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CASE NO.: Appeal (civil)  1321 of 2003

PETITIONER: Andhra Bank

RESPONDENT: Official Liquidator and Anr.

DATE OF JUDGMENT: 14/03/2005

BENCH: N. Santosh Hegde, B.P. Singh & S.B. Sinha

JUDGMENT: J U D G M E N T

S.B. SINHA, J:

       Doubting the correctness of the statement of law contained in  paragraph 76 of the judgment of this Court in Allahabad Bank vs. Canara  Bank and Another [(2000) 4 SCC 406], a Division Bench of  this Court has  directed that the matter be placed before a Bench of three Judges.

BACKGROUND FACT : By a scheme of amalgamation approved by the High Court of Calcutta  on or about 317.1984, the assets and properties of Tobacco Division of  Duncan Agro Industries Limited were transferred to its subsidiary New  Tobacco Limited (’the Company’, for short).  The company had been  obtaining and enjoying diverse credit facilities from the Appellant-Bank  upon hypothecation of all goods, raw materials, stocks of tobacco including  movable properties situated at Biccavolu in the State of Andhra Pradesh.

The Appellant herein on or about 15.9.1987 filed a suit in the Calcutta  High Court for recovery of Rs.2,69,54,228.15 along with interest at the rate  of 18.5% p.a. against the company.  In the same year, an application for  winding up of the said company was filed before the Company Judge of the  Calcutta High Court, which was marked as CP No.621 of 1987.  The  Appellant in the said suit filed an interlocutory application; whereupon the  Joint Receivers were appointed for making inventory of hypothecated goods  lying in the factories of the company at Agarpara in the State of West  Bengal and Biccavolu.  Upon such inventory having been made, the stock of  tobacco lying in the godown at Guntur and Biccavolu were ordered by a  learned Single Judge of the High Court to be sold by auction and the Joint  Receivers were directed to keep separate accounts of the sale proceeds of the  goods in the two godowns.  The said sale was later on confirmed and the  sale proceeds of Rs.135 lacks was directed to be deposited in a fixed deposit  with the Appellant.  The company was  directed to be wound up by  the  learned Company Judge by an order dated 25.11.1991 and an Official  Liquidator was directed to take possession of the assets of the company.    The said order dated 25.11.1991 was, however, stayed in view of a scheme  for revival of the company which was approved; whereupon a committee of  management was appointed by the Calcutta High Court which was directed  to reopen and run the factories of  the company both at Agarpara and  Biccavolu.  The said scheme of management, however, ultimately having   failed, the assets and properties of the company were directed  to be sold by  an order dated 23.9.1993 as an on-going concern.  By reason of an order  dated 12.10.1993, the Company Judge directed the Appellant  to pay a sum  of  Rs.38 lakhs to the Official Liquidator on an ad hoc basis for the purpose  of disbursing salaries to the officers, staff and workers of the company  before the ensuing Puja vacation.  

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An appeal preferred thereagainst by the Appellant was dismissed by a  Division Bench of the High Court by an order dated 23.11.1993 directing   the Joint Receivers to draw the said sum of Rs.38 lakhs from the fixed  deposit made with the Appellant and pay the same to the Joint Special  Officers in terms of the order of the learned Single Judge.   

Two Special Leave Petitions were filed by the Appellant before this  Court which were marked as S.L.P. (Civil) No.20833 of 1993 and 20834 of  1993 against the said orders of disbursal whereupon by an order dated  14.1.1994, an interim order of stay was passed.  In the year 1995, an  application was filed by the workers before the High Court for a declaration  that they are entitled to a sum of  Rs.19,57,77,408/- towards their past dues.   The said application is still pending decision before the Company Judge.   The assets and properties of the company were directed to be auctioned by  the Joint Special Officers in June 1995 and by an order dated 29.6.1995, the  sale thereof in favour of M/s R.D Industries Limited for Rs.23 crores was  confirmed.  It is stated that, in the meantime, an agreement was entered into  by and between the Appellant herein and the said Duncan Agro Industries  Limited to underwrite the dues of the company on the condition that the  amount would be repaid to the extent it was able to recover its dues from the  company.  Allegedly, the said agreement has been performed by Duncan  only partially.

       This Court by an order dated 9.1.1998, requested the High Court to  dispose of the pending appeal and directed that the interim stay granted on  14.1.1994  would continue for a period of  seven months; whereupon by  reason of a judgment and order dated 19.3.2002, the appeal preferred by the  Appellant herein was dismissed by the Division Bench, stating :

"Having regard to the above facts, circumstances,  materials on record and the legal aspects as discussed  above we find no infirmity in the impugned order passed  by the learned Company Judge.  There is no merit in the  appeal.  The appeal is accordingly dismissed.  The order  under appeal is affirmed subject to the following  directions.  We direct the Joint Receivers to draw the sum  of Rs.38 lakhs from the fixed deposit made with the  appellant Andhra Bank and pay the amount to the Joint  Special Officers in terms of the order dated 12th October,  1993 passed by the learned Single Judge for  disbursement of salary to the officers, staff and workers  of New Tobacco Co. Ltd.  The Joint Receivers are  directed to encash the fixed deposit receipts only after  their maturity, if the same have not already matured and  will continue to hold the balance amount with interest in  further short term deposit account until further orders to  be obtained from any appropriate forum.  The Joint  Special Officers are directed to disburse the money  within one month from the date of receipt of the money  from the Joint Receivers in terms of the direction  contained in the order dated 12th October, 1993.  No  order as to costs."    

       In the meantime, the suit filed by the Appellant was transferred to  Debts Recovery Tribunal  on 25.7.2000.

SUBMISSIONS :

       Mr. L. Nageshwar Rao, the learned Senior Counsel appearing on  behalf of the Appellant, assailing the judgment and order passed by the

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Division Bench of the High Court, would contend :  (1) that the assets of the  company having been sold as a going concern and the purchaser having been  permitted to enter into a settlement as regard past salaries of the workmen,  the High Court could not have passed the impugned order as the workmen  could approach only if such amount was not sufficient to pay the entire dues  of the workmen; (2) the impugned order which was ad hoc in nature could  not have been passed by the High Court particularly in view of the fact that  the Appellant was outside the purview of the winding up proceeding as it  filed the suit upon obtaining leave of the learned Company Judge in terms of  Section 446 of the Companies, 1956; and (3) 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 (supra) and reliance thereupon by  the High Court is unsustainable.            Drawing our attention to a judgment of this Court Allahabad Bank  (supra), the learned counsel would contend that although in earlier  paragraphs therein this Court has correctly interpreted the provisions of  Sections 529 and 529-A of the Companies Act, the observations made in  paragraph 76, being contrary thereto in relation to the secured creditors  standing outside the winding up proceeding, was not correct.

       The learned counsel would contend that the learned Single Judge of  the High Court while passing the order dated 12.10.1993 did not apply his  mind to the question as regard its jurisdiction in passing  an ad hoc order.   The Division Bench of the High Court also, Mr. Rao would submit,  committed a manifest error in passing the impugned judgment relying on or  on the basis of the said observations made by this Court in Allahabad Bank  (supra).

       Drawing our attention to the auditor’s report, Mr. Rao would  submit  that it would appear therefrom that a sum of 6.8 crores has already been paid  to the workmen in terms of the settlement arrived at by and between the  purchaser and the workmen, and, thus, the High Court must be held to have  committed a manifest error in passing the impugned order.  As regard the  purported agreement entered into by and between the Appellant and the  aforementioned Duncan Agro Industries Limited, Mr. Rao drew our  attention to the following statements made in the Rejoinder Affidavit :

       "With reference to paragraphs  6, 7, 7(a) and 7(b)  of the affidavit, it is stated that the same are not germane  to the issues in the SLP.  It is stated that pursuant to the  said agreement dt. 11th December 1996 between M/s  Duncan Agro Industries Limited and the petitioner bank,  the latter received Rs.135 lakhs on 30th December 1996.   The balance amount of Rs.135 lakhs, M/s DAIL have  deposited Rs.45 lakhs in a ’No Lien’ deposit account in  their own name with the petitioner bank.  Shares worth  Rs.90 lakhs in the year 1996 are also lying deposited with  the bank in terms of the said agreement.  The value of the  said shares is drastically reduced today.  The claim of the  bank has thus not been settled or even fully secured.   After applying interest @ 18.5% p.a. as claimed in the  plaint in the bank’s suit now pending before DRT at  Calcutta on the principal claim amount of  Rs.2,69,54,228/- and after adjusting Rs.135 lakhs in the  year 1996, there is no due and owing by the said  company in liquidation a sum of Rs.35,50,80,103.15 as  on 30th June, 2002.  In any event clause (5) of the said  agreement states as follows :

"That if the Hon’ble Calcutta High Court  allows the Bank to receive from the Joint

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Receivers the whole of Rs.135.00 lacs with or  without the interest accrued thereon lying with  Joint Receivers being the sale proceeds of  hypothecated goods against the dues of NTC to the  Bank, the Bank is entitled to appropriate the said  amount towards the balance of the suit amount of  Rs.135 lacs and interest accrued  thereon.  In the  above event the entire amount of money being in  the fixed deposit together with interest thereon  referred to in paragraph 3 herein above, will be  returned to the company within thirty days from  the date of the order."

The petitioner bank is therefore obliged to conduct  its suit and enforce its claim in respect of Rs.135 lakhs,  being sale proceeds of tobacco lying with Joint Special  Officers in the matter.  It is denied that the claim of the  petitioner bank against the company in liquidation has  been settled."          Mr. Dipankar P. Gupta, learned Senior Counsel appearing on behalf  of the Respondents, on the other hand, would submit 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,  the impugned order was within the jurisdiction of the High Court.            

Mr. Gupta would draw our attention to the fact that the learned Single  Judge passed the order  as far back as 1993, when the judgment of this Court  in Allahabad Bank (supra) was not pronounced and even the Debts Recovery  Tribunal was not constituted  (it was constituted in the State of West Bengal  on 27.4.1994), and submit that the impugned judgment should be upheld  without reference to the provisions of the Recovery of Debts Due to Banks  and Financial Institutions Act, 1993 (’the RDB Act’, for short) or the  decision of this Court in Allahabad Bank (supra).  It was urged that keeping  in view the fact 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 the provisions contained in Section 529 of the Companies  Act, the impugned order does not cause any prejudice to the Appellant.   In  any event, having regard to the purport and object of Section 529 and 529-A  of the Act, this Court should not interfere with the impugned judgment.   Reliance, in this connection, has been placed on Jay Laxmi Salt Works (P)  Limited vs. State of Gujarat [(1994) 4 SCC 1].

       Drawing our attention to the following statements made in paragraph  6 of the Affidavit filed before this Court,  the learned counsel would contend  that the Appellant should not be permitted to take a different stand in its  Rejoinder:

       "I also respectfully submit that M/s Duncan  Industries Ltd., formerly known as Duncan Agro  Industries Ltd., from which the New Tobacco Company  was transferred and amalgamated in 1984, the said  Duncan Industries Ltd. has also paid the Bank’s suit  amount of Rs.270 lacs to the Bank with a clause that in  the event of adjustment of sale proceeds of Rs.135 lacs is  passed which is to be adjusted by the Hon’ble Court, the  same amount to be refunded to the Duncan Industries  Ltd..."   

POINTS  FOR DETERMINATION :

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       In view of the rival submissions made at the Bar, the questions which  arise for our consideration are : (i) whether the statement of law contained in  paragraph 76 of the judgment of this Court in Allahabad Bank (supra) does  not lay down a good law; (ii) whether the impugned judgment could have  been passed by way of an ad hoc measure in view of the fact that the  company was  sold  as  a  going  concern  and  the workers’ dues were to be  paid  from the sale  proceeds of the assets of the company; and (iii) whether  any payment could be made to the parties to the winding up proceedings  only upon considering the claims of all the creditors and in terms of the  certificate issued by the Debts Recovery Tribunal under the the RDB Act.   

ALLAHABAD BANK :         The Allahabad Bank was an unsecured creditor; it had obtained a  simple money decree from the Debts Recovery Tribunal (DRT) against the  debtor Company M/s M.S. Shoes (East) Co. Limited, whereas the  Respondent therein,  Canara Bank, was a secured creditor, but its claim was  pending before the DRT at Delhi.  A  sale proceeding was taken by the  Allahabad Bank before the Recovery Officers under the RDB Act.  The  learned Company Judge in exercise of his power under Sections 442 and 537  of the Companies Act stayed the proceedings.  A question arose as to  whether the Appellant Allahabad Bank was  obliged to seek leave of the  Company Court under the Companies Act and the Company Court could  stay the said  proceedings under Sections 442 and 537 of the Companies  Act. for the ultimate purpose of deciding the priorities, in the event of a  winding up order or other order appointing a provisional liquidator being  passed under Section 446(1) of the Companies Act.  The Allahabad Bank  contended that the Tribunal under the RDB Act was competent to deal with  the question of appropriation of sale proceeds in respect of sales of the  company properties held at the instance of the Appellant and the Appellant  alone was entitled to all the sums so realized.  This Court framed the  following issues : "(1) Whether in respect of proceedings under the  RDB Act at the stage of adjudication for the money due  to the banks or financial institutions and at the stage of  execution for recovery of monies under the RDB Act, the  Tribunal and the Recovery Officers are conferred  exclusive jurisdiction in their respective spheres ?  (2) Whether for initiation of various proceedings  by the banks and financial institutions under the RDB  Act, leave of the Company Court is necessary under  Section 537 before a winding-up order is passed against  the company or before provisional liquidator is appointed  under Section 446(1) and whether the Company Court  can pass orders of stay of proceedings before the  Tribunal, in exercise of powers under Section 442 ?  (3) Whether after a winding-up order is passed  under Section 446(1) of the Companies Act or a  provisional liquidator is appointed, whether the Company  Court can stay proceedings under the RDB Act, transfer  them to itself and also decide questions of liability,  execution and priority under Section 446(2) and (3) read  with Sections 529, 529-A and 530 etc. of the Companies  Act or whether these questions are all within the  exclusive jurisdiction of the Tribunal ?  (4) Whether in case it is decided that the  distribution of monies is to be done only by the Tribunal,  the provisions of Section 73 CPC and sub-sections (1)  and (2) of Section 529, Section 530 of the Companies  Court also apply - apart from Section 529-A - to the  proceedings before the Tribunal under the RDB Act ?  (5) Whether in view of provisions in Sections  19(2) and 19(19) as introduced by Ordinance 1 of 2000,  the Tribunal can permit the appellant Bank alone to  appropriate the entire sale proceeds realised by the

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appellant except to the limited extent restricted by  Section 529-A. Can the secured creditors like Canara  Bank claim under Section 19(19) any part of the  realisations made by the Recovery Officer and is there  any difference between cases where the secured creditor  opts to stand outside the winding up and where he goes  before the Company Court ?  (6) What is the relief to be granted on the facts of  the case since the Recovery Officer has now sold some  properties of the Company and the monies are lying  partly in the Tribunal or partly in this Court ?  

       As regard the first issue, it was held :

       "In our opinion, the jurisdiction of the Tribunal in  regard to adjudication is exclusive. The RDB Act  requires the Tribunal alone to decide applications for  recovery of debts due to banks or financial institutions.  Once the Tribunal passes an order that the debt is due,  the Tribunal has to issue a certificate under Section  19(22) [formerly under Section 19(7)] to the Recovery  Officer for recovery of the debt specified in the  certificate. The question arises as to the meaning of the  word "recovery" in Section 17 of the Act. It appears to us  that basically the Tribunal is to adjudicate the liability of  the defendant and then it has to issue a certificate under  Section 19(22). Under Section 18, the jurisdiction of any  other court or authority which would otherwise have had  jurisdiction but for the provisions of the Act, is ousted  and the power to adjudicate upon the liability is  exclusively vested in the Tribunal. (This exclusion does  not however apply to the jurisdiction of the Supreme  Court or of a High Court exercising power under Articles  226 or 227 of the Constitution.).  This is the effect of  Sections 17 and 18 of the Act."  

       This Court while considering the position of secured creditors  standing outside the winding up proceedings, noticed the provisions of  Section 529-A and 529 of the Companies Act, holding :

"But the point here is that the occasion for such a  claim by a secured creditor (here Canara Bank) against  realisations by other creditors (like Allahabad Bank)  under Section 529-A read with proviso (c) to Section  529(1) can arise before the Tribunal only if Canara Bank  has stood outside winding-up and realised amounts and if  it shows that out of the amounts privately realised by it,  some portion has been rateably taken away by the  liquidator under clauses (a) and (b) of the proviso to  Section 529(1). It is only then that it can claim that it is to  be reimbursed at the same level as a secured creditor with  priority over the realisations of other creditors lying in  the Tribunal. None of these conditions is satisfied by  Canara Bank. Thus, Canara Bank does not belong to the  class of secured creditors covered by Section 529- A(1)(b).  Therefore, the result is that Canara Bank cannot  rely on the words in Section 19(19) viz., "to be  distributed among its secured creditors" for claiming any  amount lying in the Tribunal towards its security nor can  it claim priority as against Allahabad Bank.  If none of the conditions required for applying  Section 19(19) and Section 529-A is, therefore, satisfied,

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then the claim of Canara Bank before the Tribunal can  only be on the basis of principles underlying Section 73  CPC. There being no decree in its favour from any court  or from any Tribunal, and the other conditions of Section  73 not having been satisfied, no dividend can be claimed  out of monies realised at the instance of Allahabad Bank,  even if Allahabad Bank is an unsecured creditor."  

       As regard Point No.6, however,  this Court at paragraph 76 of the  judgment held : "The next question is whether the amounts realised  under the RDB Act at the instance of the appellant can be  straight away released in its favour. Now, even if Section  19(19) read with Section 529-A of the Companies Act  does not help the respondent Canara Bank, the said  provisions can still have an impact on the appellant  Allahabad Bank which has no doubt a decree in its  favour passed by the Tribunal. Its dues are unsecured.  The "workmen’s dues" have priority over all other  creditors, secured and unsecured because of Section 529- A(1)(a). There is no material before us to hold that the  workmen’s dues of the defendant Company have all been  paid. In view of the general principles laid down in  National Textile Workers’ Union v. P. R. Ramakrishnan  ((1983) 1 SCC 228 : 1983 SCC (L&S) 72 : 1983 SCC  (Tax)] 2 : AIR 1983 SC 75) there is an obligation resting  on this Court to see that no secured or unsecured  creditors including banks or financial institutions, are  paid before the workmen’s dues are paid. We are,  therefore, unable to release any amounts in favour of the  appellant Bank straight away."  

The observations were presumably made having regard to the fact  situation obtaining therein as the Allahabad Bank was an unsecured creditor  and the Canara Bank although a secured creditor would not come within the  purview of Section 529 and 529-A of the Companies Act.  The decision in  Allahabad Bank (supra) could, thus, be explained but we think it necessary  to clarify the legal position having regard to the fact that the matter has been  referred to this Bench and particularly when reliance thereupon has been  placed by the High Court as a proposition of law as regard interpretation of  Section 529 and 529-A of the Companies Act.

       Before adverting to the question, we may notice the relevant  provisions of Sections 529A and 529 of the Companies Act, which read as  under : "529-A. Overriding preferential payments. - (1)  Notwithstanding anything contained in any other  provision of this Act or any other law for the time being  in force, in the winding up of a company -  (a) workmen’s dues; and  (b) debts due to secured creditors to the extent  such debts rank under clause (c) of the proviso to sub- section (1) of Section 529 pari passu with such dues  shall be paid in priority to all other debts.  (2) The debts payable under clause (a) and clause  (b) of sub-section (1) shall be paid in full, unless the  assets are insufficient to meet them, in which case they  shall abate in equal proportions.  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;

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(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 debt, opts to  realise his security, -  (a) the liquidator shall be entitled to represent the  workmen and enforce such 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 debt 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 529-A.  (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 :  *               *               *            (3) For the purposes of this Section, Section 529A  and Section 530,-                               (a)      *         *         *               (b)          *               *               *                 (c) ’workmen’s portion’, in relation to the security  of any secured creditor of a company, means the amount  which bears to the value of the security the same  proportion as the amount of the workmen’s dues bears to  the aggregate of -  (i) the amount of workmen’s dues; and  (ii) the amounts of the debts due to the secured  creditors.  Illustration. - The value of the security of a secured  creditor of a company is Rs. 1,00,000. The total amount  of the workmen’s dues is Rs. 1,00,000. The amount of the  debts due from the company to its secured creditors is Rs.  3,00,000. The aggregate of the amount of workmen’s  dues and of the amounts of debts due to secured creditors  is Rs. 4,00,000. The workmen’s portion of the security is,  therefore, one-fourth of the value of the security, that is  Rs. 25,000."  

       In terms of the aforementioned provisions, the secured creditors have  two options (i) they may desire to go before the Company Judge; or (ii) they  may stand outside the winding up proceedings.  The secured creditors of the  second category, however, would come within the purview of  Section 529- A(1)(b) read with proviso (c) appended to Section 529(1).  The ’workmen’s  portion’ as contained in proviso (c) of sub-section (3) of Section 529 in  relation to the security of any secured creditor  means the amount which  bears to the value of the security in the same proportion as the amount of the  workmen’s dues bears to the aggregate of (a) workmen’s due, and (b) the  amount of the debts due to all the creditors.  The submission of Mr. Gupta is  that in a situation of this nature, what was necessary to be considered by the

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learned Single Judge was to find out the amount in relation whereto the  appellant was raising its claim as a secured creditor, namely, 135 lakhs vis- ‘-vis the aggregate of the amount of the workmen’s dues of 19 crores and  the claim of any other secured creditor was not required to be taken into  consideration.  We cannot accept the said contention.  The illustration  appended to clause (c) of sub-section (3) of Section 529 is a clear pointer to  the effect that the amount of debts due to the secured creditors should be  taken into consideration for the purpose of ascertaining the workmen’s  portion of security.

       The language of Section 529-A is also clear and unequivocal, in terms  whereof the workmen’s due or the debts due to the secured creditors to the  extent such debts rank under clause (c) of the proviso to sub-section (1) of  Section 529 pari passu with such dues shall have priority over all other  debts.  Once the workmen’s portion is worked out in terms of proviso  (c) of  sub-section (1) of Section 529, indisputably the claim of the workmen as  also the secured creditors will have to be paid in terms of Section 529-A.    This Court in Allahabad Bank (supra) held :

"Learned Attorney General on the other hand  submitted that the first part of clause (c), of the proviso to  Section 529(1) is to be read along with the words "or the  amount of the workmen’s portion in his security,  whichever is less". In other words, the priority of the  secured creditor is only to the extent that any part of the  said security is lost in favour of the workmen consequent  to demands made by the liquidator under clauses (a), (b)  or the said proviso to Section 529(1). No such situation  has arisen so far. It is contended that where a secured  creditor keeps himself outside as stated in the proviso to  Section 529(1) and seeks to recover his dues outside the  Company Court, if he loses part of his security towards  workmen’s dues, he gets reimbursed to that extent as a  secured creditor, with an overriding priority under  Section 529-A(1)(b). He gets priority over all other  creditors before the Tribunal, to be compensated for this  loss out of the monies that may have been realised at the  instance of other creditors before the Tribunal. It is  pointed out that Canara Bank has neither realised any  amount outside winding-up nor has it lost any part of its  security towards workmen’s dues. In our view, this  contention of the learned Attorney General is well  founded and is entitled to be accepted.  In our opinion, the words "so much of the debt due  to such secured creditor as could not be realised by him  by virtue of the foregoing provisions of this proviso"  obviously mean the amount taken away from the private  realisation of the secured creditor by the liquidator by  way of enforcing the charge for workmen’s dues under  clause (c) of the proviso  to section 529(1) "rateably"  against each secured creditor. To that extent, the secured  creditor - who has stood outside the winding-up and who  has lost a part, of the monies otherwise covered by,  security - can come before the Tribunal. to reimburse  himself from out of other monies available in the  Tribunal, claiming priority over all creditors, by virtue of  Section 529-A(1)(b)."  

       This Court emphasized that whatever secured creditor loses towards  the workmen’s portion out of the security, he can claim the same amount  with priority over such unsecured creditors out of realization made by other  creditors whose moneys are lying in the Tribunal.

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       While determining the Point No.6, however, a stray observation was  made to the effect that the "workmen’s dues" have priority over all other  creditors, secured and unsecured because of Section 529-A(1)(a).  Such a  question did not arise in the case as the Allahabad Bank was indisputably an  unsecured creditor.

       Such an observation was, thus, neither required to be made keeping in  view the fact situation obtaining therein nor does it find support  from the  clear and unambiguous language contained in Section 529-A(1)(a).  We  have, therefore, no hesitation in holding that finding of this Court in  Allahabad Bank (supra) to the aforementioned extent does not lay down the  correct law.          

       The court also wrongly placed reliance on National Textile Workers’  Union and Others vs. P.R. Ramakrishnan and Others [(1983) 1 SCC 228].   The question which arose therein was only as regard the right of the workers  be heard in the winding up proceeding.  The said decision was, therefore, not  applicable.

DETERMINATION :

       By reason of the order dated 12.10.1993, the learned Single Judge  while issuing various directions, directed :          

       "Andhra Bank is directed to pay a sum of Rs.38  lacs to the official liquidator for the purpose of disbursing  forthwith the salary to the officers, staff and workers of  New tobacco Co. Ltd., both at Calcutta and Durgapur,  before the ensuing Puja.  The Official Liquidator will  disburse such salary to the officers, staff and workers of  New Tobacco Co. Ltd., as aforesaid, before the ensuing  Puja."

       No reason has been assigned in support of the said direction.  The  contentions of the parties had not been noticed. What impelled the learned  Judge in issuing the said directions is not discernible.  The jurisdictional  question had also not been addressed.          

Whether the workmen could be directed to be paid on an ad hoc basis  having regard to their claim of past dues vis-‘-vis the claim of the  Appellants had not been deliberated upon.  When a matter is not pending  before the Tribunal under the RDB Act,  in terms of Section 19(19) thereof,  the secured creditors would not get priority per se as it is qualified by the  words "in accordance with the provisions of Section 529-A".  The claims of  the secured creditors are, thus, required to be considered giving priority over  unsecured creditors but their claim would be pari passu with the workmen.

       Section 446 of the Companies Act indisputably confers a wide power  upon the Company Judge, but such a power can be exercised only upon  consideration of the respective contentions of the parties raised in a suit or a  proceeding or any claim made by or against the company.  A question of  determining the priorities would also fall for consideration if the parties  claiming the same are before the court.  Section 446 of the Companies Act  ipso facto confers no power upon the court to pass interlocutory orders.  The  question as to whether the courts have inherent power to pass such orders,   in our opinion, does not arise for consideration in this proceeding.   Assuming such a power exists, it was imperative that the same should have  been exercised on consideration of the factors laid down by this Court in

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Morgan Stanley Mutual Fund etc. vs. Kartick Das etc. [(1994) 4 SCC 225].    An unreasoned order does not subserve the doctrine of fair play [See M/s.  Mangalore Ganesh Beedi Works Vs. The Commissioner of Income Tax,  Mysore and Anr. JT 2005 (2) SC 442 ].   

In UCO Bank vs. Official Liquidator, High Court, Bombay and  Another [(1994) 5 SCC 1], whereupon Mr. Gupta placed  strong reliance,  this Court although noticed the legislative intent in enacting Sections 529  and 529-A did not  lay down the law that the claim of the workers ranked   higher in priority than the secured creditors.  It merely states that for  achieving the purpose for which the said amendment was made, it is  necessary that the amended provisions must apply to all available securities  which form part of the assets of the company in liquidation on the date of the  amendment.  

Submission of  Mr. Gupta, that the impugned order having been  passed by the learned Single Judge in the year 1993, the considerations  which prevailed at that time only should be considered, cannot be accepted  as it is trite that even the appellate court while passing its order may take  into consideration, the subsequent events.   

       In Rajesh D. Darbar and Others Vs. Narasingrao Krishnaji Kulkarni &  Ors. [(2003) 7 SCC 219], this Court noticed:

"4. The impact of subsequent happenings may now be  spelt out. First, its bearing on the right of action, second,  on the nature of the relief and third, on its importance to  create or destroy substantive rights. Where the nature of  the relief, as originally sought, has become obsolete or  unserviceable or a new form of relief will be more  efficacious on account of developments subsequent to the  suit or even during the appellate stage, it is but fair that  the relief is moulded, varied or reshaped in the light of  updated facts. Patterson v. State of Alabama [1934] 294  U.S. 600, illustrates this position. It is important that the  party claiming the relief or change of relief must have the  same right from which either the first or the modified  remedy may flow. Subsequent events in the course of the  case cannot be constitutive of substantive rights  enforceable in that very litigation except in a narrow  category (later spelt out) but may influence the equitable  jurisdiction to mould reliefs. Conversely, where rights  have already vested in a party, they cannot be nullified or  negated by subsequent events save where there is a  change in the law and it is made applicable at any stage.  Lachmeshwar Prasad Shukul v. Keshwar Lal Choudhuri  AIR 1941 FC 5 falls in this category. Courts of justice  may, when the compelling equities of a case oblige them,  shape reliefs - cannot deny rights - to make them justly  relevant in the updated circumstances. Where the relief is  discretionary, Courts may exercise this jurisdiction to  avoid injustice. Likewise, where the right to the remedy  depends, under the statute itself, on the presence or  absence of certain basic facts at the time the relief is to be  ultimately granted, the Court, even in appeal, can take  note of such supervening facts with fundamental impact.  This Court’s judgment in Pasupuleti Venkateswarlu v.  Motor & General Traders AIR 1975 SC 1409 read in its  statutory setting, falls in this category. Where a cause of  action is deficient but later events have made up the  deficiency, the Court may, in order to avoid multiplicity  of  litigation, permit amendment and continue the

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proceeding, provided no prejudice is caused to the other  side. All these are done only in exceptional situations and  just cannot be done if the statute, on which the legal  proceeding is based, inhibits, by its scheme or otherwise,  such change in cause of action or relief. The primary  concern of the court is to implement the justice of the  legislation. Rights vested by virtue of a statute cannot be  divested by this equitable doctrine - See V.P.R.V.  Chockalingam Chetty v. Seethai Ache AIR 1927 PC  252."          [See also Board of Control for Cricket, India and Anr. Vs. Netaji Cricket  Club and Ors. [JT 2005 (1) SC 235].

       Correctness of an equitable order like the impugned one may be  judged upon taking into consideration the subsequent events. Subsequent  events as pointed out by Mr. Rao, furthermore,  are not disputed.

       The learned Company Judge in its order dated 8.5.2002 has noticed  that a substantive amount has been paid to the workers towards their past  dues.  Payments have also been made not only to the statutory authorities but  also to the secured creditors and the Special Officers.  The workmen since  the sale of  the assets of the company as a working concern, have received  substantial amounts towards their past dues and are being paid their current  dues.  A situation of starvation of the workmen does no longer  prevail.  The  order passed by the learned Single Judge cannot moreover be sustained on  amongst others, the ground of not assigning any reason in support thereof.   The Division Bench of the High Court also relied on the observation made in  paragraph 76 of  this Court’s judgment in Allahabad Bank.(supra)  It did not  advert independently to any other contention of the parties.

The contention of Mr. Gupta that Debts Recovery Tribunal having  been established in the West Bengal on 27.4.1994, the dispute has to be  resolved without reference to the RDB Act, also cannot be accepted.   

The rights and obligations of the parties would only be crystallized  after the lis is adjudicated upon.

The question of issuance of any certificate in terms of Section 19 of  the RDB Act would arise only upon the conclusion of the proceeding before  it.  

       In view of our findings aforementioned, it may not be necessary for us  to consider the question as to whether the claim of the company having been  underwritten by the Duncan Agro Industries Limited in favour of the Bank,  it has suffered any prejudice or not.

       For the reasons aforementioned, the impugned judgment cannot be  sustained, which is set aside accordingly.  The appeal is allowed.  However,  in the facts and circumstances of the case, there shall be no order as to costs.