TMI Blog2020 (3) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... then Section 529A(1)(b) will not be available to the Secured Creditor for want of applicability of clause (c) of proviso to Section 529(1) of the Companies Act. Payment under Sections 529A(1)(a) and 529A(1)(b) shall be made in priority to all other dues. Amount of debt payable under Section 529A(1)(b) is to be determined, in terms of clause (c) of the proviso to Section 529(1). As held by the Apex Court, for such debt ranking pari passu with the workmen s dues for the purpose of Section 529A, two limbs of proviso to Section 529(1) are to be satisfied - In absence of security and exercise of option by Secured Creditor to realize the same, there will not be any debt equivalent to workmen s portion, realization whereof could not be made by the Secured Creditor and in such eventuality there will be no right of overriding preferential payments under Section 529A(1)(b) in favour of Secured Creditor. In the present case, there is no debt due to the Secured Creditors, falling in the category of debts defined under clause (b) of Section 529A(1) of the Companies Act, to be paid as overriding preferential payments under Section 529A(1)(b) to them. So far as workmen s dues under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .13 of 2018, identical, in fact verbatim, to Company Application No.32 of 2016, has also been preferred on behalf of Punjab National Bank (for short PNB). Therefore, these two applications are being disposed of together. 2. No reply has been filed by anyone to Company Application No.32 of 2016, whereas Official Liquidator has filed reply to Company Application No.13 of 2018, admitting therein that an amount of ₹ 3,08,11,316/-, available for disbursement, was to be disbursed to PNB and State Bank of India (for short SBI), on the basis of report of Chartered Accountant and that in his first report dated 14.1.2013, the Chartered Accountant has determined the share of PNB as 67.64% and SBI as 32.36%, i.e. ₹ 1,85,20,576/- and ₹ 1,22,90,740/- respectively, in the amount of ₹ 3,08,11,316/- but in subsequent meeting of Secured Creditors, held on March 15, 2013, representative of PNB had pointed out a clerical mistake/omission in the said report of Chartered Accountant, with respect of verification in their claimsharing- ratio, whereupon the Chartered Accountant had submitted revised report on May 18, 2013, verifying the sharing-ratio of PNB and SBI as 71.50% and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication that in view of order passed on December 29, 2014, matter should be listed only after decision of Company Appeal No.2 of 2014, preferred by International Asset Reconstruction Company (in short IARC), pending before Division Bench of this Court. 8. In the year 2018, Company Applications No.21 of 2018 and 22 of 2018 have also been preferred by other sets of 14 and 63 Workmen for release of workmen s dues, out of the sale proceeds, lying with the Official Liquidator, in their favour as per their entitlement. 9. In Company Application No.7 of 2018, it has been stated on behalf of IFCI and IARC that assets of M/s Him Ispat Ltd (under liquidation) were sold for total consideration of ₹ 14.52 Crore and after various initial disbursements and payments, balance amount of ₹ 9.16 Crore is lying with the Official Liquidator and even if IARC succeeds in the said Appeal the amount involved in Company Appeal No.2 of 2014, in any case, shall not exceed ₹ 1.5 Crore and, therefore, it has been prayed in this application that instead of holding entire amount with the Official Liquidator, remaining amount, i.e. ₹ 9.16 Crore minus ₹ 1.5 Crore, alongwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition No.7 of 2001 alongwith CWP No.604 of 2001, as also mentioned in report dated September 26, 2018 filed on behalf of Official Liquidator. 15. Actual date of winding-up in the present case is December 30, 2005. Therefore, all calculations are to be and have been made with reference to this date for all intents and purposes, except the amount to be added in workmen s dues on account of orders passed by Courts, including Labour Court, as contemplated in the Companies Act for calculation of workmen s dues, under Section 529, as, as a matter of fact, workmen were also agitating their respective claims in various Courts, including Labour Court, since 1993, and proceedings in those claims have been finalized on date(s) subsequent to the winding up order. All such claims are also to be considered and added at the time of calculating and verifying the claims of Workmen, including those claims which have been permitted by this Court to be submitted/preferred by Workmen before the Official Liquidator and which have also been verified through Chartered Accountant. 16. Vide Annexure K to the report of Chartered Accountant dated October 10, 2014, it has been placed on record that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen s dues; and (c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen s portion in his security, whichever is less, shall rank pari passu with the workmen s dues for 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 2 [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 purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erriding preferential payment.- (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 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. 530. Preferential payments. - (1) In a winding up subject to the provisions of section 529A, there shall be paid in priority to all other debts- (a) all revenues taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable within the twelve months next before that date; (b) all wages or salary (including wages payable for time or piece work and salary earned wholly or in part by way of commission) of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) on account of wages or salary; or (ii) to him, or in the case of his death, to any other person in his right, on account of accrued holiday remuneration, out of money advanced by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which the sum in respect of which the employee or other person in his right would have been entitled to priority in the winding up has been diminished by reason of the payment having been made. (5) The foregoing debts shall- (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (6) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erential payments which would have applied if this Act had not been passed, shall be deemed to remain in full force. 20. The Apex Court in Allahabad Bank v. Canara Bank and another, (2000) 4 SCC 406, has held that Secured Creditors fall under two categories, i.e. one who desire to go before the Company Court and the other who like to stand outside the winding-up. Relevant paragraphs are as under: 62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding up. 63. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in section 529. The insolvency rules are those contained in sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the aforementioned provisions, the secured creditors have two options (i) they may desire to go before the Company Judge; or (ii) they may stand outside the winding-up proceedings. The secured creditors of the second category, however, would come within the purview of Section 529-A(1)(b) read with proviso (c) appended to Section 529(1). The workmen's portion as contained in proviso (c) of sub-section (3) of Section 529 in relation to the security of any secured creditor means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of (a) workmen's due, and (b) the amount of the debts due to all the (sic secured) creditors. .. 23. The language of Section 529-A is also clear and unequivocal, in terms whereof the workmen's dues or the debts due to the secured creditors, to the extent such debts rank under clause (c) of the proviso to subsection (1) of Section 529 pari passu with such dues, shall have priority over all other debts. Once the workmen's portion is worked out in terms of proviso (c) of sub-section (1) of Section 529, indisputably the claims of the workmen as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of Secured Creditors without taking into consideration the provisions of Sections 529 and 529A of the Companies Act, wherein statutory charge has been created in favour of workmen in respect of their dues from the Company over the security of every Secured Creditor and also workmen s dues have been categorized as overriding preferential payments . 24. As per reply to Company Application No.7 of 2018, filed by the Official Liquidator, as on March 31, 2018, an amount of ₹ 14,75,59,374/- (sale proceeds + interest) is available with the Official Liquidator and out of that amount he has proposed to disburse ₹ 12.00 Crore to the Secured Creditors and the workmen, provisionally, as per the ratio determined by the Chartered Accountant in his report dated October 10, 2014, by taking claim of the Workmen pari passu to the claim of Secured Creditors and to keep the remaining amount to be disbursed after the decision of the appeal, pending before a Division Bench of this Court, preferred by IARC. Official Liquidator has also proposed to disburse claim of Workmen to the extent of 75% of the claim adjudicated (verified) by the Chartered Accountant and calculated as pari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the company to the secured creditor. Rather, the language of the first limb of this proviso makes it crystal clear that the security of every secured creditor created dehors the proviso to sub-section (1) of Section 529 of the Companies Act is statutorily subjected to a pari passu charge in favour of the workmen by the first limb of the proviso to sub-section (1) of Section 529 of the Companies Act. 13. The second limb of the proviso to subsection (1) of Section 529 of the Companies Act states the consequences which follow where a secured creditor, instead of relinquishing his security and proving his debt, opts to realize his security. These are: (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realized by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen's dues; and (c) so much of the debt due to such secured creditor as could not be realized by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of Section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... workmen under clause (c) of the said proviso are paid in priority over all other dues. 15. We may now refer to sub-section (2) of Section 529 of the Companies Act which states that 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 Section 529 of the Companies Act. The proviso to sub-section (2), however, states that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realize 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. This provision in subsection (2) of Section 529 of the Companies Act makes it amply clear that all creditors, secured and unsecured, of the insolvent company are entitled to prove for and receive dividends out of the assets of the company but so far as secured creditors are concerned, they have the option either to relinquish their security in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom realizing the amount of workmen s portion in his security so as to rank the said debt pari passu with the workmen s dues for the purpose of Section 529A. In absence of security and exercise of option by Secured Creditor to realize the same, there will not be any debt equivalent to workmen s portion, realization whereof could not be made by the Secured Creditor and in such eventuality there will be no right of overriding preferential payments under Section 529A(1)(b) in favour of Secured Creditor. 29. In present case, on March 6, 2019, a supplementary affidavit has been filed on behalf of IFCI and IARC, wherein it is stated that the said Secured Creditors have not relinquished their security and have opted to realize securities as detailed in the affidavit, as existing immovable properties, whereupon mortgage has been created by the Company in their favour and it is further stated in the affidavit that IFCI has also filed claim with the Official Liquidator vide its claim dated December 15, 2010, as one of the Secured Creditors of the Company specifically stating in Para-7 of the said claim letter that it has not relinquished its securities and, therefore, it continues to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e securities of any of the Secured Creditor, muchless of the IFCI as in above referred supplementary affidavit dated March 6, 2019, filed on behalf of IFCI, there is reference of other existing assets referred therein as security but not of the assets of the Company sold by the Official Liquidator and, therefore, the Secured Creditors cannot claim right over the sale proceeds as security referred in proviso to Section 529(1) and when there is no security, there is no question of preventing the Secured Creditors from realizing the amount equivalent to workmen s portion in terms of clause (c) of proviso to Section 529(1) for calculating the amount for the purpose of Section 529A(1)(b). Even if it is considered that the assets of the Company were also kept as security with any of the Secured Creditors, then also accepting the order of the High Court to sale out those assets, the Secured Creditors are deemed to have submitted their respective claims, in pursuance to the order of the High Court, before the Official Liquidator, more particularly for receiving dividend from the sale proceeds, the said security stands submitted to the domain of winding-up, losing the character of securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018 and before releasing share of SBI, the said amount or any other amount, mutually agreed as refundable amount between SBI and PNB shall be deducted from the share of SBI and paid to the PNB by the Official Liquidator. 37. Payment to the Workmen, whose claims have been vertified, shall be made in their favour by remitting the same in their Bank Accounts or Bank Accounts of legal heirs in the event of death of the Workman. The Official Liquidator shall release the payment immediately after receiving particulars of individual Bank Accounts of the Workmen applicants herein or their legal heirs, as the case may be, through their Advocate(s). 38. The workmen, who are not applicants herein, shall also be entitled for release of amount as indicated by the Chartered Accountant, in his report dated October 10, 2014, placed on record, by the Official Liquidator, but after filing an appropriate application before the Official Liquidator with complete details of their individual Bank Accounts and the Official Liquidator shall release the payment after ascertaining correct identity of the workmen and/or legal heir(s) in case of deceased workman. 39. No amount shall be paid to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt received from secured creditors on account of watch watch exp., valuation fee, insurance, and pre- exp. etc. mentioned in para 4 5 (except IFCI, because an amount of ₹ 27,39,457=00 has been paid in terms of Hon ble High Court order dated 05.11.2012) 10,20,279 2. Amount to be released to the security agency namely M/s Jai Jawan Security Agency 5,79,487 45. In prayer clause of aforesaid report dated 24.12.2018, , request has been made to permit Official Liquidator to reimburse the advance of ₹ 10,20,279/- received from Secured Creditors to them and pay balance amount of ₹ 5,79,487/- to the Security Agency, namely M/s Jai Jawan Security Agency. No objection has been filed by any party to it. Therefore, the Official Liquidator is also permitted to reimburse ₹ 10,20,279/- to Secured Creditors and to pay ₹ 5,79,487/- to Security Agency, namely Jai Jawan Security Agency, as referred in the report of the Official Liquidator. 46. The Official Liquidator has also prayed for fixing the fee to be payable to the Chartered Accountant, namely Shri Ravi Chand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to the Official Liquidator on 10.4.2014, which was placed in the meeting of Secured Creditors on 15.10.2014 and bill of Final Report, amounting to ₹ 6,24,720/-, was submitted to the Official Liquidator on 7.7.2015, which amount also remains unpaid by the Official Liquidator till date. He has further submitted that total bills of ₹ 99,000/- for preparation of three Interim Reports and for verification of three Interim Claims, total amounting to ₹ 7.18 Crore, as stated by him in Para-4 of his Report dated 26.10.2018, remains unpaid by the Official Liquidator till date. He has also stated that total Bills of ₹ 1,99,500/- for travel and sitting fee to visit and attend the meeting in the Office of Official Liquidator from 19.10.2012 to 18.5.2013 and from 22.7.2013 to 19.12.2014 are also unpaid till date. 52. It is clarified in the rejoinder that in the order dated 5.9.2018, passed by Hon ble High Court of Bombay, wherein fee for re-adjudication of workmen claims at the rate of ₹ 250/- per claim has been allowed, complete facts have not been narrated in the order and also that fee at the rate of ₹ 250/- per claim was for re-adjudication of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Official Liquidator, during the years 2012 to 2015. Therefore, the Official Liquidator is also directed to make payment of bills of the Chartered Accountant within one month from receipt of a copy of this order, compliance whereof shall be reported by the Official Liquidator in his report to be filed on or before 30.5.2020 as already ordered. 58. Application stands disposed of. Company Applications No.16 17 of 2018 59. Request letters dated March 23, 2018 received from Principal Commissioner of Income Tax (2), Chandigarh, for launching prosecution under Section 276C(2) of Income Tax Act, 1961, in case of M/s Him Ispat Ltd. (Under Liquidation), Chandigarh, for the Assessment Years 2013-14 2014-15 respectively, have been treated as Company Applications No.16 17 of 2018. 60. The allegation in their applications is that Return for the Assessment Year 2013-14 was due on September 30, 2013 but the Tax has been deposited on December 26, 2017 and Return with respect to Assessment Year 2014-15 was due on September 30, 2015, but Tax has been deposited on August 26, 2016. It is asserted that the Official Liquidator cannot claim immunity from prosecution under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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