JUDGMENT
D.V. Shylendra Kumar, J.
1. This order is in continuation of order dated December 13, 2004 in OLR No. 533 of 2004, for the purpose of disposing of the connected company applications, in the light of subsequent submissions made by learned counsel for the parties.
2. All these matters had been heard earlier and were to be ordered. While in the process, Sri Narayan Bhat, learned counsel for the applicants in C. A. No. 1234 of 2002 representing the erstwhile workmen of the company under liquidation, moved the court for listing the matter for further hearing on the premise that though certain amounts have been realised from the sale of assets of the company under liquidation, in view of the various claims and counter claims and these matters require resolution etc., the amount has not been distributed so far. The official liquidator before whom the claims on behalf of workmen had been put forward has now determined the entitlement of the amount due to the workmen ; that at any rate the amount due to the workmen is now ascertained ; that the workmen have been out of employment as the company had declared lock out which according to the workmen, was not a valid lock out in law ; that the workmen had agitated these matters and the matter had come up before this court in writ jurisdiction in W. P. No. 15447 of 1988 connected with W. P. No. 4320 of 1989 disposed of on July 15, 1997, and it is the submission that this court has ruled in the said writ petition that the workmen are entitled for their wages from the date the company declared lockout till the date of passing of the winding up order, that they could put forward the claim for such wages before the official liquidator and it is on such premise, that the workmen had declared their claims before the official liquidator and the amount also has now been determined by the official liquidator. Submission of Sri Narayan Bhat is that further direction may be issued to the official liquidator for release of payment in favour of workmen in the light of the determination made by the official liquidator.
3. The factual position, so far as realisations are concerned is that, as noticed earlier, many of the assets of the company under liquidation had been taken possession of by M/s. KSIIDC in exercise of their statutory power under Section 29 of the State Financial Corporations Act even before this court passed the orders for winding up of the affairs of the company and had continued to be in possession of the assets of the company on the day the winding up order was passed and while the Corporation–a secured creditor had filed an application before this court to stand outside the winding up proceedings and to realise its securities, this court had in fact permitted the Corporation to sell such assets of the company which it had taken possession of, that property in fact was sold for a sum of Rs. 4,76,50,000 and from out of the realisation, a part of the amount was permitted to be retained by the Corporation and this court in terms of the order dated March 7, 2003, directed the Corporation to deposit the balance of the amount before this court.
4. It is the submission of Mr. Gopal Hegde appearing for the Corporation that subsequently this court had directed while a sum of Rs. 150 lakhs is to be transferred to the official liquidator for meeting the claim of workmen and others, the balance was to be transferred to M/s. KSIIDC to hold the amount not only for themselves but also on behalf of other secured creditors holding pari passu charge along with KSIIDC.
5. Even with regard to this, the court passed an order subsequently directing M/s. KSIIDC only to retain such portion of the amount which the Corporation was entitled to on the day the winding up of proceedings was passed by this court and transfer the balance amount to official liquidator. This was in terms of the order dated June 24, 2004, the part of it reads as under :
“7. However, it is open to M/s. KSIIDC to deposit such part of the amount as it deems fit from out of the amount held by it, with the official liquidator for the purpose of meeting the workers dues without prejudice to their claims and subject to passing of orders by this court on this aspect.
8. The official liquidator may also file a report with regard to the present position of the funds available with the official liquidator himself for distribution vis-a-vis of the various claims and such allied information supplementing the information already filed before the court in O. L. R. No. 573 of 2003 and 111 of 2004.”
6. Subsequently, a memo came to be filed on behalf of KSIIDC on July 22, 2004, inter alia indicating that the Corporation had while retained a sum of Rs. 189.45 lakhs and Rs. 136.50 lakhs has been transferred to the official liquidator. It was also pointed out in this memo that while the claim of the workers as on February 1, 2004, was estimated to be only a sum of Rs. 80 lakhs as indicated in the order in Company Application No. 150 of 1985, the amount as determined by the official liquidator in respect of the claims of the workmen far exceeded this amount.
7. I have already discussed in the earlier order the nature of entitlement of M/s. KSIIDC, the financial institution under the State Finance Corporation Act. While the factual position is as indicated above, the workmen and other financial institutions who also claim to be in the position of secured creditors are also pressing for directions to be issued to the official liquidator for distribution of dividends/amount from out of proceeds realised from the sale of the estate of the company under liquidation. It is in this context, Company Application No. 220 of 2003 has been filed by M/s. Canara Bank and Syndicate Bank claiming to be also secured creditors, to issue direction to the official liquidator. They seek for distribution of the dividends which these applicants have put forth as claims before the official liquidator and which had been determined by the official liquidator. Likewise, another secured creditor M/s. ICICI has also filed Company Application No. 794 of 2002 praying for direction on similar lines.
8. Likewise, M/s. KSFC claiming to be another secured creditor, has also filed Company Application No. 741 of 2003 for issue of direction, but slightly a little different from others, to direct M/s. KSIIDC which according to the applicant is the lead banker who had agreed to take care of the interest of the applicant-Corporation also and has prayed that M/s. KSIIDC should be directed to share the proceeds that they have realised pari passu with the applicant.
9. I have heard Sri. S. G. Pandit learned counsel appearing for KSFC and Sri Ramanand appearing for Canara Bank and Syndicate Bank in C. A. No. 2201 and Sri Gopal Hegde learned counsel for M/s KSIIDC in Application No. 694 of 2002.
10. In so far as agreement or understanding of these applicants with M/s. KSIIDC that their security should stand pari passu with the charge which M/s. KSIIDC has in respect of the property of the company is concerned, it is inter se amongst them and is not necessary to be determined as part of the winding up proceedings. In the light of the decision and law laid down by the Supreme Court in Allahabad Bank’s case [2000] 101 Comp Cas 64 ; AIR 2000 SC 1535, it is not within the jurisdiction of this court to determine their claims or entitlement in the course of winding up proceedings before the company court. However, to the extent, this court is not called upon to determine any entitlement or any amount in favour of any of these financial institutions and if claim put forward is not in dispute even in the course of winding up proceedings, it will be within the jurisdiction of the company court to issue necessary directions in the matter of distribution of dividends to various creditors.
11. The position so far as M/s. KSIIDC as emerges from the legal and contractual position is that M/s. KSIIDC had opted to remain outside the winding up proceedings. In fact, this court had also permitted them to sell such assets which was already in possession of the company. What is submitted by Mr. Gopal Hegde appearing for the Corporation is that so far as the Corporation is concerned, it is not obliged to go before the Debt Recovery Tribunal for bringing to sale the property secured in their favour but it has a statutory right under the State Financial Corporations Act and it is in recognition of that right this court has also permitted the Corporation to effect the sale and the proceeds as per the direction of this court has been deposited in the manner as directed by this court.
12. The position is, in so far as this court, is not called upon to determine the amount in favour of any creditor in the nature of a financial institution within the meaning of this phrase as it occurs under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the admitted amount or determined amount if claimed before the official liquidator, perhaps entitlement can be taken note of and may be permitted to participate in the distribution of the dividends like any other creditors.
13. M/s. KSIIDC have indicated that their entitlement of the amount by way of principal and interest which the company owed to them as on the day when this court passed winding up order in respect of the company, was a sum of Rs. 1,61,48,000 as on September 8, 1995. It is also claimed that for the purpose of selling property in question, the Corporation had incurred expenditure in a sum of Rs. 27,97,062.
14. This entitlement of the Corporation is not disputed by other parties either before this court nor is it disputed before any other forum. The Corporation having sold the property in exercise of its statutory power under the State Financial Corporations Act, and to the extent of the property, which had been secured in favour of the Corporation for repayment of the amount the company had borrowed, in the sense the Corporation had taken over the property representing the sum which was due to the Corporation, there cannot be any impediment in permitting the Corporation to retain this extent of the amount representing the value of the charge that the Corporation had in respect of the property of the company under liquidation. That results in Corporation being allowed to retain a sum of Rs. 1,61,48,000 and remit the balance of sale proceeds before this court or before the official liquidator.
15. Even after this, as the amount represents the value of the security, the Corporation had for the amount borrowed from it by the company under liquidation, the proviso to Section 529 of the Companies Act nevertheless operates, which reads as under :
529. (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to–
(a) debts provable ;
(b) the valuation of annuities and future and contingent liabilities ; and
(c) the respective rights of the 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,–. . .
(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 purpose of Section 529A.
(emphasis supplied)
16. In the present case, as the amount realised by the sale of the property by the company is much more than the entitlement of the amount to the Corporation and representing the extent of charge that the Corporation had over the property, this amount is the amount which is required to be shared pari passu as against the claims of the workmen in terms of the proviso. Therefore, the pari passu charge which they had in respect of this extent of value vis-a-vis the claims of the workmen had to be worked out and it is only that portion which represents the ratio in favour of the Corporation, which can be allowed in favour of the Corporation. That means the Corporation does not get its entire entitlement of Rs. 1,61,48,000 under Section 529 of the Act, but only the proportionate amount vis-a-vis the amount due to the workmen, i.e., such percentage of Rs. 1,61,48,000 which represents the amount due to the workmen. The amount realised on selling the assets of the company, i.e., the sum of Rs. 4,76,50,000-Rs. 27,97,062 (towards expenses) = Rs. 4,48,52,938 is to be apportioned between the Corporation and the workmen in this ratio.
17. The exercise does not end here as the balance amount that is left with the official liquidator is required to be distributed firstly in accordance with the provisions of Section 529A and then according to Section 530 of the Act, to the shareholders in terms of priorities provided under the provisions of the Companies Act. Section 529A confers overriding priority in favour of workmen and while so providing the secured creditors, who has yielded his security in favour of workmen to any extent because a pari passu charge is created in favour of workmen in respect of very security as though the workmen have charge in respect of the very property which has been secured in favour of the creditors, balance of the amount which is due to the creditor and the amount due to the workmen alone are to be met from out of the remaining amount in equal ratio. If the balance is not sufficient to meet the amounts due to these two categories, such amount which is not satisfied to either abates.
18. The amount which the Corporation had lost by yielding from out of its security in favour of workmen is the amount due to the Corporation or secured creditors while attracting the provisions of Section 529A vis-a-vis the total claim of the workmen and this amount has again to be calculated for distribution of dividend under Section 529A.
19. In the present case, it is noticed that while the Corporation may be able to get back substantial amount or full amount that it had yielded in favour of workmen, the amount to be apportioned in favour of workmen may not be sufficient to meet the entire admitted amount in favour of workmen. The situation may be that on working priority claim under Section 529A, no further amount may be left with the official liquidator for further distribution of the dividend. Anyway this has to be computed by the official liquidator in terms of the direction enumerated above and the dividend should be distributed on such basis.
20. In so far as the claims of the applicants M/s. Canara Bank, Syndicate Bank, in Application No. 220 of 2003 and M/s. ICICI Bank in Application No. 694 of 2000 is concerned, they are the persons who joined the queue before the official liquidator. Learned counsel for the applicants pointed out that though the court had passed the order dated September 10, 1997, in Application No. 134 of 1996 filed by Industrial Credit and Investment Corporation of India Ltd., the secured creditors are directed to jointly sell the assets of the company in liquidation along with the official liquidator and they were permitted to remain outside the winding up of proceedings.
21. Be that as it may, if secured creditors opt to remain outside the winding up of proceedings, such secured creditors cannot come back and join the queue. If the secured creditors opt to join the queue, it could only mean giving up of the security. The dues of the creditor like the financial institution or the bank is one which is required to be determined by the Debt Recovery Tribunal under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act as laid down by the Supreme Court in the case of Allahabad Bank v. Canara Bank [2000] 101 Comp Cas 64 ; AIR 2000 SC 1535. The official liquidator or this court determining such entitlement in winding up proceedings does not arise. If at all such creditor produces proof of the entitlement, in the form of recovery certificate issued by the Tribunal or the Recovery Officer himself, puts forth their case on behalf of secured creditors before winding up of court, it is perhaps to that extent the claim can be admitted and such creditor is permitted to participate in the declaration of dividend. However, in the present case, having regard to the factual position and having regard to the position that they have realised by sale of assets of the company under liquidation, such situation may not pose for determination at all as official liquidator may not be left with any amount once the proceedings under Section 529 is closed. It is only when the official liquidator in terms of the priority under Section 529 of the Act declares the dividends and is still left with further amounts, these aspects present themselves for determination. Added to this position in the present case, so far as the secured creditors are concerned, even as per the order passed by the court they were directed to remain outside winding up of proceedings. As of now nothing if no further amount is available for distribution under Section 530 of the Act then there is no action for the official liquidator under the provisions of Section 530 of the Act for declaration of the dividend in favour of shareholder and in accordance with the priorities mentioned therein. It may not be necessary to issue any direction in this company application in favour of the applicants.
22. So far as Application No. 741 of 2003 is concerned, it is again by another secured creditors who also happen to be the State Financial Corporation. In that the relief sought for is to direct M/s. KSIIDC to share the proceeds it has realised with the applicant and that was the agreement and understanding between these two financial institutions. While the status of this applicant vis-a-vis Corporation cannot be different from M/s. KSIIDC, the factual position is not the same in the present case. Admittedly, M/s. KSIIDC has taken possession of the property and sought for permission to remain outside the winding up proceedings from this court to effect sale and their entitlement as on the day of passing of winding up order is not in dispute. Added to that, they were permitted to retain the amount from out of the sale proceeds of the property. So far as the applicant-Corporation is concerned, nothing has happened. Hence there is no occasion for this court either to examine any of their claims or to issue any direction. However, it is open to the applicant to work out its rights vis-a-vis KSIIDC if there is any such agreement with M/s. KSIIDC, before any other forum.
23. Accordingly, these company applications are disposed of.