Supreme Court of India
BANK OF MAHARASHTRAversusPANDURANG KESHAV GORWARDKAR & ORS
- Citation
- 2013 INSC 317
- Decided
- 7 May 2013
- Disposal
- Appeal(s) allowed
- Bench
- RAJENDRA MAL LODHA
Holding
When a company is in liquidation, the workmen's dues become a statutory charge pari‑passu with secured creditors, and only the official liquidator, not the DRT, may determine and quantify the workmen's claims.
Summary
The Bank of Maharashtra obtained a recovery certificate against Paper and Pulp Conversions Ltd. and, through the Debt Recovery Tribunal (DRT), sold the company's movable assets, retaining a portion of the proceeds. The company was subsequently ordered to be wound up and an official liquidator was appointed. The workmen of the company sought a direction from the Bombay High Court that the DRT adjudicate their claims and release the remaining proceeds in priority over other creditors. The Supreme Court held that once a company is in liquidation, a statutory charge in favour of workmen arises over the security of secured creditors, making workmen pari‑passu creditors, and that only the liquidator, not the DRT, can determine and quantify workmen's dues. The Court set aside the High Court's order, directing the DRT and the official liquidator to proceed with the workmen's claims as per the Companies Act, and allowed the appeals.
Issues considered
- Whether the claims of workmen for dues are to be adjudicated by the official liquidator or by the Debt Recovery Tribunal under the 1993 Act.
- Whether Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, confers jurisdiction on the DRT to determine workmen's claims.
- How the statutory charge created under Section 529(1)(c) proviso of the Companies Act, 1956, operates in relation to secured creditors and workmen in liquidation.
- Whether the date of winding‑up order or the date of sale of assets determines the ratio for distribution of sale proceeds.
Legislation cited
- Banking Regulation Act, 1949s. 5(c)
- Companies Act, 1956s. 441, s. 443, s. 447, s. 448, s. 456, s. 529, s. 529(1)(c) proviso, s. 529A
- Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 17, s. 19(19), s. 34, s. 36
- Sick Industrial Companies (Special Provisions) Act, 1985s. 15(1)
- State Financial Corporations Act, 1951s. 29, s. 46
Subjects
Debt Recovery TribunalWorkmen's duesLiquidationPari passu chargeCompanies ActRecovery of Debts Due to Banks and Financial Institutions ActSecured creditorStatutory chargeDistribution of sale proceedsOfficial liquidatorJurisdiction
Judgment
(2013] 3 S.C.R. 269
BANK OF MAHARASHTRA A
v.
PANDURANG KESHAV GORWARDKAR & ORS.
(Civil Appeal No. 7045 of 2005)
MAY 7, 2013
B
[R.M: LODHA, J. CHELAMESWAR AND
MADAN B. LOKUR, JJ.]
RECOVERY OF DEBTS DUE TO BANKS AND
FINANCIAL INSTITUTIONS ACT, 1993: C
ss. 17 and 19 (19) of 1993 Act rlw ss.529(1)(c), proviso
and 529-A of Companies Act - Recovery of debts of
company by bank/financial institution - Claim of workmen -
Held: Where a company is in liquidation, a statutory charge 0
is created in favour of workmen in respect qf their dues over
security of every secured creditor and this charge is pari passu
with that of secured creditor - Such statutory charge is to the
extent of workmen's portion in relation to security held by
secured creditor of debtor company - This position is equally E
applicable where assets of company have been sold in
execution of recovery certificate obtained by bank or financial
institution against debtor company. when it was not in
liquidation but before the proceeds realised from such sale
could be fully and finally disbursed, the company had gone
into liquidation - Relevant date is the date of winding up order F
and not the date of sale - Where the sale of security has been
effected in execution of recovery certificate issued by DRT,
distribution of undisbursed proceeds has to be made by DRT
alone in accordance with s. 529A of Companies Act and by
oo other forum or authority - Where debtor company is not G
in liquidation, s.19(19) does not come into operation at all -
Companies Act, 1956 - ss. 529(1)(c) proviso, and 529-A -
Interpretation of Statutes - Legislation by reference -
Legislation by incorporation.
269 H
270 SUPREME COURT REPORTS [2013] 3 S.C.R.
A s. 19(19) of 1993 Act read with ss. 529-A and 529(1)(c),
proviso of Companies Act - Company in liquidation - Debt
of bank/financial institution and claim of workmen - Held:
Once the company is in winding up, the only competent
authority to determine workmen's dues and quantify
B workmen's portion is the liquidator, who has to act under
supervision of company court- s.19(19) of the 1993 Act does
not clothe ORT with jurisdiction to determine workmen's
claims against debtor company - Certain incidental and
ancillary powers given to ORT do not encompass power to
c adjudicate upon or decide dues of workmen of debtor
company.
In the case filed by the appellant-Bank for recovery
of its dues against a company, the Debts Recovery
Tribunal gave its judgment on 19.7.2001 and issued the
D recovery certificate on 21.8.2001. Consequently, the
Recovery Officer, ORT, on 22.1.2004, auctioned the
movable properties of the Company. By order dated
8.10.2004, the Company was ordered to be wound up
and Official Liquidator was appointed. The workmen of
E the Company filed a writ petition before the High Court
seeking a direction to the Recovery Officer to recover the
amount of Rs.3 crores from the appellant Bank realized
by it from sale of movables of the Company and for a
direction to the Recovery Officer to adjudicate the claims/
F dues of the workmen/employees and release the amount
due to them in priority over all the claims. The High Court
held that the jurisdiction to determine the payment and
its priorities was totally vested with the ORT under the Act
and the workmen should approach the ORT for
G determination of their claim and consequential payment.
The High Court also issued guidelines to ORT for
determination of priorities.
The Bank filed C.A.No.7045 of 2005. C.A. No.7046 of
2005 was filed by Indian Banks Association. The Division
H Bench before which the appeals were listed, felt that the
BANK OF MAHARASHTRA v. PANDURANG KESHAV 271
GORWARDKAR & ORS.
question: "whether the claims of the workmen who A
claimed to be entitled to payment pari passu have to be
considered by the official liquidator or whether their
claims have to be adjudicated upon by the Debts
Recovery Tribun~I" was likely to arise in a large number
of cases and,1 therefore, referred the matter for B
consideration by a larger Bench.
Allowing the appeals, the Court
HELD: 1.1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 has not only conferred c
exclusive jurisdiction upon ORT for determination of the
matters specified in s.17 but has also ousted jurisdiction
of all other courts and other authorities in entertaining
and deciding such matters. The powers of the Supreme
Court and the High Court under Arts. 226 and 227, D
however, remain unaffected [s.18]. The applications for
recovery of debts due to banks or financial institutions
can be decided by ORT alone after coming into force of
the 1993 Act and no other forum. The jurisdiction of ORT
in regard to matters specified in s.17 is exclusive. [para E
45] [296-B-D]
1.2. Section 19 provides a comprehensive procedure
before the ORT for making an application where a bank
or a financial institution has to recover any debt from any
person. Section 34 gives the 1993 Act overriding effect. F
However, the effect of the winding up order is provided
in s.447 of the Companies Act, 1956. Accordingly, an
order for winding up a company operates in favour of all
the creditors and all the contributories of the company
as if it has been made on the joint petition, of a creditor G
and or a contributory. [para 32, 35 and 39] [290-C-D; 292-
A; 293-B]
1.3. A cumulative reading of ss. 529A and 529(1 )(c),
proviso of the Companies Act leads to an irresistible
conclusion that where a company is in liquidation, a H
272 SUPREME COURT REPORTS [2013) 3 S.C.R.
A statutory charge is created in favour of workmen in
respect of their dues over the security of every secured
creditor and this charge is pari passu with that of the
secured creditor. Such statutory charge is to the extent
of workmen's portion in relation to the security held by
B the secured creditor of the company. This position is
equally applicable where the assets of the company have
been sold in execution of the recovery certificate
obtained by the bank or financial institution against the
debtor company when it was not in liquidation but before
c the proceeds realised from such sale could be fully and
finally disbursed, the company had gone into liquidation.
Thus, pe.nding final disbursement of the proceeds
realised from the sale of security in execution of the
recovery certificate issued by the ORT, if debtor company
0 becomes company in winding up, ss. 529A and 529(1)(c)
proviso come into operation immediately and statutory
charge is created in favour of workmen in respect of their
dues over such proceeds.[para 63and 72(ii) and (iii)]
[309-E-H; 314-E-H; 315-A-C]
E Rajasthan State Financial Corporation and Another v.
Official Liquidator and Another 2005 (3) Suppl. SCR 1073
= 2005 (8) SCC 190; Jitendra Nath Singh v. Official Liquidator
& Ors. 2013 (1) SCC 462; Andhra Bank v. Official Liquidator
and Another 2005 (2) SCR 776 = 2005 (5) SCC 75;
F International Coach Builders Ltd. v. Karnataka State Financial
=
Corporation 2003 (2) SCR 631 2003 (10) SCC 482; and
A.P. State Financial Corporation v. Official Liquidator 2000
(2) Suppl. SCR 288 = 2000 (7) sec 291 - relied on.
G Maharashtra State Financial Corporation v. Balfarpur
Industries Ltd. AIR 1993 Born 392; IC/Cl Bank Ltd. v. SIDCO
Leathers Ltd and Ors. 2006 (1) Suppl. SCR 528 2006 =
(10) SCC 452; Central Bank of India v. State of Kera/a and
Ors 2009 (3) SCR 735 = 2009 (4) SCC 94 - referred to.
H
BANK OF MAHARASHTRA v. PANDURANG KESHAV 273
GORWARDKAR & ORS.
1.4. Having regard to the scheme of law, the relevant A
date for arriving at the ratio at which the sale proceeds
are to be distributed amongst workmen and secured
creditors of the company is the date of the winding up
order and not the date of sale. [para 64 and 72(iv)] [310 ..
A-B; 315-C-O] B
1.5. Where the sale of security has been effected in
execution of recovery certificate issued by ORT under the
1993 Act, the distribution of undisbursed proceeds has
to be made by the ORT alone in accordance with s. 529A
of the Companies Act and by no other forum or authority. C
It is so because s.19(19) of the 1993 Act provides that
ORT may order distribution of the sale proceeds amongst
the secured creditors in accordance with s.529A where
a recovery certificate is issued against the company
registered under the Companies Act. The workmen of the D
company in winding up acquire the standing of secured
creditors on and from the date of the winding up order
(or where provisional liquidator has been appointed, from
the date of such appointment) and they become entitled
to distribution of sale proceeds in the ratio as explained E
in the illustration appended to s.529(3)(c) of the
Companies Act.[para 65 and 72(ix) and (x)] [310-C-F; 316-
H; 317-A-C]
2.1. Section 19(19) of the 1993 Act does not clothe
ORT with jurisdiction to determine the workmen's claims F
against the debtor company. In the first place, 1993 Act
has provided for special machinery for speedy recovery
of dues of banks and financial institutions in specific
matters~ The 1993 Act also provides for the modes of
recovery of the amount so adjudicated by the ORTs. The G
1993 Act has not brought within its sweep, the
adjudication of claims of persons other than banks and
financial institutions. ORT has not been given powers to
adjudicate the dues of workmen of the debtor company.
The adjudication of workmen's claims against the debtor H
274 SUPREME COURT REPORTS [2013] 3 S.C.R.
A company has to be made by the liquidator. It is a
substantive matter and ORT has neither competence nor
machinery for that. Once the company is in winding up,
the only competent authority to determine the workmen's
dues and quantify workmen's portion is the liquidator
B who obviously has to act under the supervision of the
company court. The liquidator has the responsibility and
competence to determine the workmen's dues where the
debtor company is in liquidation. Certain incidental and
ancillary powers given to ORT do not encompass power
c to adjudicate upon or decide dues of the workmen of the
debtor company. [paras 65, 66, 67 and 72(xi)] [310-F-H;
311-A, B-C, G; 317-0-E]
Allahabad Bank v. Canara Bank & Anr. 2000
D
=
(2) SCR 1102 2000 (4) SCC 406 - explained.
2.2. Secondly, s.19(19) of the 1993 Act is a provision
of distribution mechanism and not an independent
adjudicatory provision. This provision follows
adjudication of claim made by a bank or financial
E institution. It comes into play where a certificate of
recovery is issued against a company which is in winding
up. Where the debtor company is not in liquidation,
s.19(19) does not come into operation at all. Following
Tiwari Committee Report and Narasimham Committee
F Report, the present s.19(19) was incorporated in 1993 Act
for protection of pari passu charge of secured creditors,
including workmen's dues at the time of distribution of
the sale proceeds of such company. The participation of
workmen along with secured creditors u/s. 19(19) is, to a
G limited extent, in the distribution of the sale proceeds by
the ORT and not for determination of their claims against
the debtor company by the ORT. (para 67) (311-0-G]
2.3. Thirdly, the expression, 'the Tribunal may order
the sale proceeds of such company to be distributed
H among its secured creditors in accordance with the
BANK OF MAHARASHTRA v. PANDURANG KESHAV 275
GORWARDKAR & ORS.
provisions of s.529A of the Companies Act' occurring in A
s. 19(19) does not empower ORT to itself examine,
determine and decide upon workmen's claim u/s 529A.
The expression means that where the debtor company is
in winding up, the sale proceeds of such company realized
under the 1993 Act are to be distributed among its secured 8
creditors by following s. 529A of the Companies Act.
Mention of s. 529A in s.19(19) is neither a legislation by
reference nor a legislation by incorporation. What it
requires is that ORT must follow the mandate of s. 529A
by making distribution in equal proportion to the secured C
creditors and workmen of the debtor company in winding
up. [para 68] [311-H; 312-A-C]
2.4. Section 19(19) covers a situation only where a
debtor company is in winding up or where a provisional
liquidator has been appointed in respect of the debtor D
company and in no other situation. If the debtor company
is not in liquidation nor any provisional liquidator has
been appointed and merely winding up proceedings are
pending, there is no question of distribution of sale
proceeds among secured creditors in the manner E
prescribed in s. 19(19) of the 1993 Act. [para 69 and 72(i)
and (xii)] [312-0-E; 314-0-E; 317-F]
2.5. Where the winding up petition against the debtor
company is pending but no order of winding up has been
F
passed nor any provisional liquidator has been
appointed in respect of such company at the time of order
of sale by ORT and the properties of the debtor company
have been sold in execution of the recovery certificate
and proceeds of sale realized and full disbursement of G
the sale proceeds has been made to the bank concerned
or financial institution, the subsequent event of the
debtor company going into liquidation is no ground for
reopening disbursement by the ORT. [para 71 and 72(vi)]
[313-C-E; 315-E-G]
H
276 SUPREME COURT REPORTS [2013) 3 S.C.R.
A 2.6. However, before full and final disbursement of
sale proceeds, if the debtor company has gone into
liquidation and a liquidator is appointed, disbursement of
undisbursed proceeds by ORT can only be done after
notice to the liquidator and after hearing him. In that
8 situation if there is claim of workmen's dues, the ORT has
two options available with it. One, the bank or financial
institution which made an application before ORT for
recovery of debt from the debtor company may be paid
the undisbursed amount against due debt as per the
C recovery certificate after securing an indemnity bond of
restitution of the amount to the extent of workmen's dues
as may be finally determined by the liquidator of the
debtor company and payable to workmen in the
proportion set out in the illustration appended to s.
529(3)(c) of the Companies Act. The other, ORT may set
D apart tentatively portion of the undisbursed amount
towards workmen's dues in the ratio as per the
illustration following s.529(3)(c) and disburse the balance
amount to the applicant barik or financial institution
subject to an undertaking by such bank or financial
E institution to restitute the amount to the extent workmen's
dues as may be finally determined by the liquidator, falls
short of the amount which may be distributable to the
workmen as per the illustration. The amount so set apart
may be disbursed to the liquidator towards workmen's
F dues on ad hoc basis subject to adjustment on final
determination of the workmen's dues by the liquidator.
The first option must be exercised by ORT only in a
situation where no application for distribution towards
workmen's dues against the debtor company has been
G made by the liquidator or the workmen before the ORT.
[para 71 and 72(vii and viii)] [313-E-H; 314-A-C; 315-H;
316-A-G]
3.1. In the instant case, on 08.10.2004, the Company
H Judge ordered the Company to be wound up and the
BANK OF MAHARASHTRA v. PANDURANG KESHAV 277
GORWARDKAR & ORS.
official liquidator was appointed as liquidator of the A
Company with the usual powers under the Companies
Act. There is thus no doubt that on and from 08.10.2004,
the Company is in liquidation and the official liquidator
stands appointed. [para 28] [289-E]
B
3.2. The claims of the workmen who claim to be
entitled to payment pari passu have to be considered and
adjudicated by the liquidator of the debtor company and
not by the DRT. [para 73] [317-H; 318-A]
3.3. The impugned judgment is set aside. The Debt C
Recovery Tribunal and the official liquidator of the
Company shall proceed further concerning workmen's
dues as indicated in the judgment. [para 74] [318-8]
Radheshyam Ajitsaria and Another v. Bengal Chatkal o
Mazdoor Union & Ors. 2006 (2) Suppl. SCR 918 = 2006
(11) SCC 771; and Nahar Industrial Enterprises Ltd. v. Hong
Kong And Shanghai Banking Corporation 2009 (12) SCR
=
54 2009 (8) sec 646 - cited.
Case Law Reference: E
2000 (2) SCR 1102 relied on para 17
2013 (1) sec 462 explained para 17
2005 (2) SCR 776 relied on para 19 F
2006 (2) Suppl. SCR 918 cited para 19
2005 (3) Suppl. SCR 1073 relied on para 19
2003 (2) SCR 631 relied on para 21
G
2009 (12) SCR 54 cited para 22
2000 (2) Suppl. SCR 288 relied on para 52
AIR 1993 Born 392 referred to para 53
. 2006 (1) Suppl. SCR 528 referred to para 57 H
278 SUPREME COURT REPORTS [2013) 3 S.C.R.
A 2009 (3) SCR 735 referred to para 58
CIVL APPEALLATE JURISDICTION : Civil Appeal No.
7045 of 2005.
From the Judgment & Order dated 11.08.2004 of the High
B Court of Judicature at Bombay in Writ Petition No. 5293 of
2004.
WITH
C.A. No. 7046 of 2005.
c Bhaskar Gupta, L. Nageshwar Rao, Colin Gonsalves, S.
Madhusdhan Babu, Dr. Kailash Chand, Lalit Bhasin, Nina
Gupta, Swati Sharma, Parvez Khan, Bina Gupta, Amiy Shukla,
Jyoti Mendiratta, Puja Sharma, Somnath Padhan, Anagha S.
D Desai for the Appearing Parties.
The Judgment of the Court was delivered by
R.M. LODHA, J. 1. These two appeals from the Bombay
High Court came up before a two-Judge Bench (B.P. Singh
E and R.V. Raveendran, JJ.) on 21.11.2005. While granting leave
on that day, the Bench was of the view that the question
whether the claims of the workmen who claimed to be entitled
to payment pari passu have to be considered by the official
liquidator or whether their claims have to be adjudicated upon
F by the Debts Recovery Tribunal (for short, 'DRT') is likely to
arise in a large number of cases where recoveries are sought
to be made pursuant to the certificates issued by the DRT and,
therefore, these appeals required consideration preferably by
a Bench of three-Judges. This is how these appeals have
G come up before us.
2. The appellant in one appeal is Bank of Maharashtra and
in the other, Indian Banks Association. As a matter of fact, the
main appeal is by Bank of Maharashtra. The Indian Banks
H Association was not a party to the proce~djngs beforei the High
BANK OF MAHARASHTRA v. PANDURANG KESHAV 279
GORWARDKAR & ORS. [R.M. LODHA, J.]
'Court or before the ORT but it has preferred appeal, after A
permission was granted, as in its view the impugned judgment
if implemented would have far reaching implications on the
banking industry as a whole.
3. As will appear, the High Court was concerned with the B
writ petition filed by the workmen/employees of Paper and Pulp
Conversions Ltd. (for short, 'Company') praying therein that
direction be issued to the Recovery Officer, Debt Recovery
Tribunal, Mumbai Ill (for short 'ORT Ill') to recover the amount
of Rs. 3 crores from Bank of Maharashtra ('the Bank') which
was allowed to be withdrawn being the money realised from C
the sale of movables of the Company and for issuance of further
direction to the Recovery Officer to adjudicate the claims/dues .
of the workmen/employees as per the list annexed with the writ
petition and after adjudication, in priority over all the claims,
release the amount due to them. The workmen/employees also D
prayed in the writ petition for direction to the Central
Government to make rules laying down procedure to be
followed by the Recovery Officer under Recovery of Debts due
to Banks and Financial Institutions Act, 1993 (for short, '1993
Act'). E
4. The facts and circumstances on which the workmen
relied before the High Court are these: The Company had taken
loan from the Bank somewhere in 1980. In 1984-85, the
Company faced liquidity problems. One of the creditors of the F
Company filed a company petition being Company Petition No.
604/1986 before the Bombay High Court in 1986 for winding
up of the Company. On 14.01.1987, the company petition was
admitted.
5. The Company was closed in 1992. In the same year, a G
reference was made by the Company to the Board for Industrial
and Financial Reconstruction, New Delhi (BIFR) under Section
15(1) of Sick Industrial Companies (Special Provisions) Act,
1985 (for short, 'SICA'). On 1.9.1993, BIFR passed an order
for winding up of the Company. The Company challenged the H
280 SUPREME COURT REPORTS [2013] 3 S.C.R.
A order of the BIFR before the appellate authority but was
unsuccessful.
6. In or about 1995, the Bank filed a suit against the
Company and its Directors for recovery of a sum of Rs.
B 25,39,08,282.79 with future interest thereon at the agreed rate
and cost in the Court of Civil Judge, Senior Division, Panvel.
The suit was transferred to the ORT Ill in 1999 and was
numbered as original application no. 344/1999.
7. On 19.07.2001, the ORT Ill allowed the original
C application made by the Bank by directing the Company and
its Directors to pay jointly, severally and personally a sum of
Rs. 25,49,91,756.94 with cost and interest at the rate of 6%
per annum with quarterly rests from the date of application till
its realization. The ORT Ill further directed in its judgment that
D in the event of failure of the Company and its Dir~ctors to pay
the amount to the Bank, as directed, the Bank shall be entitled
to sell hypothecated and mortgaged and other immovable and
movable properties of the Company and the Directors and the
sale proceeds shall be appropriated towards due amount.
E
8. Consequent upon the Judgment dated 19. 7.2001, the
ORT Ill issued recovery certificate on 21.08.2001. In the recovery
certificate, it was directed that the Recovery Officer shall realize
the amount as per the certificate in the manner and mode
prescribed under Sections 25 and 28 of the 1993 Act from the
F certificate debtors as specified in the certificate. As regards
legal heirs of one of the deceased directors, it was directed
that they would be liable only to the extent they inherited the
property from their predecessor in interest.
G 9. In the recovery proceedings, the workmen/employees
of the Company through their Association made an application
on 17.9.2003 and prayed that they be allowed to intervene in
the matter and their claims be registered before any auction
takes place. The workmen also sent a notice to the Company
H and its Managing Director requesting them to pay their dues.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 281
GORWARDKAR & ORS. [R.M. LODHA, J.]
The Company, however, disputed their claim. A
10. On 22.01.2004, the Recovery Officer auctioned the
movable properties of the Company and received an amount
of Rs. 4,70,55,000/- by way of sale proceeds. Of that amount,
Rs. 3 crores were disbursed to the Bank on 10.03.2004 and B
remaining amount of Rs. 1,70,55,000/- was kept aside towards
the likely claim of the workmen of the Company.
11. The workmen made an application in the company
petition No. 604/1986 before the Bombay High Court on
19.03.2004 for appointment of Provisional Liquidator and for C
staying further proceedings before the ORT Ill arising out of the
above recovery proceedings. The Bank opposed the
application of the workmen before the Company Court and
submitted that any restraint on the sale of the Company's assets
would adversely affect the interest of not only the secured D
creditors but also the workmen.
12. By an order dated 08.10.2004, the Company has been
ordered to be wound up by the Bombay High Court and official
liquidator has been appointed as liquidator of the Company with E
the usual powers under the Companies Act.
13. On 18.06.2004, the workmen filed a writ petition before
the Bombay High Court for the reliefs as noted above. The
Bombay High Court in the impugned Judgment after hearing
the parties held that the jurisdiction to determine the payment
F .
and its priorities was totally vested with the ORT under the 1993
Act and, therefore, the workmen should approach the ORT for
the purpose of determination of their claim and consequential
payment in respect thereof. The relevant directions in the
impugned judgment read as follows : G
1. The Debt Recovery Tribunal is directed to retain the
sum of Rs. 1, 17,55,000/- and not to disburse the same
either to the 2nd respondent or to any other person till and
until the claim of the workers is determined. H
282 SUPREME COURT REPORTS [2013] 3 S.C.R.
A 2. The Presiding Officer of the Debt Recovery Tribunal,
Mumbai shall adjudicate upon the claims of the petitioner
workers and more particularly of the employees whose
names are set out in Exhibit "A" and determine the salaries
payable either as and by way of arrears or otherwise to
B each of the workers.
3. Once the claim of each of the workmen is determined,
the Debut Recovery Tribunal shall make payment of the said
dues to the workers out of the amount lying with him of
the said Rs. 1, 17,55,000/- and if there is a short fall, then
c the Debt Recovery Tribunal will be permitted to call for the
said balance amount from the 2nd respondent out of the
sum of Rs. 3 crores which has already been withdrawn by
the 2nd respondent from the sale proceeds of the auction
sale of the movable properties of respondent no. 1.
D
4. The Debt Recovery Tribunal shall in the meantime
deposit the said amount of Rs.1, 17,55,000/- in fixed
deposit with a nationalized bank initially for period of three
months and then renewable for a further period of three
E months.
14. The High Court in the impugned judgment, inter alia,
has also issued certain guidelines to the ORT Ill while
adjudicating the claim of the workmen and other secured
F creditors for determination of priorities.
15. The main submission on behalf of the Bank in laying
challenge to the impugned judgment is two fold, (one) the
workmen have no claim or right over the security held by a bank
or financial institution. Their dues can only be adjudicated in an
G appropriate court (e.g. Industrial Tribunal) when the company
is not in liquidation and ORT has no competence in this regard
and (two) if the debtor company is in liquidation and the security
is sold in proceedings before ORT and Recovery Officer, the
sale proceeds will be distributed by taking into account the pari
H passu charge to a limited extent of the "workmen's portion" as
BANK OF MAHARASHTRA v. PANDURANG KESHAV 283
GORWARDKAR & ORS. [R.M. LODHA, J.]
laid down in Section 529(1,)(c) proviso read with Section 529A A
of the Companies Act, 1956 (for short, 'Companies Act').
16. Elaborating the above grounds, Mr. Bhaskar P. Gupta,
learned senior counsel for the Bank, submitted that under the
1993 Act, DRT has exclusive jurisdiction to entertain and B
decide applications only from banks and financial institutions
for adjudication and recovery of debts due to such banks and
financial institutions. The principal purpose of the DRT is
adjudication and recovery of dues of the banks and financial
institutions. It also has certain ancillary and incidental powers C
like giving interim orders by way of receiver, injunction,
attachment etc. After determination of dues due to banks and
financial institutions, the mode of recovery has been provided
in Section 25. However, DRT has not been given any powers
to adjudicate the dues of the workmen of the debtor company
and none can be read into Section 17 or Section 19 of the 1993 D
Act. This adjudication is a substantive matter between the
workmen and the debtor company (when it is a going concern)
and between the workmen and the liquidator when the company
is in liquidation. When the debtor company has gone into
liquidation, Section 529(1)(c) proviso by a legal fiction creates E
a pari passu charge to a limited extent on the security of the
creditor which can be recovered along with the creditor on a
priority basis against the sale proceeds of the security under
Section 19(19) of the 1993 Act read with Section 529A of the
Companies Act. When the debtor company is in liquidation, the F
dues of workmen can only be determined by the official
liquidator including the extent of the deemed charge and the
limits. The DRT has neither the competence nor the machinery
to adjudicate upon or decide dues of the workmen of the debtor
company. G
17. Learned senior counsel for the Bank argued that unless
an order of winding up was made and the liquidator or the
provisional liquidator has been appointed and all the steps as
provided in Sections 443 to 450 and 456 are taken, it cannot H
284 SUPREME COURT REPORTS [2013] 3 S.C.R.
A be said that Company is in winding up and until the Company
is in winding up, the workmen of the Company have no claims
on the assets of the Company nor do they have any locus to
approach the ORT to participate in a proceeding filed by a bank
or financial institution; they are not creditors secured or
B otherwise. The only remedy that the workmen have is to
approach the appropriate court e.g., Industrial Tribunal etc., for
determination and realization of their dues. Section 19(19) of
the 1993 Act and Section 529A of the Companies Act do not
help the workmen as they are not secured creditors. However,
C where the order of winding up has been made and liquidation
proceedings started against a Company, Mr. Bhaskar P.
Gupta, learned senior counsel would submit that in such a case
the liquidator would be in custody and control of all the assets
of company. But in view of exclusive jurisdiction conferred on
ORT, no leave of the Company Court needs to be taken by
0
ORT for adjudication under Section 17 and execution of the
recovery certificate issued under the 1993 Act. In support of
his submissions, learned senior counsel placed reliance upon
paragraphs 50, 63, 64 to 70 of the decision of this Court in
Allahabad Bank v. Canara Bank & Anr. 1 • He also referred to
E Jitendra Nath Singh v. Official Liquidator & Ors2. which has
followed Allahabad Bank1•
18. Learned senior counsel for the Bank submitted that by
virtue of a legal fiction contained in the proviso to Section
F 529(1)(c) read with Section 529(3)(c), the workmen are entitled
to participate along with the concerned creditor to a limited
extent in the distribution of the sale proceeds by the ORT under
Section 19(19). Otherwise, they can have no claim at all. He
would submit that Section 529(1)(c) proviso and Section 529A
G of the Companies Act form part of a composite scheme and
can be brought into play only in the case of a company which
is being wound up. In a running company, the dues of workmen
are not quantified or determined and, therefore, workmen's
1. c2000) 4 sec 406.
H 2. c2013) 1 sec 462.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 285
GORWARDKAR & ORS. [R.M. LODHA, J.]
portion also cannot be quantified. The workmen have no A
charge on any asset. By a legal fiction, a pari passu charge
is created to a limited extent only under Section 529(1)(c)
proviso and that too to be determined by the liquidator and
none else. Section 19(19) can, thus, have application only if the
debtor company is being wound up and not otherwise. B
19. Learned senior counsel for the Bank contend_ed that
Section 529 of the Companies Act entrusts to the liquidator the
competence and responsibility to determine the dues of all
creditors who participate in the winding up and determine the
priorities amongst them under the supervision of the Company C
Court. In support of his submissions, Mr. Bhaskar P. Gupta,
learned senior counsel for the Bank also relied upon decisions
of this Court in Andhra Bank v. Official Liquidator and
Another, Radheshyam Ajitsaria and Another v. Bengal
Chatkal Mazdoor Union & Ors 4 • and Rajasthan State D
Financial Corporation _and Another ·v. Official Liquidator and
Another°. -
20. Mr.. L. Nageshwar Rao, learned senior counsel for
Indian Banks' Association adopted the submissions of Mr. E
Bhaskar P. Gupta and further submitted that the High Court
proceeded on a fundamental misconception that the workmen
had a pari passu charge at the relevant time. According to Mr.
L. Nageshwar Rao at the relevant time of (a) judgment ·by the
DRT-111 allowing the Bank's claim on 19.07.2001, (b) issuance F
of recovery certificate dated 21.08~2001, (c) sale of movables
on 22.01.2004 and (d) payment of partial sale proceeds to the
bank (secured creditor) on 10.03.2004, no winding up order
had been passed under Section 443(d) of the Companies Act
qua the Company and Company's properties had not come G
to the custody of official liquidator in terms of Section 456. In
this view of the matter, the workmen did not enjoy any secured
charge on the assets of the Company for the purposes of
3. c2005) 5 sec 75.
4. c2ooa) 11 sec 111. H
286 SUPREME COURT REPORTS [2013] 3 S.C.R.
A Section 529A. Accordingly, he would submit that workmen
cannot claim under Section 19(19) of the 1993 Act when they
even cannot claim under the Companies Act. In this regard, Mr.
L. Nageshwar Rao relied upon the decision of this Court in
Radheshyam Ajitsaria4 •
B
21. Relying upon the decision of this Court in International
Coach Builders Ltd. v. Kamataka State Financial Corporation5
and Rajasthan State Financial Corporation6 , Mr. L. Nageshwar
Rao argued that the workmen's claim can only be considered
under Section 19(19) of the 1993 Act where winding up order
C has been made and the liquidator is in the custody of company's
assets.
22. Mr. L. Nageshwar Rao argued that the view of the High
Court was clearly in error as ORT is a limited Tribunal created
o by a statute for adjudication of specific disputes for the benefit
of banks and financial institutions and not all kinds of persons.
ORT is not a civil court of unlimited jurisdiction or a Company
Court with elaborate statutory powers to address all disputes
that may arise in adjudicating workmen's claims in winding up
E proceedings. In this regard, he relied upon a decision of this
Court in Nahar Industrial Enterprises Ltd. v. Hong Kong And
Shanghai Banking Corporation7 and submitted that it would be
jurisdictionally improper and entirely incongruous for a ORT to
itself examine, determine and decide upon workmen's claims
F under Section 529A.
23. It may be noted here that General Industries Kamgar
Union (for short, 'Kamgar Union') has made an application
being I.A. No. 3 of 2005 in one of the appeals praying therein
that they may be impleaded as party respondent since it is a
G registered trade union of the workmen employed in the
5. (2005) s sec 190.
6. (2003) 1o sec 482.
H 1. (2009) s sec 646.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 287
GORWARDKAR & ORS. [R.M. LODHA, J.]
Company and it represents the entire body of workmen. Having A
regard to the controversy involved in these appeals, we thought
it fit to hear Kamgar Union as it represents the entire body of
workmen, including the respondents.
24. Mr. Colin Gonsalves, learned senior counsel for the
Kamgar Union, stoutly defended the order of the High Court.
8
He submitted that the argument of the appellants that winding
up of a company begins only when the winding up order is
made is misconceived as it overlooks Section 441(2) of the
Companies Act which says that in cases other than those
covered under sub-section (1) of Section 441, the winding up C
of a company shall be deemed to commence at the time of
presentation of the petition for winding up. In the present case,
the winding up of the Company has begun with the order dated
01.09.1993 whereby BIFR recommended winding up of the
Company under Section 20 of the SICA. According to learned D
senior counsel for the Kamgar Union, the present case is a case
of a company in winding up as Section 20 of SICA makes it
mandatory for the Court to make a winding up order on the
recommendation of the BIFR. He also referred to para 50 of
the Allahabad Bank1 in this regard. · E
25. As regards Section 19(19) of the 1993 Act, learned
senior counsel would submit that this provision is not restricted
to a situation where company is in winding up; it also covers
situations where the company though not in winding up will be F
rendered an empty shell if the assets of the company are sold
and proceeds handed over to the bank and financial institutions.
In the latter circumstances, it is the duty of the DRT to anticipate
such a situation and if DRT comes to the conclusion that by
selling the assets and paying the proceeds to the bank and/or
financial institutions there will be nothing left for the payment of G
the dues to the workmen, it is bound to disburse the proceeds
between the banks and financial institutions, other secured
creditors and the workmen as if Section 529A of the
Companies Act applies. It was submitted on behalf of the
H
288 SUPREME COURT REPORTS [2013] 3 S.C.R.
A Kamgar Union that a close look at Section 19(19) of the 1993
Act will indicate that it is legislation by reference and not
legislation by incorporation and therefore it is not required that
the company must be in liquidation to attract the provisions of
Section 19( 19).
B
26. Mr. Colin Gonsalves heavily relied upon a decision of
this Court in Rajasthan State Financial Corporations and
submitted that the issue of jurisdiction of the Company Court
and the ORT in respect of companies in liquidation was referred
to a three-Judge Bench in view of the apparent conflict between
C the decisions in Allahabad Bank1 and International Coach
Builders6. He particularly referred to paragraphs 16 and 17 of
the Report in Rajasthan State Financial Corporations and
submitted that the official liquidator represents the entire body
of creditors and also holds a right on behalf of the workmen to
0 . have a distribution pari passu with the secured creditors. The
official liquidator has the duty for further distribution of the
proceeds on the basis of the preference contained in Section
530 of the Companies Act under the directions of the Company
Court and, therefore, to ensure the proper working out of the
E scheme of distribution, it is necessary to associate the official
liquidator with the process of sale so that he can ensure in the
light of the directions of the Company Court that a proper price
is fetched for the assets of the company in liquidation. It is the
·contention of Mr. Colin Gonsalves that when the impugned
F judgment was passed by the Bombay High Court, Allahabad
Bank1 held the field and based on that the High Court issued
guidelines to the ORT. Later, in Rajasthan State Financial
Corporations, the basic proposition of Allahabad Bank1 relating
to exclusive jurisdiction cannot be said to hold good. He, thus,
G submitted that in light of the law laid down in Rajasthan State
Financial Corporation5 there is no conflict on the question of
the applicability of Section 529A read with Section 529 of the
Companies Act in cases where the debtor is a company and
is in liquidation.
H
BANK OF MAHARASHTRA v. PANOURANG KESHAV 289
GORWAROKAR & ORS. [R.M. LOOHA, J.]
27. Mr. Colin Gonsalves argued that all sale proceeds in A
respect of assets sold prior to the date of impugned judgment
should be brought to the ORT by the banks and financial
institutions; all future sale of assets should be done under the
supeNision of the High Court; the official liquidator, Bombay
High Court should calculate the respective portions of dues of B
the secured creditors and the workmen in accordance with
Section 529A of the Companies Act and the ORT should then
distribute the sale proceeds in accordance with the directions
of the High Court and in accordance with law.
28. On a careful examination of the record, we find that C
the submission made by the learned Senior Counsel for the
Bank that Company is not in winding up within the meaning of
Sections 529 and 529A of the Companies Act is founded on
erroneous assumption that no order for winding up the
Company has been made. In I.A. 7 of 2013 filed by the 0
respondent no. 1, the copy of the Report dated 01.08.2011 of
the official liquidator has been placed on record. It is apparent
therefrom that on 08.1 o.2oo4, the Company Judge has ordered
the Company to be wound up and the official liquidator has been
appointed as liquidator of the Company with the usual powers E
under the Companies Act. There is thus no doubt that on and
from 08.10.2004, the Company is in liquidation and the official
liquidator stands appointed.
29. In the backdrop of the above factual position, we think F
that the question framed in the referral order may be examined
by us.
30. It is important first to notice some of the provisions of
the 1993 Act and the Companies Act. The question can be
conveniently answered in light ofthe statutory provisions. G
31. Section 2(d) of the 1993 Act, defines 'bank', which,
inter alia, means a banking company. Under Section 2(e).
'banking company' has the meaning assigned to it in clause
(c) of Section 5 of the Banking Regulation Act, 1949. 'Financial H
290 SUPREME COURT REPORTS [2013) 3 S.C.R.
A institution' is defined in Section 2(h). The 'tribunal' established
under Section 3 is known as Debts Recovery Tribunal. Under
Section 17, the tribunal (DRT) has been conferred
jurisdiction, powers and authority to entertain and decide
applications from the banks and financial institutions for
8
recovery of debts due to such banks and financial institutions.
Section 18 bars the jurisdiction of all other courts and other
authorities except the Supreme Court and High Court
exercising jurisdiction under Articles 226 and 227 of the
C Constitution in relation to the matters specified in Section 17.
32. Section 19 provides a comprehensive procedure
before the DRT for making an application where a bank or a
financial institution has to recover any debt from any person. It
also enables DRT to issue certificate of recovery, its execution
D and all such orders and directions as may be necessary to give
effect to its orders or to prevent abuse of its process or to
secure the ends of justice. Omitting the unnecessary clauses,
to the extent Section 19 is relevant for the purposes of
consideration of these appeals the same is reproduced as
E under:
"Section 19. Application to the Tribunal.-(1) Where a
bank or a financial institution has to recover any debt from
any person, it may make an application to the Tribunal
within the local limits of whose jurisdiction-
F
(19) Where a certificate of recovery is issued against a
company registered under the Companies Act, 1956 (1 of
G 1956) the Tribunal may order the sale proceeds of such
company to be distributed among its secured creditors in
accordance with the provisions of section 529A of the
Companies Act, 1956 and to pay the surplus, if any, to the
company.
H
BANK OF MAHARASHTRA v. PANDURANG KESHAV 291
GORWARDKAR & ORS. [R.M. LODHA, J.]
A
(22) the Presiding Officer shall issue a certificate under his
signature on the basis of the order of the Tribunal to the
Recovery Officer for recovery of the amount of debt
specified in the certificate. B
(25) The Tribunal may make such orders and give such
directions as may be necessary or expedient to give effect
to its orders or to prevent abuse of its process or to secure c
the ends of justice."
33. Section 22, inter alia, empowers the ORT to regulate
its own procedure. It is not bound by the procedure laid down
by the Code of Civil Procedure, 1908 ('CPC') but is guided by
the principles of natural justice and subject to the provisions of D
the 1993 Act and the rules framed thereunder. It has same
powers as are vested in a civil court under the CPC in respect
of the matters set out in Section 22(2).
34. Section 25 provides the modes of recovery of debts. E
The Recovery Officer on receipt of the copy of the recovery
certificate is required to proceed to recover the amount of l'.febt
specified in the certificate by one or more of the modes set out
in that Section which includes attachment and sale of the
movable or immovable property/properties of the certificate F
debtor. Under Section 28, the Recovery Officer may recover
the amount of debt under the certificate by one or more of the
modes provided thereunder without prejudice to the modes of
recovery specified in Section 25. Section 28(4) provides that
the Recovery Officer may apply to the court in whose custody G
there is money belonging to the certificate debtor for payment
to him of the entire amount of such money, or if it is more than
the amount of debt due an amount sufficient to discharge the
amount of debt so due.
H
292 SUPREME COURT REPORTS [2013) 3 S.C.R.
A 35. Section 34 gives the 1993 Act overriding effect. Sub-
section (1) thereof provides that the provisions of the 1993 Act
shall have the effect notwithstanding anything inconsistent
therewith contained in any other law or in any instrument having
effect by virtue of any law. Sub-section (2) of Section 34
B provides that the provisions of the 1993 Act or the rules made
thereunder shall be in addition to and not in derogation of the
enactments stated therein.
36. Section 36 empowers the central government to make
C rules to carry out the provisions of the 1993 Act. In exercise of
the powers conferred under Section 36, the central government
has framed the Debts Recovery Tribunal (Procedure) Rules,
1993.
37. The Companies Act has undergone substantial
D amendments by the Companies (Second Amendment) Act
2002 (11 of 2003) but no notification has been issued so far
bringing Act 11 of 2003 into effect. Though Section 441 has
been substituted by Section 56 of the above Amendment Act
but since it has not come into force, we reproduce Section 441
E as it stood prior to amendment:
"441. Commencement of winding up by Court-( 1 )
Where, before the presentation of a petition for the winding
up of a company by the Court, a resolution has been
passed by the company for voluntary winding up, the
F winding up of the company shall be deemed to have
commenced at the time of the passing of the resolution,
and unless the Court, on proof of fraud or mistake, thinks
fit to direct otherwise, all proceedings taken in the voluntary
winding up shall be deemed to have been validly taken.
G
(2) In any other case, the winding up of a company by the
Court shall be deemed to commence at the time of the
presentation of the petition for the winding up."
38. Section 443 provides for powers of. Court on hearing
H
BANK OF MAHARASHTRA v. PANDURANG KESHAV 293
GORWARDKAR & ORS. [R.M. LODHA, J.]
petition which, inter alia, enables it to make an order for winding A
up the company and also make an interim order that it thinks
fit.
39. The effect of the winding up order is provided in
Section 447. Accordingly, an order for winding up a company
8
operates in favour of all the creditors and all the contributories
of the company as if it has been made on the joint petition, of
a creditor and of a contributory. ·
40. The appointment of official liquidator so far as it relates
to winding up of a company is dealt with in Section 448. Section C
451 deals with general provisions as to liquidators. Inter alia,
it provides that the liquidator shall conduct the proceedings in
winding up the company and perform such duties in reference
thereto as the court may impose.
D
41. Section 456 provides that where a winding up order
has been made or where a provisional liquidator has been
appointed the liquidator or the provisional liquidator, as the
case may be, shall take into his custody or under his control all
the properties, effects and actionable claims to which the E
company is or appears to be entitled.
42. Section 457 empowers the liquidator to do acts stated .
in paragraphs (a) to (e) of sub-section (1) with the sanction of
the court. In a winding up by the court, the liquidator has power
to do all acts set out in clauses (i) to (v) of sub-section (2). F
43. Section 529, to the extent it is relevant, reads as
follows:
"Section 529 - Application of insolvency rules in winding G
up of insolvent companies. - (1) In the winding up of an
insolvent company, the same rules shall prevail and be
observed with regard to-
....... ,
H
294 SUPREME COURT REPORTS [2013] 3 S.C.R.
A (c) the respective rights of secured and unsecured
creditors; as are in force for the time being under the law
of insolvency with respect to the estates of persons
adjudged insolvent:
Provided that the security of every secured creditor shall
B
be deemed to be subject to a pari passu charge in favour
of the workmen to the extent of the workmen's portion
therein, and, where a secured creditor, instead of
relinquishing his security and proving his debt, opts to
realise his security,-
c
(a) the liquidator shall be entitled to represent the workmen
and enforce such charge;
(b) any amount realised by the liquidator by way of
D 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
E portion in his security, whichever is less, shall rank pari
passu with the workmen's dues for the purposes of section
529A.]
(2) ........ .
F
(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
G meaning of the Industrial Disputes Act, 1947 (14of1947);
(b) "workmen's dues·, in relation to a company, means the
aggregate of the following sums due from the company to
its workmen, namely:-
H
BANK OF MAHARASHTRA v. PANDURANG KESHAV 295
GORWARDKAR & ORS. [R.M. LODHA, J.]
'
(i) to (iv) ....... . A
(c) "workmen's portion", in relation to the security of any
secured creditor of a company, 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 8
of-
(i) the amount of workmen's dues; and
(ii) the amounts of the debts due to the secured creditors.
Illustration. - The value of the security of a secured creditor
c
of a company is Rs. 1,00;000. The total amount of the
workmen's dues i~ Rs. 1,00,000. Th.e amount of the debts
due from the company to its secured creditors is Rs.
3,00,000. The aggregate of the amount of workmen's
dues and of the amounts of debts due to secured creditors D
is Rs. 4,00,000. The workmen's portion of the security is,
therefore, one-fourth of the value of the security, that is Rs.
25,000."
44. Section 529A is crucial for consideration of these E
appeals and it is reproduced as it is:
"Section 529A - Overriding preferential payment.- (1)
Notwithstanding anything contained in any other provision
of this Act or any other law for the time being in force, in
F
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- G
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 H
/
296 ' SUPREME COURT REPORTS [2013] 3 S.C.R. e
A (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.• ·
45. It may be immediately observed that 1993 Act has not
8 only conferred exclusive jurisdiction upon ORT for determination
o~ the matters. specified in Section 17 but has also ousted
jurisdiction of all other courts and other authorities in
entertaining and. deciding such matters. The powers of the
Supreme Court and the High Court under Articles 226 and 227,
C · however, remain unaffected. The applications for recovery of
debts due to banks or financial institutions can be decided by
ORTalorie aftercoming into force of the 1993 Act and no other
forum. In other words, the jurisdiction of ORT in regard to
matters specified in Section 17 is exclusive.. ·
D .''.46. ORT has also been vested with power, on adjudication
of the application for recovery of debts due to banks or financial
institutions, to issue certificate of recovery. On issuance of
certificate of recovery, the exclusive jurisdiction .has been
conferred upon the Recovery Officer in regard to its execution.
E A complete procedure has been laid down in the 1993 Act for
recovery of the debt as per the recovery certificate issued by .
ORT. Accordingly, adjudication of liability and the recovery of
the amount by execution of the certificate are respectively within
the exclusive jurisdiction of ORT and the Recovery Officer and
F no other court or authority can go into the said questions; except
as provided in 1993 Act.
.•
47. In Allahabad Bank', the issues relating to the impact
of the 1993 Act on the provisions of the Companies Act fell for
consideration before this Court. In that case, the fol!Owftlg six
G points were framed for determination:
( 1) Whether in respect of proceedings under the ROB Act
at the stage of adjudication for the money due to the banks
or financial institutions and at the stage of execution for
H recovery of monies under the ROB Act, the Tribunal and
-
~.
~
~
BANK OF MAHARASHTRA v. PANOURANG KESHAV 297
GORWAROKAR & ORS. [R.M. LOOHA, J.]
the Recovery Officers are conferred exclusive jurisdictiqn A
in their respective spheres? '
(2) Whether for initiation of various proceedings by the
banks and financial institutions under the ROB Act, leave
of the Company Court is necessary under Section 537
B
before a winding-up order is passed against the company
or before provisional liquidator is appointed under Section
446(1) and whether the Company Court can pass orders
of stay of proceedings before the Tribunal, in exercise of
powers under Section 442?
c
(3) Whether after a winding-up order is passed under
Section 446(1) of the Companies Act or a provisional
liquidator is appointed, whether the Company Court can
stay proceedings under the ROB Act, transfer them to itself
and also decide questions of liability, execution and D
priority under Section 446(2) and (3) re~d with Sections
529, 529-A and 530 etc. of the Companies Act or whether
these questions are all within the exclusive jurisdiction of
the Tribunal?
E
(4) Whether in case it is decided that the distribution of
monies is to be done only by the Tribunal, the provisions
of Section 73 CPC and sub-sections (1) and (2) of Section
529, Section 530 of the Companies Court also apply -
apart from Section 529-A - to the proceedings before the
Tribunal under the ROB Act?
F
(5) Whether in view of provisions in Sections 19(2) and
19(19) as introduced by Ordinance 1 of 2000, the Tribunal
can permit the appellant Bank alone to appropriate the
entire sale proceeds realised by the appellant except to G
the limited extent restricted by Section 529-A. Can the
secured creditors like Canara Bank claim under Section
19(19) any part of the realisations made by the Recovery
Officer and is there any difference between cases where
the secured creditor opts to stand outside the winding up H
298 SUPREME COURT REPORTS (2013] 3 S.C.R.
A and where he goes before the Company Court?
(6) What is the relief to be granted on the facts of the case
since the Recovery Officer has now sold some properties
of the Company and the monies are lying partly in the
B
Tribunal or partly in this Court?
48. As regards first point, this Court held in Allahabad
Bank1 that the adjudication of liability and the recovery of the
amount by execution of the certificate are respectively within
the exclusive jurisdiction of ORT and Recovery Officer and no
C other court or authority much less the civil court or the company
court can go into the said questions relating to the liability and
the recovery, except as provided in the 1993 Act. On second
and third point, it was held that at the stage of adjudication under
Section 17 and execution of the certificate under Section 25,
0 the provisions of 1993 Act confer exclusive jurisdiction on the
ORT and the Recovery Officer in respect of debts payable to
banks and financial institutions and there can be no
interference by the company court under Section 442 read with
Section 537 or under Section 446 of the Companies Act. In
E respect of the moneys realized under the 1993 Act, the question
of priorities among the banks and financial institutions and other
creditors can be decided only by ORT and in accordance with
Section 19(19) read with Section 529A of the Companies Act
and in no other manner. To this extent, the Companies Act must
F yield to the provisions of the 1993 Act. The Court held that this
position holds good during the pendency of the winding up
petition against the debtor company and also after a winding
up order is passed. No leave of the company court was
necessary for initiating or continuing the proceedings under the
G 1993 Act.
49. As regards fourth and fifth point, this Court stated the
legal position that it was not correct to say that Section 19(19)
of the 1993 Act gives priority to all "secured creditors" to share
the sale proceeds before ORT/Recovery Officer. It is only
H limited class of secured creditors who have priority over all
BANK OF MAHARASHTRA v. PANDURANG KESHAV 299
GORWARDKAR & ORS. [R.M. LODHA, J.]
others in accordance with Section 529A. It was also held that A
under 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 Section
529(3)(c). This Court agreed with the proposition that the first
part of clause(c) of the proviso to Section 529(1) is to be read B
along with the words "or the amount of workmen's portion in
the security, whichever is less". That is, 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) or (b) or clause (c) to c
proviso to Section 529(1). ·
50. On sixth point, it was held in Allahabad Bank1 that the
"workmen's dues" have priority over all other creditors, secured
and unsecured, because of Section 529A(1)(a) and no secured
or unsecured creditor, including banks or financial institutions, D
can be paid before the workmen's dues are paid.
51. The view in Allahabad Bank1 thatthe workmen's dues
have priority over all other creditors, secured and unsecured,
because of Section 529A(1 )(a) is no longer a good law and E
has been held to be so first by a three-Judge Bench in Andhra
Bank3 and recently again by a three-Judge Bench in Jitendra
Nath Singh 2 •
52. A.P. State Financial Corporation v. Official
Liquidator8, was a case where the Corporation had made F
applications under Section 446(1) of the Companies Act read
with Sections 29 and 46 of the State Financial Corporations
Act, 1951 (for short, '1951 Act') before the Company Judge of
the High Court for permission to stay outside the liquidation
proceedings. The Company Judge granted conditional G
permission. One of the conditions was that Corporation will
undertake to discharge the liability due to the workmen, if any,
under Section 529A of the Companies Act. This Court noted
s. c2000) 1 sec 291. H
300 SUPREME COURT REPORTS [2013) 3 S:C.R.
A that 1951 Act was a Special Act for grant of financial
assistance to industrial concerns with a view to boost up
industrialization and also recovery of such financial assistance
if it becomes bad; similarly, the Companies Act deals with
companies including winding up of such companies. The
B proviso to sub-section (1) of Section 529 and Section 529A
being a subsequent enactment, the non obstante clause in
Section 529A must prevail over Section 29 of the 1951 Act.
This Court further said that the statutory right to sell the property
by Corporation under Section 29 of the 1951 Act has to be
c exercised with the rights of pari passu charge of the workmen
created by the proviso to Section 529 of the Companies Act.
Under the proviso to sub-section (1) of Section 529, the
liquidator shall be entitled to represent the workmen and enforce
the above pari passu charge and, therefore, the conditions
0 imposed by the Company Court were justified. If such
conditions were not imposed to protect the rights of the
workmen, there was every possibility that the secured creditor
might frustrate the pari passu right of the workmen.
53. In International Coach Builders6, the question under
E consideration before this Court was whether the rights of the
State Financial Corporation under Section 29 of the 1951 Act
to sell and realize the security could be exercised without
reference to the Company Court when a winding up order is
made against the Company. This Court noticed the provisions
F of the 1951 Act and Sections 529 and 529A of the Companies
Act and the divergent views of Bombay High Court, Andhra
Pradesh High Court, Punjab and Haryana High Court and
Gujarat High Court. This Court approved the decision of the
Bombay· High Court in Maharashtra State Financial
G Corporation v. Ballarpur Industries Ltd9. and held that when
the Company was in winding up, the State Financial
Corporation to which the assets of the company were charged
cannot proceed to realize the security without intervention of
the Company Court. It was stated that as a result of amendment
H 9. AIR 1993 Born 392.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 301
GORWARDKAR & ORS. [R.M. LODHA, J.]
in Section 529 a pari passu charge to the extent of the A
workmen's portion is created on the security of every secured
creditor when he opts to realize security by standing outside
the winding up. The Court found no real conflict between Section
29 of the 1951 Act and the Companies Act. Following the
decision of this Court in Andhra Pradesh State Financial B
Corporation 8, it was observed that even if it was assumed that
there was conflict in the above provisions, Section 29 of the
1951 Act cannot override the provisions of Sections 529(1) and
529A of the Companies Act inasmuch as Financial
Corporations cannot exercise the right under Section 29 of the C
1951 Act ignoring apari passu charge of the workmen. In para
32 (pg. 498) of the Report this Court concluded its opinion as
under:
1. The right unilaterally exercisable under Section 29 of the
SFC Act is available against a debtor, if a company, only D
so long as there is no order of winding up.
2. SFCs cannot unilaterally act to realise the mortgaged
properties without the consent of the official liquidator
representing workmen for the pari passu charge in their E
favour under the proviso to Section 529 of the Companies
Act, 1956.
3. If the official liquidator does· not consent, SFCs have to
move the Company Court for appropriate directions to the
official liquidator who is the pari passu charge-holder on F
behalf of the workmen. In any event, the official liquidator
cannot act without seeking directions from the Company
Court and under its supervision.
54. In the case of Andhra Bank3, a three-Judge Bench G
framed three questions for consideration. As· regards the
question, whether the statement of law contained in para 76 of
the Judgment of this Court in Allahabad Bank~ was a good law,.
this Court answered the question in the negative. Dealing with
the question whether the workmen could be directed to be paid H
302 SUPREME COURT REPORTS (2013) 3 S.C.R.
A on an adhoc basis having regard to their claim of past dues
vis-a-vis the claim of Andhra Bank, this Court observed that
when a matter was not pending before the DRT under the 1993
Act, in terms of Section 19(19) thereof, the secured creditors
would not get priority per seas language in Section 19(19) is
B qualified by the words "in accordance with the provisions of
Section 529A". The claims of the secured creditors are thus
required to be considered giving priority over unsecured
creditors but their claim would be pari passu with the workmen.
While dealing with Section 446 of the Companies Act, this
C Court held in para 31 (pg. 88) of the Report as follows:
"31. Section 446 of the Companies Act indisputably
confers a wide power upon the Company Judge, but such
a power can be exercised only upon consideration of the
respective contentions of the parties raised in a suit or a
D proceeding or any claim made by or against the company.
A question of determining the priorities would also fall for
consideration if the parties claiming the same are before
the court. Section 446 of the Companies Act ipso facto
confers no power upon the court to pass interlocutory
E orders. The question as to whether the courts have inherent
power to pass such orders, in our opinion, does not arise
for consideration in this proceeding ...... ."
55. Rajasthan State Financial Corporation5, was a matter
F that was referred to a three-Judge Bench as the two-Judge
Bench before whom the matter came up for consideration was
of the view that there was a conflict between the decisions of
this Court in Allahabad Bank1 and International Coach
Builders6. This Court considered the decisions of some of the
High Courts, the decisions in Allahabad Bank1 and
G International Coach Builders6 and the provisions of Section 29
of the 1951 Act and Sections 529 and 529A of the Companies
Act and held that when the assets of the company are sold and
the proceeds realized, the debts by way of workmen's dues
and debt of the secured creditors have to be paid in full if the
H
BANK OF MAHARASHTRA v. PANDURANG KESHAV 303
GORWARDKAR & bRS. [R.M. LODHA, J.]
assets are sufficient to meet them and if they are not sufficient, A
in equal proportions. It was expressly noted that there was no
inconsistency between Allahabad Bank1 and International
Coach Builders6. The legal position was summed up in para
18 (pg. 201) of the Report as follows :
B
18. In the light of the discussion as above, we think it proper
to sum up the legal position thus: ·
(1) A Debts Recovery Tribunal acting under the Recovery
of Debts Due to Banks and Financial Institutions Act, 1'993
would be entitled to order the sale and to sell the C
properties of the debtor, even if a company-in-liquidation,
through its Recovery Officer but only after notice to the
Official Liquidator or the Liquidator appointed by the
Company Court and after hearing him.
D
(i1) A District Court entertaining an application under
Section 31 of the SFC Act will have the power to order
sale of the assets of a borrower company-in-liquidation,
but only after notice to the Official Liquidator or the
Liquidator appointed by the Company Court and after E
hearing him.
(iii) If a financial corporation acting under Section 29 of the
SFC Act seeks to sell or otherwise transfer the assets of
a debtor company-in-liquidation, the said power could be
exercised by it only after obtaining the appropriate F
permission from the Company Court and acting in terms
of .the directions issued by that court as regards
associating the Official Liquidator with the sale, the fixing
of the upset price or the reserve price, confirmation of the
sale, holding of the sale proceeds and the distribution G
thereof among the creditors in terms of Section 529-A and
Section 529 of the Companies Act.
(iv) In a case where proceedings under the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 H
304 SUPREME COURT REPORTS [2013] 3 S.C.R.
A or the SFC Act are not set in motion, the creditor
concerned is to approach t.he Company Court for
appropriate directions regarding the realization of its
securities consistent with the relevant provisions of the
Companies Act regarding distribution of the assets of the
B company-in-liquidation.
56. What is important to be noticed is that in Rajasthan
State Financial Corporation5 the three-Judge Bench stated in
no unambiguous terms that once a winding up proceeding has
commenced and the Liquidator is put in charge of the assets
C of the company being wound up, the distribution of the
proceeds of the sale of the assets held at the instance of the
banks or financial institutions coming under the 1993 Act or of
financial corporations coming under the 1951 Act can only be
with the association of the Official Liquidator and under the
D supervision of the Company Court. It has also been stated that
whether the assets are realized by a secured creditor even if it
be by proceeding under 1993 Act or the 1951 Act, the
distribution of assets would only be in terms of Section 529-A
of the Companies Act and by recognizing the right of the
E Liquidator to calculate the workmen's dues and collected for
distribution among them pari passu with the secured creditors.
By noticing that there is no conflict on the question of
applicability of Section 529A read with Section 529 of the
Companies Act to cases where the debtor is a company and
F is in liquidation, it was observed that the conflict, if any, is in
the view that ORT could sell the properties of the Company in
terms of the 1993 Act and to that extent, the 1993 Act shall
prevail over the Companies Act being the general law.
57. In /CIC/ Bank Ltd. v. SIDCO Leathers Ltd and Ors. 10 ,
G interpretation of Sections 529 and 529A of the Companies Act
fell for consideration but in a different fact situation. This Court
with regard to Sections 529 and 529A of the Companies Act
exposited that Section 529A was brought in the Companies
H 10. (2006) 10 sec 452.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 305
GORWARDKAR & ORS. [R.M. LODHA, J.]
Act with a view to bring the workmen's dues pari passu with A
the secured creditors but Section 529A of the Companies Act
does not ex facie contain a provision on the aspect ot priority
amongst the secured creditors. Whilst holding so, this Court
also said that insofar as the amounts realised under the 1993
Act were concerned, the priorities have to be worked out by B
ORT alone.
58. In Central Bank of India v. State of Kera/a and Ors11 ,
a three-Judge Bench of this Court was concerned with the
question whether Section 38-C of the Bombay Sales Tax Act,
1959 (for short, "the Bombay Act") and Section 26-B of the C
Kerala General Sales Tax Act, 1963 (for short, "the Kerala Act")
and similar provision contained in other State legislations by
which first charge has been created on the property of the
dealer or such other person, who is liable to pay sales tax, etc.
are inconsistent with the provisions contained in the 1993 Act D
for recovery of "debt" and the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002 (for short, "the Securitisation Act") for enforcement of
security and whether by virtue of non obstante clauses
contained in Section 34(1) of the 1993 Act and Section 35 of E
the Securitisation Act, the two Central legislations will have
primacy over the State legislations. The scheme of 1993 Act
was highlighted and it was stated that the said Act facilitated
creation of specialized fora i.e. Debts Recovery Tribunals and
the Debts Recovery Appellate Tribunals for expeditious F
adjudication of disputes relating to recovery of the debts due
to banks and financial institutions. It was noted that there was
no provision either in 1993 Act or the Securitisation Act' by
which the first charge has been created in favour of banks,
financial institutions or secured creditors qua the property of the G
borrower. With reference to Section 13(9) of the Securitisation
Act, this Court said that the legislature has ensured that priority
given to the claim of the workmen of a company in liquidation
under Section 529A of the Companies Act vis-a-vis the
11. (2009) 4 sec 94. H
306 SUPREME COURT REPORTS (2013) 3 S.C.R.
A secured creditors like banks was duly respected; the
provisions are only part of the distribution mechanism evolved
by the legislature and are intended to protect and preserve the
right of the workmen of the Company in liquidation whose
assets are subjected to the provisions of the Securitisation Act
8 and are disposed of by the secured creditor in accordance with
Section 13 thereof.
59. Then in paragraphs 128, 129, 130 and 131 (pages
141-142) of the Report, this Court in Central Bank of Jndia 11
stated the legal position as follows:
c
128. If the provisions of the ORT Act and the Securitisation
Act are interpreted keeping in view the background and
context in which these legislations were enacted and the
purpose sought to be achieved by their enactment, it
o becomes clear that the two legislations, are intended to
create a new dispensation for expeditious recovery of dues
of banks, financial institutions and secured creditors and
adjudication of the grievance made by any aggrieved
person qua the procedure adopted by the banks, financial
E institutions and other secured creditors, but the provisions
contained therein cannot be read as creating first charge
in favour of banks, etc.
129. If Parliament intended to give priority to the dues of
banks, financial institutions and other secured creditors
F over the first charge created under State legislations then
provisions similar to those contained in Section 14-A of
the Workmen's Compensation Act, 1923, Section 11 (2)
of the EPF Act, Section 74(1) of the Estate Duty Act, 1953,
Section 25(2) of the Mines and Minerals (Regulation and
G Development) Act, 1957, Section 30 of the Gift Tax Act,
and Section 529-A of the Companies Act, 1956 would
have been incorporated in the ORT Act and the
Securitisation Act.
H 130. Undisputedly, the two enactments do not contain
BANK OF MAHARASHTRA v. PANOURANG KESHAV 307
GORWAROKAR &. ORS. [R.M. LOOHA, J.] '
provision similar to the Workmen's Compensation Act, A
etc. In the absence of any specific provision to that effect,
it is not possible to read any conflict or inconsistency or
overlapping between the provisions of the ORT Act and
the Securitisation Act on the one hand and Section 38-C
of the Bombay Act and Section 26-8 of the Kerala Act on B
the other and the non obstante clauses contained in
Section 34(1) of the ORT Act and Section 35 of the
Securitisation Act cannot be invoked for declaring that the
first charge created under the State legislation will not
operate qua or affect the proceedings ihitiated by banks, C
financial institutions and other secured creditors for
recovery of their dues or enforcement of security interest, .
as the case may be.
131. The Court could have given effect to the non obstante
clauses contained in Section 34(1} of the DRT Act and O .
Section 35 of the Securitisaticin Act vis-a-vis·Section 38~ ·
C of the Bombay Act and Section 26-8 of the Kerala Act
and similar other State legislations only if there was a
specific provision in the two enactments creating first
charge in favour of the banks, financial institutions and E
other secured creditors but as Parliament has not made
any such provision in either of the _enactments, the first
charge created by the State legislations on the property
of the dealer or any other person, liable to pay sales tax,
etc., cannot be destroyed by implication or inference, F
notwithstanding the fact that banks, etc. fall in the category
of secured creditors.
60. In Jitendra Nath Singh2 again interpretation of Sections
529 and 529A of the Companies Act came up for
consideration. There was a divergence of opinion among the G·
Judges hearing the matter. The majority view gave the following
interpretation to Sections 529 and 529A of the Companies Act:
16.1. A secured creditor has only a charge over a
particular property or asset of the company. The secured H
308 SUPREME COURT REPORTS [2013] 3 S.C.R.
A creditor has the option to either realise his security or
relinquish his security. If the secured creditor relinquishes
his security, like any other unsecured creditor, he is entitled
to prove the debt due to him and receive dividends out of
the assets of the company in the winding-up proceedings.
B If the secured creditor opts to realise his security, he is
entitled to rea.lise his security in a proceeding other than
the winding-up proceeding but has to pay to the liquidator
the costs of preservation of the security till he realises the
security.
c 16.2. Over the security of every secured creditor, a
statutory charge has been created in the first limb of the
proviso to clause (c) of sub-section (1) of Section 529 of
the Companies Act in favour of the workmen in respect of
their dues from the company and this charge is pari passu
D with that of the secured creditor and is to the extent of the
workmen's portion in relation to the security of any secured
creditor of the company as stated in clause (c) of sub-
section (3) of Section 529 of the Companies Act.
E 16.3. Where a secured creditor opts to realise the security
then so much of the debt due to such secured creditor as
could not be realised by him by virtue of the statutory
charge created in favour of the workmen shall to the extent
indicated in clause (c) of the proviso to sub-section (1) of
Section 529 of the Companies Act rank pari passu with
F the workmen's dues for the purposes of Section 529-A of
the Companies Act.
16.4. The workmen's dues and where the secured creditor
opts to realise his security, the debt to the secured creditor
G to the extent it ranks pari passu with the workmen's dues
under clause (c) of the proviso to sub-section (1) of Section
529 of the Companies Act shall be paid in priority over all
other dues of the company.
61. Whilst there was divergence of opinion on certain
H
BANK OF. MAHARASHTRA v. PANDURANG KESHAV 309
GORWARDKAR & ORS. [R.M. LODHA, J.]
aspects, as regards the exposition of law in paragraph 76 of A
the judgment in Allahabad Bank1 that workmen's dues have
priority over all other creditors, secured and unsecured because
of Section 529A(1 )(a), the Bench was of unanimous opinion
that the said statement in Allahabad Bank1 was not a good law.
B
62. Section 529A was inserted by Companies
(Amendment) Act, 1985. By incorporation of this provision,
workmen's dues rank pari passu with secured creditors. In
other words, the workmen of the company in winding up acquire
the status of secured creditors. Pertinently, while inserting c
Section 529A in the Companies Act by the Companies
(Amendment) Act, 1985, the proviso to sub-section {1) of
Section 529 was also inserted which provides that the security
of every secured creditor shall be deemed to be subject to a
pari passu charge in favour of the workmen to the extent of the o
workmen's portion.
63. A cumulative reading of Sections 529A and 529{1){c)
proviso leads to an irresistible conclusion that where a company
is in liquidation, a statutory charge is created in favour of E
workmen in respect of their dues over the security of every
secured creditor and this charge is pari passu with that of the
secured creditor. Such statutory charge is to the extent of
workmen's portion in relation to the security held by the secured
creditor of the company. This position, in our opinion, is equally F
applicable where the assets of the company have been sold
in execution of the recovery certificate obtained by the bank or
financial institution against the debtor company when it was not
in liquidation but before the proceeds realised from such sale
could be fully and finally disbursed, the company had gone into G
liquidation. Stated differently, pending final disbursement of the
proceeds realised from the sale of security in execution of the
recovery certificate issued by the DRT, if debtor company
becomes company in winding up, Sections 529A and 529(1){c)
proviso come into operation immediately and statutory charge H
310 SUPREME COURT REPORTS [2013] 3 S.C.R.
A is created in favour of workmen in respect of their dues over
such proceeds.
64. Having regard to the scheme of law, it appears to us
that the relevant date for arriving at the ratio at which the sale
. proceeds are to be distributed amongst workmen and secured
8
creditors of the company is the date of the winding up order
and not the date of sale.
65. Where the sale of security has been effected in
execution of recovery certificate issued by ORT under the 1993
C Act, the distribution of undisbursed proceeds has to be made
by the ORT alone in accordance with Section 529A of the
Companies Act. It is sCJ because Section 19(19) of the 1993
Act provides that ORT may order distribution of the sale
proceeds amongst the secured creditors in accordance with
o Section 529A where a recovery certificate is issued against the
company registered under the Companies Act. The workmen
of the company in winding up acquire the standing of secured
creditors on and from the date of the winding up order (or where
provisional liquidator has been appointed, from the date of
E such appointment) and they become entitled to distribution of
sale proceeds in the ratio as explained in the illustration
appended to Section 529(3)(c) of the Comp;:inies Act. The
question is whether Section 19(19) of the 1993 Act clothes ORT
with jurisdiction to determine the workmen's claims against the
F debtor company? We do not think so for reasons more than
one.
66. In the first place, 1993 Act has provided for special
machinery for speedy recovery of dues of banks and financial
institutions in specific matters. It is with this objective that it
G provides for establishment of ORT with the jurisdiction, power
and authority for adjudication of claims of the banks and ·
financial institutions. 1993 Act also provides for the modes of
recovery of the amount so adjudicated by the ORTs. 1993 Act
has not brought within its sweep, the adjudication of claims of
H
BANK OF MAHARASHTRA v. PANDURANG KESHAV 311
GORWAROKAR
. .
& ORS. [R.M. LOOHA, J.]
persons other than banks and financial institutions. ORT has A
not been given powers to adjudicate the dues of workmen of
the debtor company. Section 17 or Section 19 of the 1993 Ac~
cannot be read in a manner that allows such exercise to be
undertaken by the ORT. ORT does not possess necessary
statutory powers to address all disputes that may arise in B
adjudicating workmen's claims in winding up proceedings. The
adjudication of workmen's claims against the debtor company
is a substantive matter and ORT has neither competence nor
machinery for that. Certain incidental and ancillary powers given
to ORT do not encompass power to adjudicate upon or decide c
dues of the workmen of the debtor company.
67. Secondly, Section 19(19) of the 1993 Act is a
provision of distribution mechanism and not an independent
adjudicatory provision. This provision follows adjudication of
claim made by a bank or financial instituti9n. It comes iqto·play O
where a certificate of recovery is issued against a company ·
registered under the Companies·~ct which, is in winding up.
Where the debtor company is not in liquidation, Section 19(19)
does not come into operation at all. Foll6wirig Tiwari Committee
Report and Narasimham .Colllmittee Report, the present E
Section 19(19) was incorporated in 1~93 Act for protection of
pari passu charge of secured c~editors, including workmen's
dues at the time of distribution of the sale proceeds of such
company. The participation of workmen along with secured
creditors- under Section 19(19) is, to a limited extent, in the F
distribution of the sale proceeds by the ORT and not for
determination of their claims against the debtor company by
the ORT. Once the company is ii:t winding up, the 0,nly competent
authority to determine the workmen's dues and quantify
workmen's portion· is the liquidator.· The llquidator has the G
responsibility and c,ompetence to determine. the workmen's
dues where the debtor company is in liquidation.
68. Thirdly, the expression, 'the Tribunal may order the sale
proceeds of such company to be distributed among its, secured H
312 SUPREME COURT REPORTS [2013] 3 S.C.R.
A creditors in accordance with the provisions of Section 529A of
the Companies Act' occurring in Section 19(19) does not
empower DRT to itself examine, determine and decide upon
workmen's claim un~r Section 529A. The above expression
means that where the debtor company is in winding up, the
B sale proceeds of such company realized under the 1993 Act
are to be distributed among its secured creditors by following
Section 529A of the Companies Act. Mention of Section 529A
in Section 19(19) is neither a legislation by reference nor a
legislation by incorporation. What it requires is that DRT must
c follow the mandate of Section 529A by making distribution in
equal proportion to the secured creditors and workmen of the
debtor company in winding up.
69. We are unable to accept the submission of the learned
senior counsel for the Kamgar Union that Section 19(19) is not
D restricted to a situation where the debtor company is in winding
up. In our view, Section 19(19) covers situation where a debtor
company is in winding up or where a provisional liquidator has
been appointed in respect of the debtor company and in no
other situation. If the debtor company is not in liquidation nor
E any provisional liquidator has been appointed and merely
winding up proceedings are pending, there is no question of
distribution of sale proceeds among secured creditors in the
manner prescribed in Section 19(19) of the 1993 Act.
F 70. The position stated in Allahabad Bank1 that priorities,
so far as the amounts realized under the 1993 Act are
concerned, are to be worked out only by DRT admits of no
ambiguity and is legally sound but this statement cannot be read
as laying down the proposition that in respect of the amounts
G realized under the 1993 Act, the DRT has power, competence
or authority to determine the workmen's dues of the debtor
company. The manner of distribution among secured creditors
of the monies realized under the 1993 Act does not clothe DRT
to adjudicate the claims of secured creditors other than the
H banks and financial institutions against the company under
BANK OF MAHARASHTRA v. PANDURANG KESHAV 313.
GQRWARDKAR & ORS; [R.M. LODHA, J.]
Section 19(19). Any statement of law to the contrary in A
Allahabad Bank1 must be held to be not a good law.
71. In Rajasthan State Financial Corporation5 , this Court
propounded the proposition that a DRT acting under the 1993
Act would be entitled to order the sale of the properties of the 8
debtor, even if a company is in liquidation, through its Recovery
Officer but only after notice to the official liquidator or the
liquidator appointed by the Company. Court and after hearing
him. We are in agreement with the above view. Where the
winding up petition against the debtor company is pending but C
no order of winding up has been passed nor any provisional
liquidator has been appointed in respect of such company at
the time of order of sale by DRT and the properties of the debtor
company have been sold in execution of the recovery
certificate and proceeds of sale realized and full disbursement
of the sale proceeds has been made to the concerned bank D
or financial institution, the subsequent event of the debtor
company going into liquidation is no ground for reopening
disbursement by the DRT. However before full and final
disbursement of sale proceeds, if the debtor company has
gone into liquidation and a liquidator is appointed, E
disbursement of undisbursed proceeds by DRT can only be
done after notice to the liquidator and after hearing him. In that
situation if there is claim of workmen's dues, the DRT has two
options available with it. One, the bank or financial institution
which made an application before DRT for recovery of debt F
from the debtor company may be paid the undisbursed amount
against due debt as per the recovery certificate after securing
an indemnity bond of restitution of the amount to the extent of ·
workmen's dues as may be finally determined by the liquidator
of the debtor company and payable to workmen in the G
proportion set out in the illustration appended to Section
529(3}(c) of the Companies Act. The other, ORT may set apart
tentatively portion of the undisbursed amount towards
workmen's dues in the ratio as per the illustration following
Section 529(3)(c) and disburse the balance amount to the H
314 SUPREME COURT REPORTS [2013] 3 S.C.R.
A applicant bank or financial institution subject to an undertaking
by such bank or financial institution to restitute the amount to
the extent workmen's dues as may be finally determined by
the liquidator, falls short of the amount which may be
distributable to the work~en as per the above illustration. The
B amount so set apart may be disbursed to the liquidator towards
workmen's dues on ad hoc basis subject to adjustment on final
determination of the workmen's dues by the liquidator. The first
option must be exercised by ORT only in a situation where no
application for distribution towards workmen's dues against the
c debtor company has been made by the liquidator or the
workmen before the ORT.
72. In light of the above discussion, we sum up our
col)clusions thus:
D (i) If the debtor company is not in liquidation nor any
provisional liquidator has been appointed and
merely winding up proceedings are pending, there
is no question of distribution of sale proceeds
among secured creditors in the manner prescribed
E in Section 19(19) of the 1993 Act.
(ii) Where a company is in liquidation, a statutory
charge is created in favour of workmen in respect
of their dues over the security of every secured
creditor and this charge is pari passu with that of
F the secured creditor. Such statutory charge is to the
extent of workmen's portion in relation to the
security held by the secured creditor of the debtor
company.
G (iii) The above position is equally applicable where the
assets of the debtor company have been sold in
execution of the recovery certificate obtained by the
bank or financial institution against the debtor
company when it was not in liquidation but before
H the proceeds realized from such sale could be fully
BANK OF MAHARASHTRA v. PANDURANG'KESHAV 315
GORWARDKAR & ORS. ,(R.M. LODHA, J.J
and finally disbursed, the company had gone into A
liquidation. In other words, pending final
disbursement of the proceeds realized from the
sale of security in execution of the recovery
certificate issued by the debt recovery tribunal, if
debtor company becomes company in winding up, B
Section 529A read with Section 529(1)(c} proviso
come into operation and statutory charge is created
in favour of workmen in respect of their dues over
such proceeds.
(iv} The relevant date for arriving at the ratio at which
c
the sale proceeds are to be distributed amongst
workmen and secured creditors of the debtor
company is the date of the winding up order and
not the date of sale.
D
(v} The conclusions (ii} to (iv} shall be mutatis mutandis
applicable where provisional liquidator has been
appointed in respect of the debtor company.
(vi} Where the winding up petition against the debtor E
company is pending but no order of winding up has
been passed nor any provisional liquidator has
been appointed in respect of such company at the
time of order of sale by DRT and the properties of
the debtor company have been sold in execution of
F
the recovery certificate and proceeds of sale
realized and full disbursement of the sale proceeds
has been made to the concerned bank or financial
institution, the subsequent event of the debtor
company going into liquidation is no ground for
reopening disbursement by the ORT. G
(vii} However, before full and final disbursement of sale
proceeds, if the debtor company has gone into ·
liquidation and a liquidator is appointed,
disbursement of undisbursed proceeds by ORT H
316 SUPREME COURT REPORTS [2013] 3 S.C.R.
A can only be done after notice to the liquidator and
after hearing him. In that situation if there is claim
of workmen's dues, the ORT has two options
available with it. One, the bank or financial institution
which made an application before ORT for recovery
B of debt from the debtor company may be paid the
undisbursed amount against due debt as per the
recovery certificate after securing an indemnity bond
of restitution of the amount to the extent of
workmen's dues as may be finally determined by
c the liquidator of the debtor company and payable
to workmen in the proportion set out in the
illustration appended to Section 529(3)(c) of the
Companies Act. The other, ORT may set apart
tentatively portion of the undisbursed amount
D towards workmen's dues in the ratio as per the
illustration following Section 529(3)(c) and disburse
the balance amount to the applicant bank or
financial institution subject to an undertaking by
such bank or financial institution to restitute the
amount to the extent workmen's dues as may be
E
finally determined by the liquidator, falls short of
the amount which may be distributable to the
workmen as per the above illustration. The amount
so set apart may be disbursed to the liquidator
towards workmen's dues on ad hoc basis subject
F to adjustment on final determination of the
workmen's dues by the liquidator.
(viii) The first option must be exercised by ORT only in
a situation where no application for distribution
G towards workmen's dues against the debtor
company has been made by the liquidator or the
workmen before the ORT.
(ix) Where the sale of security has been effected in
execution of recovery certificate issued by the ORT
H
BANK OF MAHARASHTRA v. PANOURANG KESHAV 317
GORWAROKAR & ORS. [R.M. LOOHA, J.]
under the 1993 Act, the distribution of sale A
proceeds has to be made by the ORT alone in
accordance with Section 529A of the Companies
Act and by no other forum or authority.
(x) The workmen of the company in winding up acquire 8
the standing of the secured creditors on and from
the date of winding up order (or where provisional
liquidator has been appointed, from the date of
such appointment) and they become entitled to the
distribution of sale proceeds in the ratio as
explained in the illustration appended to Section C
529(3)(c) of the Companies Act.
(xi) Section 19(19) of the 1993 Act does not clothe
ORT with jurisdiction to determine the workmen's
claim against the debtor company. The adjudication 0
of workmen's dues against the debtor company in
liquidation has to be made by the liquidator. Iii
other words, once the company is in winding up the
only competent authority to determine the
workmen's dues is the liquidator who obviously has E
to act under the supervision of the company court
and by no other authority.
(xii) Section 19 (19) is attracted only where a debtor
company is in winding up or a provisional liquidator F
has been appointed in respect of such company. If
the debtor company is not in liquidation or if in
respect of such company no order of appointment
of provisional liquidator has been made and
merely winding up proceedings are pending, the
question of distribution of sale proceeds among G
secured creditors in the manner prescribed in
Section19(19) of the 1993 Act does not arise.
73. For the above conclusions, we hold, as it must be held,
that the claims of the workmen who claim to be entitled to H
318 SUPREME COURT REPORTS [2013] 3 S.C.R.
A payment pari passu have to be considered and adjudicated
by the liquidator of the debtor company and not by the DRT.
We answer the question accordingly.
74. The impugned judgment is set aside. The Debt
8 Recovery Tribunal, Mumbai Ill and the official liquidator of the
Company shall proceed further now concerning workmen's
dues as indicated in this judgment. The appeals are allowed
with no order as to costs. All pending applications stand
disposed of.
C R.P. Appeals allowed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Debt Recovery Tribunal"Sign in to search