Holding

Workers' wages rank ahead of the banks' pledge; the pledged stock must be sold and the proceeds used first to pay the workers' dues.

Summary

The workers of Mis Rohtas Industries Ltd. were not paid salaries due from May 1984 to July 8, 1984 despite a Supreme Court order dated 5 February 1986 directing payment in three instalments. The State of Bihar later declared the company a "sick industry" under Section 3 of the Bihar Relief Undertakings (Special Provisions) Act, 1981, and the company's finished‑goods stock, valued at Rs.91,77,000, was pledged to banks as security. The banks claimed priority over the sale proceeds, while the workers sought payment of their wages. The Court held that the workers' wages have a higher priority than the banks' pledge, ordered the immediate sale of the stock, directed that the proceeds first be used to pay the workers’ dues up to the date of closure, and that any balance be applied to other claims. It also clarified that the state notification does not bar the sale, and that the banks have other securities to protect their interests.

Issues considered

Whether wages and emoluments of workers have priority over a bank's pledge on the company's stock.
Whether the declaration of the company as a relief undertaking under the Bihar Relief Undertakings (Special Provisions) Act, 1981, prevents the sale of pledged assets to satisfy workers' claims.
Whether the Supreme Court can direct the sale of pledged stock despite the banks' security interests.

Legislation cited

Bihar Relief Undertakings (Special Provisions) Act, 1981s. 3

Subjects

workers' wagespriority of claimsbank pledgerelief undertakingliquidationBihar Relief Undertakings ActSupreme CourtArticle 32official liquidatorsick industry

Judgment

WORKERS OF MIS ROHTAS INDUSTRIES LTD.
A
v.
MIS ROHTAS INDUSTRIES LTD.

APRIL 27, !987 r·
B [RANGANATH MISRA AND G.L OZA, JJ.J

Bihar Relief Undertakings (Special Provisions) Act 1981-Section
3-'Re/ief undertaking'-Declaration of-Workers not paid salaries ~.
and wages as ordered by Court-Ordered that goods lying in stock be
sold and out of sale proceeds the workers be paid their dues.
c --:
By order dated 5.2.1986 this Court had directed that all salaries
and wages due to the workers from May 1984 onwards shall be paid to
them in three instalments. They have not yet been paid.
~
It was brought to the notice of the Court that the State of Bihar
D has issued a Notification dated December 12, 1986 declaring the
respondent-industry a sick industry under s. 3 of the Bihar Relief
Undertakings (Special Provisions) Act, 1981 and that the said Industrial
Undertaking shall be and remain a relief undertaking for one year.

On behalf of the industry it was contended that the liability of the
E industry for payment to the workers cannot be enforced. However,
counsel for the State conceded that the State Government wants that the +
wages to the workers should be paid. .-.
According to the Report of the Official Liquidator finished pro·
ducts of the value of Rs.91, 77,000 are lying in stocks and that from
F May, 1984 till 8th July, 1984 an amount of Rs.89 ,00 ,000 remains to be
...
paid to the workers as their salaries and emoluments.
~
On behalf of the financial institution it was contended that the
products lying in stocks are pledged with them and Ibey have prior
claim over the sale proceeds of these stocks and, therefore, the products
G could not be sold and the workers could not be paid off. It was suggested
that a scheme has been drawn up to revive the industry and financial
problems may arise if the stock is sold out and wages paid to the work·
ers out of sale proceeds. ~
Issuing directions the Court,
h
1216
WORKERS v. ROHTAS INDUSTRIES 1217

HELD: 1. Though the stock of products is pledged with Banks A
- ... and they have a priority in law, but it is the result of the bard-work of
the workers that these stocks could be produced. Therefore, it could not
'
be said that the wages and emoluments for the period npto closure
would not rank in priority. Their subsistance and living is also of
paramount importance and bas to rank with highest priority. For this
reason the Government of India is keen to have a scheme for revival of B
this industry and the State Government also desires that the workers
I should be paid their salaries. [1219A-D]

- 2. Looking to all the circumstances and taking a broad and
humane view of the situation it would be just and proper that these
goods which are lying in stock should be sold out and out of the sale C
proceeds the workers should be paid their dues upto the date of the
closure (from May 1984 to 8th July, 1984). The Official Liquidator will
ensure that the disposal fetches the best rates. This shall be completed
within two months. [1219F]

3. The financial institutions have other sufficient securities and D
properties of the Company and if the stocks of finished products are
sold to meet the basic requirements of the workers, their interests
wouldnotbeinjeopardy. [1219G-H)

+ 4. The balance out of the sale proceeds, if any, will be utilised for
meeting other pressing demands in the discretion of the Official E
Liquidator subject to orders of the Court. [12208)

S. The Official Liquidator may keep the amount of insurance
claim separately and allow the State Bank to adjust the same against its
insurance. [1219G]
F
6. Issuance of the Notification by the Bihar State Government
will not come in the way of sale of these assets and payment of the
workers. [1220C I

ORIGINAL JURISDICTION: Writ Petition No. 5222 of 1985.
G
Under Article 32 of the Constitution of India.

R.K. Garg, R.S. Singh and S.K. Verma for the Petitioner.

K. Parasaran, Attorney General, B. Datta, Additional Solicitor
General, A.K. Ganguli, Dr. Y.S. Chitale and Dr. Shankar Ghosh, H
1218 SUPREME COURT REPORTS (!987] 2 S.C.R.

P.P. Singh, Ranjit Kr. Pramod Dayal, D. Goburdhun, K. Swamy, Ms.
A
Sushma Suri, Probir Mitra, A.K. Ghose, M.M. Gangadeb, Dhanjay )--
Chandrachud, P.R. Seetharaman, D.K. Sinha, K.R. Nambiar and
A.K. Sil for the appearing parties.

The Order of the Court was delivered by
B
OZA, J. Heard learned counsel for the petitioners as well as the
respondent, the various financial institutions including the Banks and
also counsel for the State of Bihar. By orders of this Court dated
5.2.86 it was directed that all salaries and wages due to the workers
from May 1984 onwards shall be paid to them in three instalments. It
'"' -
c appears that they have not yet been paid inspite of the directions from
this Court. It was also brought to our notice that notwithstanding that
order of this Court, the State of Bihar has issued a Notification dated 'l
December 12, 1986, wherein this industry has been declared to be a
sick industry under Section 3 of the Bihar Relief Undertakings
(Special provisions) Act, 1981 (Bihar Act No. 12 of 1982) and by this
D Notification the Bihar Government has declared the said Industrial
Undertaking shall be and remain a relief undertakings for one year
from the date of issue of the Notification. On the basis of this an
attempt was made to suggest that the liability of the industry for pay-
ment to the workers can not be enforced. However, learned counsel
appearing for the State of Bihar frankly conceded that so far as the +
E liability of payment of wages to the workers is concerned the State
Government wants that it should be paid. As directed by this Court a -
report had been submitted by the Official Liquidator in the case of this·
industry. This report shows that the products produced by this industry ~
which are lying in stocks are of the value of Rs.91,77 ,000. This report
also discloses that from the month of May, 1984 till 8th July, 1984
F when this industry closed down an amount of Rs.89,00,000 remains to '¥
be paid to the workers as their salaries and emoluments.

The learned counsel appearing for the State Bank of India and
other_ financial institutions attempted to contend that these goods
which are the finished products lying in stock are pledged with these
G Banks and, therefore, they have a prior claim over the sale proceeds of
these stocks and it was, therefore, contended that this could not be -i
sold and the workers could not be paid off. On the other hand it was
suggested that in fact a scheme has been drawn up to review the
industry in the interests of the workers and the society in general and
in that scheme of starting the industry again financial problems may
H arise and if this stock is sold out and the money collected therefrom are
'
WORKERS v. ROITTAS INDUSTRIES (OZA, J.) 1219

paid out to the workers then it may create difficulties.
A
It is no doubt true that these products the stock of which have
been shown in the report and the value of which has been shown by the
Liquidator as Rs.91,77,000 is pledged with Banks, is a priority in law
in favour of the Banks but it also could not be disputed that these
stocks were the products of this industry before its closure and, there- B
fore, the workers also contributed their labour and it is the result of
I their hard-work that these stocks could be produced and in our opi-
nion, therefore, it could nofbe said that the wages and emoluments for
the period upto closure would not rank in priority. It is also significant
that after the Closure in July, 1984, till today in spite of the order passed
by this Court the workers have not been paid. Their subsistance and C
living is also perhaps of paramount importance and has to rank wiih
highest priority. It is in view of this as it appears, that the Government
of India is keen to have a scheme for revival of this industry. Learned
counsel for the State of Bihar also frankly conceded that so far as
payment to the. workers is concerned the State Government also
desires that they should be paid their salaries. It is no doubt true that D
at present there are no assets available out of which the whole payment
of all the dues to the workers from May 1984 till today could be done
but from out of these assets the products which are lying in stocks
valued at Rs.91,77,000 the salaries and the dues of the workers from
May 1984 till the date of closure could be made. It was contended that
in case these stocks are liquidated and the amount collected are paid E
off to the workers, difficulty may arise as this asset which has been
taken into account will not be available for the scheme of re-starting
the industry. Looking to all the circumstances and taking a broad and
humane view of the situation we are of the opinion, that it would be
just and proper that these goods which are lying in stock should be sold
and out of t,he sale proceeds the workers should be paid their dues upto F
the date of closure (from May 1984 to July 1984 i.e. 8th July, 1984) so
that at least they will get something for subsistance. Learned counsel
for the State Bank of India pointed out that his client has paid for the
insurance of certain assets and for loss thereof in whole or in part, the
insurance has paid for the loss. The Official Liquidator may keep that
amount separately and allow the State Bank to adjust the same against G
its insurance. So far as the pledge and the priority of the financial
institutions are concerned, we have no doubt that they have other
sufficient securities and properties of the Company and, therefore, if
this stock of finished products are sold to meet the basic requirements
of the workers, their interests would not be in jeopardy. Apart from it,
we also hope and trust that if the loss of this amount of Rs.91,77,000 H
1220 SUPREME COURT REPORTS (1987) 2 S.C.R.

A somehow comes in way of the scheme of re-starting of the industry, the
Government of India would find funds to save the situation and help
early revival of the Company. We therefore direct that these stocks
which are lying with the industry valued at Rs.91,77,000 shall imme-
diately be disposed of and out of this the wages and other dues of the
workers for the period from May 1984 till 8th July, 1984, shall be met.
B
The balance, if any, will be utilised for meeting other pressing
demands in the discretion of the Official Liquitator subject to orders of
the Court. We are sure that the Official Liquitator will ensure that the

-
disposal fetches the best of rates. We may also make it clear that
issuance of the notification by the Bibar State Government will not
come in the way of sale of these assets and payment to the workers.
c We direct that this shall be completed within two months from today.
The case may come for further directions in third week of July.

We expect that by then with the lead taken by the Central
Government, the scheme of revival would have made sufficient head-
D way and everyone would be in a poisition to have an optimistic view of
the situation.

A.P.J.

+