IMPORTANT POINT
Under Section 529A of the Companies Act, the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues.

Headnote:Companies Act, 1956-Sections 529 and 529A-Workmen of Company, secured creditors by operation of law-If there is no secured creditor-Workmen of Company become unsecured preferential creditors u/s 529A to the extent of workmen dues-Section 529A will override all other claims of other creditors even where decree has been passed by a Court-Claims of ONGC have to be worked out in accordance with Sections 529 and 529A of the Act.
Held : The effect of Sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen s dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under Section 529A to the extent of the workmen dues. The purpose of Section 529A is to ensure that the workmen should not be deprived of their legitimate claims in the event of the liquidation of the company and the assets of the company would remain charged for the payment of the workers dues and such charge will be pari passu with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except Section 529A. This Section overrides preferential claims under Section 530 also. Under Section 529A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues. Therefore, the law is clear on the matter as held in UCO Bank s case that Section 529A will override all other claims of other creditors even where a decree has been passed by a court. (Paras 8 and 9)

JUDGMENT

Rajendra Babu, J.-This Court in a set of appeals arising out of certain orders made in a batch of writ petitions by a Division Bench of High Court of Gujarat in Association of Natural Gas Consuming Industries & Ors. vs. Oil and Natural Gas Commission & Anr., (1983) 24(2) Gujarat Law Reports 1437, examined various aspects of the matter in relation to price fixation and upheld the prices fixed by the appellant and allowed the appeals. However, during the pendency of the appeals in this Court, the interim orders granted by the High Court continued to be in operation and the respondents received gas at Rs. 1000/- per 1000M3.

2. In I.A.No. 168-178 of 1997 filed by the Official Liquidator appointed in respect of Ambica Mills Ltd. in Civil Appeal No. 8540-40 of 1983, this Court on 17.10.1997 held as under :-

"All that is necessary to be said is that out of the assets of the company under liquidation, the dues of ONGC Ltd., are required to be paid off first and the question of making any payment to any other creditor can arise only out of the surplus, if any, remaining after the full dues of the ONGC Ltd. have been paid off. The High Court is, therefore, to proceed with the matter in this manner. I.As stand disposed of."

3. The petitioners in these review petitions contend that an application had been made before the High Court of Gujarat in Company Application No. 143 of 1997 in Company Petition No. 121 in which the High Court directed that the Official Liquidator should make an application before this Court after impleading the company concerned; that pursuant thereto, he filed an application No. 168-178 seeking for permission to sell the immovable properties of the Company and to disburse the sale proceeds in accordance with law; that to this application none of the Unions of the workmen or other workmen were impleaded as respondents nor did the Official Liquidator in course of his application raised any pleading regarding the priority of disbursement of sale proceeds or application of Sections 529 and 529-A of the Companies Act; that Petitioner No. 1 before us is a labour Association representing the workmen of Shri Ambica Mills Ltd. and petitioner No. 2 is labour Union representing the workmen of Ambica Tubes, a division of Shri Ambica Mills Ltd.; that the workmen of these two establishments have not received wages and employment benefits amounting to more than Rs. 40 crores by their employer Shri Ambica Mills; that on 15.4.1987 this Court had directed ONGC to supply gas to its consumers subject to the undertaking that they would not charge, encumber or alienate any of their immovable assets without the leave of this Court; that Company Petition No. 66 of 1988 was filed for winding up of Shri Ambica Mills Ltd.; that, however, during the pendency of this petition, a reference under the Sick Industrial Companies (Special Provisions) Act, 1985 was filed before the Board for Industrial and Financial Reconstruction ( BIFR for short); that BIFR forwarded its opinion to this Court under Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 to the effect that it was just and equitable that the company should be wound up; that the opinion of BIFR was registered as Company Petition No. 121 of 1995 and winding up order came to be passed on 17.1.1997 on Company Petition No. 66 of 1998 with Petition No. 121 of 1995 and others. The petitioners made claim of the outstanding dues of the workmen of Shri Ambica Mills and the Official Liquidator in this regard communicated to the petitioners that he does not have any funds at his disposal and even if the amounts are realised out of sale of the assets he would not be in a position to make any payment to anybody including the workmen, except ONGC in view of the order made by this Court in I.A.No. 168-178 in C.A.No.8530-40 of 1983. Similar letter was also sent to Vatva Industries Mazdoor Sabha on 12.8.1989. The Textile Labour Association received that letter on 6.9.1999. It

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2004 Supreme(SC) 452

IMPORTANT POINTUnder Section 529A of the Companies Act, the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues.

Cases Referred (5)

IMPORTANT POINT
Under Section 529A of the Companies Act, the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues.