2006 Supreme(SC) 540

2006(5) Supreme 41
Supreme Court of India
(From Calcutta High Court)
Dr. AR. Lakshmanan and Lokeshwar Singh Panta, JJ.
Radheshyam Ajitsaria & Anr. — Appellants
versus
Bengal Chatkal Mazdoor Union & Ors. — Respondents
Civil Appeal Nos. 4101-4103 of 2004
With
SLP (C) Nos. 6257-6258 of 2004
And
Civil Appeal Nos. 5906 and 5907 of 2004
All decided on 25-5-2006
Counsel for the Parties :
For the Appearing Parties : Jaideep Gupta, S.K. Bagaria, R.F. Nariman, Sr. Advocates, Rana Mukherjee, Siddharth Gautam, Manju Agarwal, Godwill Indeevar, Gaurav Kejriwal, P.C. Sharma, M.K. Michael, Varinder Kumar Sharma, Saurav Kirpal, Chanchal Kumar Ganguli, Naresh Kumar, Advocates.

Important Point
When the winding up proceedings have been permanently stayed under Section 466 of the Companies Act, the workers cannot have a priority over creditors by virtue of Section 529A of the Companies Act.

Headnote:Companies Act, 1956 — Sections 441, 466 and 529A — Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 — Section 11(2) — Entitlement to receive payment in terms of Scheme propounded to run the Mill — On failure of Jute factory to pay dues of several of its creditors, various winding up petitions were filed in the High Court — Company Judge directed winding-up of the company — An application made by Nemani Group praying for stay of winding up proceedings of the Company was allowed — Appointment of an ad-hoc Committee of Management to re-open the mills — Scheme accepted by the Supreme Court contained disbursement of payment to all the creditors in the said scheme — Scheme mentioned the manner in which creditors are entitled to receive the payment — The Scheme was supported by the workers — Appellants, unsecured creditors, entitled to receive payment in terms of the scheme are to be disbursed — Section 529A of the Act held not applicable in the facts and circumstances of the case.

       Held : The above facts clearly go to show and administer that the workers do not have a right to oppose the payment to all unsecured creditors out of the funds lying with the Registrar, Original Side, High Court. The reasons for our conclusion are as under :

       (a) By order of this Court the said funds are meant for disbursement only for unsecured creditors. Separate arrangements have been made under the scheme for payment of other dues including workers dues. The said scheme sanctioned in 1989 is still in operation and the present Committee of Management is operating under the same scheme.

       (b) Since 1994, i.e. after the Petitioner Group was superceded by the Jain Jalan Group, no demands of any nature relating to any outstanding payments were ever raised by the workers.

       (c) In any event, it has been clearly recorded in the order dated November 18, 2004 whereby the said Chetan Choudhary Group has been allowed to continue in management, that the said Chetan Choudhary Group is being allowed to be continued on the same terms and conditions as under the original sanctioned scheme, thus making them liable to make payments of all dues past or present.

       (d) Therefore, the company being a running concern, the alleged dues of the workers cannot be claimed against any specific member of the management committee. The dues if any, are against the company and not against any individual members of the Committee of Management. There is no question therefore of holding up payment due to the unsecured creditors on the ground that workers dues are alleged to be outstanding.

       (e) Further, since the company still continues to function, Section 529-A of the Companies Act cannot be pressed into service by the workers. The protection of section 529-A is available only when a company has been wound up, Official Liquidator has taken over the assets and disbursements are being made by the Official Liquidator in course of the winding up of the company. There is no question of the worker claiming a preferential right or payment while a company is running and carrying on business in the usual course and incurring daily expenses and liabilities. (Para 39)

       In view of the discussion made above, the following conclusion can be arrived at :

       (i) Appellant No. 1 remained as a member of the Committee of management only for a brief period of 11 months having resigned on 2.5.1990. Appellant No. 2 never participated in the management and affairs of the company, no one including the workers made any claim and/or grievance against the appellants at any point of time.

       (ii) The appellants are unsecured creditors of the Company who were entitled to receive payment in terms of the scheme at the rate of 2 per month and the entire payment in terms of the said scheme without interest was to be disbursed to them within a span of four years and two months and accordingly the entire amount became due and payable in the year 1993 itself.

       (iii) At all material times, there was no dispute with regard to the fact that Nemani Group of Company consisted of seven companies/firms which are distinct and separate from the appellants. (Para 44)

       So far as the workers’ claim in concerned, the scheme which was accepted by this Court on 30.11.1998 contained disbursement of the payment to all the creditors in the said scheme. The said scheme clearly mentioned the manner in which the creditors are entitled to receive the payment. The statutory dues, such as Provident Fund, E.S.I. and workers’ dues on account of wages salary are to be liquidated in the manner as provided therein and unsecured creditors were made entitled to receive payment @ 2 per month save and except initial payment @ 5 . The said scheme was supported by the workers. Unlike unsecured creditors, at no point of time workers had come up before the company Judge or before this Court alleging that payments have not been made to them pursuant to and in terms of the scheme, though the workers all along appeared in the proceedings. (Para 45)

       In any event since the Company is functioning as a going concern on and from the date of implementation of the Scheme of Arrangement as formulated and approved by the High Court as well this Court, the question of the workers at this stage when the winding-up proceedings have been permanently stayed under Section 466 of the Companies Act, 1956 to state to have a better claim by virtue of Section 529A of the Companies Act, 1956 does not and cannot arise. The workers having a priority over creditors can come into play only the winding-up process is in motion and the Official Liquidator take steps to formalize winding-up. In the instant case, after the Scheme had been sanctioned, the question of winding-up would arise only if the order of permanent stay granted was to be lifted on any party’s complaining of failure of the Scheme or inability on the part of the Company to make payments either in terms of the scheme or otherwise. The contention to the contrary raised by Mr. Nariman has no force. (Para 46)

       In our view, the provisions as contained under section 529A of the Companies Act, 1956 are not applicable in the facts and circumstances of the case as the order of winding-up has been stayed and the company is being run under the scheme as a going concern. (Para 49)

       One Committee of Management is being replaced by another Committee of Management on the same terms and conditions with an object to implement the same scheme. Thus the dues of the creditors including the workers and other statutory dues are to be paid by the Committee of Management. Even, at present the company is being run by a committee of Management and are now supported by the workers as would appear from the order dated 18.11.2004. (Para 50)