Union Co Operative Bank vs Official Liquidator, High Court, Bombay

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1994 Supreme(SC) 612

SUPREME COURT OF INDIA
J.S.Verma : S.P.Bharucha
Union Co Operative Bank
Versus
Official Liquidator, High Court, Bombay
Case No. : 816 of 1992
Date of Decision : 7/11/94
Advocates Appeared: Aggarwal Suruchi : Ghosh Shankar : Joshi G. : Kandpal G. : Karanjawala Manik : Mathur Laxmi Arvind : Sharma Arvind Kumar : Sil A.K.

Advocates:
A.K.Sil, ARVIND SHARMA, G.JOSHI, G.KANDPAL, Laxmi Arvind Mathur, MANIK KARANJAVALA, SHANKAR GOPAL PAGIRE, SURUCHI AGARWAL

Headnote:
Companies Act, 1956 - Section 529-A - Recovered by realization of the security after commencement - Demands that ownership and control of resources of every company - Resources of companies constitute a major segment of material resources - Another announcement made by Finance Minister in his Budget speech relates to decision of government to introduce necessary legislation so that legitimate dues of workers rank with secured creditors in event of closure of company and above even the dues to government - Resources of companies constitute a major segment of material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in unfortunate event of its liquidation, workers, whose and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the produce of their and effort - It is accordingly proposed to amend S. 529 and 530 of the Companies Act and also to incorporate a new section in the Act, namely, Section 529-A – Held, Clear object of the amendment is that the legitimate dues of workers must rank with those of secured creditors and above even the dues of government - This literal construction of the proviso is in consonance with, and promotes avowed object of the amendment made - On contrary construction of proviso suggested by the learned counsel for appellant apart from being in conflict with the plain language of proviso also defeats object of the legislation - Existence of the security on date the amendment came into effect creates a charge in of workmen upon that security - It is only if the security has been pursuant to a decree, prior to date of amendment that charge is not created, for there is no security upon which it can operate - There is therefore, no in the operation of the provision as interpreted by us - A debt due to a secured creditor, when recovered by of the security after commencement of winding up proceedings, results in depletion of the assets in the hands of Official Liquidator - This provision is intended to protect interests of workmen in proceedings for winding up. In view of the nature of dues being similar to those of secured creditors purpose of this provision is to place the workmen on a par with the secured creditors and create a statutory charge in their on all available securities forming part of the assets of the company in liquidation so that the workmen also share the securities with the secured creditors - Workmen contribute to the growth of the capital and must get their legitimate share in the assets of the company when the situation arises for its closure and distribution of its assets first among the secured creditors due to winding up of the company - Aforesaid amendment made in Act is a statutory recognition of this principle equating the legitimate dues of the workmen with the debts of the secured creditors of company - To achieve this purpose, it is necessary that the amended provision must apply to all available securities which form part of the assets of the company in liquidation on the date of the amendment - Conclusion reached by division bench of the High court is supported by this reason - Appeal is dismissed

Judgment

J.S.VERMA, J.

(1) IN Company Petition No. 27 of 1971 for winding up of the Company - M/s Glass Carboys and Pressedwares Limited - on the ground, contained in clause (e) of Section 433 of the Companies Act, 1956 (hereinafter referred to as "the Act"), that the Company was unable to pay its debts, the learned Company Judge of the Bombay High court made a winding up order on 15/11/1972; and the Official Liquidator took possession of the assets of the Company. The appellant UCO Bank was a secured creditor of the Company. It chose to stand outside the winding up proceedings and obtained a decree on 22/4/1976 to recover its debt. In pursuance of the decree obtained by the appellant, the High courts Commissioner for Taking Accounts was directed to sell certain movables of the Company. In the meantime, the Companies Act, 1956 was amended by the Companies (Amendment) Act, 1985 (hereinafter referred to as "the Amending Act") with effect from 24/5/1985 by which S. 529 and 530 of the Principal Act were amended and Section 529-A was inserted therein. One of the effects of the amendment, as mentioned in the Statement of Objects and Reasons of the Amending Act, is as under:

"2. Another announcement made by the Finance Minister in his Budget speech relates to the decision of the government to introduce necessary legislation so that legitimate dues of workers rank pari passu with secured creditors in the event of closure of the company and above even the dues to government. The resources of companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate event of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the produce of their labour and effort. It is accordingly proposed to amend S. 529 and 530 of the Companies Act and also to incorporate a new section in the Act, namely, Section 529-A (vide clauses 4, 5 and 6 of the Bill)."

(2) IN this appeal, the question for decision is as to the true meaning and scope of the proviso to Ss. (1 of Section 529 inserted by the above amendment as a part of the aforesaid scheme. Ss. (1 of Section 529 including the said proviso is as under:

"529. Application of insolvency rules in winding up of insolvent companies.- (1 In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to-(a) debts provable; (b) the valuation of annuities and future and contingent liabilities; and (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: (Inserted by the Companies (Amendment) Act, 1985 [Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge infavour of the workmen to the extent of the workmens portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,- (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmens 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 workmens portion in his security, whichever is less, shall rank pari passu with the workmens dues for the purposes of Section 529-A.]"

(3) THE contention of the appellant, a secured creditor, which was accepted by the learned Company Judge but, on appeal, has been rejected by the division bench of the High court in the impugned order dated 16/10/1991 in Ap

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