IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 7216 of 2010(B)
1. K.V.SASIDHARAN PILLAI,
... Petitioner
2. K.I.ALEXANDER, S/O.LATE K.C.IDICULA,
3. M.N.VIJAYAN, S/O.M.N.NARAYANAN NAIR,
4. P.V.BIJU, S/O.LATE PHILIP.D.,
5. P.M.BIJU, S/O.P.C.MATHAI,
6. ANIL KUMAR.V.K., S/O.KARUNAKARAN PILLAI
7. VINOD.T.A., S/O.KUTTAPPAN NAIR,
8. T.K.PRADEEP, S/O.T.G.KUTTAPPAN,
9. RENJITH GOPAL, S/O.GOAPALAKRISHNAN.K.K.,
10. ABRAHAM MATHEW,
11. ABRAHAM THOMAS, S/O.LATE P.A.THOMAS,
12. P.V.JOSE, S/O.LATE PHILIP.D.,
13. K.N.KUTTAN, S/O.LATE K.P.NARAYANA PILLAI
14. T.P.SUNIL, S/O.THANKAPPAN P.K.,
15. K.J.ABRAHAM, S/O.LATE OOMMEN JOHN,
16. THOMAS MATHEW, S/O.LATE M.P.MATHEW,
17. T.C.ABRAHAM, S/O.LATE C.ABRAHAM,
18. N.A.SAMUEL, S/O.LATE PHILIPOSE ABRAHAM
19. JAYA P.J., D/O.JANARDHANAN,
20. ALI KUMAR.M.M., S/O.MADHAVAN NAIR,
21. RAVIKUMAR T.K., S/O.T.N.KESAVAN,
22. P.M.VARGHESE, S/O.LATE P.V.MATHEW,
23. DAVID K.S., S/O.LATE SEBASTIAN PHILIP
24. SUNIL KUMAR K.S., S/O.LATE SUKUMARAN K.K
25. SUDHEESH.S., S/O.V.B.SREEKUMAR,
26. V.G.LAMBODHARAN,
27. SANTHAMMA M.V., D/O.LATGE VASU P.K.,
28. LALITHA SATHIYAM, D/O.BHASKARAN,
29. T.P.VISWANATHAN PILLAI,
30. GEORGE MATHEW, S/O.LATE W.M.GEORGE,
31. THOMAS GEORGE, S/O.M.A.GEORGE,
32. SAJEEV.K.K., S/O.LATE K.K.KARUNAKARAN,
33. KOZHY JACOB, S/O.JACOB KOSHY,
34. EAPPEN MATHAI, S/O.LATE MATHAI PHILIP
35. KARUN KUMAR THOMAS,
36. KURIEN THOMAS, S/O.LATE K.K.THOMAS,
37. LILLY THOMAS, D/O.A.T.THOMAS,
38. P.J.SEBASTIAN, S/O.LATE JOHN JOSEPH,
39. R.DAN BHADUR, S/O.LATE RAM BHADUR,
Vs
1. INDIAN OVERSEAS BANK, REPRESENTED BY
... Respondent
2. THE CHIEF MANAGESR,
3. THE DISTRICT LABOUR OFFICER,
4. UNITED TROPICAL VENEERS (PVT.) LIMITED
5. SMT.BHARATHI SUDHARIYA,
For Petitioner :SRI.P.HARIDAS
For Respondent :SRI.P.B.SURESH KUMAR, SC,I.O.BANK
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :04/10/2010
O R D E R
C.R.
C. K. ABDUL REHIM, J.
=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=
W.P.(C) No. 7216 of 2010
=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=~=
Dated this the 4th day of October, 2010
JUDGMENT
Petitioners claim to be workmen of the 4th respondent
company, which is engaged in manufacture of veneers and
allied products. The 4th respondent company availed
financial assistance from the 1st respondent Bank by
mortgaging its assets, including the factory building and
land appurtenant thereto, having an extent of 4.5 Acres. It is
stated that the Directors of the company are co-obligants in
the loan transaction and properties belonging to them were
also mortgaged for securing financial assistance.
Consequent to default committed by the 4th respondent in
repayment, respondents 1 and 2 initiated proceedings under
the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (for short
SARFAESI Act) and the assets of the 4th respondent
company, including the factory and industrial land, were put
W.P.(C) No. 7216/2010 2
to auction as per Ext.P1 notification.
2. Contention of the petitioners is that, if the factory
is closed down pursuant to the sale proposed, the
petitioners will be rendered jobless and their families will be
put to starvation. It is contended that respondents 1 and 2
are bound to satisfy all dues of the workmen, including
benefits due as gratuity and E.P.F. contribution etc., based
on provisions contained in Section 13(9) of the SARFAESI
Act. The petitioners had submitted a representation to the
District Labour Officer in this regard and a conciliation
proceedings was initiated thereon. According to petitioners,
huge amounts are due to them from the 4th respondent
company pertaining to various eligible benefits under the
employment and that the 4th respondent is making a
collusive attempt with respondents 1 & 2 to get rid of such
liabilities. It is mentioned that the 1st respondent Bank had
filed application before the Debts Recovery Tribunal,
Chennai, and obtained Recovery Certificate and DRC
No:115/2010 is pending disposal before that Tribunal.
W.P.(C) No. 7216/2010 3
Under the above circumstances, the petitioners are seeking
to quash the proceedings under the SARFAESI Act as well
as the proceedings initiated by the 1st respondent Bank
before the Debts Recovery Tribunal, Chennai. On the
alternative the petitioners are seeking directions for
payment of benefits due to them, in case of closure of the
company.
3. The petitioners are total strangers, as far as the
loan transaction is concerned. The loan in question was
availed by the 4th respondent company and its Directors.
The loan is secured through mortgage of various assets of
the company and the Directors. Respondents 1 and 2 are
now proceeding against those secured assets by resorting to
provisions under the SARFAESI Act. The petitioners are
now raising claims based on amounts allegedly due to them
from the 4th respondent. Admittedly, the alleged dues are
not adjudicated or quantified by any competent authority
empowered under the relevant labour legislations. Even
assuming that there is any amount due to the petitioners
W.P.(C) No. 7216/2010 4
from the 4th respondent, which stands adjudicated and
quantified, question arises as to whether the petitioners are
entitled to restrain the proceedings initiated under the
SARFAESI Act or to claim priority in distribution with
respect to amounts realized in proceedings under the
SARFAESI Act or under the Recovery of Debts due to Banks
and Financial Institutions Act, 1993 (for short RDBFI Act).
4. The petitioners are placing reliance on Section 13
(9) of the SARFAESI Act as well as Section 529A of the
Companies Act, 1956 to substantiate their contentions.
Section 13(9) of the SARFAESI Act deals with a situation
wherein more than one secured creditor financing with
respect to a particular financial asset. It stipulates that, in
such case no secured creditor shall be entitled to exercise
any or all of the rights conferred under Section 13(4), unless
exercise of such right is agreed upon by other secured
creditors representing not less than 3/4th in value of the
amount outstanding as on date. The first proviso to section
13(9) provides that, the proceeds out of sale of the secured
W.P.(C) No. 7216/2010 5
assets with respect to a company in liquidation shall be
distributed in accordance with provisions contained under
section 529A of the Companies Act, 1956. The second
proviso to section 13(9) deals with a situation where the
company is wound up. It specifies that in such cases the
secured creditors can proceed with sale of the secured
assets, subject to appropriation of the sale proceeds only
after depositing the workmen’s dues. In the subsequent
proviso it is mentioned that, in such case the Liquidator
should intimate the secured creditors about the workmen’s
dues, for the above said purpose. Section 529A of the
Companies Act, 1956 deals with distribution of assets and
its priorities in case of companies which are ordered to be
wound up. The said provision prescribes priority with
respect to workmen’s dues.
5. In the case at hand, neither the 4th respondent
company has been wound up nor any proceedings has been
initiated for winding up of the said company. Therefore it is
evident that none of the provisos to Section 13(9) is
W.P.(C) No. 7216/2010 6
applicable in this case. The learned counsel for the
petitioners had placed reliance on the decision of the apex
Court in National Textile Workers Union V.
P.R.Ramakrishnan, (AIR 1983 SC 75), and also on the
decision in Allahabad Bank V. Canara Bank and another,
((2004) 4 SCC 406). The former decision deals with rights
of workers to have a say in the matter of winding up of the
company. The latter one deals with the procedure to be
followed by the Recovery Officer in the case of a company
with respect to which a winding up proceedings is pending,
while enforcing recovery certificate issued under the
provisions of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993. In such cases also it is
held that, the provisions in the Companies Act will not oust
jurisdiction of the authorities under the Recovery of debts
due to Banks and Financial Institutions Act, and the
priorities among various creditors can be decided by the
Debts Recovery Tribunal, taking into consideration of the
priorities fixed under Section 529A of the Companies Act. It
W.P.(C) No. 7216/2010 7
is further held that wherever there are inconsistencies
between the provisions of the Recovery of debts due to
Banks and Financial Institutions Act and the Companies
Act, the provisions of the Companies Act will over ride the
other Statute.
6. Sri. P.B.Suresh Kumar, learned counsel for
respondents 1 & 2 expressed strong resistance in
entertaining the writ petition itself, contending that even
assuming that the petitioners are persons aggrieved in any
manner by the coercive steps initiated under the SARFAESI
Act, they can only invoke appellate remedies available under
section 17(1) of the said Act and this writ petition cannot be
entertained in any manner. He further points out that in
paragraph 54 of the Judgment in Allahabad Bank’s case
(cited supra) it is clearly mentioned that if a company,
which is implicated as a defendant in a proceedings under
the RDBFI Act, against which no order of winding up has
been issued, is only like any other defendant, and if in such
case any question arises before the Tribunal with respect to
W.P.(C) No. 7216/2010 8
priority in distribution of any amount realized, the Tribunal
need to decide such questions bearing in mind only the
principles underlying in Section 73 of the CPC. It is
observed that Section 22 of the RDBFI Act confers wider
powers on the Tribunals to decide such questions of
priorities, subject only to principles of natural justice.
Therefore, it is evident that in a case where there is no
proceedings pending before the Company Court or in case
where the company is not under liquidation, any claimant or
the workmen, that too with respect to unliquidated amounts,
are not entitled to cause any hindrance against proceedings
under the SARFAESI Act or under the RDBFI Act, is the
contention.
7. Eventhough I am in perfect agreement with
contention raised by Sri.P.B. Suresh Kumar on the aspect of
maintainability of the writ petition, I am inclined to consider
the larger legal question posed, based on the provisos to
Section 13(9) of SARFAESI Act. On a plain reading of the
first and second provisos to Section 13(9) as well as on
W.P.(C) No. 7216/2010 9
consideration of the legal precedents as quoted above, it is
clear that the workmen of a company, who claim priority in
distribution of assets by virtue of Section 529A of the
Companies Act, are not entitled to raise any objection
against proceedings initiated by the secured creditor
against the secured assets of the company, unless the
company is ordered to be wound up or any proceedings for
winding up of the company is pending. Likewise, they are
also not entitled to claim priority in distribution of the
amounts realized under the RDBFI Act based on the
provisions of the Companies Act as long as no winding up
order is passed against the company. Therefore the prayer
in the writ petition to quash the proceedings in DRC
No:115/2010 of the Debts Recovery Tribunal-2, Chennai
could not be allowed. So also this court will not be justified
in directing the respondents to effect payment of any sum to
the petitioners as workmen’s dues, out of amounts if any
recovered in proceedings initiated against the secured
assets under the SARFAESI Act. Therefore the writ petition
W.P.(C) No. 7216/2010 10
deserves no merit and the same is accordingly dismissed.
However, it is made clear that on the event of the 4th
respondent company being wound up or any proceedings for
winding up being initiated against the company, the
petitioners will be at liberty to seek appropriate reliefs in
accordance with provisions of the Companies Act, read with
relevant provisions in the SARFAESI Act and RDBFI Act. It
is further made clear that this Judgment will not stand in
the way of the petitioners seeking claim over any surplus
amounts if recovered by respondents 1 & 2 through the
proceedings now initiated against the 4th & 5th respondents,
as permissible under law.
C. K. ABDUL REHIM,
JUDGE.
mn.