Provident fund dues of workmen rank alongside the debts of the secured creditors of a company in liquidation to the extent that the same are covered by the securities. Provident fund dues of other employees stand below the workmen’s dues on account of provident fund and the secured creditors’ dues on a construction of Section 529A and Section 530 of the Companies Act.

Sanjib Banerjee, J.

1. A point of principle arises, though the sum involved in this case is the princely amount of Rs. 1323.80. The point has arisen in a number of matters. The Regional Provident Fund Commissioner seeks an adjudication whether provident fund dues of all employees of a company in liquidation should stand on the same footing as workmen’s dues.

2. Sections 529, 529A and 530 need first to be seen to appreciate the issue involved:

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:

Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen’s portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debts opts to realise his security:

(a) the liquidator shall be entitled to represent the workmen and enforcesuch charge;

(b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen’s dues; and

(c) so much of the debts 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 workmen’s portion in his security, whichever is less, shall rank pari passu with the workmen’s dues for the purposes of Section 529A.

(2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section:

Provided that if a secured creditor instead of relinquishing his security and proving for his debts proceeds to realise his security, he shall be liable to pay his portion of the expenses incurred by the liquidator (including - a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.

Explanation.-For the purposes of this proviso, the portion of the expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmen’s portion in relation to the security bears to the value of the security.

(3) For the purposes of this section, Section 529A and Section 53C.:

(a) "workmen", in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947);

(b) "workmen’s dues", in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:

(i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947);

(ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution;

(iii) unless the company is being wound-up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in Section 14 of the Workmen’s Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and ve