# 3 S.C.R. 269 BANK OF MAHARASHTRA v. PANDURANG KESHAV GORWARDKAR & ORS

- **Citation:** [2013] 3 S.C.R. 269
- **Court:** Supreme Court of India
- **Decided:** 2013-05-07
- **Case number:** Civil Appeal No. 7045 of 2005
- **Bench:** R.M: Lodha, J. Chelameswar, Madan B. Lokur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/3-s-c-r-269-bank-of-maharashtra-v-pandurang-keshav-gorwardkar-ors-28904
- **Pages:** 50

## Headnote

RECOVERY OF DEBTS DUE TO BANKS AND
A
B
FINANCIAL INSTITUTIONS ACT, 1993:
C
ss. 17 and 19 (19) of 1993 Act rlw ss.529(1)(c), proviso
and 529-A of Companies Act - Recovery of debts of
company by bank/financial institution - Claim of workmen -
Held: Where a company is in liquidation, a statutory charge
0
is created in favour of workmen in respect qf their dues over
security of every secured creditor and this charge is pari passu
with that of secured creditor - Such statutory charge is to the
extent of workmen's portion in relation to security held by
secured creditor of debtor company - This position is equally E
applicable where assets of company have been sold in
execution of recovery certificate obtained by bank or financial
institution against debtor company. when it was not in
liquidation but before the proceeds realised from such sale
could be fully and finally disbursed, the company had gone
into liquidation - Relevant date is the date of winding up order
F
and not the date of sale - Where the sale of security has been
effected in execution of recovery certificate issued by DRT,
distribution of undisbursed proceeds has to be made by DRT
alone in accordance with s. 529A of Companies Act and by
oo other forum or authority -
Where debtor company is not G
in liquidation, s.19(19) does not come into operation at all -
Companies Act, 1956 - ss. 529(1)(c) proviso, and 529-A -
Interpretation of Statutes - Legislation by reference -
Legislation by incorporation.
269
H
270
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A
s. 19(19) of 1993 Act read with ss. 529-A and 529(1)(c),
proviso of Companies Act - Company in liquidation - Debt
of bank/financial institution and claim of workmen - Held:
Once the company is in winding up, the only competent
authority to determine workmen's dues and quantify
B workmen's portion is the liquidator, who has to act under
supervision of company court- s.19(19) of the 1993 Act does
not clothe ORT with jurisdiction to determine workmen's
claims against debtor company -
Certain incidental and
ancillary powers given to ORT do not encompass power to
c adjudicate upon or decide dues of workmen of debtor
company.
In the case filed by the appellant-Bank for recovery
of its dues against a company, the Debts Recovery
Tribunal gave its judgment on 19.7.2001 and issued the
D recovery certificate on 21.8.2001. Consequently, the
Recovery Officer, ORT, on 22.1.2004, auctioned the
movable properties of the Company. By order dated
8.10.2004, the Company was ordered to be wound up
and Official Liquidator was appointed. The workmen of
E the Company filed a writ petition before the High Court
seeking a direction to the Recovery Officer to recover the
amount of Rs.3 crores from the appellant Bank realized
by it from sale of movables of the Company and for a
direction to the Recovery Officer to adjudicate the claims/
F dues of the workmen/employees and release the amount
due to them in priority over all the claims. The High Court
held that the jurisdiction to determine the payment and
its priorities was totally vested with the ORT under the Act
and the workmen should approach the ORT for
G determination of their claim and consequential payment.
The High Court also issued guidelines to ORT for
determination of priorities.
The Bank filed C.A.No.7045 of 2005. C.A. No.7046 of
2005 was filed by Indian Banks Association. The Division
H Bench before which the appeals were listed, felt that the
BANK OF MAHARASHTRA v. PANDURANG KESHAV 271
GORWARDKAR & ORS.
question: "whether the claims of the workmen who
A
claimed to be entitled to payment pari passu have to be
considered by the official liquidator or whether their
claims have to be adjudicated upon by the Debts
Recovery Tribun~I" was likely to arise in a large number
of cases and,1 therefore, referred the matter for
B
consideration by a larger Bench.
Allowing the appeals, the Court
HELD: 1.1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 has not only conferred c
e

## Text

_Characters 0–39,971 of 95,148. This is a partial read: ask again with offset=39971 for what follows._

(2013] 3 S.C.R. 269
BANK OF MAHARASHTRA
v.
PANDURANG KESHAV GORWARDKAR & ORS.
(Civil Appeal No. 7045 of 2005)
MAY 7, 2013
[R.M: LODHA, J. CHELAMESWAR AND
MADAN B. LOKUR, JJ.]
RECOVERY OF DEBTS DUE TO BANKS AND
A
B
FINANCIAL INSTITUTIONS ACT, 1993:
C
ss. 17 and 19 (19) of 1993 Act rlw ss.529(1)(c), proviso
and 529-A of Companies Act - Recovery of debts of
company by bank/financial institution - Claim of workmen -
Held: Where a company is in liquidation, a statutory charge
0
is created in favour of workmen in respect qf their dues over
security of every secured creditor and this charge is pari passu
with that of secured creditor - Such statutory charge is to the
extent of workmen's portion in relation to security held by
secured creditor of debtor company - This position is equally E
applicable where assets of company have been sold in
execution of recovery certificate obtained by bank or financial
institution against debtor company. when it was not in
liquidation but before the proceeds realised from such sale
could be fully and finally disbursed, the company had gone
into liquidation - Relevant date is the date of winding up order
F
and not the date of sale - Where the sale of security has been
effected in execution of recovery certificate issued by DRT,
distribution of undisbursed proceeds has to be made by DRT
alone in accordance with s. 529A of Companies Act and by
oo other forum or authority -
Where debtor company is not G
in liquidation, s.19(19) does not come into operation at all -
Companies Act, 1956 - ss. 529(1)(c) proviso, and 529-A -
Interpretation of Statutes - Legislation by reference -
Legislation by incorporation.
269
H
270
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A
s. 19(19) of 1993 Act read with ss. 529-A and 529(1)(c),
proviso of Companies Act - Company in liquidation - Debt
of bank/financial institution and claim of workmen - Held:
Once the company is in winding up, the only competent
authority to determine workmen's dues and quantify
B workmen's portion is the liquidator, who has to act under
supervision of company court- s.19(19) of the 1993 Act does
not clothe ORT with jurisdiction to determine workmen's
claims against debtor company -
Certain incidental and
ancillary powers given to ORT do not encompass power to
c adjudicate upon or decide dues of workmen of debtor
company.
In the case filed by the appellant-Bank for recovery
of its dues against a company, the Debts Recovery
Tribunal gave its judgment on 19.7.2001 and issued the
D recovery certificate on 21.8.2001. Consequently, the
Recovery Officer, ORT, on 22.1.2004, auctioned the
movable properties of the Company. By order dated
8.10.2004, the Company was ordered to be wound up
and Official Liquidator was appointed. The workmen of
E the Company filed a writ petition before the High Court
seeking a direction to the Recovery Officer to recover the
amount of Rs.3 crores from the appellant Bank realized
by it from sale of movables of the Company and for a
direction to the Recovery Officer to adjudicate the claims/
F dues of the workmen/employees and release the amount
due to them in priority over all the claims. The High Court
held that the jurisdiction to determine the payment and
its priorities was totally vested with the ORT under the Act
and the workmen should approach the ORT for
G determination of their claim and consequential payment.
The High Court also issued guidelines to ORT for
determination of priorities.
The Bank filed C.A.No.7045 of 2005. C.A. No.7046 of
2005 was filed by Indian Banks Association. The Division
H Bench before which the appeals were listed, felt that the
BANK OF MAHARASHTRA v. PANDURANG KESHAV 271
GORWARDKAR & ORS.
question: "whether the claims of the workmen who
A
claimed to be entitled to payment pari passu have to be
considered by the official liquidator or whether their
claims have to be adjudicated upon by the Debts
Recovery Tribun~I" was likely to arise in a large number
of cases and,1 therefore, referred the matter for
B
consideration by a larger Bench.
Allowing the appeals, the Court
HELD: 1.1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 has not only conferred c
exclusive jurisdiction upon ORT for determination of the
matters specified in s.17 but has also ousted jurisdiction
of all other courts and other authorities in entertaining
and deciding such matters. The powers of the Supreme
Court and the High Court under Arts. 226 and 227,
D
however, remain unaffected [s.18]. The applications for
recovery of debts due to banks or financial institutions
can be decided by ORT alone after coming into force of
the 1993 Act and no other forum. The jurisdiction of ORT
in regard to matters specified in s.17 is exclusive. [para
E
45] [296-B-D]
1.2. Section 19 provides a comprehensive procedure
before the ORT for making an application where a bank
or a financial institution has to recover any debt from any
person. Section 34 gives the 1993 Act overriding effect.
F
However, the effect of the winding up order is provided
in s.447 of the Companies Act, 1956. Accordingly, an
order for winding up a company operates in favour of all
the creditors and all the contributories of the company
as if it has been made on the joint petition, of a creditor G
and or a contributory. [para 32, 35 and 39] [290-C-D; 292A; 293-B]
1.3. A cumulative reading of ss. 529A and 529(1 )(c),
proviso of the Companies Act leads to an irresistible
conclusion that where a company is in liquidation, a
H
272
SUPREME COURT REPORTS
[2013) 3 S.C.R.
A statutory charge is created in favour of workmen in
respect of their dues over the security of every secured
creditor and this charge is pari passu with that of the
secured creditor. Such statutory charge is to the extent
of workmen's portion in relation to the security held by
B the secured creditor of the company. This position is
equally applicable where the assets of the company have
been sold in execution of the recovery certificate
obtained by the bank or financial institution against the
debtor company when it was not in liquidation but before
c the proceeds realised from such sale could be fully and
finally disbursed, the company had gone into liquidation.
Thus, pe.nding final disbursement of the proceeds
realised from the sale of security in execution of the
recovery certificate issued by the ORT, if debtor company
0 becomes company in winding up, ss. 529A and 529(1)(c)
proviso come into operation immediately and statutory
charge is created in favour of workmen in respect of their
dues over such proceeds.[para 63and 72(ii) and (iii)]
[309-E-H; 314-E-H; 315-A-C]
E
Rajasthan State Financial Corporation and Another v.
Official Liquidator and Another 2005 (3) Suppl. SCR 1073
= 2005 (8) SCC 190; Jitendra Nath Singh v. Official Liquidator
& Ors. 2013 (1) SCC 462; Andhra Bank v. Official Liquidator
and Another 2005 (2) SCR 776 = 2005 (5) SCC 75;
F International Coach Builders Ltd. v. Karnataka State Financial
Corporation 2003 (2) SCR 631 = 2003 (10) SCC 482; and
A.P. State Financial Corporation v. Official Liquidator 2000
(2) Suppl. SCR 288 = 2000 (7) sec 291 - relied on.
G
Maharashtra State Financial Corporation v. Balfarpur
Industries Ltd. AIR 1993 Born 392; IC/Cl Bank Ltd. v. SIDCO
Leathers Ltd and Ors. 2006 (1) Suppl. SCR 528 = 2006
(10) SCC 452; Central Bank of India v. State of Kera/a and
Ors 2009 (3) SCR 735 = 2009 (4) SCC 94 - referred to.
H
BANK OF MAHARASHTRA v. PANDURANG KESHAV 273
GORWARDKAR & ORS.
1.4. Having regard to the scheme of law, the relevant
A
date for arriving at the ratio at which the sale proceeds
are to be distributed amongst workmen and secured
creditors of the company is the date of the winding up
order and not the date of sale. [para 64 and 72(iv)] [310 ..
A-B; 315-C-O]
B
1.5. Where the sale of security has been effected in
execution of recovery certificate issued by ORT under the
1993 Act, the distribution of undisbursed proceeds has
to be made by the ORT alone in accordance with s. 529A
of the Companies Act and by no other forum or authority.
C
It is so because s.19(19) of the 1993 Act provides that
ORT may order distribution of the sale proceeds amongst
the secured creditors in accordance with s.529A where
a recovery certificate is issued against the company
registered under the Companies Act. The workmen of the
D
company in winding up acquire the standing of secured
creditors on and from the date of the winding up order
(or where provisional liquidator has been appointed, from
the date of such appointment) and they become entitled
to distribution of sale proceeds in the ratio as explained
E
in the illustration appended to s.529(3)(c) of the
Companies Act.[para 65 and 72(ix) and (x)] [310-C-F; 316H; 317-A-C]
2.1. Section 19(19) of the 1993 Act does not clothe
ORT with jurisdiction to determine the workmen's claims
against the debtor company. In the first place, 1993 Act
has provided for special machinery for speedy recovery
F
of dues of banks and financial institutions in specific
matters~ The 1993 Act also provides for the modes of
recovery of the amount so adjudicated by the ORTs. The
G
1993 Act has not brought within its sweep, the
adjudication of claims of persons other than banks and
financial institutions. ORT has not been given powers to
adjudicate the dues of workmen of the debtor company.
The adjudication of workmen's claims against the debtor
H
27 4
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A company has to be made by the liquidator. It is a
substantive matter and ORT has neither competence nor
machinery for that. Once the company is in winding up,
the only competent authority to determine the workmen's
dues and quantify workmen's portion is the liquidator
B who obviously has to act under the supervision of the
company court. The liquidator has the responsibility and
competence to determine the workmen's dues where the
debtor company is in liquidation. Certain incidental and
ancillary powers given to ORT do not encompass power
c to adjudicate upon or decide dues of the workmen of the
debtor company. [paras 65, 66, 67 and 72(xi)] [310-F-H;
311-A, B-C, G; 317-0-E]
D
Allahabad Bank v. Canara Bank & Anr. 2000
(2) SCR 1102 = 2000 (4) SCC 406 - explained.
2.2. Secondly, s.19(19) of the 1993 Act is a provision
of distribution mechanism and not an independent
adjudicatory provision. This provision follows
adjudication of claim made by a bank or financial
E institution. It comes into play where a certificate of
recovery is issued against a company which is in winding
up. Where the debtor company is not in liquidation,
s.19(19) does not come into operation at all. Following
Tiwari Committee Report and Narasimham Committee
F Report, the present s.19(19) was incorporated in 1993 Act
for protection of pari passu charge of secured creditors,
including workmen's dues at the time of distribution of
the sale proceeds of such company. The participation of
workmen along with secured creditors u/s. 19(19) is, to a
G limited extent, in the distribution of the sale proceeds by
the ORT and not for determination of their claims against
the debtor company by the ORT. (para 67) (311-0-G]
2.3. Thirdly, the expression, 'the Tribunal may order
the sale proceeds of such company to be distributed
H among its secured creditors in accordance with the
BANK OF MAHARASHTRA v. PANDURANG KESHAV 275
GORWARDKAR & ORS.
provisions of s.529A of the Companies Act' occurring in
A
s. 19(19) does not empower ORT to itself examine,
determine and decide upon workmen's claim u/s 529A.
The expression means that where the debtor company is
in winding up, the sale proceeds of such company realized
under the 1993 Act are to be distributed among its secured
8
creditors by following s. 529A of the Companies Act.
Mention of s. 529A in s.19(19) is neither a legislation by
reference nor a legislation by incorporation. What it
requires is that ORT must follow the mandate of s. 529A
by making distribution in equal proportion to the secured
C
creditors and workmen of the debtor company in winding
up. [para 68] [311-H; 312-A-C]
2.4. Section 19(19) covers a situation only where a
debtor company is in winding up or where a provisional
liquidator has been appointed in respect of the debtor D
company and in no other situation. If the debtor company
is not in liquidation nor any provisional liquidator has
been appointed and merely winding up proceedings are
pending, there is no question of distribution of sale
proceeds among secured creditors in the manner E
prescribed in s. 19(19) of the 1993 Act. [para 69 and 72(i)
and (xii)] [312-0-E; 314-0-E; 317-F]
2.5. Where the winding up petition against the debtor
company is pending but no order of winding up has been
passed nor any provisional liquidator has been
appointed in respect of such company at the time of order
F
of sale by ORT and the properties of the debtor company
have been sold in execution of the recovery certificate
and proceeds of sale realized and full disbursement of G
the sale proceeds has been made to the bank concerned
or financial institution, the subsequent event of the
debtor company going into liquidation is no ground for
reopening disbursement by the ORT. [para 71 and 72(vi)]
[313-C-E; 315-E-G]
H
276
SUPREME COURT REPORTS
[2013) 3 S.C.R.
A
2.6. However, before full and final disbursement of
sale proceeds, if the debtor company has gone into
liquidation and a liquidator is appointed, disbursement of
undisbursed proceeds by ORT can only be done after
notice to the liquidator and after hearing him. In that
8 situation if there is claim of workmen's dues, the ORT has
two options available with it. One, the bank or financial
institution which made an application before ORT for
recovery of debt from the debtor company may be paid
the undisbursed amount against due debt as per the
C recovery certificate after securing an indemnity bond of
restitution of the amount to the extent of workmen's dues
as may be finally determined by the liquidator of the
debtor company and payable to workmen in the
proportion set out in the illustration appended to s.
529(3)(c) of the Companies Act. The other, ORT may set
D apart tentatively portion of the undisbursed amount
towards workmen's dues in the ratio as per the
illustration following s.529(3)(c) and disburse the balance
amount to the applicant barik or financial institution
subject to an undertaking by such bank or financial
E institution to restitute the amount to the extent workmen's
dues as may be finally determined by the liquidator, falls
short of the amount which may be distributable to the
workmen as per the illustration. The amount so set apart
may be disbursed to the liquidator towards workmen's
F dues on ad hoc basis subject to adjustment on final
determination of the workmen's dues by the liquidator.
The first option must be exercised by ORT only in a
situation where no application for distribution towards
workmen's dues against the debtor company has been
G made by the liquidator or the workmen before the ORT.
[para 71 and 72(vii and viii)] [313-E-H; 314-A-C; 315-H;
316-A-G]
3.1. In the instant case, on 08.10.2004, the Company
H Judge ordered the Company to be wound up and the
BANK OF MAHARASHTRA v. PANDURANG KESHAV 277
GORWARDKAR & ORS.
official liquidator was appointed as liquidator of the A
Company with the usual powers under the Companies
Act. There is thus no doubt that on and from 08.10.2004,
the Company is in liquidation and the official liquidator
stands appointed. [para 28] [289-E]
3.2. The claims of the workmen who claim to be
entitled to payment pari passu have to be considered and
adjudicated by the liquidator of the debtor company and
not by the DRT. [para 73] [317-H; 318-A]
B
3.3. The impugned judgment is set aside. The Debt C
Recovery Tribunal and the official liquidator of the
Company shall proceed further concerning workmen's
dues as indicated in the judgment. [para 74] [318-8]
Radheshyam Ajitsaria and Another v. Bengal Chatkal o
Mazdoor Union & Ors. 2006 (2) Suppl. SCR 918 = 2006
(11) SCC 771; and Nahar Industrial Enterprises Ltd. v. Hong
Kong And Shanghai Banking Corporation 2009 (12) SCR
54 = 2009 (8) sec 646 - cited.
Case Law Reference:
E
2000 (2) SCR 1102
relied on
para 17
2013 (1) sec 462
explained para 17
2005 (2) SCR 776
relied on
para 19
F
2006 (2) Suppl. SCR 918
cited
para 19
2005 (3) Suppl. SCR 1073
relied on
para 19
2003 (2) SCR 631
relied on
para 21
2009 (12) SCR 54
cited
para 22
G
2000 (2) Suppl. SCR 288
relied on
para 52
AIR 1993 Born 392
referred to para 53
. 2006 (1) Suppl. SCR 528
referred to para 57
H
A
278
SUPREME COURT REPORTS
[2013) 3 S.C.R.
2009 (3) SCR 735
referred to para 58
CIVL APPEALLA TE JURISDICTION : Civil Appeal No.
7045 of 2005.
From the Judgment & Order dated 11.08.2004 of the High
B Court of Judicature at Bombay in Writ Petition No. 5293 of
2004.
c
WITH
C.A. No. 7046 of 2005.
Bhaskar Gupta, L. Nageshwar Rao, Colin Gonsalves, S.
Madhusdhan Babu, Dr. Kailash Chand, Lalit Bhasin, Nina
Gupta, Swati Sharma, Parvez Khan, Bina Gupta, Amiy Shukla,
Jyoti Mendiratta, Puja Sharma, Somnath Padhan, Anagha S.
D Desai for the Appearing Parties.
The Judgment of the Court was delivered by
R.M. LODHA, J. 1. These two appeals from the Bombay
High Court came up before a two-Judge Bench (B.P. Singh
E and R.V. Raveendran, JJ.) on 21.11.2005. While granting leave
on that day, the Bench was of the view that the question
whether the claims of the workmen who claimed to be entitled
to payment pari passu have to be considered by the official
liquidator or whether their claims have to be adjudicated upon
F by the Debts Recovery Tribunal (for short, 'DRT') is likely to
arise in a large number of cases where recoveries are sought
to be made pursuant to the certificates issued by the DRT and,
therefore, these appeals required consideration preferably by
a Bench of three-Judges. This is how these appeals have
G come up before us.
2. The appellant in one appeal is Bank of Maharashtra and
in the other, Indian Banks Association. As a matter of fact, the
main appeal is by Bank of Maharashtra. The Indian Banks
H Association was not a party to the proce~djngs beforei the High
BANK OF MAHARASHTRA v. PANDURANG KESHAV 279
GORWARDKAR & ORS. [R.M. LODHA, J.]
'Court or before the ORT but it has preferred appeal, after
A
permission was granted, as in its view the impugned judgment
if implemented would have far reaching implications on the
banking industry as a whole.
3. As will appear, the High Court was concerned with the
B
writ petition filed by the workmen/employees of Paper and Pulp
Conversions Ltd. (for short, 'Company') praying therein that
direction be issued to the Recovery Officer, Debt Recovery
Tribunal, Mumbai Ill (for short 'ORT Ill') to recover the amount
of Rs. 3 crores from Bank of Maharashtra ('the Bank') which
was allowed to be withdrawn being the money realised from
C
the sale of movables of the Company and for issuance of further
direction to the Recovery Officer to adjudicate the claims/dues .
of the workmen/employees as per the list annexed with the writ
petition and after adjudication, in priority over all the claims,
release the amount due to them. The workmen/employees also
D
prayed in the writ petition for direction to the Central
Government to make rules laying down procedure to be
followed by the Recovery Officer under Recovery of Debts due
to Banks and Financial Institutions Act, 1993 (for short, '1993
Act').
E
4. The facts and circumstances on which the workmen
relied before the High Court are these: The Company had taken
loan from the Bank somewhere in 1980. In 1984-85, the
Company faced liquidity problems. One of the creditors of the
F
Company filed a company petition being Company Petition No.
604/1986 before the Bombay High Court in 1986 for winding
up of the Company. On 14.01.1987, the company petition was
admitted.
5. The Company was closed in 1992. In the same year, a
G
reference was made by the Company to the Board for Industrial
and Financial Reconstruction, New Delhi (BIFR) under Section
15(1) of Sick Industrial Companies (Special Provisions) Act,
1985 (for short, 'SICA'). On 1.9.1993, BIFR passed an order
for winding up of the Company. The Company challenged the
H
280
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A order of the BIFR before the appellate authority but was
unsuccessful.
6. In or about 1995, the Bank filed a suit against the
Company and its Directors for recovery of a sum of Rs.
B 25,39,08,282.79 with future interest thereon at the agreed rate
and cost in the Court of Civil Judge, Senior Division, Panvel.
The suit was transferred to the ORT Ill in 1999 and was
numbered as original application no. 344/1999.
7. On 19.07.2001, the ORT Ill allowed the original
C application made by the Bank by directing the Company and
its Directors to pay jointly, severally and personally a sum of
Rs. 25,49,91,756.94 with cost and interest at the rate of 6%
per annum with quarterly rests from the date of application till
its realization. The ORT Ill further directed in its judgment that
D in the event of failure of the Company and its Dir~ctors to pay
the amount to the Bank, as directed, the Bank shall be entitled
to sell hypothecated and mortgaged and other immovable and
movable properties of the Company and the Directors and the
sale proceeds shall be appropriated towards due amount.
E
8. Consequent upon the Judgment dated 19. 7.2001, the
ORT Ill issued recovery certificate on 21.08.2001. In the recovery
certificate, it was directed that the Recovery Officer shall realize
the amount as per the certificate in the manner and mode
prescribed under Sections 25 and 28 of the 1993 Act from the
F certificate debtors as specified in the certificate. As regards
legal heirs of one of the deceased directors, it was directed
that they would be liable only to the extent they inherited the
property from their predecessor in interest.
G
9. In the recovery proceedings, the workmen/employees
of the Company through their Association made an application
on 17.9.2003 and prayed that they be allowed to intervene in
the matter and their claims be registered before any auction
takes place. The workmen also sent a notice to the Company
H and its Managing Director requesting them to pay their dues.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 281
GORWARDKAR & ORS. [R.M. LODHA, J.]
The Company, however, disputed their claim.
10. On 22.01.2004, the Recovery Officer auctioned the
movable properties of the Company and received an amount
of Rs. 4,70,55,000/- by way of sale proceeds. Of that amount,
A
Rs. 3 crores were disbursed to the Bank on 10.03.2004 and
B
remaining amount of Rs. 1,70,55,000/- was kept aside towards
the likely claim of the workmen of the Company.
11. The workmen made an application in the company
petition No. 604/1986 before the Bombay High Court on
19.03.2004 for appointment of Provisional Liquidator and for
C
staying further proceedings before the ORT Ill arising out of the
above recovery proceedings. The Bank opposed the
application of the workmen before the Company Court and
submitted that any restraint on the sale of the Company's assets
would adversely affect the interest of not only the secured
D
creditors but also the workmen.
12. By an order dated 08.10.2004, the Company has been
ordered to be wound up by the Bombay High Court and official
liquidator has been appointed as liquidator of the Company with
E
the usual powers under the Companies Act.
13. On 18.06.2004, the workmen filed a writ petition before
the Bombay High Court for the reliefs as noted above. The
Bombay High Court in the impugned Judgment after hearing
the parties held that the jurisdiction to determine the payment
and its priorities was totally vested with the ORT under the 1993
Act and, therefore, the workmen should approach the ORT for
the purpose of determination of their claim and consequential
payment in respect thereof. The relevant directions in the
impugned judgment read as follows :
1.
The Debt Recovery Tribunal is directed to retain the
sum of Rs. 1, 17 ,55,000/- and not to disburse the same
either to the 2nd respondent or to any other person till and
until the claim of the workers is determined.
F .
G
H
A
B
c
D
E
282
SUPREME COURT REPORTS
[2013] 3 S.C.R.
2.
The Presiding Officer of the Debt Recovery Tribunal,
Mumbai shall adjudicate upon the claims of the petitioner
workers and more particularly of the employees whose
names are set out in Exhibit "A" and determine the salaries
payable either as and by way of arrears or otherwise to
each of the workers.
3. Once the claim of each of the workmen is determined,
the Debut Recovery Tribunal shall make payment of the said
dues to the workers out of the amount lying with him of
the said Rs. 1, 17,55,000/- and if there is a short fall, then
the Debt Recovery Tribunal will be permitted to call for the
said balance amount from the 2nd respondent out of the
sum of Rs. 3 crores which has already been withdrawn by
the 2nd respondent from the sale proceeds of the auction
sale of the movable properties of respondent no. 1.
4. The Debt Recovery Tribunal shall in the meantime
deposit the said amount of Rs.1, 17,55,000/- in fixed
deposit with a nationalized bank initially for period of three
months and then renewable for a further period of three
months.
14. The High Court in the impugned judgment, inter alia,
has also issued certain guidelines to the ORT Ill while
adjudicating the claim of the workmen and other secured
F creditors for determination of priorities.
15. The main submission on behalf of the Bank in laying
challenge to the impugned judgment is two fold, (one) the
workmen have no claim or right over the security held by a bank
or financial institution. Their dues can only be adjudicated in an
G appropriate court (e.g. Industrial Tribunal) when the company
is not in liquidation and ORT has no competence in this regard
and (two) if the debtor company is in liquidation and the security
is sold in proceedings before ORT and Recovery Officer, the
sale proceeds will be distributed by taking into account the pari
H passu charge to a limited extent of the "workmen's portion" as
BANK OF MAHARASHTRA v. PANDURANG KESHAV 283
GORWARDKAR & ORS. [R.M. LODHA, J.]
laid down in Section 529(1,)(c) proviso read with Section 529A
A
of the Companies Act, 1956 (for short, 'Companies Act').
16. Elaborating the above grounds, Mr. Bhaskar P. Gupta,
learned senior counsel for the Bank, submitted that under the
1993 Act, DRT has exclusive jurisdiction to entertain and
B
decide applications only from banks and financial institutions
for adjudication and recovery of debts due to such banks and
financial institutions. The principal purpose of the DRT is
adjudication and recovery of dues of the banks and financial
institutions. It also has certain ancillary and incidental powers
C
like giving interim orders by way of receiver, injunction,
attachment etc. After determination of dues due to banks and
financial institutions, the mode of recovery has been provided
in Section 25. However, DRT has not been given any powers
to adjudicate the dues of the workmen of the debtor company
and none can be read into Section 17 or Section 19 of the 1993
D
Act. This adjudication is a substantive matter between the
workmen and the debtor company (when it is a going concern)
and between the workmen and the liquidator when the company
is in liquidation. When the debtor company has gone into
liquidation, Section 529(1)(c) proviso by a legal fiction creates
E
a pari passu charge to a limited extent on the security of the
creditor which can be recovered along with the creditor on a
priority basis against the sale proceeds of the security under
Section 19(19) of the 1993 Act read with Section 529A of the
Companies Act. When the debtor company is in liquidation, the
F
dues of workmen can only be determined by the official
liquidator including the extent of the deemed charge and the
limits. The DRT has neither the competence nor the machinery
to adjudicate upon or decide dues of the workmen of the debtor
company.
17. Learned senior counsel for the Bank argued that unless
G
an order of winding up was made and the liquidator or the
provisional liquidator has been appointed and all the steps as
provided in Sections 443 to 450 and 456 are taken, it cannot
H
284
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A be said that Company is in winding up and until the Company
is in winding up, the workmen of the Company have no claims
on the assets of the Company nor do they have any locus to
approach the ORT to participate in a proceeding filed by a bank
or financial institution; they are not creditors secured or
B otherwise. The only remedy that the workmen have is to
approach the appropriate court e.g., Industrial Tribunal etc., for
determination and realization of their dues. Section 19(19) of
the 1993 Act and Section 529A of the Companies Act do not
help the workmen as they are not secured creditors. However,
C where the order of winding up has been made and liquidation
proceedings started against a Company, Mr. Bhaskar P.
Gupta, learned senior counsel would submit that in such a case
the liquidator would be in custody and control of all the assets
of company. But in view of exclusive jurisdiction conferred on
0 ORT, no leave of the Company Court needs to be taken by
ORT for adjudication under Section 17 and execution of the
recovery certificate issued under the 1993 Act. In support of
his submissions, learned senior counsel placed reliance upon
paragraphs 50, 63, 64 to 70 of the decision of this Court in
Allahabad Bank v. Canara Bank & Anr. 1 • He also referred to
E Jitendra Nath Singh v. Official Liquidator & Ors2. which has
followed Allahabad Bank1•
18. Learned senior counsel for the Bank submitted that by
virtue of a legal fiction contained in the proviso to Section
F 529(1)(c) read with Section 529(3)(c), the workmen are entitled
to participate along with the concerned creditor to a limited
extent in the distribution of the sale proceeds by the ORT under
Section 19(19). Otherwise, they can have no claim at all. He
would submit that Section 529(1)(c) proviso and Section 529A
G of the Companies Act form part of a composite scheme and
can be brought into play only in the case of a company which
is being wound up. In a running company, the dues of workmen
are not quantified or determined and, therefore, workmen's
1.
c2000) 4 sec 406.
H 2.
c2013) 1 sec 462.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 285
GORWARDKAR & ORS. [R.M. LODHA, J.]
portion also cannot be quantified. The workmen have no A
charge on any asset. By a legal fiction, a pari passu charge
is created to a limited extent only under Section 529(1)(c)
proviso and that too to be determined by the liquidator and
none else. Section 19(19) can, thus, have application only if the
debtor company is being wound up and not otherwise.
B
19. Learned senior counsel for the Bank contend_ed that
Section 529 of the Companies Act entrusts to the liquidator the
competence and responsibility to determine the dues of all
creditors who participate in the winding up and determine the
priorities amongst them under the supervision of the Company C
Court. In support of his submissions, Mr. Bhaskar P. Gupta,
learned senior counsel for the Bank also relied upon decisions
of this Court in Andhra Bank v. Official Liquidator and
Another, Radheshyam Ajitsaria and Another v. Bengal
Chatkal Mazdoor Union & Ors4• and Rajasthan State D
Financial Corporation _and Another ·v. Official Liquidator and
Another°. -
20. Mr .. L. Nageshwar Rao, learned senior counsel for
Indian Banks' Association adopted the submissions of Mr. E
Bhaskar P. Gupta and further submitted that the High Court
proceeded on a fundamental misconception that the workmen
had a pari passu charge at the relevant time. According to Mr.
L. Nageshwar Rao at the relevant time of (a) judgment ·by the
DRT-111 allowing the Bank's claim on 19.07.2001, (b) issuance
F
of recovery certificate dated 21.08~2001, (c) sale of movables
on 22.01.2004 and (d) payment of partial sale proceeds to the
bank (secured creditor) on 10.03.2004, no winding up order
had been passed under Section 443(d) of the Companies Act
qua the Company and Company's properties had not come G
to the custody of official liquidator in terms of Section 456. In
this view of the matter, the workmen did not enjoy any secured
charge on the assets of the Company for the purposes of
3.
c2005) 5 sec 75.
4.
c2ooa) 11 sec 111.
H
286
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A Section 529A. Accordingly, he would submit that workmen
cannot claim under Section 19(19) of the 1993 Act when they
even cannot claim under the Companies Act. In this regard, Mr.
L. Nageshwar Rao relied upon the decision of this Court in
Radheshyam Ajitsaria4•
B
21. Relying upon the decision of this Court in International
Coach Builders Ltd. v. Kamataka State Financial Corporation5
and Rajasthan State Financial Corporation6, Mr. L. Nageshwar
Rao argued that the workmen's claim can only be considered
under Section 19(19) of the 1993 Act where winding up order
C has been made and the liquidator is in the custody of company's
assets.
22. Mr. L. Nageshwar Rao argued that the view of the High
Court was clearly in error as ORT is a limited Tribunal created
o by a statute for adjudication of specific disputes for the benefit
of banks and financial institutions and not all kinds of persons.
ORT is not a civil court of unlimited jurisdiction or a Company
Court with elaborate statutory powers to address all disputes
that may arise in adjudicating workmen's claims in winding up
E proceedings. In this regard, he relied upon a decision of this
Court in Nahar Industrial Enterprises Ltd. v. Hong Kong And
Shanghai Banking Corporation7 and submitted that it would be
jurisdictionally improper and entirely incongruous for a ORT to
itself examine, determine and decide upon workmen's claims
F under Section 529A.
23. It may be noted here that General Industries Kamgar
Union (for short, 'Kamgar Union') has made an application
being I.A. No. 3 of 2005 in one of the appeals praying therein
that they may be impleaded as party respondent since it is a
G registered trade union of the workmen employed in the
5.
(2005) s sec 190.
6.
(2003) 1 o sec 482.
H 1.
(2009) s sec 646.
BANK OF MAHARASHTRA v. PANDURANG KESHAV 287
GORWARDKAR & ORS. [R.M. LODHA, J.]
Company and it represents the entire body of workmen. Having
A
regard to the controversy involved in these appeals, we thought
it fit to hear Kamgar Union as it represents the entire body of
workmen, including the respondents.
24. Mr. Colin Gonsalves, learned senior counsel for the
Kamgar Union, stoutly defended the order of the High Court.
8
He submitted that the argument of the appellants that winding
up of a company begins only when the winding up order is
made is misconceived as it overlooks Section 441(2) of the
Companies Act which says that in cases other than those
covered under sub-section (1) of Section 441, the winding up C
of a company shall be deemed to commence at the time of
presentation of the petition for winding up. In the present case,
the winding up of the Company has begun with the order dated
01.09.1993 whereby BIFR recommended winding up of the
Company under Section 20 of the SICA. According to learned
D
senior counsel for the Kamgar Union, the present case is a case
of a company in winding up as Section 20 of SICA makes it
mandatory for the Court to make a winding up order on the
recommendation of the BIFR. He also referred to para 50 of
the Allahabad Bank1 in this regard. ·
E
25. As regards Section 19(19) of the 1993 Act, learned
senior counsel would submit that this provision is not restricted
to a situation where company is in winding up; it also covers
situations where the company though not in winding up will be
F
rendered an empty shell if the assets of the company are sold
and proceeds handed over to the bank and financial institutions.
In the latter circumstances, it is the duty of the DRT to anticipate
such a situation and if DRT comes to the conclusion that by
selling the assets and paying the proceeds to the bank and/or
financial institutions there will be nothing left for the payment of G
the dues to the workmen, it is bound to disburse the proceeds
between the banks and financial institutions, other secured
creditors and the workmen as if Section 529A of the
Companies Act applies. It was submitted on behalf of the
H
288
SUPREME COURT REPORTS
[2013] 3 S.C.R.
A Kamgar Union that a close look at Section 19(19) of the 1993
Act will indicate that it is legislation by reference and not
legislation by incorporation and therefore it is not required that
the company must be in liquidation to attract the provisions of
Section 19( 19).
B
26. Mr. Colin Gonsalves heavily relied upon a decision of
this Court in Rajasthan State Financial Corporations and
submitted that the issue of jurisdiction of the Company Court
and the ORT in respect of companies in liquidation was referred
to a three-Judge Bench in view of the apparent conflict between
C the decisions in Allahabad Bank1 and International Coach
Builders6. He particularly referred to paragraphs 16 and 17 of
the Report in Rajasthan State Financial Corporations and
submitted that the official liquidator represents the entire body
of creditors and also holds a right on behalf of the workmen to
0 . have a distribution pari passu with the secured creditors. The
official liquidator has the duty for further distribution of the
proceeds on the basis of the preference contained in Section
530 of the Companies Act under the directions of the Company
Court and, therefore, to ensure the proper working out of the
E scheme of distribution, it is necessary to associate the official
liquidator with the process of sale so that he can ensure in the
light of the directions of the Company Court that a proper price
is fetched for the assets of the company in liquidation. It is the
·contention of Mr. Colin Gonsalves that when the impugned
F judgment was passed by the Bombay High Court, Allahabad
Bank1 held the field and based on that the High Court issued
guidelines to the ORT. Later, in Rajasthan State Financial
Corporations, the basic proposition of Allahabad Bank1 relating
to exclusive jurisdiction cannot be said to hold good. He, thus,
G submitted that in light of the law laid down in Rajasthan State
Financial Corporation5 there is no conflict on the question of
the applicability of Section 529A read with Section 529 of the
Companies Act in cases where the debtor is a company and
is in liquidation.
H
BANK OF MAHARASHTRA v. PANOURANG KESHAV 289
GORWAROKAR & ORS. [R.M. LOOHA, J.]
27. Mr. Colin Gonsalves argued that all sale proceeds in
A
respect of assets sold prior to the date of impugned judgment
should be brought to the ORT by the banks and financial
institutions; all future sale of assets should be done under the
supeNision of the High Court; the official liquidator, Bombay
High Court should calculate the respective portions of dues of
B
the secured creditors and the workmen in accordance with
Section 529A of the Companies Act and the ORT should then
distribute the sale proceeds in accordance with the directions
of the High Court and in accordance with law.
28. On a careful examination of the record, we find that
C
the submission made by the learned Senior Counsel for the
Bank that Company is not in winding up within the meaning of
Sections 529 and 529A of the Companies Act is founded on
erroneous assumption that no order for winding up the
Company has been made. In I.A. 7 of 2013 filed by the
0
respondent no. 1, the copy of the Report dated 01.08.2011 of
the official liquidator has been placed on record. It is apparent
therefrom that on 08.1 o.2oo4, the Company Judge has ordered
the Company to be wound up and the official liquidator has been
appointed as liquidator of the Company with the usual powers
E
under the Companies Act.