TMI Blog2006 (8) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... a), (i), (ii) and (iii), (b) above. ( 2. ) At the outset, Ms.Buch appearing for the applicant contends that order in terms of prayer clause (b) needs to be passed straight way. She invites my attention to a statement which is annexed at Annexure-E to the affidavitin- support of this Company Application. She invites my attention to the discrepancies at sr.nos.1, 2 and 11 and submits that a person joining at a later stage with lesser basic salary/wages, has been granted larger amount. At sr.no.1. a person joining in 1970 and having basic wage more than those who have joined later has been denied a substantial sum. ( 3. ) Shri Engineer appearing for the Official Liquidator, on the other hand, states that this is a statement which is placed before me by the applicant. It is not true that any discrepancies have occurred. He invites my attention to the statements in affidavit-in-reply and more particularly paras 16 to 18. However, in para 19 of this affidavit, this is what is stated :- 19. Official Liquidator submits that Counsel for workmen may be advised to submit sufficient documentary evidence showing the basic wage of workman at Serial No.1 namely Shri Laxman S Gaikwad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng-up order by this Court i.e. on 9th January 1998. The date of closure of the unit was 1st May 1994 and hence bonus was claimed for a period of four years. It is submitted that the Official Liquidator has allowed the claim for salary for the above period on the basis that master-servant relationship ended only on 9th January 1998. Therefore, by the same logic, the payment of bonus ought to have been also made by allowing the claim in that behalf. She submits that bonus @ 8.33% is a statutory payment under the Payment of Bonus Act, and, therefore, the payment was justified. ( 8. ) Insofar as Provident Fund claim is concerned, her submission is that the claim could not have been rejected or in any event the Liquidator was bound to make good the employer's contribution from the funds available with him after disposal of assets. ( 9. ) She has invited my attention to the relevant provisions of Payment of Gratuity Act, Industrial Disputes Act, Payment of Bonus Act as also Companies Act in support of her above submissions. ( 10. ) On the other hand, Shri Engineer - learned counsel appearing for the Official Liquidator submits that the action of the Liquidator, in this case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments and in that behalf my attention has been invited by Shri Engineer to sub section 2 of Section 529A. ( 11. ) In his submission, even when the workmens dues have been given preference and override certain other payments, yet, not all dues of the workmen are included in the said term. The term has been defined for the purposes of this preferential payment so as to exclude certain dues of workmen. He submits that such dues which have no relation with services rendered to the company and for which alone appropriate payment/ reimbursement has to be made, are included in the definition. At the same time, a provision is made for the survival of the workmen by including sums due towards Provident Fund, Pension Fund, Gratuity Fund or any other fund maintained by the company for their welfare. Therefore, according to him, a balancing act has been performed by the Legislature. In these circumstances, it would be unfair to make payment of dues pertaining to workmen which are outside the purview of the above definition. That would render the provisions nugatory and redundant. Hence, gratuity has to be paid but merely because the concept of gratuity is covered in workmens dues, that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidation. This aspect will have a great bearing on the ultimate conclusions reached in this judgement. ( 15. ) With the assistance of Ms.Buch and Shri Engineer I have perused the company application and the annexures thereto as also the affidavit in reply. I have perused the relevant provisions and the decisions brought to my notice. ( 16. ) In the affidavit in reply filed on 15th December 2005, the Official Liquidator has pointed out that by an order dated 9th January 1998 passed in Company Petition No.2004/1994, the Company M/s.Poysha Industrial Co. Limited has been wound up and the Official Liquidator has been appointed as the Liquidator with usual powers under the Companies Act, 1956. The Liquidator has taken possession of the movable and immovable properties, which are situate at various places. He has disposed of several properties, immovable and movable, belonging to the company in liquidation and details of the properties remaining to be disposed off, are set out in para 4 of the same. ( 17. ) He has pointed out that in pursuance of the orders of this Court he received total number 1,563 claims from workmen, Sales Tax Department, secured creditors, preferential cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the P.F. Authority will have to lodge its claim with the Official Liquidator in prescribed form and he states that prescribed form is Form No.46. This is in substance his stand in the matter. ( 20. ) For properly appreciating the rival contentions, a reference will have to be made to Sections 528, 529 and 529A of the Companies Act. Chapter-V of Companies Act in which these sections find place is a chapter which contains provisions applicable to every mode of winding up. There is a sub heading before Section 528 and it is entitled proof and ranking of claims. Section 528 provides the debts of all descriptions to be admitted to proof. This provision reads thus:- S.528 : Debts of all descriptions to be admitted to proof.- In every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act of the law of insolvency), all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 an 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 the meaning of the Industrial Disputes Act, 1947 (14 of 1947); (b) workmen's dues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.529A - Overriding preferential payments.- (1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company- (a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of sub section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. ( 23. ) A bare reading of this provision would indicate that notwithstanding anything contained in any other provision of the Companies Act or any other law for the time being in force, in the winding up of a company, workmens dues and dues of 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 be paid in priority to all other debts. However, sub section 2 clearly demonstrates that even if such priority is given to the debts of workmen and debts due to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the welfare measure and consistent with the concept of a living wage have been included. So also, compensation for injury in voluntary winding up or under contract of insurance is also included. Thus, the intention is to award monies due for services rendered and remuneration earned as of right so also death or disablement compensation or terminal dues, should be paid so that the workmen does not suffer adversely because of winding up. Some what similar view has been taken in a case reported in 1952(22)-Company Cases-96. Here, the view taken is, that Bonus is not included under the category of Wages in Section 230 of the old Companies Act and workers are not entitled to preferential payment of bonus. The decision was in the field when the Act was amended. The legislature in its wisdom has not included 'Bonus' even in the amended provision. This is indicative of the intention of the Legislature. ( 26. ) It is common ground that upon a petition or application for winding up made voluntarily or otherwise wherein an order is made for winding up, it's effect is that it operates in favour of all creditors and all the contributories of the company as if it had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statements of objects and reasons, in this behalf, read thus:- ... ... ... Another announcement made by the Finance Minister in his Budget speech relates to the decision of the Government to introduce necessary legislation so that legitimate dues of workers rank pari passu with secured creditors in the event of closure of the company and above even the dues to Government. The resources of companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate event of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the product of their labour and effort. it is accordingly proposed to amend sections 529 and 530 of the Companies Act and also to incorporate a new section in the Act, namely section 529A (vide clauses 4, 5 and 6 of the Bill). ( 28. ) A Three Judge Bench of Hon'ble Supreme Court had to resolve a conflict of views between Two Judgements both rendered by a Bench of two learned Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the words or the amount of the workmen's portion in his security, whichever is less . IN other words, the priority of the secured creditor is only to the extent that any part of the said security is lost in favour of the workmen consequent to demands made by the liquidator under clauses (a). (b) or the said proviso to Section 529(1). No such situation has arisen so far. It is contended that where a secured creditor keeps himself outside as stated in the proviso to Section 529(1) and seeks to recover his dues outside the Company Court, if he loses part of his security towards workmen's dues, he gets reimbursed to that extent as a secured creditor, with an overriding priority under Section 529(A)(1)(b). He gets priority over all other creditors before the Tribunal, to be compensated for this loss out of the monies that may have been realised at the instance of other creditors before the Tribunal. It is pointed out that Canara Bank has neither realised any amount outside winding up nor has it lost any part of its security towards workmen's dues. In our view, this contention of the learned Attorney General is well founded and is entitled to be accepted. In our opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to the provisions of the Industrial Disputes Act in the relevant sub-clauses of section 529(3)(b) and has not made any reference to the Payment of Wages Act. If the Legislature had intended that the wages as defined by the Payment of Wages Act were intended to be covered, the Legislature would not have provided for separate sub clauses for accrued holiday remuneration and gratuity as all these items are already covered by the definition of wages in section 2(vi)(b) and (d) under the Payment of Wages Act. The very fact that the Legislature has made separate provisions for these items indicates that the Legislature was adopting the narrower definition of wages under the Industrial Disputes Act and, therefore, gratuity, pension and provident fund which are specifically excluded from the definition of wages under the Industrial Disputes Act, are separately provided for in sections 529(3)(b) and 530 of the Companies Act. Moreover, when the Legislature has given the workmen's dues (as defined in section 529(3)(b)) along with the dues of the secured creditors overriding priority even over the dues mentioned in section 539(1) of the Act including dues payable to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wages under the Industrial Disputes Act and not the wider definition of wages under the Payment of Wages Act. The Court, therefore, holds that the expression all wages or salary in section 529(3)(b) does not include bonus payable to the workmen under the Payment of Bonus Act or otherwise. The submissions of Ms.Buch proceed on the basis that dues of workman as per Industrial Law or under welfare and beneficial legislations are necessarily protected and claims in that behalf have to be honoured even if the company is in winding up. Inspite of full sympathy for the workmen, it is not possible to accept this contention because it is not as if the dues are not payable generally but when it comes to claiming the amounts from the funds in the hands of liquidator, that the Legislature has enlisted the dues specifically. Once the workmen are claiming priority over other creditors or contributories, and anxiety is that their claims should be expeditiously settled, then, they have to abide by the special provisions enacted to give priority to their dues. The workmen can always come for their dues with others. However, for adjudication thereof they will have to stand in line with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment or a State Government a person or authority appointed by the appropriate Government for the supervision and control of employees, or where no person or authority has been so appointed, the head of the Ministry or Department concerned, (ii) belonging to, or under the control of, any local authority, the person appointed by such authority for the supervision and control of employees or where no person has been so appointed, the chief executive officer of the local authority, (iii) in any other case, the person, who, or the authority which, has the ultimate control over the affairs of the establishment, factory, mine, oilfield, plantation, port, railway company or shop, and where the said affairs are entrusted to any other person, whether called a manager, managing director or by any other name, such person; In this case it is not the contention of Ms.Buch that liquidator can be said to be the employer. The employer is the company in liquidation. That employer is obliged to make the payment within the period specified if the gratuity becomes payable. It is that employer, who upon delay, is charged with the liability to pay the interest. If application is made but pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other words, should Section 7(3A) of the Gratuity Act be read into the Companies Act. The answer will have to be in the negative. Liquidator may determine the Gratuity payable under the Gratuity Act. That is because the intent is not to deprive the workman of Gratuity, Pension and Provident Fund after the company is would up. In this behalf provisions of Section 4 of the Gratuity Act cannot be overlooked. It reads thus:- 4. Payment of gratuity.- (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,- (a) on his superannuation, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease: Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement : (Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an employee may be wholly or partially forefeited - (i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or (ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years on his superannuation, retirement or resignation or death or disablement due to accident or disease. Section 7 provides for determination of the amount of Gratuity. There is no outer limit for determination. The only obligation is to pay within thirty (30) days thereof failing which the same carries interest. Gratuity has to be payable. It becomes so only after Official Liquidator determines it. In other words, when the procedure set out under the Companies Act has to be adopted in cases of winding up and appointment of liquidator, then for the delay in determination and payment of gratuity by the employer, the liquidator cannot be calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f each dividend. ( 33. ) However , considering the statement made on affidavit by the liquidator, I am not rejecting the claim for interest at this stage and it would be open for the applicant to claim the same subsequently. The liquidator may consider the claim on its own merits and in accordance with law. All that I am holding is that the mandate of Section 7(3A) of the Payment of Gratuity Act, 1972 cannot be straight way read into with abovementioned provisions of Companies Act and more particularly for directing payment of interest contemplated by the Gratuity Act by the liquidator. ( 34. ) As far as Section 8 of Payment of Gratuity Act is concerned, that is a remedy to recover the gratuity as arrears of land revenue and the interest contemplated therein is in a certificate to be issued by the controlling authority. The Collector is the authority for recovery of land revenue. The interest is to be a compound interest at the rates specified in a notification in that behalf issued by the Central Government. The interest is admissible only if a certificate for recovery of a dues as a public demand has been issued. The demand must be for recovery of sum of gratuity as arrear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umulated till the date the winding up order is passed. The liquidator cannot be expected to make good any short fall or deficit because he is not an employer, as is understood by the applicant herein. In other words, when the Provident Fund Act mandates creation of a fund consisting of deductions and contributions from employer-employees, it can never be the intention that a person like Liquidator is obliged to forward any contribution from the funds collected by him after disposal of the assets and properties of the company in liquidation. As has been explained above, the argument is misconceived because if the liquidator is not the employer, then merely because he steps in after a winding-up order is made, does not mean that after he has stepped in he should go on contributing to the Provident Fund on the basis that the relationship between the company in liquidation and the employee subsists or continues in law. The Liquidator cannot be expected to deposit any monies in such funds. He has to utilise the monies realised from sale and disposal of the assets and properties of the company in liquidation in the manner directed by company law. It was never intended therein that he sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities are not liabilities for preferential payments, but they are statutory and indispensable liabilities such as the many liabilities which a Liquidator has to undertake, as for instance, as when he is to continue a lease to keep on paying the rent or where he is holding other properties, to see that rates and taxes in respect of them are paid. 14. Now what is going to be the result if the construction contended for by the Liquidator is adopted Apart from creating a special class of persons who would be permitted to do business without the statutory liabilities enjoined in such business, there will be many other serious consequences. The Provident Fund will cease to exist, and in that event the workers may very well leave the factory. As a consequence, the business will not be able to sell the factory as a running concern which is the order of the Court. 15. I am, therefore, satisfied, both on the construction of the Employees' Provident Funds Act and its Scheme as well as on the special order made in this case directing the Liquidator to carry on the factory engaged in the industry and to sell it as a going concern, that the Liquidator is liable as an 'employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vency Act, 1909 (3 of 1909), or under section 61 of the Provincial Insolvency Act, 1920 (5 of 1920), or under section 530 of the Companies Act, 1956 (1 of 1956) are to be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up, as the case may be. (Explanation.- In this sub section and in section 17, insurance fund means any fund established by an employer under any scheme for providing benefits in the nature of life insurance to employees, whether linked to their deposits in provident fund or not, without payment by the employees of any separate contribution or premium in that behalf.) (2) Without prejudice to the provisions of sub section (1), if any amount is due from an employer whether in respect of the employee's contribution (deducted from the wages of the employee) or the employer's contribution, the amount so due shall be deemed to be the first charge on the assets of the establishment, and shall, notwithstanding anything contained in any other law for the time being force, be paid in priority to all other debts.) ( 42. ) In other words, this provision means that upon an employer b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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