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SUPREME COURT OF INDIA
MOHAN M. SHANTANAGOUDAR, KRISHNA MURARI, JJ.
The Maharashtra State Co-operative Bank Ltd. - Appellant
Versus
Babulal Lade & Ors. - Respondents
Civil Appeal No. 232 of 2016
Decided on : 04-12-2019
(a) Maharashtra Co-operative Societies Act, 1960 - Section 167 - Expressly bars application of provisions of Companies Act. (Para 8)
(b) Maharashtra Recognition of Trade Unions & Prevention of Unfair Labour Practices Act, 1971 - Section 50 r/w Section 169, Land Revenue Code - Under section 50 dues of employees are recoverable as arrears of land revenue on orders of court - Arrears of land revenue due on account of land, and amounts other than arrears of land revenue but recoverable as arrears of land revenue - Distinction - Former gets priority over all other claims u/s 169(1) - Latter gets priority only over unsecured claims - Dues of employees falling u/s 169(2) - Cannot take priority over secured claim of appellant Bank. (Para 10)
(c) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(7) - Act not creating priority or first charge in favour of secured creditors - MRTU & PULP Act not creating paramount charge in favour of employees’ dues - Even then it cannot be said that the Appellant-Bank automatically gets a first charge under the SARFAESI Act. (Para 11)
(d) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(7) - Sale letter in the name of one entity agreeing to the terms and conditions thereof - By the time sale certificate was issued, there has been changes in name and structure of the original entity - Thus the names in sale letter and sale certificate are different - However, the entity being the same, the ultimate purchaser would be bound by terms and conditions of the sale letter. (Para 13)
(e) Interpretation - Contract - Sale letter being a part of the sale certificate, it can be relied upon by court for interpreting the sale certificate. (Para 13)
(f) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(7) - Sale letter, an agreement between appellant bank and the purchaser - Bank agreeing to settle employees’ dues - purchaser agreeing to settle all other liabilities - Bank trying to confine its liability to only provident fund dues of the employees - Bank agreeing to term ‘employees dues’ being aware of unpaid salary of employees - Bank is liable to settle employees’ all dues. (Para 13)
Facts of the case:
Registered under the Maharashtra Co-operative Societies Act, 1960, Respondent No. 6 herein, Vainganga Sahakari Sakhar Karkhana Ltd. had obtained credit facilities from the Appellant-Bank and mortgaged its properties in return. When it defaulted on the repayment of the loan, the Appellant-Bank initiated recovery proceedings on under SARFAESI Act. The Appellant-Bank took physical possession of the mortgaged properties of the Karkhana.
Owing to its poor financial condition, on 24.01.2006, the Karkhana issued a notice to its employees directing them to proceed on leave without salary w.e.f. 24.02.2006. This was challenged by representatives of the Karkhana employees under MRTU & PULP Act.
The Industrial Court held that a recovery certificate for unpaid salaries of the Karkhana employees could not be issued against the Appellant-Bank. It also refused to issue such a certificate against the Karkhana and its Managing Director in view of the precarious financial condition of the Karkhana. However, the Karkhana was directed to pay the unpaid salaries to the employees on top priority basis, as and when funds were to become available.
In the challenge against this order the High Court held that recovery could only be made against the Karkhana and not the Appellant-Bank. The High Court directed issuance of a recovery certificate against the Karkhana and its Managing Director. Pursuant to this direction, the Industrial Court issued a recovery certificate of Rs.13,89,84,334 against the Karkhana and its Managing Director.
In the interim period one of the attached properties of the Karkhana was auctioned and sold by the Appellant-Bank. The purchaser had accepted all encumbrances on the property as agreed upon in the sale letter. The proceeds from this sale were appropriated by the Appellant-Bank towards the amount due to it from the Karkhana.
2.6 At the same time, aggrieved by the non-issuance of a recovery certificate against the Appellant, Respondent Nos. 1 to 3 filed a writ petition. During the pendency of this petition an order was passed under the Societies Act directing liquidation of the Karkhana. Finally, the High Court observed that the recovery certificate should have been issued to the Collector for recovering the amount from the Karkhana and its Managing Director. It was clarified that the certificate is to be issued to the Collector first, who would then proceed to recover the sum as per the recovery certificate. It was held that after the auction sale, the Appellant-Bank held the proceeds in trust as per Section 13(7) of the SARFAESI Act and did not have a first charge over them. It was held that the Collector could recover the said amount of Rs.13,89,84,334 from the sale proceeds held in trust by the Appellant-Bank.
Finding of the court:
Companies Act is not applicable to present case.
Bank is liable to settle employees’ all dues.
Result: Appeal disposed of.
JUDGMENT :
MOHAN M. SHANTANAGOUDAR, J.
1. This appeal arises out of judgment dated 01.12.2015 passed by the Nagpur Bench of the High Court of Bombay in W.P. No. 3879/2012. Vide the impugned judgment, the Hon’ble High Court has directed the issuance of a recovery certificate against the Appellant herein, thereby modifying the order dated 08.08.2011 passed by the Bhandara Bench, Industrial Court, Maharashtra.
2. The brief facts giving rise to this appeal are as follows: 2.1 Registered under the Maharashtra Co-operative Societies Act, 1960 (hereinafter ‘Societies Act’), Respondent No. 6 herein, Vainganga Sahakari Sakhar Karkhana Ltd. (hereinafter ‘Karkhana’) had obtained credit facilities from the Appellant-Bank and mortgaged its properties in return. When it defaulted on the repayment of the loan, the Appellant-Bank initiated recovery proceedings on 10.02.2005, by issuing a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter ‘SARFAESI Act’). Later, on 13.06.2005, the Appellant-Bank took physical possession of the mortgaged properties of the Karkhana as per Section 13(4) of the SARFAESI Act.
2.2 Owing to its poor financial condition, on 24.01.2006, the Karkhana issued a notice to its employees directing them to proceed on leave without salary w.e.f. 24.02.2006. This was challenged by representatives of the Karkhana employees (Respondent Nos. 1 to 3 herein) in ULPA No. 65/2006 filed under Section 28 read with items 9 and 10 of Schedule IV of the Maharashtra Recognition of Trade Unions & Prevention of Unfair Labour Practices Act, 1971 (hereinafter ‘MRTU & PULP Act’). Vide order dated 24.08.2006, the Industrial Court quashed the notice and held that it amounted to an unfair labour practice. Further, noting that Karkhana had not paid salaries to its employees since July 2003, the Industrial Court directed the Karkhana to pay the unpaid salaries on top priority basis from any funds that may become available with it.
2.3 On the basis of this order, Respondent Nos. 1 to 3 filed a miscellaneous application, ULPA No. 5/2007, seeking the issuance of a recovery certificate against the Karkhana, its Managing Director (Respondent No. 4 herein), and the Appellant-Bank under Section 50 of the MRTU & PULP Act. It is to be noted that the Appellant was arraigned as a party in this proceeding for the first time. Vide order dated 27.04.2007, the Industrial Court held that a recovery certificate for unpaid salaries of the Karkhana employees could not be issued against the Appellant-Bank. It also refused to issue such a certificate against the Karkhana and its Managing Director in view of the precarious financial condition of the Karkhana. However, the Karkhana was directed to pay the unpaid salaries to the employees on top priority basis, as and when funds were to become available.
2.4 In the challenge against this order in W.P. No. 4746/2007, the High Court of Bombay, vide order dated 12.07.2010, held that recovery could only be made against the Karkhana and not the Appellant-Bank, as there was no employer-employee relationship between the Bank and the employees. It was further held that the Industrial Court had erred in relying upon the non-availability of funds with the Karkhana to refuse the grant of a recovery certificate, as the relevant consideration for issuance of such a certificate is the entitlement of the applicants and not the financial condition of the employer. In view of this, the High Court directed the issuance of a recovery certificate against the Karkhana and its Managing Director. Pursuant to this direction, the Industrial Court, vide order dated 08.08.2011, disposed of ULPA No. 5/2007 by issuing a recovery certificate of Rs.13,89,84,334 against the Karkhana and its Managing Director. However, the prayer to issue a recovery certificate against the Appellant-Bank was rejected.
2.5 In the interim period, on 26.08.2010, one of the attached prope
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