| Headnote |
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: s.13(7) – Whether employees dues can take precedence over the claim of secured creditor – In the instant case, respondent no.6-Society (Karkhana) obtained credit facilities from appellant-Bank and mortgaged its properties in return – Default in repayment of loan amount – Recovery proceedings by appellant-Bank under s.13(2) against Karkhana – Owing to its poor financial condition, Karkhana issued notice to the employees to proceed on leave without pay – Representatives of the employees-respondent no.1 to 3 successfully challenged the notice before Industrial Court and obtained order whereby Karkhana was directed to pay unpaid salaries to its employees on top priority basis – Relying on the said order, respondent no.1 to 3 sought issuance of recovery certificate against Karkhana and appellant-Bank – Industrial Court held that recovery certificate for unpaid salaries of Karkhana employees could not be issued against the appellant-Bank – It also refused to issue such a certificate against the Karkhana in view of its precarious financial condition – However, Karkhana was directed to pay the unpaid salaries to the employees on top priority basis as and when the funds were available – In challenge against the order, High Court directed issuance of recovery certificate against Karkhana – Meanwhile, one of the attached properties of Karkhana was auctioned and sold by appellant-bank and proceeds appropriated by appellant-bank towards the amount due to it from Karkhana – Aggrieved by non-issuance of a recovery certificate against the appellant-bank, respondent Nos. 1 to 3 filed writ petition – During the pendency of this petition, the competent authority under the Societies Act directed liquidation of the Karkhana – Finally, High Court disposed of writ petition observing that in terms of s.50 of the MRTU & PULP Act, the recovery certificate should have been issued to the Collector for recovering the amount from the Karkhana and its Managing Director – Further, it held that upon the liquidation of the Karkhana, s.529A of the Companies Act, 1956 came into operation, thereby according employees’ dues priority over all other dues in respect of the sale proceeds – In light of this, it was held that the Collector could recover the amount from the sale proceeds held in trust by appellant-Bank – Instant appeal filed against this order – Held: s.529A of the Companies Act, which gives workers’ dues a priority over all other debts, cannot be applied to the instant case in view of s.167 of the Societies Act which bars applicability of Companies Act to societies registered under the Societies Act – It is clear from s.50 of the MRTU & PULP Act and s.169 of the Land Revenue Code that dues of employees in respect of which an order has been made by a Court under Chapter VI of the MRTU & PULP Act are recoverable in the same manner as arrears of land revenue – There is a material difference between arrears of land revenue due on account of land, and amounts other than arrears of land revenue but recoverable in the same manner as arrears of land – s.169(1) deals with the former category of claims and makes them a paramount charge on the land over all other claims – On the other hand, s.169(2) deals with the latter category and gives them priority only over unsecured claims – In the facts of the instant case, the recovery certificate issued under s.50 of the MRTU & PULP Act only makes employees’ dues recoverable as arrears of land revenue – Thus, such employees’ dues would fall under the category of claims captured by s.169(2), and can only take priority over unsecured claims – Given that s.50 of the MRTU & PULP Act falls short of expressly making the employees’ dues a ‘first charge’, it cannot be said that such dues have priority over the claims of the Appellant- Bank, which is a secured creditor – Thus, under the scheme of the Land Revenue Code and the MRTU & PULP Act, the employees’ dues cannot claim priority over the claim of the Appellant-Bank – At the same time, the Appellant-Bank does not enjoy any paramount charge over the sale proceeds either – Instead, as per s.13(7) of the SARFAESI Act, the sale letter and the sale certificate constitute a contract which displaces the order of distribution stipulated under the said provision – The cumulative effect of these documents is that the Appellant-Bank must pay the employees’ dues out of the sale proceeds from the auctioned property – To this extent, the recovery certificate issued by the Industrial Court may be executed against the Appellant – Maharashtra Co-operative Societies Act, 1960 – s.167 – Maharashtra Recognition of Trade Unions and Prevention of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 – s.50 – Companies Act – s.529A. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: s.13(4) – Manner of distributing the money received by the secured creditor through the sale of secured assets – s.13(4) of the SARFAESI Act allows a secured creditor to take possession of the secured assets of a borrower-in- default, including the right to transfer them by way of sale – Manner of distributing proceeds from such sale is provided under s.13(7) – In the absence of a contract to the contrary, such proceeds are held by the secured creditor in trust and are to be applied first towards payments of costs, charges, and expenses incurred with respect to the sale; second, towards dues of the secured creditor; and lastly, towards any person entitled to the residue money. |
