Accountant and assigned him the work of re-verification of all claims. 2.12 The Chartered Accountant appointed by official liquidator after the order dated 18.11.2008 submitted his reports in two parts viz. report dated 10.1.2009 about the claims by the workmen and report dated 17.2.2009 about the claims by the secured creditors. Official liquidator placed the said two reports dated 10.1.2009 and 17.2.2009 on record under his reports dated 27.1.2009 and 18.2.2009. The report dated 10.1.2009 submitted by the Chartered Accountant contained two annexures. One of the two annexures i.e. annexure-A contained details related to workmen and another annexure i.e. annexure-B contained details related to members of staff. According to the said report total eligible claim from the side of workmen was identified at Rs. 38,70,19,269 and for the staff members at Rs. 14,13,47,503/- (i.e. total Rs. 52,83,66,772/-) and it included diverse heads like basic wage, Variable Dearness Allowance ("VDA", for short), Earned Leave, Gratuity and retrenchment compensation. So as to explain as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections dated 22.8.2009 (page 339 to 344) and respondent No.6 also filed its objection/affidavit dated 18.3.2009 (pages 345 to 348). 2.16 Before proceeding further it is necessary to mention that vide order dated 15.3.2010 passed in Company Application No. 360 of 2009 the Court directed official liquidator to get claims of 49 workers re-verified. Thereafter another order dated 5.4.2010 was passed in company application No. 328 of 2008 directing official liquidator to get certain other verification done by the Chartered Accountant. In view of the said orders the official liquidator filed a report dated 7.7.2010 giving a composite view of the details of different verification reports submitted by the chartered accountant in pursuance of the orders passed by the Court. The said details are relevant for the purpose on hand. The official liquidator has mentioned in the said report dated 7.7.2010, on the basis of the reports of the chartered accountant that:- "1 and 2** ** ** 3. That M/s. Ajay J. Shah and Co., Chartered Accountants vide letter dated 16.4.2010 submitted his report in compliance of the order dated 15.3.2010 passed by this Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt joining date is 1.1.1985 though as per salary slips it is 1.4.1990. In the settlement agreement it is mentioned that for the calculation of gratuity and retrenchment compensation the joining date should be taken as 1.1.1985 of remaining 47 workers. In view of the above we have calculated the working of gratuity and retrenchment compensation on the above mentioned basis as recorded in the settlement agreement. (2) Regarding Rs. 5/- raise in the salary which we have considered on the basis of the settlement agreement referred in para No. (1). However, it is not cleared from the salary slip whether this raise was included in the pay slip or not. It appears that this amount may have been paid to the respective workers. In view of the above, we have eliminated the said raise of Rs. 5/- from the calculation of dues for salary and other benefits. A fresh calculation as per annexure-A attached herewith in replacement of our old calculation submitted along with our letter dated 15.7.2009. We submit out fresh calculations as per annexure-A attached therewith in replacement of our old calculation submitted along with our letter dated 15.7.2009. Percentage ratio between secured cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l list containing details of the total number and names of the workmen of the company in liquidation...". Therefore, considering the fact that the said order and declaration was not opposed by Mr. Shah, learned advocate, at the relevant time, and it was passed after hearing all learned advocates including Mr. Shah, any further dispute or objection with regard to the number of workers entitled for payment is now not to be taken into account and for all purposes, the list submitted by the OL pursuant to the order dated 14.7.2011 will be treated as final, more particularly when such dispute is going on since so many years and final resolution is not reached, which delays the disbursement and every time matter has to be sent to Chartered Accountant for verification which entails huge expenses towards Chartered Accountant's fees and it in turn erodes the available funds and reduces the amount available for disbursement while paying available fees to the Chartered Accountant." 2.19 The directions and relief prayed for by the applicant in application No. 264 of 2008 are required to be considered in light of the facts and circumstances recapitulated hereinabove and in light of the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of all secured creditors, be it first charge or second charge and therefore present report so far as verification of dues of secured creditors is concerned cannot be accepted. Mr. Sinha, relied on the provision contained under Section 529 particularly Section 529(1)(c) and clause (c) of the proviso of section 529(1) and section 529(3)(c) and Section 529(A) of the Act and sections 47 and 48 of Insolvency Act. He also submitted that a sum of Rs. 27,19,360 which is taken into account by the chartered accountant while considering the claim of State Bank of Patiala, is an error and the said claim could not have been taken into account since the said amount represents the payment made by said secured creditor as "guarantee money" in High Court. It is submitted that the claim of ICICI Bank as Debenture Trustee on behalf of the Debenture holder for Rs. 3,50,00,000/- has been accepted as secured claim. Similarly in item No.4 claim of Rs. 3,00,00,0000/- in favour of SBI Mutual Fund and claim of Rs. 2,00,00,000/- with 15% interest till the date of winding up making it a claim of Rs. 10,10,19,274/- has been considered, however the said dues of the Mutual Fund do not enjoy first charge over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered accountant appears to have included the periodical increments in wages, which is misconceived and unsustainable. The secured creditors have also disputed the determination of amount claim toward unpaid gratuity. The learned Counsel for the secured creditors have opposed the submissions on behalf of the applicants. 4.2 The learned Counsel for official liquidator has submitted, inter alia, that the objection raised by ICICI in its affidavit dated 22.8.2009 with reference to the claim made by 14 workers is misconceived and does not survive in view of the fact that the chartered accountant has not considered the claim of 14 workers having regard to the fact that the said claim does not fall within the criterion mentioned in the judgment in case of Official Liquidator of Jubilee Mills Ltd. (supra). The learned Counsel for official liquidator has also submitted that the objections raised by the secured creditors with reference to the staff members drawing wages more than Rs. 2000/- is also misconceived and unsustainable inasmuch as the report submitted by the chartered accountant makes it clear that the chartered accountant has strictly applied the criteria and guideline laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 2923. As regards closure of the company, there is no document to show that the closure was legal and permission regarding legal closure was obtained. There is nothing on record to show this important aspect and hence, in view of this fact the workers continues to be workers till the date of winding up of the company. Thus, the period to be calculated for the claims of workers sill be upto the winding up date, i.e. from May 1997 (when GST suspended manufacturing activities without any permission from any authority) till the order of winding up of the company was passed by the High Court on 27.12.2001. Fact sheet showing relevant dates is annexed in the record at pages 104 to 106. Relevant paragraphs of the Jubilee Mills Ltd. judgment are. 4. C.A. Ajay Shah's Report is complete in all aspects and has followed the Jubilee Mills judgment. There cannot be comparison between reports submitted by C.A. Kiran Shah and the present C.A. as the later report has taken into account all the directions as laid down in Jubilee Mills judgment and also mentioned that the earlier C.A. had not taken into account these factors. 5. The objections taken by the secured creditors regarding expire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of section 529A.] (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section: [Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to 3[pay his portion of the expenses] incurred by the liquidator(including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.] [Explanation.-For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less amount which bears to such expenses the same proportion as the workmen's portion in relation to the security bears to the value of the security.] [(3) For the purposes of this section, section 529A and section 530,- (a) "workmen", in relation to a company, means the employees of the company, being workmen within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insufficient to meet them, in which case they shall abate in equal proportions.] 47. Secured creditors. - (1) Where a secured creditor realises his security, he may prove for the balance due to him, after deducting the net amount realised. (2) Where a secured creditor relinquishes his security for the general benefit of the creditors, he may prove for his whole debt. (3) Where a secured creditor does not either realise or relinquish his security, he shall, before being entitled to have his debt entered in the schedule, state in his proof the particulars of his security, and the value at which he assesses it, and shall been titled to receive a dividend only in respect of the balance due to him after deducting the value so assessed. (4) Where a security is so valued, the Court may at any time before realisation redeem it on payment to the creditor of the assessed value. (5) Where a creditor, after having valued his security, subsequently realises it, the net amount realised shall be substituted for the amount of any valuation previously made by the creditor, and shall be treated in all respects as an amended valuation made by the creditor. (6) Where a secured creditor does not com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this Court and given the report as if the judgment of this Court or directions issued by this Court are not relevant for the purpose of submitting his report. This Court is, therefore, of the view that the Chartered Accountant's report is not at all reliable and on the basis of that report the claim of the workers cannot be denied nor the adhoc disbursement which was ordered earlier more or less on consensus cannot be flouted by any secured creditor....... Since repeated directions are issued and Chartered Accountant has not examined the claim the Official Liquidator is directed to refer this matter for re-verification to other Chartered Accountant and when the concerned Chartered Accountant has developed the tendency of ignoring the direction of this Court no work should be entrusted to that Chartered Accountant either for verification or for any other work of the Official Liquidator." [Emphasis supplied]" 6.4 Ultimately reports dated 10.1.2009 (in respect of the concerned workmen) and report dated 17.2.2009 (in respect of the secured creditors) followed by supplementary or clarificatory reports dated 14.3.2009, 15.7.2009, 12.92009, 16.4.2010 (for 14 workmen) and another re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties, addressed in present order i.e. in light of the order dated 18.11.2008 and the reports submitted pursuant to and in compliance of the said and subsequent order/s. But for the said objections, directions for further/final disbursement could have been passed on the basis of the conclusions in the said two reports. Under the circumstances it is necessary to address the objections raised by both sides against the said report of the chartered accountant. (VI) Objections by the secured creditors: 7. So far as the objections raised by the secured creditors are concerned, they are mentioned in their affidavits (i.e. the two affidavits dated 19.3.2009 and 22.8.2009 filed by respondent No.7 and the affidavit dated 19.3.2009 by respondent No.3 and affidavit dated 18.3.2009 by respondent No. 6). 7.1 In view of the clarificatory reports including the reports dated 14.3.2009, 15.7.2009, 12.9.2009, 13.11.2009 and 16.4.2010 which have been filed by Official Liquidator/Chartered Accountant in pursuance of the orders passed by the Court after the reports dated 10.1.2009 and 17.2.2009 the grievance and objections have to be considered in light of the said reports. 8. So far as the grie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant material made available. The official liquidator has also clarified and accepted this aspect in his report and learned Counsel for the official liquidator has admitted and asserted this aspect. 8.2 Another point which also requires to be taken into consideration is that while making the allegation that date of birth, date of joining and date of resignation/retirement have not been duly verified with help of birth certificate and such other documents, the secured creditors have, not mentioned/cited any specific case/s wherein, the date (Birth date or date of joining or date of superannuation) taken into account by the Chartered Accountant is/are different than the date recorded in Birth Certificate or in company's register and only on basis of comparison between the previous report, i.e. the report dated 12.8.2007 on one hand (which has been disapproved by the Court in view of objections by workers and creditors) and the report dated 10.1.2009 and 17.2.2009 on the other hand, a sweeping and very generalized allegation about discrepancy and anomaly, about the details mentioned in the said reports is made by the secured creditors. The secured creditors have not placed on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2(s) of the Act of 1947. According to the said Section 2(s):- "workmen" means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward . But does not include any such person- (i) and (ii)** ** ** (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature." 10.2 A plain reading of the said provision clarifies that except the persons who stand covered under the exclusion clause all persons employed to do manual unskilled, skilled, technical, operational, clerical or even supervisory work for hire or reward are covered within the meaning of the term workmen. 10.3 According to the said section, those persons who are "mainly" employed in managerial or administrative category (i.e. such duty should not be "incidental" to main duty) and/or tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case)." 10.7 Besides this, reference also needs to be made to the report submitted by the chartered accountant on 16.4.2010 (submitted in compliance of the order dated 5.4.2010) wherein the chartered accountant clarified that:- "As per order "the claims of all workmen who are "workmen" within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/- their claims are required to be considered for the purpose of making the payment under Section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills Case)" The said explanation demonstrates that the Chartered Accountant was alive to the relevant criterion/consideration and has not included claims of such persons whose cases are required to be excluded. 10.8 On this count it is necessary to mention that the chartered accountant (who came to be appointed pursuant to the order dated 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court would proceed on the basis that a person employed in a textile mill in the State of Gujarat and drawing monthly basic pay of Rs. 2000/- or less (excluding allowances) cannot be said to be a person employed in a supervisory capacity or a person who exercises either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature. 19.7 Hence, this Court would adopt the definition of "workmen" as worked out by the Textile Labour Association as recorded in the order dated 15.9.1998 in Company Application No. 159 of 1996 whereby only the aforesaid 11 categories of employees are excluded from the definition of "workmen" for the purpose of determining the ratio of workmen's dues and the dues of the secured creditors of each textile Company in liquidation in the State of Gujarat and for the purposes of payment on priority basis u/s. 529 and 529A of the Companies Act. The Court finds that working out of such rough and ready formula for finding out as to which employees of textile mills in liquidation would fall within the definition of "workmen" under the I.D. Act as required by sub-clause (a) of Section 529(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny in liquidation was an engineering undertaking and that therefore while excluding the persons from the purview of the term "workmen", regard is required to be had to the definition under section 2(s) of the Act of 1947. Differently put all persons who were employed in supervisory category would not stand excluded only because they were employed in supervisory category unless each was drawing wages exceeding prescribed limit. Similarly merely because a person was drawing wages exceeding prescribed limit, he would not stand excluded (according to section 2(s) of Act of 1947), unless he was employed in supervisory category. Of course all persons employed mainly and purely in administrative or managerial capacity/category, would stand excluded. 10.12 The very same issue was considered by the Court while deciding company application No.174 of 2006 wherein the Court has in light of the above mentioned decision in case of Official Liquidator of Jubilee Mills Ltd. (supra) observed in the order dated 6.3.2007 that:- "18. Considering the above observations of the learned single Judge in Jubilee Mills case, on fair reading of the same, it appears to the Court that the learned single Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured creditors on the basis of the decision in the Jubilee Mills case that all "workmen" drawing basic wages exceeding Rs. 2000/- are to be excluded for the purpose of section 529(3)(a) of the Act would be misreading the decision in Jubilee Mills case. 20. It appears that the dispute has arisen while considering the claims of the employees and the dues of the employees as referred to under section 530 of the Act and the dispute has arisen because of the proviso to section 530, more particularly, section 530(8)(bb) by which it is provided that "expression employee" mentioned in section 530 does not include a workman. The said explanation and the proviso is with a view to see that the "workmen" within the meaning of ID Act are not affected and their cases are not required to be considered while considering the claims of other employees while making the payment under section 530 of the Act. It appears that it is with a view to remove any doubt and the ambiguity and the "workmen" are in fact not affected, the same is clarificatory in nature and does not in any way taking away any right available to the workmen who are otherwise the "workmen" within the meaning of the ID Act. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson was considered in category of staff members and drawing wages exceeding Rs. 2000/-. 10.16 The secured creditors have claimed, that all persons in the category of/on post of officer marketing, senior officer, senior programmer, senior engineer, engineer in (finishing) any engineer Q.A, senior engineer project and supervisor should have been excluded. 10.17 In view of the definition of the term workmen under Act of 1947 and in light of the observations made by the Court in case of Official Liquidator of Jubilee Mills Ltd.'s (supra) and order dated 6.3.2007 relying on the decision in Official Liquidator of Jubilee Mills Ltd.'s case (supra), the grievance of the secured creditors as regards engineer (finishing) and engineer (Q.A.) cannot be accepted since the persons employed in the said capacity cannot be said to be employed "mainly" in managerial or administrative capacity but they can be said to be employed to do skilled or technical or operational work and that therefore they would stand covered within the purview of section 2(s) of the Act of 1947 and the prescribed limit as regards wage would not be applicable in those cases. The reliance placed on the order dated 6.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the report in question. It is claimed that in the previous report total eligible claim of the workmen was to the tune of Rs. 32,87,73,598/- whereas present report certifies that the total eligible claim of the workmen is to the tune of Rs. 52,83,66,772/- (Rs. 38,70,19,269 + Rs. 14,13,47,503 of workmen and staff members respectively). According to the secured creditors that is an error. 11.1 Merely because the subsequent report certifies higher amount as the total eligible claim amount for the workers, as compared to the previous report, the subsequent report does not become erroneous or unsustainable. 11.2 In this context it is necessary to recall that in the order dated 27.9.2007 (i.e. the order which came to be passed by the Court after the said report dated 12.8.2007 was submitted) the Court observed, inter alia, that:- "7. It appears that as per the report of the Chartered Accountant, the admissible due towards the workers' claim is found of about Rs. 32 crore, whereas as per the submission of Mr. Sinha, learned Counsel, the Chartered Accountant has not verified the claims to the fullest extent, more particularly after considering the decision of this Court (Coram: M.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections against the said report, the Court directed reverification of the claims (in light of further/fresh documents which may be produced by the secured creditors and the workmen), it follows that the conclusions in the said report were not approved/accepted by the Court. Hence the said previous report cannot be used for and/or made base for, comparison or for any other purpose. 11.4 After the said order the said chartered accountant had submitted report/clarification/communication dated 11.3.2008, 6.6.2008, 18.7.2008 and 20.8.2008 and thereafter the Court passed the order dated 18.11.2008 which is relevant . It is necessary to take into account the observations by the Court in the said order dated 18.11.2008 wherein the court, while directing that another chartered accountant may be appointed, specifically observed, with reference to the said earlier report that:- "8. ............The Chartered Accountant has neither considered this claim nor considered the judgment of this Court, not refer to this aspect in his report. It appears that the Chartered Accountant has flouted the directions of this Court and given the report as if the judgment of this Court or directions issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, the date of winding up order has been taken into account (as the relevant date). In the communication dated 12.9.2009 the concerned chartered accountant has clarified that:- "there is a variation in basic salary VDA and FDA. This is on account of that the earlier chartered accountant has not considered the specific direction issued the honourable high court and also have not considered the binding judgment of this Court in case of Textile Labour Association v. Official Liquidator of Jubilee Mills Ltd. .........." 12.2 It is also relevant to take into account the provision under Section 529(3)(b)(i). According to the said provision all wages or salary, including wages payable in respect of services rendered to the company and compensation payable to any workmen under any provision of the Act of 1947, are to be included. In that view of the matter it becomes necessary to take into account the definition of the term "wages" under section 2(rr) of the Act of 1947. The said definition reads thus: "2(rr) 'wages' means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countant in case of the concerned workman. 12.6 So as to successfully assail the calculation of wages i.e. Basic Wage and VDA/FDA the secured creditors should have established, with help of relevant record which would demonstrate the rate of VDA/FDA prevailing and applicable at the relevant time (if at all it was actually different from/less than what is considered by Chartered Accountant) and on strength of such record it should have been demonstrated and proved that the Chartered Accountant has applied higher rate than what was prevailing/applicable at the relevant time. 12.7 However, from the available material or from company's record, the creditors have not shown any document/material reflecting basic wage or VDA of the concerned workmen and they have not established that the basic wage and/or VDA of the concerned persons were actually less than what is considered by the Chartered Accountant. 12.8 In absence of such details and material the allegation by the secured creditors that the Chartered Accountant has committed error in calculating wages i.e. wage and VDA/FDA cannot be accepted, more so because on one hand the Chartered Accountant has clarified that the wage reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their wage, for the entire period from closure to the date of winding up order. It is claimed that such inclusion is impermissible. The foregoing discussion clarifies that the term "wages" include all remuneration. In present case chartered accountant has clarified for the purpose of calculating and determining the workmen's dues towards wage, the amount as reflected from the salary slip for the month of April 1997 has been taken into consideration. The secured creditors have not shown wage slips/wage register of workmen to establish that yearly increments have been included. Besides this what is more important is the fact that even if one proceeds on the premise that increments have been included then also the secured creditors have failed to establish that the workmen of the company were not entitled to yearly increments which are available to workmen every year automatically (i.e. on completion of 12 months every year). It is not the case of secured creditors that in the company there was no practice of yearly increments and the workmen were not entitled for yearly increments. Therefore, if the chartered accountant has taken into consideration, on the basis of details in the wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cogent material and specific details as to the name of the workmen/staff member/s and his/their basic wage as on 27.12.2001, must also be submitted so as to establish that the wages of the workmen included in the list were, as on the relevant date, less than what is mentioned in the report. If such material is submitted within two weeks then Official Liquidator will get the said material examined by the chartered accountant, and if the allegation/objection is found justified, then appropriate correction shall be made with reference to such workmen/staff member. 13. Besides the aforesaid objections the secured creditors have also raised objection against the chartered accountant's decision with reference to workmen's claim towards gratuity. Actually the said objection is another link of secured creditors' objection against the quantification of claim towards wages. 13.1 The secured creditors have claimed that the base for quantifying claim towards gratuity is incorrect due to the error in determining the claim towards wages. In this context it is relevant to refer to the observation and clarification made by the chartered accountant in his report. The relevant part of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditors is against inclusion of claim for amount due towards privilege leave/earned leave. From perusal of the report dated 10.1.2009 it appears that the Chartered Accountant has admitted and included the claim for payment of the amount towards privilege/earned leave for the period from closure to winding up. This is evident from below mentioned observation in the report dated 10.1.2009: "We have checked the balances of earned leave as on 30-05-1997 and thereafter added the earned leave per year as per rules of the undertaking. We have checked the total earned leave and calculated the wages and salary for the workers and staff members. As per the rules of the undertaking maximum earned leave 90 days in the case of workers and 120 days in the case of staff members. We have verified wage/salary per day of the last salary i.e. for the month of December, 2001. Accordingly we have verified the arrears earned leave wage of Workers Rs. 1,65,81,086/- as per Annexure "A" and earned leave salary of Rs. 59,21,662/- of the staff members as per Annexure "B". Total of arrears of earned leave wages/salary of Rs. 2,25,52,748/-." 14.1 So far as the allegation is concerned, it is appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Sections 529, 529A and 530 of the Companies Act which intended to ensure that the workers/employees get priority/preference for their legitimate dues. The overriding priority given to the workmen's dues is only for their legitimate dues which cannot include any fiction of unavailed/refused privilege leave. This reasoning will apply with greater force to such claim for the period of legal closure. 14.5 In view of the above discussion, the wages in lieu of unclaimed privilege leave/holiday remuneration during the period of closure (whether legal or illegal) would not qualify for priority under Sections 529, 529A and 530 of the Act." 14.2 Thus, the claim for privilege leave/earned leave for the period of closure (legal or illegal closure) cannot be entertained and cannot be considered admissible/eligible for preferential payment under section 529A of the Act. The Chartered Accountant could not have included the claim for monetary value of PL/EL (i.e. wages for PL/EL) for the period from the date of closure until the date of the order of winding up. 14.3 From the report dated 10.1.2009 it is noticed that the Chartered Accountant has admitted and included the workmen's clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of Secured Creditors: 15. The secured creditors have alleged that some of the justified and sustainable claims made by them are not allowed. So far as the respondent No. 7 ICICI is concerned, it has raised grievance with regard to some of its claim viz. compound interest/penal interest, premium amount (on debentures) trusteeship fees and liquidated damages, which according to the respondent No. 7 have not been allowed by the Chartered Accountant. Respondent No.3 has claimed that its claim for Rs. 50,000/- for reimbursement of amount paid to official liquidator is not allowed by chartered accountant. 15.1 The dues of the secured creditors are required to be determined as on the relevant date. According to the provision under section 530(8)(c)(i) of the Act, the relevant date would be the date on which order of winding up and appointment of provisional liquidator is passed. 15.2 In this context, it is appropriate to mention, at the outset, that so far as the debt of the secured creditors is concerned, the Chartered Accountant has submitted separate report, i.e. report dated 17.2.2009 wherein, the claims of secured creditors are considered by the Chartered Accountant and quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case the workmen have also claimed interest on their dues. In view of the definition of relevant date as contained in Section 530(8)(c)(i) of the Act, for determination of the dues of the secured creditors as well as the workmen's dues for the purpose of determination of ratio as well as for the purpose of priority payment u/s 529, 529A and also for the purpose of preferential payment u/s 530 of the Act, the relevant date would mean the date of the first appointment of a provisional liquidator and if no such appointment is made, the date of winding up order. Similar view is taken in the decision of the Division Bench of this Court in the case of ICICI v. Textile Labour Association rendered in OJ Appeal No. 80 and 81 of 1998, decided on 3-4 November 1998, as also in the case of Kerala Financial Corporation v. Official Liquidator reported in 87 Company Cases 183 and in the case of Anthony Raj v. Shanmugam reported in 80 Company Case 531. The dues of the workmen as well as the dues of the secured creditors are first required to be determined as on the aforesaid relevant date which is generally the date of winding up order and, therefore, no interest is to be calculated for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emerges that the secured creditors have failed to establish any error in the quantification of the claim amount determined by the chartered accountant with reference to the debenture interest. The decision of the chartered accountant holding that the applicant ICICI is entitled for simple interest from 6.2.2003 cannot be faulted. The said decision is based on the order passed by the learned Tribunal. The claim for interest @ 15% and/or for penal interest and/or for component rate cannot be entertained for preferential payment under section 529A of the Act. 15.7 So far as the claim for liquidated damages is concerned, the said claim cannot be entertained for purpose of preferential payment under Section 529A of the Act. The liquidated damages which are sought to be claimed are not ascertained amount and any material to establish that (i) any charge was created in respect of liquidated damages; and (ii) such charge for security payment towards liquidated damages was duly registered under Section 125 of the Act. The said claim for liquidated damages does not qualify as "Secured Claim" for the purpose of preferential payment or overriding priority contemplated under Section 529A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g first charge and workmen are paid in full. 16.3 In this context it is necessary to note that the contentions raised by the learned Counsel for the workmen are raised on the premise that the secured creditors who hold first charge and those who hold second charge form two different class. 16.4 However, examination of the provision under Sections 529 and 529A make it clear that the said understanding on part of the workmen is erroneous and not supported by plain reading of and apparent scope and meaning of Sections 529 and 529A. It is pertinent that when section 529A makes reference of secured creditor it is with reference to the provision under clause (c) of proviso to subsection (1) of section 529 and its proviso and that therefore the provision under clause (b) and/or under subsection (2) of section 529A cannot be read or considered without having regard to the provision under proviso to section 529(1) (c). 16.5 It is also pertinent to note that the proviso refers to securities of "every" secured creditor. It is provided that pari passu charge in favour of the workmen would be available against security of "every" secured creditor and not only against security of those sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport the contention that while determining the distribution ratio for the purpose of distribution amongst the secured creditors and the workers, the debt of the secured creditors holding second charge should be excluded. 16.10 The security of the secured creditors and the charge against the company's properties is subject to pari passu charge in favour of the workmen. Therefore the claim of the workmen would stand, on the same platform besides the debt of the secured creditors. The provision under section 529-A does not prescribe the order in which payment should be made between the secured creditors of first charge or second charge. The provision deals with the rights of secured creditors, hence it is to be understood in contradistinction to the rights of unsecured creditors and not inter-se amongst the secured creditors. 16.11 At the stage of making payment to the secured creditors the question about inter-se priority amongst the secured creditors (i.e. between secured creditors holding first charge and secured creditors holding second charge) would arise and at that time the order of priority for payment will be in accordance with the order prescribed under section 48 of Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs contained in the reports, affidavits and documents produced before the Court as well as having minutely examined the relevant statutory provisions and the case law on the subject, the Court is of the view that the prayer made by the Official Liquidator in the present report cannot be granted and at this stage, the secured creditors are not required to refund the amount. Keeping aside for the time being the controversy relating to the exact amount of their entitlements, the basic question which is to be decided is with regard to as to whether the dues of the secured creditors having second charge are required to be taken into consideration for the purpose of determining the ratio between the secured creditors and workers and secondly, only the principal amount and not the debts due on the date of winding up which includes interest is required to be taken into consideration. 15. As far as the first issue is concerned, the position in law is well settled. This Court in the case of IDBI v. Official Liquidator of M/s. Rustom Mills Industries Limited and others has already decided this issue. While rejecting the contention raised on behalf of Textile Labour Association to the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d creditors and the workmen." 16.13 It is informed that OJ Appeals against the said decisions are admitted, however, the said view and the order are not stayed. 16.14 In this context it is appropriate at this stage to refer to the decision by the Apex Court in the case between SIDCO Leathers Ltd. (supra) wherein the Apex Court, inter alia, addressed three issues viz. (a) Whether significance is lost in respect of inter se right of priority between two sets of secured creditors in view of Section 529A of the Companies Act? (b) Whether Section 48 of the Transfer of Property Act stands over-ridden by Section 529A of the Companies Act and (c) Whether the Appellant can be said to have relinquished his right to claim as a secured creditor as it had not opted in terms of Section 47 of the Provincial Insolvency Act. In the said decision, while dealing with the said issues the Hon'ble Apex Court also considered the provision under Transfer of Property Act particularly section 48 of the Transfer of Property Act, which prescribe different type of charges and observed that:- "41. While enacting a statute, the Parliament cannot be presumed to have taken away a right in property. Right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Dividends that may be distributed by the Official Liquidator, the same would lead to deprivation of the secured creditor of his right over the security and would bring him at par with an unsecured creditor. The logical sequitor of such an inference would be that even unsecured creditors would be placed at par with the secured creditors. This could not have been the intendment of the legislation." 16.15 While considering conjoint effect of sections 529 and 529A the Apex Court, in the case between Rajasthan State Financial Corp. v. Official Liquidator [2005] 63 SCL 468 has observed, inter alia, that:- "A combined reading of Sections 529-A and 529 indicates that notwithstanding anything contained in any other law for the time being in force or in the Companies Act itself, there is a preferential payment provided for workmen's dues and debts due to the secured creditors to the extent such debts rank under clause (c) of the proviso to Section 529(1) pari passu with such dues. Therefore, when the assets of the company are sold and the proceeds realized, the debts by way of workmen's dues and that of the secured creditors have to be paid in full if the assets are sufficient to meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Court. 38. Section 529-A of the Companies Act does not ex facie contain a provision (on the aspect of priority) amongst the secured creditors and, hence, it would not be proper to read thereinto things, which the Parliament did not comprehend. The subject of mortgage, apart from having been dealt with under the common law, is governed by the provisions of the Transfer of Property Act. It is also governed by the terms of the contract. 41. While enacting a statute, the Parliament cannot be presumed to have taken away a right in property. Right to property is a constitutional right. Right to recover the money lent by enforcing a mortgage would also be a right to enforce an interest in the property. The provisions of the Transfer of Property Act provide for different types of charges. In terms of Section 48 of the Transfer of Property Act claim of the first charge holder shall prevail over the claim of the second charge holder and in a given case where the debts due to both, the first charge holder and the second charge holder, are to be realized from the property belonging to the mortgagor, the first charge holder will have to be repaid first. There is no dispute as regards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court considered the correctness of the views expressed by the Karnataka High Court and the Gujarat High Court. This Court held that a right is available to a financial corporation under Section 29 of the SFC Act against a debtor, if a company, only so long as there is no order of winding up. When the debtor is a company in winding up, the rights of financial Corporations are affected by the provisions in Sections 529 and 529-A of the Companies Act. It was also held that the proviso to Section 529 of the Companies Act creates a "pari passu" charge in favour of the workmen to the extent of their dues and makes the liquidator the representative of the workmen to enforce such a charge. The decision of the Bombay High Court in Maharashtra State Financial Corpn. v. Ballarpur Industries Ltd. (AIR 1993 Bom 392) was approved. The reference to a larger bench was occasioned by the fact that the decision in Allahabad Bank v. Canara Bank and Anr. (supra) was not adverted to in this decision. This decision recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. In the order dated 9.1.2006 in the said company application No. 362 of 2004 the Court has dealt with and decided the said contention. Neither section 529 nor section 529-A of the Act mandate that to claim priority and preferential payment under section 529-A the secured creditors must join winding up and cannot stand outside the winding up and/or it must relinquish its security. As observed in case of Rajasthan Financial Corpn. (supra):- "....This decision recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529-A of that Act in a case where the debtor is a company-in-liquidation.........................." it is recognized that whether a secured creditor is standing outside the winding up or not, the disbursement has to be made amongst the secured creditors and workmen in terms of section 529-A read with section 529 of the Act. It is also held that in certain circumstances the secured creditors can come before the Company Court and claim priority over other creditors even though the said creditor is standing outside the winding up. On the prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er creditors for release of amounts out of the other monies lying in the Company Court (here, the Tribunal). This limited priority is declared in section 529A(1) but it is restricted only to the extent specified in clause (b) of section 529A(1). The said provision refers to sub-clause (c) of the proviso to section 529(1) and it is necessary to understand the scope of the said provision. 64. Under sub-clause (c) of the proviso to section 529(1), the priority of the secured creditor who stands outside the winding up is confined to the "workmen's portion" as defined in S. 529(3)(c). 'Workmen's portion' means the amount which bears to the value of the security, the same proportion which the amount of the workmen's dues bears to the aggregate of (a) workmen's dues and (b) the amounts of the debts due to all the creditors. This is explained in the illustration under the said provision. If the workmen's dues in all are (say) Rs. 1 lakh and the debt due to all secured creditors is Rs. 3 lakhs, the total amount due to all of them comes to Rs. 4 lakhs. Therefore, the workmen's share come to 25% (Rs. 1 lakh out of Rs. 4 lakhs). Now if the value of the security of a secured creditor (like Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Allahabad Bank v. Canara Bank and Anr. (supra) was not adverted to in this decision. This decision recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529-A of that Act in a case where the debtor is a company-in-liquidation. As far as we can see, there is no conflict on the question of the applicability of Section 529-A read with Section 529 of the Companies Act to cases where the debtor is a company and is in liquidation. The conflict, if any, is in the view that the Debts Recovery Tribunal could sell the properties of the Company in terms of the Recovery of Debts Act. This view was taken in Allahabad Bank v. Canara Bank and Anr. (supra) in view of Recovery of Debts Act being a subsequent legislation and being a special law would prevail over the general law, the Companies Act. This argument is not available as far as the SFC Act is concerned, since Section 529-A was introduced by Act 35 of 1985 and the overriding provision therein would prevail over the SFC Act of 1951 as amended in 1956 and notwithstanding Section 46-B of the SFC Act. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 by the chartered accountant it emerges that while considering and calculating the claim of secured creditors, particularly claim of State Bank of Patiala, the chartered accountant has included/allowed a sum of Rs. 27,19,360/- though the said amount represents the amount deposited/paid towards guarantee in the Hon'ble High Court of Bombay. The amount seems to have been paid after the order of winding up. Besides this, the said amount appears to have been paid by the State Bank of Patialaas as guarantee money in certain proceeding before the High Court of Bombay wherein the said bank might be party to the proceedings as petitioner/applicant or opponent. The said claim not being "secured claim", cannot be considered at the time of disbursement under Section 529A of the Act though it could be permissible, subject to proof, at the time of disbursement under Section 530 of the Act. Therefore, the chartered accountant shall have to take out said amount of Rs. 27,19,360/- from the amount of claim/debt determined by the chartered accountant for State Bank of Patiala. 18.1 The workmen have also submitted that the dues of the mutual fund do not enjoy first charge over the properties an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such person shall be taken out of the total claim of workmen and necessary correction shall be accordingly made. 20.3 Likewise, out of the total claim amount which is determined by the chartered accountant i.e. quantification of workmen's claim, the amount allowed towards claim for wages towards privilege leave/earned leave shall be taken out. The said claim is not permissible for purpose of disbursement under Section 529A, and could not have been included in the quantification of workmen's claim. Therefore, to that extent correction shall be carried out by the chartered accountant. 20.4 Furthermore, after getting confirmation from the official liquidator with regard to the payment said to have been made by the Bank of Baroda towards expenses (i.e. Rs. 50,000/-) the said claim shall be included in the total claim/debt of Bank of Baroda. 20.5 So far as the claim of State Bank of Patiala is concerned, the claim in the sum of Rs. 27,19,360/- which is allowed by the chartered accountant vide report dated 17.2.2009 is not permissible at this stage of disbursement under Section 529A of the Act and that therefore the said amount will have to be taken out from the total claim amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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