The main legal point established in the judgment is the precedence of the rights of the pawnee over those of unsecured creditors in the absence of liquidation proceedings, based on the special property rights of the pawnee and legal principles established by previous court decisions.

JUDGMENT

P.K. BALASUBRAMANYAN, J.

Leave granted.

1.These appeals challenge the interim order passed by the Division Bench of the High Court in a pending writ appeal, directing disbursement of certain amounts realised on sale of stocks of sugar, owned by the first respondent company held under pledge by the appellant--bank. The Labour Commissioner had passed an order under Section 33(c) of the Industrial Disputes Act against the first respondent company in respect of the dues to the workmen. The same was challenged by the first respondent in the writ petition as also by others. Similarly the Cane Commissioner had passed orders for recovery of amounts due from the first respondent-company for being paid to the sugarcane growers for the cane supplied by them to the first respondent-company. During the pendency of the writ petition, the recovery authority had taken possession of stock of sugar lying pledged to the appellant bank and under its control, forcibly and without reference to the appellant--bank. The appellant--bank had got itself impleaded in the writ petition. Considering that the sugar stock was liable to lose its value by being stored indefinitely, the court had directed sale of the sugar. The sale fetched a price of Rs.1,53.50,400/-. Out of the same, a sum of Rs.10,60,800/- was paid towards excise duty and the balance was held under orders of court.

2.The writ petition filed by the first respondent challenging the recovery proceedings, both at the instance of the Labour Commissioner and the Cane Commissioner was dismissed by the learned Single Judge. The decision of the learned Single Judge was challenged in appeal. In the appeal filed by the company, the impugned interim order was made directing that a sum of Rs.43,00,000/- be made available to the Labour Commissioner for disbursement to the employees of the company, a sum of Rs.60,00,000/- be made available to the Cane Commissioner for disbursal to the sugarcane cultivators who had supplied sugarcane and a sum of Rs.20,00,000/- be paid to the appellant--bank, subject to the bank obtaining sanction from the Board for Industrial and Financial Reconstruction (for short "BIFR") and that the balance shall be kept in a fixed deposit subject to final orders. The appellant bank has challenged this order on the ground that its right as a pawnee, well recognised by law, had been totally ignored by the Division Bench of the High Court. Consequently, the order is clearly illegal and that such an interim order ought not to have been passed when the final adjudication had to be made in the appeals that were pending before the High Court.

3.We may notice here that there are no proceedings for winding up of the first respondent-company under the Companies Act. The first respondent-company has only approached BIFR by way of reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act.

4.Learned counsel for the appellant--bank submitted that the High Court was clearly in error in ignoring the rights of the appellant as a pawnee and in ignoring the binding decisions of this Court on the rights of the pawnee to the proceeds of the sale of the goods pledged to it to secure a debt due from the borrower. According to him, the bank as pawnee has the first charge on the stock of sugar and the charge crystalised when the stock of sugar pledged with it was sold. When it has thus crystalised, the bank had a priority over the debts due to other unsecured creditors. Neither the Cane Commissioner, nor the Labour Commissioner, in this case or the workmen, on whose behalf he was acting, were secured creditors. Consequently, the right of the appellant as the pawnee must prevail. Counsel submitted that the workmen become secured creditors only when there is a winding up and it is Section 529 of the Companies Act that made them secured creditors, entitled to disbursement pari pasu with other secured creditors. In the absence of any winding up proceeding the