IMPORTANT POINT
Claims of workmen who claim to be entitled to payment pari passu have to be considered and adjudicated by liquidator of debtor company and not by DRT.

JUDGMENT

R.M. LODHA, J.

These two appeals from the Bombay High Court came up before a two-Judge Bench (B.P. Singh and R.V. Raveendran, JJ.) on 21.11.2005. While granting leave on that day, the Bench was of the view that the question whether the claims of the workmen who claimed to be entitled to payment pari passu have to be considered by the official liquidator or whether their claims have to be adjudicated upon by the Debts Recovery Tribunal (for short, ‘DRT’) is likely to arise in a large number of cases where recoveries are sought to be made pursuant to the certificates issued by the DRT and, therefore, these appeals required consideration preferably by a Bench of three-Judges. This is how these appeals have come up before us.

2. The appellant in one appeal is Bank of Maharashtra and in the other, Indian Banks Association. As a matter of fact, the main appeal is by Bank of Maharashtra. The Indian Banks Association was not a party to the proceedings before the High Court or before the DRT but it has preferred appeal, after permission was granted, as in its view the impugned judgment if implemented would have far reaching implications on the banking industry as a whole.

3. As will appear, the High Court was concerned with the writ petition filed by the workmen/employees of Paper and Pulp Conversions Ltd. (for short, ‘Company’) praying therein that direction be issued to the Recovery Officer, Debt Recovery Tribunal, Mumbai III (for short ‘DRT III’) to recover the amount of Rs. 3 crores from Bank of Maharashtra (‘the Bank’) which was allowed to be withdrawn being the money realised from the sale of movables of the Company and for issuance of further direction to the Recovery Officer to adjudicate the claims/dues of the workmen/employees as per the list annexed with the writ petition and after adjudication, in priority over all the claims, release the amount due to them. The workmen/employees also prayed in the writ petition for direction to the Central Government to make rules laying down procedure to be followed by the Recovery Officer under Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for short, ‘1993 Act’).

4. The facts and circumstances on which the workmen relied before the High Court are these: The Company had taken loan from the Bank somewhere in 1980. In 1984-85, the Company faced liquidity problems. One of the creditors of the Company filed a company petition being Company Petition No. 604/1986 before the Bombay High Court in 1986 for winding up of the Company. On 14.01.1987, the company petition was admitted.

5. The Company was closed in 1992. In the same year, a reference was made by the Company to the Board for Industrial and Financial Reconstruction, New Delhi (BIFR) under Section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 (for short, ‘SICA’). On 1.9.1993, BIFR passed an order for winding up of the Company. The Company challenged the order of the BIFR before the appellate authority but was unsuccessful.

6. In or about 1995, the Bank filed a suit against the Company and its Directors for recovery of a sum of Rs. 25,39,08,282.79 with future interest thereon at the agreed rate and cost in the Court of Civil Judge, Senior Division, Panvel. The suit was transferred to the DRT III in 1999 and was numbered as original application no. 344/1999.

7. On 19.07.2001, the DRT III allowed the original application made by the Bank by directing the Company and its Directors to pay jointly, severally and personally a sum of Rs. 25,49,91,756.94 with cost and interest at the rate of 6% per annum with quarterly rests from the date of application till its realization. The DRT III further directed in its judgment that in the event of failure of the Company and its Directors to pay the amount to the Bank, as directed, the Bank shall be entitled to sell hypothecated and mortgaged and other immovable and movable properties of the Company and the Directors and the sale proceeds shall be ap