Important point
In a case of winding up of an insolvent company, the claims of the secured creditors are required to be considered giving priority over unsecured creditors but their claim would be pari passu with the workmen.

Headnote:Companies Act, 1956—Sections 442, 446, 537, 529 and 529A—Winding up of insolvent companies—Overriding preferential payments—Options with secured creditors—Workmen’s due—By a scheme of amalgamation approved by High Court, assets and properties of Tobacco Division of Duncan Agro Industries Ltd. were transferred to its subsidiary New Tobacco Ltd., the Company—Company had been obtaining and enjoying diverse credit facilities from appellant Bank upon hypothecation of all goods—Appellant Bank filed a suit in the High Court for recovery of Rs. 2,69,54,228.15 along with interest at the rate of 18.5 p.a. against the company—Application for winding up of the Company was filed in the same year—On appellant’s application, Joint Receivers were appointed for making inventory of hypothecated goods lying in factories of the company—Stock of tobacco lying in two godowns were sold and sale proceeds of Rs. 135 lacs were directed to be deposited in a fixed deposit with appellant—Company was directed to be wound up—Appointment of an Official Liquidator—Company Judge directed appellant to pay a sum on an ad hoc basis for purpose of disbursing salaries to officers, staff and workers of the Company—Assets and properties of the Company were directed to be auctioned—Agreement between appellant and Duncan Agro Industries Ltd. to underwrite dues of the Company—Allegedly, the said agreement has been performed by Duncan only partially—Whether the order of disbursal was sustainable—Whether workmen could be directed to be paid on an ad hoc basis having regard to their claim of past dues vis-a-vis claim of appellants.
       Held : 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 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 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. Assuming such a power exists, it was imperative that the same should have been exercised on consideration of the factors laid down by this Court. (Para 30)
       The learned Company Judge in its order dated 8.5.2002 has noticed that a substantive amount has been paid to the workers towards their past dues. Payments have also been made not only to the statutory authorities but also to the secured creditors and the Special Officers. The workmen since the sale of the assets of the company as a working concern, have received substantial amounts towards their past dues and are being paid their current dues. A situation of starvation of the workmen does no longer prevail. The order passed by the learned Single Judge cannot moreover be sustained on amongst others, the ground of not assigning any reason in support thereof. (Para 35)
       In view of our findings aforementioned, it may not be necessary for us to consider the question as to whether the claim of the company having been underwritten by the Duncan Agro Industries Limited in favour of the Bank, it has suffered any prejudice or not. (Para 39)

Judgment

S.B. Sinha, J.—Doubting the correctness of the statement of law contained in paragraph 76 of the judgment of this Court in Allahabad Bank vs. Canara Bank and Another [(2000) 4 SCC 406], a Division Bench of this Court has directed that the matter be placed before a Bench of three Judges.

BACK GROUND FACT :

2. By a scheme of amalgamation approved by the High Court of Calcutta on or about 31.7.1984, the assets and properties of Tobacco Division of Duncan Agro Industries Limited were transferred to its subsidiary New Tobacco Limited (‘the Company’, for short). The company had been obtaining and enjoying diverse credit facilities from the Appellant-Bank upon hypothecation of all goods, raw materials, stocks of tobacco including movable properties situated at Biccavolu in the State of Andhra Pradesh.

3. The Appellant herein on or about 15.9.1987 filed a suit in the Calcutta High Court for recovery of Rs. 2,69,54,228.15 along with interest at the rate of 18.5 p.a. against the company. In the same year, an application for winding up of the said company was filed before the Company Judge of the Calcutta High Court, which was marked as CP No. 621 of 1987. The Appellant in the said suit filed an interlocutory application; whereupon the Joint Receivers were appointed for making inventory of hypothecated goods lying in the factories of the company at Agarpara in the State of West Bengal and Biccavolu. Upon such inventory having been made, the stock of tobacco lying in the godown at Guntur and Biccavolu were ordered by a learned Single Judge of the High Court to be sold by auction and the Joint Receivers were directed to keep separate accounts of the sale proceeds of the goods in the two godowns. The said sale was later on confirmed and the sale proceeds of Rs. 135 lacks was directed to be deposited in a fixed deposit with the Appellant. The company was directed to be wound up by the learned Company Judge by an order dated 25.11.1991 and an Official Liquidator was directed to take possession of the assets of the company. The said order dated 25.11.1991 was, however, stayed in view of a scheme for revival of the company which was approved; whereupon a committee of management was appointed by the Calcutta High Court which was directed to reopen and run the factories of the company both at Agarpara and Biccavolu. The said scheme of management, however, ultimately having failed, the assets and properties of the company were directed to be sold by an order dated 23.9.1993 as an on-going concern. By reason of an order dated 12.10.1993, the Company Judge directed the Appellant to pay a sum of Rs. 38 lakhs to the Official Liquidator on an ad hoc basis for the purpose of disbursing salaries to the officers, staff and workers of the company before the ensuing Puja vacation.

4. An appeal preferred thereagainst by the Appellant was dismissed by a Division Bench of the High Court by an order dated 23.11.1993 directing the Joint Receivers to draw the said sum of Rs. 38 lakhs from the fixed deposit made with the Appellant and pay the same to the Joint Special Officers in terms of the order of the learned Single Judge.

5. Two Special Leave Petitions were filed by the Appellant before this Court which were marked as S.L.P. (Civil) No. 20833 of 1993 and 20834 of 1993 against the said orders of disbursal whereupon by an order dated 14.1.1994, an interim order of stay was passed. In the year 1995, an application was filed by the workers before the High Court for a declaration that they are entitled to a sum of Rs. 19,57,77,408/- towards their past dues. The said application is still pending decision before the Company Judge. The assets and properties of the company were directed to be auctioned by the Joint Special Officers in June 1995 and by an order dated 29.6.1995, the sale thereof in favour of M/s R.D. Industries Limited for Rs. 23 crores was confirmed. It is stated that, in the meantime, an agreement was entered into by and between the Appel

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2005 Supreme(SC) 465

Important pointIn a case of winding up of an insolvent company, the claims of the secured creditors are required to be considered giving priority over unsecured creditors but their claim would be pari passu with the workmen.

Cases Referred (8)

Important point
In a case of winding up of an insolvent company, the claims of the secured creditors are required to be considered giving priority over unsecured creditors but their claim would be pari passu with the workmen.