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Jharkhand High Court · body

2018 DIGILAW 2450 (JHR)

B. I. F. R. v. Umi Special Steel Ltd.

2018-11-01

APARESH KUMAR SINGH

body2018
JUDGMENT Aparesh Kumar Singh, J. - Heard learned counsel for the workmen, official liquidator and the secured creditors. 2. The question before this Court is whether the prayer of the workmen for grant of statutory interest in accordance with Rule 156 of the Companies (Court) Rules, 1959 made through I.A. No.7469/2016 is tenable in law and facts or not? It is their case that they have not received any interest on their debt whereas the secured creditors/financial institutions have received interest, further interest, liquidation damages, over draft amount, over draft interest, etc. as per paragraph-13 of the report of learned Official Liquidator dated 24th August 2017 at flag-322. 3. In order to appreciate the controversy, a little background is required to be narrated hereinafter. The claim of the workmen for priority in payment of their outstanding dues against the sale proceeds of unsecured assets of the company under liquidation in terms of Section 529A(1)(c) was decided by order dated 12th August 2016 passed in I.A. No. 3369/2012. The learned Company Judge earlier in its order dated 28th November 2008 had held that the workmen and the secured creditors have pari passu charge over the properties of the company as per Sections 529 and 529A of the Companies Act. Learned Division Bench upheld the view vide its order dated 30th September 2010 passed in Company Appeal no.10/2008. The matter was decided in Civil Appeal no.6755/2012 reported in (2013) 1 SCC 462 . 4. The matter was remitted to this Court for fresh decision in the light of the principles laid down therein. Paragraph-12 of the judgment of the Apex Court containing the majority opinion is quoted hereunder :- "12. Our conclusions on interpretation of the provisions of Sections 529 and 529-A of the Companies Act, therefore, are as follows: (i) A secured creditor has only a charge over a particular property or asset of the company. The secured creditor has the option to either realize his security or relinquish his security. If the secured creditor relinquishes his security, like any other unsecured creditor, he is entitled to prove the debt due to him and receive dividends out of the assets of the company in the winding-up proceedings. The secured creditor has the option to either realize his security or relinquish his security. If the secured creditor relinquishes his security, like any other unsecured creditor, he is entitled to prove the debt due to him and receive dividends out of the assets of the company in the winding-up proceedings. If the secured creditor opts to realize his security, he is entitled to realize his security in a proceeding other than the winding-up proceeding but has to pay to the liquidator the costs of preservation of the security till he realizes the security. (ii) Over the security of every secured creditor, a statutory charge has been created in the first limb of the proviso to clause (c) of sub-section (1) of Section 529 of the Companies Act in favour of the workmen in respect of their dues from the company and this charge is pari passu with that of the secured creditor and is to the extent of the workmen''s portion in relation to the security of any secured creditor of the company as stated in clause (c) of sub-section (3) of Section 529 of the Companies Act. (iii) Where a secured creditor opts to realize the security then so much of the debt due to such secured creditor as could not be realized by him by virtue of the statutory charge created in favour of the workmen shall to the extent 4 indicated in clause (c) of the proviso to sub-section (1) of Section 529 of the Companies Act rank pari passu with the workmen''s dues for the purposes of Section 529-A of the Companies Act. (iv) The workmen''s dues and where the secured creditor opts to realize his security, the debt to the secured creditor to the extent it ranks pari passu with the workmen''s dues under clause (c) of the proviso to sub-section (1) of Section 529 of the Companies Act shall be paid in priority over all other dues of the company. 13. In support of our aforesaid conclusions, we may now cite some authorities. In Allahabad Bank v. Canara Bank, a two-Judge Bench of this Court speaking through M. Jagannadha Rao, J. discussed these rights of the secured creditors in paras 62, 63, 64 and 65 of the judgment as reported in SCC, which are extracted hereinbelow: (SCC pp. 435-36) "62. Secured creditors fall under two categories. In Allahabad Bank v. Canara Bank, a two-Judge Bench of this Court speaking through M. Jagannadha Rao, J. discussed these rights of the secured creditors in paras 62, 63, 64 and 65 of the judgment as reported in SCC, which are extracted hereinbelow: (SCC pp. 435-36) "62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding up. 63. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in Section 529. The insolvency rules are those contained in sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the Official Liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in Section 529(2). Till today, Canara Bank has not made it clear whether it wants to come under this category. 64. The second class of secured creditors referred to above are those who come under Section 529-A(1)(b) read with proviso (c) to Section 529(1). These are those who opt to stand outside the winding up to realize their security. Inasmuch as Section 19(19) [of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993] permits distribution to secured creditors only in accordance with Section 529-A, the said category is the one consisting of creditors who stand outside the winding up. These secured creditors in certain circumstances can come before the Company Court (here, ''the Tribunal'') and claim priority over all other creditors for release of amounts out of the other monies lying in the Company Court. This limited priority is declared in Section 529- A(1) but it is restricted only to the extent specified in clause (b) of Section 529-A(1). The said provision refers to clause (c) of the proviso to Section 529(1) and it is necessary to understand the scope of the said provision. 65. This limited priority is declared in Section 529- A(1) but it is restricted only to the extent specified in clause (b) of Section 529-A(1). The said provision refers to clause (c) of the proviso to Section 529(1) and it is necessary to understand the scope of the said provision. 65. Under clause (c) of the proviso to Section 529(1), the priority of the secured creditor who stands outside the winding up is confined to the ''workmen''s portion'' as defined in Section 529(3)(c). ''Workmen''sportion''means the amount which bears to the value of the security, the same proportion which the amount of the workmen''s dues bears to the aggregate of (a) workmen''s dues, and (b) the amounts of the debts due to all the creditors. This is explained in the illustration under the said provision. If the workmen''s dues in all are, say, Rs 1 lakh and the debt due to all secured creditors is Rs 3 lakhs, the total amount due to all of them comes to Rs 4 lakhs. Therefore, the workmen''s share comes to 25% (Rs 1 lakh out of Rs 4 lakhs). Now if the value of the security of a secured creditor (like Canara Bank) is Rs 1 lakh, the ''workmen''s portion '' will be Rs 25,000 which is the pro rata amount to be shared by the said secured creditor. By virtue of Section 529- A(1)(b) his priority over all others out of other monies available in the Tribunal is restricted to Rs 25,000 only. " 5. Thereafter this Court after hearing the workmen, the secured creditor and the official liquidator held as under :- "25. By the observations rendered by the Apex Court, the expression ''relinquish'' envisages a conscious act where a person was aware of his right and then relinquishes the same. His action must lead to a conclusion that he intended to stand in the queue for receiving money owed to him. The said question therefore has to be answered taking into account the overall conduct of the person i.e. secured creditors in the instant case, whether they have consciously by their acts relinquished their claim or have opted to realize their security by remaining out of the winding up proceedings. All these secured creditors have participated in the auction of the assets of the Company under liquidation and never pressed to realize their security in other manner. All these secured creditors have participated in the auction of the assets of the Company under liquidation and never pressed to realize their security in other manner. There are no security left which are not part of the winding up proceedings to be realized by them outside the winding up proceedings. In substance, their conduct leads to the only conclusion that they have not relinquished their security and they have participated in the winding up proceedings and chosen to realize their outstanding dues through the sale of assets of the Company under liquidation. Their equivocal stand relying upon section 47(3) of the Provincial Insolvency Act therefore, cannot be accepted. Judgment relied upon by the workmen also supports the view taken by this Court that the secured creditors have chosen to be part of the winding up proceedings consciously by their conduct and cannot be said to have remained outside the proceedings. In that view of the matter, their claim cannot be said to rank pari passu to the extent that they have lost to the worker''s portion for realization of their dues against the sale of secured assets in terms of the provisions of Section 529(1)(c) of the Companies Act, which are to be realized from the sale proceeds of the unsecured assets of the Company under liquidation under section 529(A) on prorata basis. 26. In view of what has been held herein-above in the matters of distribution of the value of unsecured assets, since the secured creditors have participated in the liquidation proceedings, the benefit of proviso-c to Section 529(A) could not be available with the secured creditors. Therefore, the workers'' dues would be paid on priority basis from the value of the unsecured assets, an exercise which is to be carried out by the Official Liquidator as per what has been held herein-above. 27. Therefore, the workers'' dues would be paid on priority basis from the value of the unsecured assets, an exercise which is to be carried out by the Official Liquidator as per what has been held herein-above. 27. The Apex Court in the majority judgment in the concluding paragraph-12 of the Report in the case of Jitendra Nath Singh (Supra), have held that where a secured creditor opts to realize the security, then so much of the debt due to such secured creditor as could not be realized by him by virtue of the statutory charge create in favour of the workmen, shall to the extent indicated in Clause (c) of the Proviso sub-section (1) of Section 529 of the Companies Act rank pari passu with the workmen''s dues for the purpose of Section 529A of the Companies Act. 28. As has been found herein-above, secured creditors have been found to have participated in the winding up proceedings and therefore, they are not entitled to claim that their unrealized dues in terms of distribution of secured assets under clause-c of section 529(1) shall rank Pari passu with that of the workmen in the matter of apportionment of debts in terms of section 529A of the Companies Act. In view of the detailed discussions and the reasons recorded herein-above, the claim of the applicant and other workmen for payment of their balance outstanding dues on priority basis from the value of the unsecured assets, is accepted. The Official Liquidator is now obliged to carry on computation and make the payment, in accordance with law to the workmen in question. Accordingly, the prayer made in I.A. No. 3369/2012 is allowed. 29. Official Liquidator has however brought to the notice of the Court through a Report at Flage-299 in regard to the fund position of the Company earlier, certain claims of 68 workmen have been rejected in I.A. No. 3376/2012. Similarly, the claim of 147 workmen have also been rejected which is subject matter in Company Appeal No. 4/2015. There has been admission of claim of three workers, referred to in the Report. That any claim of those 25 workers who have not yet given their name, is not made out as their names appear in the Statement of Affairs. Similarly, the claim of 147 workmen have also been rejected which is subject matter in Company Appeal No. 4/2015. There has been admission of claim of three workers, referred to in the Report. That any claim of those 25 workers who have not yet given their name, is not made out as their names appear in the Statement of Affairs. It has been submitted that this Court may also keep in mind the other statutory dues in the form of Government Fee, Audit fees, payable from the sale proceeds of the assets of the Company. The Official Liquidator therefore made a request to keep an amount of Rs. 1.00 crore as a reserve. It is also submitted by the learned Official Liquidator that the calculation furnished through the instant Report no. 299 may vary depending upon the time when the fixed deposit could be encashed and the amount could be finally paid. In that view of the matter, after distribution of the debts of the workmen in priority, out of the balance remaining from the sale proceeds of the unsecured assets of the Company, an amount of Rs. 1.5 crores be kept in reserve and rest be distributed to the secured creditors. 30. Prayer made in I.A. No. 6718/2015 and I.A. No. 4675/2016 shall be considered on the next date. Counsel for the parties may exchange their pleadings on these two I.A.''s in the meantime. A counter affidavit has been filed in I.A. No. 6718/2015 on behalf of Employees Provident Fund. Counsel for the applicant and EPFO may respond to the said counter affidavit before the next date. 31. List the case accordingly on 02.09.2016, by which time, Official Liquidator shall carry out the computation and furnish its report with regard to payments made." 6. The instant prayer made through I.A. No.7469/2016 has been made thereafter. It is pertinent to mention here that this Court accepted the second proposition proposed by the official liquidator that the secured creditor had opted for relinquishing their security and proving their debts and had thus participated in the liquidation proceedings. Therefore, the benefit of Clause (c) of the Proviso to 529(1) could not be available to the secured creditor in terms of Section 529A of the Act. Computation in these circumstances proposed by their official liquidator were also incorporated in the order dated 12th August 2016. 7. Therefore, the benefit of Clause (c) of the Proviso to 529(1) could not be available to the secured creditor in terms of Section 529A of the Act. Computation in these circumstances proposed by their official liquidator were also incorporated in the order dated 12th August 2016. 7. Learned counsel for the workmen in support of the prayer made the following submissions :- (i) The secured assets and properties were sold for a consideration of Rs. 108.90 Crores and unsecured assets were sold at Rs. 8.51 crores respectively. (ii) 50% of the verified claim of the secured creditors i.e. Rs 93.64 crores approximately and the workmen''s claim of Rs. 8,19,22,371/- were paid in the year 2007 from the sale proceeds of the secured assets. Thereafter the question was in relation to claim of payment on priority basis on the sale proceeds of the unsecured assets by the workmen. (iii) This issue stood adjudicated vide order dated 12th August 2016 passed by this Court. (iv) During pendency of I.A.No.1511/2008 further 11.9% payments were made only to the secured creditors (8.5% on 6th March 2009 and 3.4% on 18th February 2011) on an undertaking given by the secured creditors/financial institutions to return the excess amount as may be directed by the Court. (v) This Court vide order dated 12th August 2016 allowed the claim of the workmen for payment of the balance outstanding dues on priority basis from the sale proceeds of the unsecured assets. (vi) The total value of the unsecured assets including interest came to Rs. 9.47 crores approximately and after payment of the workmen dues i.e. Rs. 5,38,02,308/- from the proceeds of unsecured assets, the balance amount of Rs. 4,09,50,478/- was wrongly paid to the secured creditor. Learned Official Liquidator in his report has also accepted it and directed the secured creditors to refund the excess amount received by them. (vii) The claim of the workmen is supported by the provisions of Rule 156 of the Companies (Court) Rules, 1959. (viii) Relying upon the judgment of the Apex Court rendered in Vijay Industries v. NATL Technologies Ltd. reported in (2009) 3 SCC 527 it is submitted that debt also includes statutory interest. Workmen have not received any interest on their debts. (ix) The secured creditors have received interest, further interest, liquidation damages, overdue interest, etc. (viii) Relying upon the judgment of the Apex Court rendered in Vijay Industries v. NATL Technologies Ltd. reported in (2009) 3 SCC 527 it is submitted that debt also includes statutory interest. Workmen have not received any interest on their debts. (ix) The secured creditors have received interest, further interest, liquidation damages, overdue interest, etc. which means that they had received more than 4% interest on their debt which is against Rule 156. (x) In view of the unconditional undertaking given by the unsecured creditors, a direction may be issued to refund the excess amount for payment of the interest component to the workmen. 8. On the part of the secured creditor learned counsel Mr. Shivendra Kumar Roy has made the following submissions :- (i) The issue relating to payment of outstanding dues/debts to the workmen in priority in terms of Clause (c) of the Proviso to 529A(1) has been adjudicated by this Court vide order dated 12th August 2016 and has attained finality. (ii) The Official Liquidator made payments after computation of the outstanding dues in accordance with law which has been accepted by the secured creditor as well as the workmen. No undertaking was required or furnished by the secured creditor after such payment. (iii) Rule 156 under Chapter ''Debts and Claims against Company'' does not provide for claim of interest at this stage on the part of the workmen. The scheme of the Chapter under '' Debts and Claims against Company'' starting from Rule 147 up to Rule 164 and thereafter 168 and 169 present a complete picture on the statutory meaning to Rule 156. (iv) The claim of the workmen adjudicated by the official liquidator in the year 2008 were not objected to by way of appeal by the workmen. Interest over the adjudicated claim now being raised after payment of outstanding dues of the workmen in priority to the secured creditor on the sale proceeds of the unsecured assets of the company under liquidation is not entertainable. Learned counsel submits that once such claims are adjudicated the list of creditors and certified by the official liquidator, it cannot be added or varied except on order of the Court and in accordance with such order. At this stage the claim of interest is therefore not maintainable. 9. Learned counsel submits that once such claims are adjudicated the list of creditors and certified by the official liquidator, it cannot be added or varied except on order of the Court and in accordance with such order. At this stage the claim of interest is therefore not maintainable. 9. Learned counsel for the official liquidator has also placed the chronology of facts and adverted to the order dated 12th August 2016 whereunder the official liquidator was directed to make computation of the outstanding dues of the workmen in accordance with law and make payment in priority on the sale proceeds of the unsecured assets of the company. As per the computation the outstanding dues of the workmen totalling Rs. 5,38,02,308/- were paid but it did not contain any component of interest. The secured creditors were paid the balance remaining amount i.e. 4,09,50,478/-. 10. Learned counsel for the Official Liquidator on instruction however does not dispute that the claim of the workmen adjudicated in the year 2008 did not contain any interest component. However, relying upon Rule 156 and also Rule 179 the prayer of the workmen for payment of interest has been supported. He has also pointed out that earlier on payment of dividends between 2008 to 2011 the secured creditors had given an undertaking to return the excess amount as may be directed by this Court. 11. Considered the submissions of the learned counsel for the parties in the conspectus of facts, the provisions of law and the judgment relied upon by the learned counsel for the workmen. 12. The very issue relating to payment of balance outstanding dues of the workmen in priority against sale proceeds of the unsecured assets of the company in terms of Clause (c) of the Proviso to 529(1) were adjudicated by a detailed order dated 12th August 2016. No such claim of interest was either raised by the workmen or shown by the official liquidator as having formed part of the adjudicated claims/debts of the workmen when the issue was decided. Payments have been made as per the computation done by the Official Liquidator and proposed as per the second alternative i.e. when secured creditors have opted for relinquishing their security and proving their debts and have participated in the liquidation proceedings. Payments have been made as per the computation done by the Official Liquidator and proposed as per the second alternative i.e. when secured creditors have opted for relinquishing their security and proving their debts and have participated in the liquidation proceedings. Payments were made as per the computation made both to the workmen and the secured creditors thereafter out of the sale proceeds of the unsecured assets of the company under liquidation. Having accepted that, the workmen have raised the instant claim for interest thereupon on the basis of the provisions of Rule 156 of the Company (Court) Rules. Rule 156 reads as under :- "R.156. Interest.-On any debt or certain sum payable at a certain time or otherwise, whereon interest is not reserved or agreed for, and which is overdue at the date of the winding-up order, or the resolution as the case may be, the creditor may prove for interest as a rate not exceeding four percent per annum up to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed from the date of demand until the time of payment. " 13. This provision falls under the Chapter ''Debts and Claims against Company'' and starts from Rule 147 which provides for fixing a date for proving debts. Rule 148 provides for notice to creditors to submit their claims. Rule 149 relates to proof of debt. Rules 150 and 151 deal with mode of proof, verification thereof and contents of the proof. Rule 152 relates to workmen''s wages. As per Rule 152, in any case, where there are numerous claims for wages or accrued holiday remuneration by workmen and other employed by the company, it shall be sufficient if one proof in Form No.67 for all such claims is made either by a foreman or some other person on behalf of all such creditors. Any proof made in compliance with this Rule shall have the same effect as if separate proofs had been made by each of the said workmen and others. Any proof made in compliance with this Rule shall have the same effect as if separate proofs had been made by each of the said workmen and others. Rule 156 quoted above provides that on any debt or certain sum payable at a certain time or otherwise, whereon interest is not reserved or agreed for, and which is overdue at the date of the winding-up order, or the resolution as the case may be, the creditor may prove for interest at a rate not exceeding four percent per annum up to that date from the time when the debt or sum was payable, Under Rule 159 the Official Liquidator is required to examine every proof and the grounds of the debt. He may call for the production of voucher if any referred to in the affidavit of proof or require further evidence in support of the debt. Acceptance and rejection are to be communicated in terms of Rule 163. Rule 164 provides of appeal against such decision of Official Liquidator and reads as under :- "R.164. Appeal by creditor.-If a creditor is dissatisfied with the decision of the Liquidator in respect of his proof, the creditor may, not later than 21 days from the date of service of the notice upon him of the decision of the Liquidator, appeal to the court against the decision. The appeal shall be made by a Judge''s summons, supported by an affidavit which shall set out the grounds of such appeal, and notice of the appeal shall be given to the Liquidator. On such appeal, the court shall have all the powers of an appellate court under the Code." 14. Thus, an appellate provision is available to a creditor if dissatisfied with such decision of the Liquidator. After the aforesaid process are over, under Rule 167, the Official Liquidator shall within three months from the date fixed for submission of proof under Rule 147 or such further time as the court may allow, file in court a certificate in Form No.71 containing a list of the creditors who submitted to him proofs of their claims in pursuance of the advertisement and the notices referred to in Rule 148, the amounts of debt for which they claimed to be creditors, distinguishing in such list the proofs admitted wholly, the proofs admitted or rejected in part, and the proofs wholly rejected. This list of creditors would not be varied or added except with the order of the Court and as per Rule 168. The scheme of the chapter "Debts and Claims against Company" makes the placement of Rule 156 quite clear in the context. It is not a matter of dispute that the claims submitted by the workmen stood adjudicated by the official liquidator and no claim of interest was either made or accepted at the relevant point of time. Had the official liquidator rejected any proof for interest, the workmen had an opportunity to raise the issue in appeal under Rule 164 which was never done. 15. Learned counsel for the petitioner has placed reliance on the judgment of the Apex Court on the case of Vijay Industries (supra) and submitted that debt includes the agreed/statutory interest. Perusal of the judgment in the case of Vijay Industries (supra) shows that the appellant was a small scale industry which supplied castor oil to the respondent valued at Rs. 89,13,589/- out of which Rs. 49,99,000/- was paid. Invoices of the credit bill attached with each of the supply contained a clause relating to payment of interest @ 2% per month. At the foot of each credited bill the officer of the respondent company has put a signature as a token of acceptance. On failure of payment of the outstanding dues a winding up petition was filed by the appellant before the Company Court. The learned court admitted the company petition and held that prima-facie case was made out. On being dissatisfied the respondent preferred an appeal which was allowed by the learned Division Bench. When the matter was taken to the Apex Court it was argued that the High Court committed serious error in accepting the contention of the respondent that there was no agreement between the parties to pay interest and that it had not been informed about the adjustment of payments made by it towards interest. In these factual context, the Apex Court at para-34 of the report, relied upon by the counsel for the workmen, held as under :- "34. Section 433 of the Companies Act does not state that the debt must be precisely a definite sum. It has not been disputed before us that failure to pay the agreed interest or the statutory interest would come within the purview of the word "debt". Section 433 of the Companies Act does not state that the debt must be precisely a definite sum. It has not been disputed before us that failure to pay the agreed interest or the statutory interest would come within the purview of the word "debt". It is one thing to say that the amount of debt is not definite or ascertainable because of the bonafide dispute raised thereabout or there exists a dispute as regards quantity or quality of supply or such other defences which are available to the purchaser; but it is another thing to say that although the dues as regards the principal amount resulting from the quantity or quality of supply of the goods stands admitted but a question is raised as to whether any agreement had been entered into for payment of interest or whether the rate of interest would be applicable or not. In the latter case, in our opinion, the application for winding up cannot be dismissed. " 16. The question involved herein was directly not an issue in the case of Vijay Industries. In the case of Vijay Industries there was a specific clause under the invoices that the payments should be made within seven days on failure of which it would carry 2% interest per month. In that context the Apex Court held that failure to pay the agreed interest or the statutory interest would come within the purview of the word ''debt''. In the facts of the instant case, the workmen never raised the claim of interest and no such claim of interest were ever adjudicated upon. The payments have been made to the workmen in priority against sale proceeds of unsecured assets of the company in compliance of the order dated 12th August 2016. It has been accepted by the parties and has attained finality. The claim of interest has been raised thereafter, as such, it is not entertain able. 17. In view of the discussions made herein above and the reasons recorded, this Court is not convinced that such a claim of interest is tenable in law or on facts. Rule 179 relied upon by the Official Liquidator also does not have any application as it contemplates a situation where there is surplus after payment in full of all the claims admitted to proof. Rule 179 relied upon by the Official Liquidator also does not have any application as it contemplates a situation where there is surplus after payment in full of all the claims admitted to proof. Here undisputably the entire claims of the secured creditors could not be paid out of the sale proceeds. Only 61.9% of their claims have been paid. As such, this Court does not find any merit in this prayer made through I.A. No.7469/2016. It is accordingly rejected. Let a copy of this order be handed over to learned counsel for the official liquidator. Let the matter be listed on 29th November, 2018.