Content Provider | Supreme Court of India |
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e-ISSN | 30484839 |
Language | English |
Access Restriction | NDLI |
Subject Keyword | companies act overriding preferential payment |
Content Type | Text |
Resource Type | Law Judgement |
Jurisdiction | India |
Case Type | Appeal |
Court | Supreme Court of India |
Disposal Nature | Appeal Allowed |
Headnote | Companies Act, 1956: Sections 529-A and 529-overriding preferential payment-Bank-secured creditor's claim against Company-Winding up of company-Assets sold, as an ongoing concern, purchaser entered into settlement with workmen regarding past salaries of workmen and workmen were paid substantial amount-Bank-secured creditor standing outside winding up proceedings-High Court directing the bank to pay past dues to workmen on ad hoc basis over claim of secured creditors-Sustainability of-Held: Claims of the secured creditors are pari passu with the workmen-Debts due to secured creditor is considered for ascertainment of workmen's portion of security-Hence, cannot be said that workmen's dues have complete priority over~all other creditor, as such order of High Court unsustainable-Further, correctness of an equitable order is judged in light of subsequent events and High Court did not consider the subsequent events-Also gave no reasons for such direction-Furthermore, rights and obligations of the parties are determined after the lis is adjudicated upon, as such issuance of any certificate under section 19 would arise upon the conclusion of the proceeding before it-Since order of High Court was passed after RDB Act came into force but before establishment of Debt Recovery Tribunal in State, dispute is to be resolved with reference to the Act-Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Section 19. Sections 529-A and 529-Interpretation of-Discussed. Section 446-Power of Company Judge-Held : Section confers wide power upon Company Judge, but can be exercised only upon consideration of contentions of parties raised in a suit or proceeding or any claim made-Priorities would also be determined if the parties claim the same before the Court-However, section 446 ipso facto confers no power upon the Court to pass interlocutory orders. A Company was obtaining and enjoying diverse credit facilities from the appellant-Bank upon hypothecation of goods, raw materials, stocks of tobacco including movable properties. Company went in liquidation. Appellant filed recovery suit against the Company. Joint-receivers sold the hypothecated goods lying in the factories and sale proceeds of Rs. 135 lakhs was deposited in a fixed deposit with the appellant. Thereafter, winding up order of the Company was passed. Assets and the properties of the Company were directed to be sold, as an ongoing concern and purchaser entered into a settlement as regard past salaries of the workmen. Single Judge of High Court directed the appellant to pay Rs 38 lakhs to the Liquidator on an ad hoc basis for disbursing the salaries to Officers, staff and workers of the Company. Appellant challenged the order of disbursal. The said order was later upheld by the Division Bench of High Court. Meanwhile, the suit filed by the appellant was transferred to DRT. Hence the present appeal. Appellant-Bank contended that High Court erred in passing the order since the assets of the Company had been sold as a going concern and the purchaser entered into a settlement as regards past salaries of the workmen, and a sum of Rs 6.8 crores had already been paid; that the workmen could approach only if such amount was not sufficient to pay the entire dues of the workmen; that the appellant was outside the purview of the winding up proceeding as it filed the suit upon obtaining leave of the Company Judge under section 446 of the Companies, 1956; that the ad hoc order passed was without jurisdiction; and that the workers' dues could not be held to have any precedence over all secured and unsecured creditors as has been held by this Court in Allahabad Bank's case and reliance thereupon by the High Court was unsustainable. Respondents contended that the High Court has extensive jurisdiction to decide any question arising between the parties or any claim made under the Companies Act in terms of Section 446 thereof; that when the Single Judge passed the order as far back as 1993, the judgement of this Court in Allahabad Bank's case was not pronounced and even the Debts Recovery Tribunal was not constituted and as such the judgement should be upheld without reference to the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the decision in Allahabad Bank's case; that the Bank claimed its security only in relation to 135 lakhs whereas the claim of the workmen was more than 19 crores, and having regard to section 529, the impugned order does not cause any prejudice to the appellant; and that in any event, having regard to the purport and object of sections 529 and 529-A, this Court should not interfere with the judgement. |
Judge | Hon'ble Mr. Justice S.B. Sinha |
Neutral Citation | 2005 INSC 137 |
Petitioner | Andhra Bank |
Respondent | Official Liquidator And Anr. |
SCR | [2005] 2 S.C.R. 776 |
Judgement Date | 2005-03-14 |
Case Number | 1321 |
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