Re-M/S Kamla Syntex Ltd. vs ......... on 18 May, 2018

[Cites 21, Cited by 0]

Delhi High Court

Re-M/S Kamla Syntex Ltd. vs ......... on 18 May, 2018

1. This application is filed by the Employees Provident Fund Organisation seeking a direction in favour of the applicant for payment of dues under the Employees Provident Fund & Miscellaneous Provisions Act, 1952 (in short the 'EPF & MP Act, 1952') in respect of Kamla Syntex Ltd. the respondent to the tune of Rs.1,41,81,446/- as per assessment sheet being Annexure-A.

2. The case of the applicant is that under section 11(2) of the EPF & MP. Act, 1952, the dues have to be given priority by the OL. Earlier also the applicant had filed an application being CA No.1771/2011 on 20.08.2011 seeking an amount to the tune of Rs.39,09,032.00. However, it is stated that this amount was calculated upto April, 2005. This application was later CO. PET. 125/2000 Page 1 of 16 withdrawn. Reliance is placed on the judgment of the Supreme Court in Maharashtra State Co-operative Bank Ltd. v. The Assistant P.F. Commissioner, AIR 2010 SC 868 to plead that dues of the applicants have priority over all other dues.

3. A reply has been filed by the OL wherein it has been pointed out that the OL was appointed as the provisional liquidator of the respondent company on 01.10.2002. Subsequently, a winding up order was passed on 23.09.2004. The OL invited claims on 23.01.2004. Last date for filing of claims was 23.02.2004. The applicant never filed any claim pursuant to the said publication. By 27.09.2005 claims of secured creditors and workmen were settled and sanctioned by the court on the basis of a total sum of Rs.3.86 crores available at that time. In 2006, payment of all the workmen, except those who remained untraceable, was made. Additional claims of workmen were scrutinized from time to time. After distribution of the dividends, in 2010 the OL was left with balance of Rs.5,76,162.65 which this court had directed to be transferred to the Public Account of India.

4. Based on the above, it is pleaded relying upon section 474 of the Companies Act, 1956 (hereinafter referred to as 'the Act, 1956') read with Rule 178 of the Companies (Court) Rules that at best the applicant can claim the sum of Rs.5,76,162.65, which is lying with the OL and no more. It has been pleaded that distribution which have already been made to the different creditors cannot be recalled in view of section 474 of the Act read with Rule 178 of the Companies (Court) Rules. Reliance is also placed on judgments of the Rajasthan, Patna and Madras High Courts, in Ganeshilal Gupta v. Bharatpur Oil Mills, 1972 TAX LR 2363, Saroj Kumar Banarjee & Ors. v.

CO. PET. 125/2000 Page 2 of 16

Gaya Sugar Mills Ltd., AIR 1964 Patna 352 and T.R.Rajkumari v. Motional Picture Producer Combine Ltd., AIR 1942 Mad 349 respectively.

5. I may look at the legal position. The Supreme Court in Maharashtra State Co-operative Bank Ltd. v. The Assistant P.F. Commissioner (supra), noted as follows:

"20. We shall now consider the question whether the provision contained in Section 11(2) of the Act operates against other debts like mortgage, pledge, etc. Answer to this question is clearly discernible from the plain language of Section 11.

The priority given to the dues of provident fund etc. in Section 11 is not hedged with any limitation or condition. Rather, a bare reading of the section makes it clear that the amount due is required to be paid in priority to all other debts. Any doubt on the width and scope of Section 11 qua other debts is removed by the use of expression `all other debts' in both the Sub- sections. This would mean that the priority clause enshrined in Section 11 will operate against statutory as well as non-statutory and secured as well as unsecured debts including a mortgage or pledge. Sub-section (2) was designedly inserted in the Act for ensuring that the provident fund dues of the workers are not defeated by prior claims of secured or unsecured creditors. This is the reason why the legislature took care to declare that irrespective of time when a debt is created in respect of the assets of the establishment, the dues payable under the Act would always remain first charge and shall be paid first out of the assets of the establishment notwithstanding anything contained in any other law for the time being in force. It is, therefore, reasonable to take the view that the statutory first charge created on the assets of the establishment by Sub-section (2) of Section 11 and priority given to the payment of any amount due from an employer will operate against all types of debts.

.......

CO. PET. 125/2000 Page 3 of 16

47. Section 11 gives statutory priority to the amount due from the employer vis-`-vis all other debts. Clause (a) of sub-section (1) of Section 11 is applicable to cases where an employer is adjudicated insolvent or, being a company, an order of its winding up is made. In that situation, the amount due from the employer in relation to an establishment to which any Scheme or the Insurance Scheme applies in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, damages recoverable under Section 14B, accumulations required to be transferred under Section 15(2) or any other charges payable by him under any other provision of this Act or of any provision of the Scheme or the Insurance Scheme. Clause (b) is applicable to cases where the amount is due from the employer in relation to exempted establishment in respect of any contribution to the provident fund or any insurance fund in so far it relates to exempted employees under the rules of provident fund or any insurance fund, any contribution payable by him towards the Pension Fund under Section 17(6), damages recoverable under Section 14B or any charges payable by him to the appropriate Government under the Act or under any of the conditions specified in Section 17. This sub-section then lays down that such amount shall be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up. Sub-section (2) lays down that any amount due from the employer whether in respect of the employees' contribution deducted from the wages of the employee or the employer's contribution shall be deemed to be the first charge on the assets of the establishment, and shall be paid in priority to all other debts. The expression "any amount due from an employer" appearing in sub-section (2) of Section 11 has to be interpreted keeping in view the object of the Act and other provisions contained therein including sub- section (1) of Section 11 and Sections 7A, 7Q, 14B and 15(2) which provide for determination of the dues payable by the employer, liability of the employer to pay interest in case the payment of the amount due is delayed and also pay CO. PET. 125/2000 Page 4 of 16 damages, if there is default in making contribution to the Fund. If any amount payable by the employer becomes due and the same is not paid within the stipulated time, then the employer is required to pay interest in terms of the mandate of Section 7Q. Likewise, default on the employer's part to pay any contribution to the Fund can visit him with the consequence of levy of damages. As mentioned earlier, sub-section (2) was inserted in Section 11 by Amendment Act No.40 of 1973 with a view to ensure that payment of provident fund dues of the workers are not defeated by the prior claims of the secured and/or of the unsecured creditors. While enacting sub-section (2), the legislature was conscious of the fact that in terms of existing Section 11 priority has been given to the amount due from an employer in relation to an establishment to which any scheme or fund is applicable including damages recoverable under Section 14B and accumulations required to be transferred under Section 15(2). The legislature was also aware that in case of delay the employer is statutorily responsible to pay interest in terms of Section 17. Therefore, there is no plausible reason to give a restricted meaning to the expression `any amount due from the employer' and confine it to the amount determined under Section 7A or the contribution payable under Section 8. If interest payable by the employer under Section 7Q and damages leviable under Section 14 are excluded from the ambit of expression "any amount due from an employer", every employer will conveniently refrain from paying contribution to the Fund and other dues and resist the efforts of the concerned authorities to recover the dues as arrears of land revenue by contending that the movable or immovable property of the establishment is subject to other debts. Any such interpretation would frustrate the object of introducing the deeming provision and non obstante clause in Section 11(2). Therefore, it is not possible to agree with the learned senior counsel for the appellant- bank that the amount of interest payable under Section 7Q and damages leviable under Section 14B do not form part of the amount due from an employer for the purpose of Section 11(2) of the Act. "

CO. PET. 125/2000 Page 5 of 16

6. Hence, there can be no dispute on the contention of the learned counsel for the applicant that the dues of the applicant have priority against the statutory as well non-statutory secured and non-secured debts including on assets subject to mortgage or pledge.

7. Reference may now be had to section 474 of the Companies Act, 1956 which reads as follows:

"474. Power to exclude creditors not proving in time: The Court may fix a time or times within which creditors are to prove their debts or claims, or to be excluded from the benefit of any distribution made before those debts or claims are proved."

8. Similarly, Rule 178 of the Companies (Court) Rules, 1959 reads as follows:

"178. Right of creditor who has not proved debt before declaration of dividend- Any creditor who has not proved his debt before the declaration of any dividend or dividends shall be entitled to be paid out of any money for the time being in the hands of the Liquidator available for distribution of dividend, any dividend or dividends which he may have failed to receive before that money is applied to the payment of any future dividend or dividends, but he shall not be entitled to disturb the distribution of any dividend declared before his debt was proved by reason that he has not participated therein."

9. In view of section 474 of the Act, 1956 it is for the court to fix a time within which creditors are to prove its debts. Rule 178 of the Companies (Court) Rules states that any creditor who has not proved his debt before the declaration of any dividend, shall be entitled to be paid out of any money for the time being in the hands of the liquidator and he is not entitled to disturb the distribution of any dividend declared before his debt was proved.

CO. PET. 125/2000 Page 6 of 16

10. Rajasthan High Court in Ganeshilal Gupta v. Bharatpur Oil Mills (supra) noted as follows:

"..... As has been stated, there has been a long delay in filing the proof, but a claim is within the period of limitation prescribed by the Limitation Act, the only consequence of the delay will be that prescribed by Section 474 of the Companies Act according to which a creditor, who does not prove his debt or claim within the time fixed by the court, has to be excluded from the benefit of any distribution made before his debt or claim is proved. A perusal of Rules 177 & 178 of the Rules lends support to this view, for the reason that while Rule 177 provides for relief by the Court to a creditor who fails to file proof within the prescribed time-limit, Rule 178 lays down that a creditor who has not proved his debt before the declaration of any dividend shall not be entitled to disturb the distribution of any dividend declared before the proof of his debt by reason of the fact that he did not participate in it. He is however, entitled to be paid out of any money for the time being in the hands of the Liquidator available for distribution of dividend The scheme of the law therefore does not prescribe any other penalty in the case of a belated claim. I am fortified in this view by the decision in In re General Rolling Stock Company 1871 (7) Ch. App 646. There the winding up order was made in February 1865 and the certificate of debts and claims was made in December 1870 A dividend was paid on the established debts in January, 1871. In March 1871, the holder of some bills of exchange to a large amount, which had become payable in February, 1865, gave the first notice of his claim and applied for leave to prove, not disturbing the previous dividends. It was held on appeal that he was entitled to do so without disturbing the previous dividends. I am in respectful agreement with that view. A similar point arose for consideration in In re Metcalfe 1879 (13) Ch. D. 236 and it was held that a creditor may come in as long as there are undistributed assets still available. That decision has been followed In re Kit Hill Tunnel 1880 (16) Ch. D. 590. The position of the law on the point is thus quite clear CO. PET. 125/2000 Page 7 of 16 and has been stated as follows in Buckley on the Companies Acts, thirteenth edition, page 544:

A creditor may come in and prove at any time before the company is dissolved; the penalty of not coming in before the day fixed by the Court is not exclusion altogether, but exclusion from the benefit of any distribution made before proof.

4. The same view has been expressed in Palmer's Company Law, twenty-first edition, at Page 761. Reference may also be made to the decisions in Isack Jesudasen Pillai v. Divan Bahadur Ramsamy Chhetty ILR 1904 Mad. 496 which appears to have been based on the decision in In re General Rolling Stock Company 1871 (7) Ch. Appeal 646, and to T.R. Rajakumari v. Motion Picture Producers Combine Ltd. AIR 1942 Mad. 349. It is thus a well settled proposition of the law, a creditor may come in and prove his debt at any time before the final distribution of the assets, but he cannot disturb any dividend which has already been paid, the first objection of the Official Liquidator is therefore futile."

11. Similarly, Patna High Court in Saroj Kumar Banarjee & Ors. v. Gaya Sugar Mills Ltd.(supra) noted as follows:

"1. ....... Section 191 of the Indian Companies Act (Act VII of 1913) states that "the Court may fix a time or times within which creditors are to prove their debts or claims, or to be excluded from the benefit of any distribution made before those debts are proved".

The language of this section is identical with Section 156 of the Indian Companies Act of 1882. It was held by a Full Bench of the Madras High Court in (sack Jesudasen Pillai v. Ramaswamy Chetty I L R 27 Mad 496 with regard to this old section, that the creditor was not included from coming in at a later stage than that fixed by the Official Liquidator for claims to be made. It was also held that the only penalty for failure to come within the time stated in the notice was that prescribed by the latter CO. PET. 125/2000 Page 8 of 16 part of the section, namely, that the claimant would be excluded from the benefit of any distribution made before his debt was proved. This view has been followed in a later decision of the Madras High Court in T. R. Rajakumari v. Motion Picture Producer Combine Ltd., AIR 1942 Mad 349 and it was held in that case that an application for excusing delay in filing proof of a claim should be allowed, and so long as justice can be done to a creditor without disturbing the dividend already declared or paid, there is no reason why he should be prevented from getting his dividend. In re, General Rolling Stock Discount Co's Claim. (1872) 7 Ch A 646 at p. 649 Mellish, L. J. explains thus the principle that should be observed in a case of this description:--

"..... The Legislature intended us to follow the analogy of other cases where the assets of a debtor are to be divided amongst his creditors, whether in bankruptcy or insolvency, or under a trust far creditors or under a decree of the Court of Chancery in an administration suit. In those cases the rule is that everybody who had a subsisting claim at the time of the adjudication, the insolvency, the creation of the trust for creditors, or the administration decree, as the case may be, is entitled to participate in the assets and that the statute of limitation does not run against this claim, but as long 3S assets remain unadministered he is at liberty to come in and prove his claim, not disturbing any former dividend." In view of the principle laid down in these authorities we hold that this appeal under the Letters Patent should be allowed and the order of the learned Judge dated the 3rd May, 1960, should be set aside, and we direct that the claims of the appellants should be entertained by the Official Liquidator and disposed of according to law."

12. Reference may also be had to the judgment of the Madras High Court in T.R.Rajkumari v. Motional Picture Producer Combine Ltd.(supra) where the court held as follows:

CO. PET. 125/2000 Page 9 of 16

"..... by the Act the assets are impressed with a trust in favour of all the creditors, the Court will make no difficulty in admitting proofs after the expiration of the time fixed. No mischief can be done to other creditors by reason of the delay or laches of any creditor, since, if he delays beyond the proper time, he must take his chance of what assets he can find for payment of his debt, not disturbing any former dividend.

Of course the difficulty will not occur under the English practice because the lists are settled from time to time. Under the Indian Companies Act of 1882, the principle enunciated in In re General Rolling Stock Co., Joint Stock Discount Co.'s claim (1872) 7 Ch. A. 646 was applied in our High Court in the case reported in Jesudasan v. Ramasamy (1903) 14 M.L.J. 345 :

I.L.R. Mad. 496 (F.B.). That decision was based on an interpretation of Section 156 of the Companies Act of 1862 the language of which is almost similar to Section 191 of the present Act. The learned Judges observed thus:

The only penalty for failure to come in within the time stated in the notice is the penalty prescribed in the latter part of Section 156, viz., that the claimant is "excluded from the benefit of any distribution made before such debts are proved", that is,, he can only claim a proportionate share in such assets as may remain undistributed at the time when he proves his claim and without disturbing any distribution made before such proof.

In In re General Rolling Stock Company (1872) 7 Ch. A. 646 Mellish, L.J., explains thus the principle that should be observed in these cases:

The Legislature intended us to follow the analogy of other cases where the assets of a debtor are to be divided .amongst his creditors, whether in bankruptcy or insolvency, or under a trust for creditors, or under a decree of the Court of Chancery, in an administration suit. In these cases the rule is that everybody who had a subsisting claim at the time of the adjudication, the insolvency, the creation of the trust for creditors, or the administration decree, as the case may be, is entitled to CO. PET. 125/2000 Page 10 of 16 participate in the assets, and that the Statute of Limitations does not run against this claim, but, as long as assets remains unadministered he is at liberty to come in and prove his claim, not disturbing any former dividend.

Therefore so long as justice can be done to a creditor without disturbing the dividend already declared or paid, there is no reason why he should be prevented from getting his dividend. In the present case it would seem to me that the applicant would come within the meaning of Rule 91 and I am therefore prepared to excuse the delay. I therefore direct the Official Liquidator to admit the applicant's claim without further proof and pay her the dividend due to her if he can do so without disturbing the previous dividend and if he has funds enough in his hands......"

13. Reference may also be had to A.Ramaiya "Guide to Companies Act,"

Seventeenth Edition, where in respect of Section 474 of the Companies Act, the learned Author notes:

"The object of the section is that the assets of a company in liquidation should be realized and distributed pari passu among the creditors as expeditiously as possible. It is, therefore, only proper that creditors who want to claim the benefit of any distribution of the assets should prove their debts and claims as soon as possible.

The section provides for the court fixing a time or times within which the creditors are to send their proofs. The fixing of a date does not mean that a creditor who fails to prove within the time is excluded altogether. He may come in and prove at any time, before the company is dissolved. The only penalty is that he disentitles himself from participating in any dividend declared before he comes in. That is to say, he will not be allowed to disturb or reopen dividends already declared."

CO. PET. 125/2000 Page 11 of 16

14. What emerges from the catenae of judgments above is that it was for the applicant to have approached the OL to have his claim settled within the stipulated period. As he failed to do the same, he is entitled to the fund, which is presently available with the OL. He cannot undo the dividends already paid.

15. In the present case, as already noted by this court, the OL invited claims on 23.01.2004. Thereafter the claims were processed and payments were released in favour of those whose claims were accepted by order dated 27.09.2005. Reference may be had to the said order dated 27.09.2005. The said order noted that there are 770 workmen who have lodged their claims before the OL. Total of these claims add up to Rs.5.04 crores. The court accepted that the claims of the worker would to the tune of Rs.3.40 crores. There were claims of three secured creditors, namely, Canara Bank, HFC and Essenda Finanze Pvt. Ltd. which were for Rs.374 lacs, Rs.120 lacs and Rs.4 lacs. Noting that the OL has Rs.3.86 crores, the court ordered distribution of the fund to the secured creditors and workers on pari passu basis in terms of Sections 529 and 529A of the Act. Dividends was directed to be distributed accordingly. Relevant portion of the said order reads as follows:

"There are 770 workers who have lodged their claims before the OL. Total of these claims add up to Rs.5.04 crores. The management closed down the factory on 8th February, 1998. In these claims the workers have added wages up to February, 1999 and also three months' notice pay. Mr.Nanda has disputed the claims only under these two heads and his submission is that in order to ensure the timely and early payment to the workers, he does not dispute the calculations given by them under other heads. Same is the stand adopted by Mr.Luthra, learned counsel CO. PET. 125/2000 Page 12 of 16 for the OL. Therefore, we have to consider the admissibility of the workers' claims under the aforesaid two heads."

xxx "........... Making calculations in this manner, the total claims of the workers would to the tune of Rs.3.40 crores.

There are claims of three secured creditors, namely, Canara Bank, HFC and Essenda Finanze Pvt.Ltd. which are for Rs.374 lacs, Rs.120 lacs and Rs.4 lacs respectively. The funds available with the OL, as indicated in the report by the OL, are Rs.3.86 crores. On distributing the aforesaid funds to the secured creditors and workers, on pari passu basis, keeping in view the provisions of Sections 529 and 529 A of the Companies Act, 1956, dividend to be distributed to the secured creditors and the workers would be in the following manner:

       Canara Bank                =     Rs.172.27 lacs - 44.63%
       HFC                        =     Rs. 55.28 lacs - 14.32%
       Essenda     Finanze        =     Rs.1.82   lacs  -  .48%
       Pvt.Ltd.
       Workers                    =     Rs. 156.60 lacs     -   44.57%"

16. The applicant have woken up for the first time in 2010/2011 and have moved an application seeking payment of the dues of the applicant of Rs.39,09,032.00 as payable upto 15.04.2005. This is now sought to be increased to Rs.1,41,81,446/- upto 31.01.2015 in the second application.

17. I may however mention here that in the rejoinder that was filed by the applicant to the reply of the OL, the applicant has attached a copy of a communication dated 18.06.2004 which was allegedly sent to the OL. Unfortunately this document has been filed alongwith the rejoinder and the OL has not been able to respond to the same. There is also nothing to show that this document was served on the OL. It is further stated in the letter that CO. PET. 125/2000 Page 13 of 16 the dues are likely to the tune of Rs.50 lacs, which are pending and are not deposited by the respondent company. As already noted above, this letter was not in response to claims invited by the OL. Even if such a letter had been received by the OL, it cannot be a substitute for the statutory procedure which exist for inviting claims from the creditors of the respondent company.

18. Reference in this context may be had to Rule 151 of the Companies (Court) Rules, 1959, which reads as follows:

"RULE 151- Contents of Proof - An affidavit proving a debt shall contain or refer to a statement of account showing the particulars of the debt, and shall specify the vouchers, if any, by which the same can be substantiated. The affidavit shall state whether the creditor is a secured creditor, or a preferential creditor, and if so, shall set out the particulars of the security or of the preferential claims. The affidavit shall be in Form No.

66."

A liquidator has to give notice inviting creditors, who have not proved their debts. As per Rule 151, the affidavit proving a debt shall contain or refer to a statement of account and shall be in Form 66.

19. The Mardras High Court in S.M.S.Traders v. The Official Liquidator of the High Court, 2012(1)CTC575/(MANU/TN/4731/2011) noted as follows:

"17. In its judgment, the Division Bench observed that it would be open to the Appellant to seek for appropriate relief in the pending case. Once the Court passes the order of winding up, as per Rule 151 of Companies (Court) Rules, affidavit proving a debt showing particulars of debt shall be filed before the Official Liquidator in Form No. 66. When there is a specific provision for filing the claim before the Official Liquidator, Appellant is not CO. PET. 125/2000 Page 14 of 16 justified in invoking Rule 9 - inherent powers of the Court. Rule 9 of Companies (Court) Rules is analogous to Section 151 of Code of Civil Procedure. It is well settled that inherent power of the Court under Rule 9 of Companies (Court) Rules cannot be invoked where express provision is made for the relief by conferring power upon other authorities. The Division Bench only directed the Appellant to make a claim as per law. Appellant ought to have made claim only before the Official Liquidator."

Hence, communication dated 18.06.2014 even if is held to be have been received by the OL was not as per statutory provisions and need not have been accepted by the OL.

20. I may also note that on 08.03.2016 this court had directed the applicant to file the list of workmen, who would benefit if the application was allowed. The applicant was also directed to place on record the documents in support of the claims of the workmen which may be available with the applicant. Needful has not been done.

21. In my opinion, the applicant is only entitled to the amount that is now left with the OL, namely, a sum of Rs. 5,76,162/- or about. The applicant cannot be permitted to disturb the position/steps which have been taken by this court way back in 2005. The applicant has merrily taken five years to file its first application attempting to prove its dues. Thereafter, the applicant had withdrawn the said application and has now filed the present application in 2015. In view of the settled legal position, the applicant would be entitled to only the amount now remaining with the OL as noted above.

22. The application is allowed accordingly.

CO. PET. 125/2000 Page 15 of 16

23. The entire amount which is available with the OL pertaining to the respondent Company will be paid to the applicant.

CO.PET. 125/2000

24. List on 27.09.2018.

JAYANT NATH, J.

MAY 18, 2018/v CO. PET. 125/2000 Page 16 of 16

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