Allahabad High Court
In Re: U.P. State Cement Corporation ... vs Unknown on 27 April, 2007
Author: Sunil Ambwani
Bench: Sunil Ambwani
JUDGMENT Sunil Ambwani, J.
1. In these proceedings, the Company Court is called upon to decide Applications/Objections/Appeals under Rule 164 of Companies (Court) Rules, 1959 in the matter of the report of the Official Liquidator. Liuir Pradesh adjudicating on the 'proofs of debts' and proposing to distribute the sale proceeds of the assets of the U.P. State Cement Corporation I united in liquidation) wound up by the Court on 8.12.1999 on the recommendation of Board of Industrial and Financial Reconstruction, by the workmen, secured and unsecured creditors, U.P. State Electricity Board, Employees Provident Fund and others. A total amount of Rs. 459 crores received by the Official Liquidator from the sale of the assets of the Corporation (in liquidation) including the reliefs and concessions given by the State Government is under consideration of the Court. The hearing of these objections/appeals started on 3.1.2007 and was concluded on 6.4.2007.
THE BACK GROUND
2. 'U.P. State Cement Corporation Limited' (in liquidation) a Government Company under Section 617 of the Companies Act; 1956 with the entire paid up share capital subscribed by the Government of UP (GUP) made a reference to Board of Industrial and Financial Reconstruction (the BIFR) under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act 1985 (SICA). The reference was registered on 10.7.1992. The company had accumulated losses to Rs. 180.13 acres as against its paid up capital of Rs. 68.29 crores. The losses increased to 319.81 crores as on 31.3.1994 and to Rs. 548.85 crores as on 31.3.1998. The BIFR declared the company as 'Sick Industrial Company' on 7.10.1992 and appointed the 'Industrial Development Bank of India' (IDBI) as 'Operating Agency'. After exploring all the possibilities of rehabilitation revival, change of management and allowing opportunity to the workmen, banks and financial institutions as also considering the proposals made by Cement Manufacturing Companies, the Board formed an opinion under Section 20(1) of the SICA, to recommend, to wind up the company and for warded the reference dated 2.7.1997 to the High Court. The reference was received in the Company Section of the Court on 16.7.1997 and was registered as Misc. Company Application No. 4 of 1997.
3. The notices were issued on 3.9.1997 to the Company to show cause as to why the winding up order may not be passed. Shri Shiv Naih Singh, Advocate filed his appearance for the company. An Application (A-5) tiled by him was put up for orders by office report dated 15.10.1997. On the same date, the Court noticed that the workmen had preferred an appeal before Appellate Authority of Industrial and Financial Reconstructions (AAIFR) which was admitted and that the operation of the order of BIFR was stayed. The matter was adjourned for three months to enable learned Counsel for respondent-company to inform the Court the status of the appeal. The matter was thereafter adjourned from time to time. The appeal, against the order of reference dated 2.7.1997 filed on 8.8.1997, was dismissed by AA1FR on 19.2.1998.
4. The Cement Workers Union (CWU) and 13 other trade unions filed Writ Petition No. 15134 of 1998 challenging the order dated 19.2.1998 passed by AAIFR. The writ petition was opposed by Government of U.P. (G-UP) on the ground that it was not possible to run the company with about 6000 employees. The writ petition was connected with M.C.A. No. 4 of 1997. The court heard the arguments on 23.11.1998 and then on 25.2.1999. On 8.12.1999, the Court dismissed the application of Allahabad Bank to exempt the hypothecated properties under the agreement with the Corporation dated 31.3.1982 on the ground that as secured creditor the bank will have preference in realization of amount under Section 529A of the Companies Act, 1956 (the Act). On the same day, on 8.12.1999 the Court accepted the reference made by BIFR and directed the company to be wound up. The writ petition No. 15134 of 1998, filed by Cement Workers' Union and Ors. was allowed in part. The application by the Class-I and Class-11 employees of the Corporation, was disposed off with following directions:
This is an application filed by 37 persons claiming to be class I and class II employees of U.P. State Cement Corporation Ltd. (in short the Corporation).
The applicants have, made the prayer that the Corporation be directed to pay arrears of salary as per the revised pay scale and dearness allowance up to the date with 18 percent interest per annum on the accumulated arrears from the date the amount jell due nil the date of actual payment bedsides contribution to the employees provided fund trust. They also prayed that the State Government be directed to provide alternative employment on equivalent post under the State and allow them to continue the enjoyment of free residential accommodation with electricity, water supply, medical aid etc. The Board for Industrial and Financial Reconstruction (in short the Board) has submitted its opinion for winding up of the Corporation. This opinion has been affirmed by the Appellate Authority in appeal. I have accepted the opinion of the Board and have directed for winding up of the Corporation. As regards the various reliefs claimed in the application, they cannot be granted in this company application. If the applicants have any right, they can claim such relief in the appropriate proceedings before the appropriate authors: The application is accordingly disposed of.
5. The relevant part of judgment for these proceedings, allowing the writ petition No. 15134 of 1998 filed by Cement Workers Union and Ors. reported in 2000 (100) CC 76, is:
The financial institutions had given loan and the interest payable to them are heavy. The Board examined all the aspect. The court in this petition cannot substitute its own opinion. After examining the entire material in relation to the functioning of the sick company the BIFR has submitted its opinion that it is just and equitable to wind up the company. I do not find that the opinion submitted by the board is perverse or there is any justifiable ground not to accept the same.
In the last, learned Counsel for the petitioner submitted hat the workmen had been working in the sick unit. They are entitled to wages till the winding up order is passed. This submission was also raised before the Board and it noted the submission in its meetings held on September 26, 1996, and observed as follows:
In case the State Government decide to Wind up the Corporation they should do so and pay all the dues of the labour. The present Government has different policy regarding sick P.S.Us. As compared to the previous Government and the workers are hopeful that a favourable view will be taken in tins case.
There is no reason why the workers be not paid their salary. In view of the above discussion the writ petition is dismissed against the recommendation of the Board dated February 6, 1997, and the order of the Appellate Authority dated February 19, 1998. The writ petition, in so far as the direction in the nature of mandamus commanding respondent No. 4 to make payment of all dues to the workmen for the period till today, is allowed. In case respondent No. 4 is not able to pay the amount, on winding up of the Corporation, the payment shall be made to the workers prior to making any payment to arc person in accordance with Section 529A of the Companies Act, 1956. The writ petition, as against the other reliefs claimed in the writ petition is hereby dismissed.
The parties shall bear their own costs.
6. A Special Appeal No. 38 of 2000 filed by Cement Workers' Union was dismissed on 31.7.2000. The Official Liquidator, U.P. was appointed by the Court as Liquidator of the company. He sent notices to the company to file the 'Statement of Affairs' and to hand over the possession of the assets. The minutes of the meeting held on 24.3.2000 in the chambers of the Managing Director, U.P. State Cement Corporation, Lucknow, both with regard to filing of 'Statement of Affairs'; handing over possession and the business of the company are quoted as below:
MINUTES OF THE MEETING HELD ON 24.3.2000 IN THE CHAMBER OF MANAGING DIRECTOR, U.P. STATE CEMENT CORPORATION LTD., LUCKNOW PRESENT:
1. Sri Harbhajan Singh Managing Director
2. Sri G.S. Rai I/c General Manager, Churk
3. Sri J.L. Srivastava I/c General Manager, Dalla
4. Sri R.D. Singh1/c General Manager, Chunar
5. Sri Yashpal Sharma Company Secretary/JHM (F)
6. Sri J.K. Singh Sr. Personnel Officer-HQ At the outset, Managing Director explained that lie meeting was called to discuss/review important issues and problems at the Units/HQ after the winding up orders of the Corporation passed by Hon'ble High Court, Allahabad on 8.12.1999. In this background, following issues/points came up for discussion.
1. M.D. informed that despite his written request and awareness of the urgency and importance of submission of 'statement of affairs' of the Corporation with the Official Liquidator in form of the orders of the Hon'ble High Court, Allahabad within the specified time period of 3 months, General Managers of the units did not bother to provide requisite information required for the purpose. What was really made surprising and disheartening in that event the General Managers did not consider it necessary to acknowledge the letter sent by the Managing Director on this account. Therefore, under the circumstances and absence of requisite information from the units, the management had no option but to compile the statement of affairs on estimated basis with whatever little information was available at Luc know and with the help and advice of the outside consultants at Kanpur. The statement of affairs prepared and compiled on the aforesaid basis has been submitted to the Official Liquidator on 6.3.2000.
Further, in this context it was informed that essential/emergent expenditures incurred by the Units/HQ/CMO after 8.12.1999 upto 7.3.2000 is required to be submitted to the official liquidator for his approval and hence as already requested requisite information sought on this account be submitted without any further loss of time so that a consolidated statement for the Corporation as a whole may be submitted to the Official Liquidator for record and approval. Further, it was also made, clear that henceforth the expenditure whatever should be incurred by the Units/HQ and Bank account of the Corporation may not also be operated. However, a statement showing minimum estimated expenditure for the coming period may be finalized by the Units/HQ so that it may be submitted to official liquidator for looking his approval.
2. It was informed that the Board while reviewing the progress of the winding up and problems of the Corporation in its meeting held on 22.3.2000 desired that immediate steps may be taken to ensure the following:
(a) The unit management should take all possible measures at its level to protect and safeguard the various movable and immovable, properties/assets of the Corporation. Assistance/co-operation of the district Administration may be taken promptly wherever required.
(b) The annual accounts of the Corporation may be finalized on top priority by constituting a team at the Unit/HQ level.
(c) All important cultural functions be attended to by the management till unit is finally taken over by the Official Leqidator.
3. Regarding the insurance of assets of the Chunar unit, it was decided that a letter may be sent to the Official Liquidator immediately for seeking his orders for release of funds to insurance company by the State Bank of India, Robertsganj.
4. Managing Director emphasized that it is in the interest of the concerned particularly employees/officers of the Corporation to attend to all the important functions till such time the Corporation is taken over by the Official Liquidator and in this respect all legal cases wherever pending may be contested in the best possible manner.
Various issues raised by the General Managers in regard to day-to-day management at the Units were discussed and clarified by the Managing Director.
(Harbhajan Singh) 1.4.2000 Managing Director No. MD/LKW/105 Copy for information and necessary action.
1) General Manager, Churk/Dalla/Chunar
2) Company Secretary
3) Manager (F&A)-HQ
4) Manager (Marketing)
5) Sr. Personnel Officer-HQ
6) Accounts Officer-CMO (Harbhajan Singh) 1.4.2000 Managing Director
7. A 'Statement of Affairs' verified by Shri Yashpal Sharma, Company Secretary of the Company (in liquidation) was filed on 6.3.2000. The possession of the assets, however, could not be taken by the Official Liquidator (OL). On 25.7.2001, the Court directed the O.L. to take over possession of the assets of the Company (in liquidation), spread over 80 kins including mines, factories, colonies etc. in the districts of Mirzapur and Sonbhadra. The District Magistrates, Allahabad, Sonbhadra and Mirzapur were directed to provide security to the OL on his proposed visit on 27.7.2001. The District Magistrate, Mirzapur and Sonbhadra informed the OL that the inventories of the assets have been prepared and that the OL can take charge. Dr. Hari Krishna, Secretary Industrial Development Department, Government of U.P. also informed the OL on 19.7.2001 that the District Magistrates are ready to hand over charge to the OL. The OL formally took over charge of the assets of the Company (in liquidation) on 31.7.2001. Under the orders of the Court, the District Magistrate, Mirzapur and District Magistrate Sonbhadra were given supurdgi of the assets.
8. An application No. 47788 of 2001 (A-31) was filed by the Slate Government on 15.7.2001 to direct the OL to take appropriate steps in the light of the order passed by the Court on 8.12.1999 and to give due consideration to the offer made by M/s Grasim Industries Ltd. so that liability of the company may be discharged and the interest of workmen and other staff be protected. The Allahabad Bank-a secured creditor opposed the application supported by the affidavit of Shri Hari Krishna, the Secretary, Heavy Industries, Government of U.P. Lucknow. It was staied that the advertisements were published by the State Government in newspapers inviting tenders for taking over cement plants of the company (in liquidation). These advertisements were published in 'Economic Times' and 'Business Standard' dated 10.2.2001 and 12.2.2001 offering the assets and a number of reliefs and concessions to be granted by the State Government. The then Advocate General appearing for State Government submitted that the GUP adopted a transparent process of sale in which three Cement Companies initially showed interest. However, finally M/s Grasim Industries Limited made an offer for the assets totalling Rs. 241 crores. The Sale Committee comprising of Commissioner of Industrial Development as Chairman; the Secretary, Small Industries Development: the Secretary, Finance Department; the Secretary, Heavy Industries and Managing Director, UPSIDC processed the sale. The reliefs and concessions and the assets on offer were clearly stated in the advertisement and the 'Memorandum of Information' (MOI) including guidelines for submitting the tenders. The reliefs and concessions included the renewal of limestone leases in favour of the company. The State Government offered limestone leases of Ninjha and Kajrahat, with more than hundred million tones of limestone deposits adjacent to the mill factory side.
9. During the course of hearing, the Court summoned cabinet proceedings for appreciating concerns of the banks; financial institutions and the offer of M/s Grasim Industries Limited. After going through the entire proceedings, it was noticed by the Court in its order dated 14.2.2002, that after the winding up of the company, the assets can only be sold by the OL. The State Government, which is the promoter and holds the entire share capital, was not competent to advertise the assets for sale. The submission, that the recommendations to exclude 254 acres of land, building and factory at Churk and 564 acres of land at Ghurma from the sale of assets as limestone was not available at these places, valued at Rs. 30 crores, was not proper as the entire assets of the company (in liquidation) were to be sold. The submissions of Shri R.P. Goel, the then Advocate General, that the sale was fair and transparent, was not accepted and as such the sale could only be made by the OL under Section 457(1)(b) of the Act.
10. On an enquiry made by the Court, as to whether GUP will have no objection, if the Court explores the possibility for higher bid, the Advocate General submitted that in such case GUP will have no objection. The Court was not satisfied with the statement and required GUP to place on record the 'no objection1 in form of an affidavit. Shri S.N. Shukla, Industrial Development Commissioner, UP filed his affidavit dated 1.1.2002 in compliance with the order dated 2.1.2002. The contents of tins affidavit as reproduced in the order dated 14.2.2002 are:
(1) That the deponent is presently posted as Industrial Development Commissioner and Principal Secretary, Government of U.P. Lucknow and as such lie is fully acquainted with the facts deposed to below.
(2) That the present affidavit is being filed in compliance with the order dated 20.12.2001 passed in the aforesaid matter, by the Hon'ble Court.
(3) That the State Government's primary concern has been revival of unit at the earliest though privatization in the interest of the workers. The idea is not merely disposal of assets by their transfer to a purchaser who has the necessary resources, competence and experience to run the unit.
(4) That the offer of M/s Grasim Industries has been received after open public tender and they are one of the largest cement producers in the country.
(5) That the request made by the State Government to the Hon'ble Court was by way of helping and assisting the Liquidator in the disposal of the Company's property under Section 457(1)(c) to save time instead of initiating the process afresh at his level.
(6) That the State Government has no objection to this Hon'ble Court exploring the possibility of a higher bid and the State Government would in that event extend the same reliefs and concessions as those offered to M/s Grasim Industries. However, it is submitted that the following concerns of the State Government may kindly be also kept in view while taking a decision in this regard:
(i) The process of restarting the Unit may not get unduly delayed.
(ii) There is no guarantee for a higher bid and meanwhile we may loose the offer already received.
(iii) Besides, the bid amount, the resources, competence, experience and the commitment of the bidder to run the unit also has to be kept in view.
(7) That, however, in case it is decided to re-tender then the present offer of M/s Grasim Industries should remain valid and the amount offered by them should be kept as the minimum reserved price. Moreover in case any higher bid is received in all fairness M/s Grasim Industries may be given the first option to purchase the property at that price.
(8) That besides the State Government the consent of the Financial Institutions and Banks to extend similar accommodation the new purchaser is also necessary.
11. The Court did not accept the submissions that the sale of the assets of the company (in liquidation) under Section 446 of the Companies Act 1956 will take 20 years of time. It was noticed that the State Government was fully aware of the fact that the company was wound up and that all its assets were in possession of the Court under Section 456(3) of the Act. The application was consequently rejected with directions to constitute a 'Asset Sale Committee' (ASC) consisting of the OL as Chairman; a nominee of IDBI not below the rank of Deputy General Manager; a nominee of State Bank of India not below the rank of Chief Manager; Industrial Development Commissioner and Principal Secretary, Government of U.P. or his nominee not below the rank of Secretary in the Government of U.P. The sale was to be carried out by making wide advertisement in global markets after approval of draft advertisement from the Court. The tender document prepared by the State Government was to be considered as a basic document for such purpose with modifications and changes to be considered by ASC with approval of the Court. Apart from global tender, invitation was to be sent to all leading cement manufacturers in the country. All the prospective bidders, were to be allowed inspections and bids to be received in sealed covers with reserve price of Rs. 271 crores (Rs. 241 crores offered by M/s Grasim Industries Limited and the assets of Rs. 30 crores which were excluded by the State Government).
THE SALE OF ASSETS
12. The assets were valued by M/s A.F. Fergusan & Company in 1995. Shri N.K. Agarwal valued the assets in the year 2001. The Special Appeals were filed by the State Government; Allahabad Bank and M/s Grasim Industries Ltd. against the order dated 14.2.2002 rejecting the proposal of the GUP for accepting the sale in favour of M/s Grasim Industries Limited. In pursuance of the orders passed in Special Appeal, the assets were re-valued for the second time by G.S. Birdie in 2003. In the course of hearing of the Special Appeals, some offers and counter offers were made in the Court. The Bench, hearing the Special Appeal Nos. 271 of 2002 by Grasim Industries and Special Appeal No. 316 of 2003 by State of U.P., however, did not accept these offers and that on 20.12.2004 the Special Appeals were dismissed and all the matters were remitted to the Company Judge for carrying out advertisement and sale. On 28.4.2004, the matter was nominated to this Court by Hon'ble Mr. Justice T. Chaterji, the then Chief Justice of the Court.
13. The suggestion of IDBI to engage professional agency for sale of assets was rejected. The global advertisements were carried out in newspapers covering the entire globe. The advertisements were also placed on internet. On the recommendations of the ASC, the bid was invited in two parts. The bidders were required to submit 'Expression of Interest' with their qualifications, which were settled in the guidelines and which included expertise of the purchasers in manufacturing cement company and the financial capacity to pay the earnest money. The four bidders expressed their interest. The ASC in its meeting dated 4.12.2005 found that all the four bidders which had taken intensive inspections were qualified having a turn over of more than Rs. 1000 crores and expertise in manufacturing and sale. All the four bidders deposited Rs. 10 crores each as earnest money. Before the date of financial bidding dated 16.11.2005, the bidders made certain queries with regard to reliefs and concessions and delivery of physical possession of the assets and the benefits to be given to the ex-workmen. The Court found that tender document running to more than thousands pages with report of geological surveys and three valuation reports, disclosed all the details; the stage of further query was over and that the parties may bid on the material available on record. The ASC under the orders of the Court dated 5.10.2005 held its meeting to satisfy the queries. In the pre-bid meetings in the chambers dated 5.12.2005 and 16.1.2005, the Court satisfied some of the queries of the bidders. The matter was taken in Special Appeal. By a long and detailed judgment in Special Appeal No. 1465 of 2005 and all other connected appeals were dismissed by the Division Bench on 16.1.2006.
14. With the consent of all the parties, the matter was taken up in chambers for financial bidding. All the four bidders desired to submit bids in seal tenders and decided not to do competitive bidding. They were required and filed their Board resolutions that they will participate in the bidding only by sealed tender with no further competitive bidding. On 31.1.2006, the bids were opened in chambers. M/s Jaiprakash Associates Ltd. (JAL) with the bid of Rs. 459 crores was found to be the highest bidder, M/s Dalmia Cement (Bharat) Limited was the next highest bidder with an offer of Rs. 376 crores. M/s Lafarge (India) Private Limited with its bid at reserve price of Rs. 271 crores was found the third highest bidder. M/s Grasim Industries Limited did not offer any bid. The highest bid of JAL with a difference of Rs. 83 crores of the next bid was accepted by the Court. JAL deposited 25% of the offer on 15.2.2006 and made an offer to deposit the balance in three instalments, the last of which was to be paid on 19.9.2006. The offer was accepted with the condition that the JAL will furnish bank guarantee for the remaining amount. The required bank guarantee was furnished. The JAL deposited the first two instalments in time. The time for the third instalment due on 19.9.2006 was extended to 20.9.2006. The JAL deposited the last instalment on 11.10.2006 within the extended time and the sale was confirmed in presence and with the consent of all the secured creditors and the workmen appearing through their Union leaders and representatives.
15. In the meantime, the Court was engaged almost every week in the process and finalisation of provident funds account; taking over of the schools and hospitals, giving directions for summoning and preservation of records; for mapping and identifying the assets including mines spread over about 80 KMs area in Churk, Dalla, Ghurma and Chunar in the districts of Sonbhadra and Mirzapur.
16. After the deposit of the second instalment, the Court found that since it would take a long time for inviting and settling the claims of about 6000 workmen, secured and unsecured creditors and Government dues, directions were issued to the OL to advertise inviting claims under Rule 148 of the Companies (Court) Rules 1959 ( Rules of 1959). The last date for receiving the claims 'proof of debts' was extended upto 31.7.2006.
17. The Court appointed a Settlement Claims Committee (SCC) chaired by Shri K.P. Misra (HJS), retired District Judge, Shri Amit Ray & Company, Chartered Accountant and Shri Shahid Kazmi, Advocate and provided them office space in the office of the OL, computers and requisite staff to assist OL to adjudicate the claims. The SCC collected all the claims, classified and categorised them and after seeking clarifications from the OL and the Court, prepared a report in 122 days and submitted the same to the Court on 2.12.2006. There were certain clerical mistakes, which were corrected in the corrected report dated 4.12.2006.
18. The sale was confirmed on 11.10.2006. The court accepted the reports submitted by the SCC, which were duly considered, approved and forwarded by the OL with his report No. 348 of 2006, to be advertised inviting objections. The order dated 4.12.2006 inviting objections is quoted as follows;
Present Shri Ashok Mehta, learned Counsel appearing for the Official Liquidator, Shri S.K, Saxena, the Official Liquidator (OL) and Shri B.K.L Srivastava, Deputy Official Liquidator, and the members of the Liquidation Claims Committee, Shri K.P. Misra (Retired District Judge), the Chairman of the Committee, Shri Amitava Ray, the Chartered Accountant and Shri Shahid Kazmi, Advocate, members.
The U.P. State Cement Corporation (In Liq.) was wound up by this Court on 08.12.1999. The application of the State Government for sale through the advertisement carried out by the State Government was rejected on 14.2.2002, with direction to constitute an Asset Sale Committee and then invite expression of interest for tenders by global advertisement. The order was stayed in Special Appeal for about two years. The Special Appeals were dismissed in January, 2006. The Court, thereafter, constituted an Asset Sale Committee (ASC) including the representative of the State Government and creditors, and invited, 'expression of interest', by making advertisements covering entire globe. The modalities of sale recommended by ASC were worked out and finalised. The OL then invited expression of interest by making global advertisement with reserve price of Rs. 271 crores and earnest money deposited of Rs. 10 crores.
The ASC received expression of interest from five major players out of which four were shortlisted as they were found to possess qualifications for bidding. The bidding preceded applications for further clarification. The matter again went up in Special Appeal. The Special Appeals were dismissed on 16th January, 2006. The bids were opened on 30.1.2006. M/s Jaiprakash Associates Ltd. was declared to be highest bidder with an offer of Rs. 459/- crores for the entire assets on, as is where and whatever there is basis with the second highest offer of Rs. 376/- a res. The highest bidder requested for time to pay the entire amount in four installment, the last of which was to fall on 15th Sep. 2006.
The last installment was received and the sale was confirmed on 11.10.2006. The Court expected thousands of workmen, creditors and unsecured creditors to make their claim, and thus advertisements were made inviting claims by 15th June, 2006 before confirmation of sale, which was extended upto 3L7.2006.
A Liquidation Claims Committee (LCC) was constituted for assisting the Official Liquidator with special staff and office automation to complete the task.
The OL's report No.348 of 2006 presented today, in pursuance of the order passed on 29.11.2006, has accepted the recommendation of the final report of the LCC for settlement of the claims, to be accepted by the Court.
The Claims Committee has submitted a report in two envelopes, which is placed today in chambers under sealed cover.
The main features of the report in paragraph 7 to 15 are as follows:
7. That the position of claims received, rejected, admitted, amount claims and amount admitted as per Section 529A, 530 have been given in detail with the amount in the report.
8. That the main feature of the report has been found that tin Committee has also considered three months salary as retrenchment compensation as per Section 25FFF of the Industrial Disputes Act, 1947 and gratuity. Further in order to maintain uniformity the Committee ha-, decided to grant Rs. 2299/- as Bonus to all workmen due to which the amount admitted for payment have become more in some of the cases than the amount claim by the workmen.
9. That the retired employees have been considered by the Committee for statutory retirement benefits on the basis of the order passed by Hon'ble Supreme Court, Hon'ble High Courts, other Courts, Industrial Tribunals and Arbitrators.
10. That there were only six secured creditors i.e. (1) IDBI (2) LIC (3) IFCI (4) State Bank of India (5) Allahabad Bank and (6) Kotak Mahindra Bank Ltd. (for ICICI).
11. That the secured creditors have been allowed interest @ 11% upto the date of winding up order and thereafter @ 4% upto 31.7.2006.
12. That the claim of U.P. Power Corporation has also been considered by the Claims Committee. Since no proper documents regarding total power units consumed was available, the Committee has considered the claim of U.P. Power Corporation @ 50c/c of the arrears so claimed upto 31.3.1999 and from April 1999 to May 20U6 it has considered to pay 60c/c of the amount for Dalla residential colony. For other units of the company at Churk and Gurma colony the committee has considered to pay 60% of the claim against the units of electricity consumed.
13. That as regards to Mirzapur Division which is having Chunar residential colony and water pump the committee has recommended 100% of the claimed amount for power consumption.
14. That in regard to gratuity to employees the Committee has recommended payment of 3,50,000/-.
15. That as regard to unsecured creditors the Committee appears to have considered only principal amount and the interest has not been accepted for payment.
The Official Liquidator with the help of the Liquidation Claims Committee considered 6210 claims including the claims of 5918 Workmen; 3 claims of EPF Commissioner; 6 of secured creditors; 3 of Employees; 111 of Government; 1 of UPPCL and 168 of unsecured Creditors. It has rejected the claim of 393 workmen, 14 of Government and 31 of unsecured creditors. Out of total amount claimed of Rs. 14,74,47,44,498/- (Rupees one thousand four hundred and seventy four crores forty seven lacs, forty four thousand four hundred and ninety eight), recommendations have been made to pay the dividend of total amount of Rs. 03,21,04,55,294/-(Rupees three hundred and twenty one crore four lacs fifty five thousand two hundred and ninety four).This leaves balance of Rs.01,13,95,44,706/- (Rupees one hundred and thirteen crores ninety five lacs forty four thousand seven hundred and six) with the Official Liquidator.
Out of total sale proceeds of Rs. 459 crores, the Official Liquidator has considered Rs. 435 crores for distribution. The remaining amount is required for taxes, Government fee, commissions, security expenses, advertisement, staff salary and other expenses.
Rule 163 of the Companies (Court) Rules, 1959 provides for communication of acceptance of objection of the proof:
Rule 163 : Acceptance or rejection of proof to be communicated - After such investigation as he may think necessary, the liquidator shall in writing admit or reject the proof in whole or in part. Every decision of the Liquidator accepting or rejecting a proof either wholly or in part, shall be communicated to the creditor concerned by post under certificate of posting where the proof is admitted and by registered post for acknowledgment where the proof is rejected wholly or in part, provided that it shall not be necessary to give notice of the admission of a claim to a creditor who has appeared before the Liquidator and the acceptance of whose claim has been communicated to him or his agent in writing at the time of acceptance. Where the Liquidator rejects a proof, wholly or in part, he shall state the grounds of the rejection to the creditor in Form No. 69. Notice of admission of proof shall be in Form No. 70.
Though workmen are also creditors it is neither practical nor feasible to communicate the admission or rejection of the claims to each of the 5525 workmen, whose claims have been admitted and 393 workmen, whose claims have been rejected. The Court, therefore, in exercise of power under Rule 6 read with Rule 9 of the Companies (Court) Rules, 1959, directs that all the workmen, whose claims have been admitted or rejected may be communicated of the order, by publication in leading newspapers in the area, with a right to inspect the reasons for rejection or admission of their claim in whole or in part. In case an individual workman requires such admission or rejection in writing, he shall be given the same by the Official Liquidator within 48 hours.
With regard to all other categories of claims including EPF Commissioner, secured creditors, employees, Government, UPPCL and unsecured creditors, the order of admitting their claim to proof either whole or in part or the rejections, either whole or in part shall be individually communicated. The admission of their claim to proof shall be communicated by certificate of posting and the rejection by registered post along with Form No. 69 or Form No.70 as the case may be. The Official Liquidator has requested for one week rime for this purpose. Let the advertisement be made and the UPC covers and registered covers be sent on or before 11th December, 2006 inviting objections by 26th December, 2006. The communication shall also be made on the notice board of the factories in Dalla, Churk, Chunar and Gurma.
All the objections shall be compiled, categorised and placed before the Court on 03.1.2007.
In case any workmen or creditor wants to accept the amount admitted to proof, without any objections and gives a certificate that he is accepting the amount in full and final payment, and shall not make any objection to the same, shall be paid the money by account payee cheque. In case of workmen occupying the quarters, these cheques shall be given as and when they vacate the accommodation and give proof of the vacation and the accommodation taken over jointly by the representative of the Official Liquidator and J.P. Associates Ltd.
The Court expresses its deep appreciation to the Official Liquidator, his staff; the Liquidation Claims Committee and its staff' for completing the task of accepting, categorising, adjudicating and deciding the claims submitted by 6210 claimants within the period of 124 days. They have done a commendable job, for expediting the payments to the workmen and creditors, who have been looking for the settlement of their dues for last seven years.
List in chambers on 03.1.2007 at 2.00 p.m.
19. The hearing on the objections/Appeals under Rule 164 of the Companies (Court) Rules 1959 commenced on 3.1.2007 and has proceeded on day-to-day basis. The Court has heard Shri P.N. Saxena, Senior Advocate assisted by Shri Amit Saxena; Shri B.D. Mandhyan, Senior Advocate assisted by Shri Satish Mandhyan; Shri Umesh Narain Sharma, Senior Advocate, assisted by Shri Chandan Sharma, Advocate; Shri V.K. Upadhyay, Shri Ravi Kant, Senior Advocate assisted by Shri Ajai Krishan for the workmen.
THE 'RELEVANT DATE' ON WHICH THE DISTRIBUTION OF DUES HAVE TO BE CONSIDERED.
20. The winding up of a company by the Court shall be deemed to commence under Section 441(2) of the Act, at the time of presentation of the petition for winding up. In case of a reference under Section 20(1) of SICA by the BIFR, the winding up commences on the date when the Company Judge applies his mind to initiate proceedings relying on the order of BIFR. In NGEF Ltd. v. Chandra Developers (P) Ltd. and Anr. the Supreme Court held in para 50 as follow s:
50. We may, however, observe the opinion of the Division Bench in PEL Ltd. to the effect that the winding -up proceeding in relation to a matter arising out of the recommendations of BIFR shall commence only on passing of an order of winding up of the Company may not be correct. It may be true that no formal application is required to be filed for initiating a proceeding under Section 433 of the Companies Act as the recommendations therefore re made by BIFR or AAIFR, as the case may be, and, thus, the dote on which such recommendations are made, the Company Judge applies its mind to initiate a proceeding relying on or on the basis thereof, the proceeding for winding up would be deemed to have been started; but there cannot be any doubt whatsoever that having regard to the phraseology used in Section 20 of SICA that BIFR is the authority proprio vigore which continues to remain as custodian of the assets of the Company till a winding-up order is passed by the High Court.
21. In the present case, the reference dated 2.7.1997 under Section 20(1) of SICA to wind up the Company (in liquidation) was received by the Court on 16.7.1997 and was registered as Misc. Company Application No. 4 of 1997. The Court, by its order dated 3.9.1997, applied its mind to the report and directed notices to be sent to the U.P. State Cement Corporation Ltd. (in liquidation) by registered/AD fixing 15.10.1997. The proceedings, however, were adjourned on 15.10.1997 on information that the order of BIFR has been challenged in AAIFR and that its operation was stayed. The appeal was thereafter dismissed by AAIFR on 19.2.1998. The winding-up in this case as such shall be deemed to commence on 3.9.1997 when the Company Judge applied his mind and issued notices to the Company (in liquidation) to show cause as to why it should not be wound up.
22. On making of a winding up order, the petitioner in the winding up proceedings and the company is required under Section 445(1) to file a certified copy of the order within 30 days with the Registrar of Companies. Sub-section (3) of Section 445 provides that such orders shall be deemed to be notice of discharged to the officers and employees of the Company except when the business of the company is continued. Section 445 of the Act is quoted as below:
445. Copy of winding up order to be filed with Registrar - (1) On the making of a winding up order, it shall be the duty of the petitioner in the winding u proceedings and of the company to file with the Registrar a certified copy of the order, within (thirty days) from the date of the making of the order.
If default is made in complying with the foregoing provision, the petitioner, or as the case may require, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for each day during which the default continues.
(1-A) In computing the period of (thirty days) from the date of the making of a winding up order under Sub-section (1), the time requisite for obtaining a certified copy of the order shall be excluded.
(2) On the filing of a certified copy of the winding up order, the Registrar shall make a minute thereof in his books relating to the company, and shall notify in the Official Gazette that such an order has been made.
(3) Such order shall be deemed to be notice of discharge to the officers and employees of the company, except when the business of the company is continued.
23. In the present case, the company (in liquidation) had closed its mining operation and production of cement in all its factories before the commencement of the winding up proceedings. On the date of winding up order i.e. 8.12.1999 the business operations of the company were closed. The proceedings of the meetings of the Managing Director of the company with the General Managers of Churk; Dalla and Chunar units dated 22.3.2000 and 1.4.2000 do not show that the company (in liquidation) was carrying out any business. In the meeting dated 1.4.2000, it was noticed that the 'statement of affairs' was filed on 6.3.2000 and that union managements were directed not to make any expenditure whatsoever from the bank account of the Corporation. They were required to submit minimum estimated expenditure for approval of the OL. The unit managements were required to take all possible measures at their level to protect and safeguard the various movable and immovable properties/assets of the corporation and to finalise the annual account. The company was not carrying out any business on the date when the winding up order was made and as such the date of winding up shall be deemed to be the notice of discharged to the officers and employees of the company. The winding up order was not challenged in appeal and thus the winding up will take effect on the date it was made by the Court i.e. 8.12.1999.
24. The winding up order, under Section 446 of the Act of 1956, operates to stay all suits and proceedings by or against the company except leave of the Court. It has an effect under Section 447 to operate in favour of all the creditors, and all the contributories of the company as if it had been made on the joint petition of a creditor or of a contributory. The 'statement of affairs' is to be filed with the OL under Section 454 of the Act of 1956. The liquidator in a winding up by the Court shall have powers with the sanctions of the Court under Section 457 of the Companies Act 1956 to institute or defend, suit, prosecution, or other proceedings to carry on the business of the company so far as may be necessary for the beneficial winding up of the company to sell the movable and immovable properties or accountable claims of the company by public auction or by private contract with power to transfer the whole thereof to any person or body corporate or to sell the same or partial to raise on the security of the assets of the company, any money requested; or to do all such thing as may be necessary for winding up the affairs of the company and distributing its assets. The other powers to execute documents, inspect records, etc. are provided under Sub-section (2) of the Section 457. These powers are guided under Section 460 subject to directions that may be given by resolution of the creditors and contributories and under overall supervision of the Court. The OL is keeper of the records and subjects them to audit under Section 461 and 462 of the Act. The committee of inspections may be appointed under Section 464 under the orders of the Court. The general powers of the Court are given under Section 466 of the Companies Act which include the powers to stay the winding up proceedings and under Section 467 for settlement of the contributories and applications of the assets.
25. The Court may order the delivery of the property to the liquidator and to summon persons suspected of having properties of the company and for public examination of promoters and directors under Section 468, 477 and 478 of the Companies Act 1956.
26. The distribution of property of the Company (in liquidation) under Section 511 of the Act is subject to the provisions of the Act as to preferential payments, the assets of the company, shall on its winding up be applied in satisfaction of its liabilities pan passu and unless the articles otherwise provide be distributed among the members according to their rights and interest in the company. The proof and ranking of claims; application of insolvency rules; overriding preferential payments and preferential payments are provided in Sections 528, 529, 529A and 530 of the Act of 1956. Chapter-V provides for its applicability to every mode of winding up. The OL may call proofs of debts of creditor, notwithstanding that the accounts book contain the entries which prima facie satisfies him with the indebtedness of the company to the creditors. The provisions of the Act and the Companies (Court) Rules 1959 for payment to the creditors and the workmen which are also ranked as secured creditors with preferential rights, unsecured creditors and government dues are to be considered while deciding the objections to the report of the OL.
27. The claims of the secured creditors, workmen, unsecured creditors, government dues, and employees provident fund have to be considered out of the realization of the assets of the company. The expenses for liquidation including security, valuation, advertisement, expenditure of Asset Sale Committee and on Liquidation Claims Committee, litigation expenses, audit fees, income tax, maintenance and all other expenses which were necessary to be incurred for maintenance of the assets including watch and ward, supply of water and electricity to the colonies, salary and other expenses of teachers and the medical facilities offered to the 6000 employees living in factories colonies, is the first charge on the assets of the Company (in liquidation) under Rule 338 of the Companies (Court) Rule 1959 made by Hon'ble Supreme Court of India after consulting the High Courts under Sub-section (1) and (2) of Section 643 of Companies Act 1956. The Rules are supplementary to the Act of 1956 and provide for the statutory procedure for sale of assets and distribution of the proceeds of the sale. Rule 147 to 179 lay down elaborate procedure for estimating and finally assessing the company's liabilities as on the relevant date. The liquidator is required to give notice under Rule 148 of not less than 14 days fixed by the advertisement to be published in daily news papers, to prove their debts required under Rule 149. The proof is to be submitted on affidavit verifying the debts giving statement of account showing particulars of the debts and the vouchers by which the same may be substantiated. These affidavits are to be in Form-66. The workmen may, under Rule 152, submit one proof in Form 67 for all the claims annexing therewith a schedule setting forth their names and amounts severally due to them. Rule 154 provides that the value of debts and claims against the company shall, as far as it is possible, be estimated according to the value thereof on the date of the order of winding up of the company or where before the presentation of the petition for winding up. A resolution has been passed for voluntary winding up on the date of passing of such resolution. Rule 156 provides for interest to the creditors which shall not exceed 4% per annum to that date from the time when the debts or sum was payable. If the debt or sum is payable by virtue of written instrument at a certain time and if payable otherwise then from the time when a demand in writing has been made. Rule 156 providing for interest payable to the creditors including workmen and Rule 179 which provides for payment of subsequent interest from the date of winding up as follows:
156. Interest. On any debt or certain sum payable at a certain time or otherwise, whereon interest is not reserved or agreed for and which is overdue at the date of the winding up order, or the resolution as the case may be, the creditor may prove for interest at a rate not exceeding four per cent per annum up to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed from the date of demand until the time of payment.
179. Payment of subsequent interest. - In the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted shall be paid interest from the date of the winding-up order or of the resolution as the case may be, up to the date of the declaration of the final dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount of the claim after adjusting against the said amount the dividends declared as on the date of the declaration of each dividend.
28. The OL is required to examine every proof of debt under Rule 159 and may summon any person for investigation under Rule 160. He may administer oath and take affidavits under Rule 161 and may accept or reject the proofs which shall be communicated under Section 163 to those whose claims have been accepted under Certificate of Posting on by registered post where proof is rejected wholly or in part. A creditor may appeal under Rule 164, if he is dissatisfied with the decision of the liquidator in respect of his proof, not latter than 21 days from the service of the notice upon him of the decision of the liquidator before the Judge. The OL is required to file proof and list of the creditors in Court under Rule 167 which shall be verified except in accordance with the order of the Court. The list can be inspected under Rule 169 and some times can be requested for verification of such proof. After hearing the evidence, which may be tendered the Court shall under Rule 174 adjudicate upon the claims and settle the list of creditors. Any mistake may be corrected on application of the liquidatoi under Rule 176. The power of condoning the delay is provided under Rule 177 of the Rules of 1959.
29. All the Company Appeals, under Rule 164 raising grounds by way of the objections to the reports submitted by the Official Liquidator with the help of the SCC regarding proof of debts, were heard for days altogether. Shri Ravi Kant, Senior Advocate assisted by Shri M.K. Pandey represented Udai Narain Singh and 75 other workmen of Churk and Dalla in Company Appear No. O-35/2007. Shri B.D. Mandhyan, Senior Advocate assisted by Shri Satish Mandhyan, appeared for 17 workmen including 12 of the hospital staffs. Shri P.N. Saxena, Senior Advocate assisted by Shri Amit Saxena appeared for nine workmen of Chunar and Dalla. Shri Ashok Kumar Srivastava appeared for Shri Raghunath Singh and 20 others of Dalla representing those who were engaged in supply of electricity and water to the residential colonies of the Company (in liquidation). Shri V.K. Upadhyay appeared for Umesh Vikram Singh. Shri Chandra Bhan Gupta for Dina Nath Chaube and Subhash claiming an amount payable to them under award for Adjudication Case No. 9 of 1984 by Industrial Tribunal dated 22.1.1985 including 122 workmen. Shri Ajai Krishna and Dipti Srivastava appeared in Company Appeal No. 0-28 by Paras Nath Cement Pvt. Ltd.-unsecured creditors. Shri W.H. Khan appeared for UP Power Corporation and Shri Dhananjai Awasthi for Employees Provident Fund Commissioner. Shri Ashok Mehta, representing Official Liquidator, in these proceedings has given valuable assistance to the Court. He was present throughout the hearing of the matters and he produced the relevant record, whenever required by the Court and was present during marathon hearing of the appeals.
30. As observed above, the claims of hospital staff and the employees concerning to watch and ward or deputed to supply water and electricity to the residential colonies shall be considered out of the liquidation amount which is first charge on the assets and has been separated from the distribution. Their claims, however, as workmen upto the date of winding up shall be considered by the Court.
THE WORKMEN OF THE CORPORATION (IN LIQ.)
31. The submissions by the learned Counsel for workmen raised following issues:
1) Whether the OL had committed errors in admitting of the claims of the workmen to proof?
2) Whether the Official Liquidator could have relied upon details of the pay scale submitted by Shri Harendra Pandey in Writ Petition No. 15134 of 1998 for admitting the claims of workmen?
3) Whether the workmen are entitled to any compensation for voluntary retirement claimed by them as VRS?
4) Whether the workmen are entitled to claim wages upto 31.7.2001 when the possession of the units was taken over by the OL?
5) Whether the workmen are entitled to any arrears of salary prior to 12.7.1998 when they received last salary from the grants given by the State Government?
6) Whether workmen are entitled to retrenchment compensation calculated at 15 days salary for every completed year of service or a fixed retrenchment compensation of three month's salary and under Section 28FFF of the Industrial Disputes Act 1947?
7) Whether the workmen are entitled to one month's notice pay treating them to be retrenched under Section 25F of the Industrial -Disputes Act 1956?
8) Whether the workmen are entitled to interest @ 12% or interest not exceeding the rate of 4% on the wages from the winding up till the last date of submission of proofs or any other date subsequent to thereof?
9) Whether the workmen are entitled to bonus in addition to the bonus of Rs. 2499/- awarded at flat rate for the year 1993-94?
10) Whether workmen dues are barred by limitation?
Issue No. 1:- Whether the OL had committed errors in admitting of the claims of the workmen to proof.
32. The SCC reports that many claims (proof of debt) made by the workmen were incomplete. The records of each unit after their identification were brought under the orders of the Court, under special security. The claims along with proof were verified with the help of records. Still many mistakes have crept in by way of bonafide errors. It appears either there were some mistakes in the claims forms or in the records and that it is also possible that while verifying the claims and punching them on computers some more mistakes crept in preparation of the report. The OL states that some of the mistakes were corrected before the final corrected report was submitted on 2.12.2006. He, however, candidly admits that there are some more mistakes, which are being worked out. He has submitted the detailed chart in which these mistakes have been corrected.
33. The mistakes, made by the SCC can be classified in the following categories:
a) Pay scale admitted of the workmen.
b) The calculation in gross wages.
c) The number of years the workmen had worked for the purposes of calculating retrenchment compensation and gratuity.
d) Duplicate claims by the wife/(sic) or heirs and legal representatives of the workmen who have since died.
e) The date of appointment and the date of retirement of the workmen.
34. The OL is directed to correct all the mistakes, which may have crept in verifying the claims. Let all these mistakes be removed in the final report which is to be prepared in pursuance of the directions, which are likely to be issued in operative portion of this order.
Issue No. 2: Whether the Official Liquidator could have relied upon details of the pay scale submitted by Shri Harendra Pandey in Writ Petition No. 15134 of 1998 for admitting the claims of workmen?
35. All tin learned Counsels appearing for the objectors/appellants submits that the manpower summary prepared and annexed along with affidavit of Shri Harendra Pandey in Writ Petition No. 15J34 of 1998 with regard to the categories of employees and the pay scales are admitted. They have not placed on record any other manpower summary of the workmen and employees of the company (in liquidation). This manpower summary also gives the gross salary drawn by the various categories of employees. The SCC has taken manpower summary annexed to the affidavit of Shri Harendra Pandey as the basis after verification from the records for verifying the claims of the workmen. The court does not find that the method adopted by the SCC was incorrect.
Issue No. 3: Whether the workmen are entitled to any compensation for voluntary retirement claimed by them as VRS?
36. The offer made by M/s Grasim Industries Limited to the State Government in pursuance of the advertisement made by the State Government included a package offered to the workmen and employees of the corporation towards voluntary retirement. The argument that workers are entitled to VRS proceeds on the basis of offer made by the Grasim Industries Limited. This offer was not accepted by the Court. The assets were thereafter put to sale and that the proceeds of the sale are available for distribution. In such case, the provisions of Sections 528, 529, 529A, 530 of Companies Act are applicable. The workmen have to be paid their dues. The word 'workmen' is defined under Section 529A(3)(a) in relation to a company, the employees of the company being workmen within the meaning of Industrial Disputes Act 1947. Sub-section (b) defines the 'workmen's dues' which include all wages and salaries, all agreed holiday remuneration and all sum dues to any workmen from provident fund, a pension fund, a gratuity fund or any other funds for the welfare of workmen maintained by the company. Section 529A inserted by the Act No. 35 of 1985 provides for overriding preferential payments and treats the workmen's dues and debts due to the secured creditors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529 pan passu with such dues in priority to other debts. These debts are to be paid under Sub-section (2) in full unless the assets are insufficient to meet them in which case they shall abate in equal proportion. Section 530 provides for preferential payments. The employee in this section do not include workmen. The scheme of distribution of realized assets does not provide for any payment towards voluntary retirement. The compulsory winding up of the petition does not result into voluntary retirement of the workmen or employees. It amounts to closure of the industrial company by an order passed by the Court. In certain circumstances referred to under Section 433 of Companies Act 1956 or under Section 20 of SICA, there is no question of retirement in such case. The voluntary retirement scheme is worked out by way of an agreement with workmen in negotiated settlement. It is by way of offer and acceptance worked on : with the help of industrial adjudication. In case of distribution of assets subject to proof of claims to the workmen treated as a secured creditors in overriding preferential payments, the question of voluntary retirement does not arise.
Issue No. 4 : Whether the workmen are entitled to claim wages upto 31.7.2001 when the possession of the units was taken over by the OL?
37. The workmen are not entitled to wages or compensation after the date of winding up. In paragraphs 22 to 30 that the relevant date for distribution of the dues is the date when the company was wound up i.e. 8.12.1999. The workmen as such are not entitled to claim any amount after the date of winding up except those workmen who are engaged in protecting and preserving of the assets of the company (in liquidation) under the directions of the OL and the Court.
Issue No. 5 : Whether the workmen are entitled to any arrears of salary prior to 12.7.1998 when they received last salary from the grants given by the State Government.
38. Workmen and employees of the Company (in liquidation) were paid their last salaries upto 12.7.1998. The company was thereafter wound up on 8.12.1999. The statement of affairs was filed on 6.3.2000 and the Official Liquidator took possession of the assets on 31.7.2001 in pursuance of the order passed by this Court.
39. The demand of the workmen for arrears can be sub-divided into three categories:
a) Wage board arrears.
b) Awards of the Industrial Tribunal/Labour Courts/other Industrial Adjudicator? bodies which could not be implemented either because, the company (in liquidation) did not have sufficient funds or were stayed by the High Court.
c) Any other arrears.
a) Wage Board Arrears.
40. Shri P.N. Saxena, learned Senior Advocate appearing for nine workmen (six of Chunar and three of Dalla) submits that the Cement Union Manufacturer Association entered into Negotiations with the Workers Federation. The Negotiating Committee consisting of Shri N. Srinivasan and Shri A.L. Kapoor held prolonged discussions with Joint Negotiations Committee of Cement Workers, on 18 and 19th June, 1996 at Mumbai. The agreement was incorporated into the 'Memorandum of Settlement' signed jointly by the representatives of the Cement Industry and Cement Workers' Federation before the Chief Labour Commissioner. Consequently the strike which was to commence from 24th June, 1996 was called off. The memorandum of settlement provided for increasing basic wages; house rent allowance; conveyance allowance; education allowance; leave travel allowance washing allowance and dust allowance lo be made effective from 1.4.19%. The clearness allowance was fixed at AICP1 (1960 = 100) number 1500 at Rs. 2204.30 to be verified @ 2.05 per point for fall or rise would be paid above AICPI number 1500 ( 1950 = 100). Rate of Rs. 2.05 will be raised to Rs. 2.10 per point rise or fall from 1.4.1996. The existing method of calculation of dearness allowance on quarterly basis was to continue. The rate of increments in respect of various categories of employees to be given on the next due date of increment was provided in MOU with one annual graded increment for five years of service as on 1.4.1996 or two annual graded increments above 15 years of service 1.4.1996. The settlement benefits with previous settlement of Rs. 115/- was to be added in the basic wage as special pay namely 1.4.1996- Rs. 15/ on 1.4.1997 Rs. 40/-, on 1.4.1998 Rs. 30/- and on 1.4.1999 Rs. 30/-. The settlement was to remain valid for two years. The workmen of the company (in liquidation) entered into negotiation with the management and that by office Memorandum dated 12.3.1997, the then management of the company (in liquidation) agreed to implement Wage Board Award w.e.f. 1.2.1997. The demand for arrears of 10 months beginning from 1.4.1996 to 31.1.1997 was deferred subject to rehabilitation of the unit and improvement of the financial condition. It is relevant to state here that the matter was receiving consideration for rehabilitation in BIFR. The management and the workmen approached BIFR for implementation of the wage board award. The BIFR in its proceedings observed that BIFR has no role to play in the matter of settlement of upward revision of wages.
41. On 12.3.1997, the Management and the Workmen were competent to sit together and decide the question of implementation of the Wage Board Award. The workmen were represented by their authorized unions and thus the settlement was binding on all the workmen. The relevant part of the settlement, in the office Memorandum dated 12.3.1997 is quoted as below:
IV. Wage settlement - Implementation of Memorandum of understanding dated 12.7.1996 The trade union representatives stressed and urged for immediate implementation of Memorandum of Settlement dated 12.7.1996. They also mentioned that the B.I.F.R. Has also now clarified that management can take a decision on their own regarding the wage settlement. The union representatives were apprised that implementation of MOS will entail additional financial burden of Rs. 45 lakhs per month and about Rs. 5 crores towards payments of arrears. In the context of critical financial position of the Company and the difficulties being experienced in raising financial resources for the rehabilitation package, the management called upon the workers to do maximum sacrifies at this juncture to save the Corporation. In the process the workers may consider to forego some of the allowances increased in the MOS or to take them later on or forego the arrears accrued against MOS.
Appreciating the critical financial condition of the Corporation, the union representatives suggested that arrears equivalent to one month salary may be paid every month with current wages. It was explained to the union representative that in case the proposal for payment of arrears in instalments is agreed to, a provision for payment of the same along with the source for meeting this committed liability has to be shown in the rehabilitation package. In the context of every critical and light financial position and resources crunch it may not be possible to include this in the rehabilitation package.
After detailed discussions, the following agreement was reached upon between the management and the nominated union representatives:
(a) Payment of increased wages as per Memorandum of Settlement dated 12.7.1996 be implemented from the salary for the month of February 1997.
(b)The arrears for the period 1.4.1996 to 31.1.1997 against the MOS dated 12.7.1996 and all the arrears would be paid after implementation of the rehabilitation package. This will be decided after taking into account the financial position of the Company at that time and in consultation with the workers representatives. The union representatives also agreed that no dispute will be raised for the payment of arrears.
The union representatives further agreed that during the three years of implementation of rehabilitation package workers will not insist for any increase in wages, salaries etc. at local level/with the management.
Union representatives were impressed by the Management to dispel from their minds fear of any victimization pursuant to workers agitation for implementation of the MOS.
Since the rehabilitation package is still in the process of preparation and during this process various alternatives, views and difficulties may crop up and therefore, it was also agreed that till all the aspects of rehabilitation package are not finalised the process of mutual consultation will be continued. The union representatives assured the management of their full and positive cooperation in the process of finalization and implementation of rehabilitation package.
Now, therefore, in consonance with the agreement reached on 26/27.2.1997 with the nominated six representatives authorized by all the Trade Unions of the three units and pursuant to decision taken by the Board of Directors of the Corporation at the meeting held on 24.2.1996, observations dated 6.2.1997 of Hon'ble Bench III of B.I.F.R. (para No. 8) and the opinion dated 19.2.1997 of the Law Department, Government of UP, it has been decided to implement the Memorandum of Settlement under Section 12(3) and 18(3) of the Industrial Dispute Act, 1947 signed on 12.7.1996 by the CMA and Cement Workers before the Joint Chief Labour Commissioner (Central) New Delhi as under:
(A) The increase in Wage/benefits as per MOS at 12.7.1996 aforesaid, as per details given in para (6) below, will be given to all eligible employees of the Corporation from the salary for the month of February, 1997 and onwards.
(B) The arrears of Wage/benefits as per MOS at 12.7.1996 for the period 1.4.1996 to 31.1.1997 will be paid separately after completion of implementation of Rehabilitation plan of the Corporation, in instalments to be decided in consultation with the Trade Union representatives.
(C) The following benefits under the above settlement will be given to all categories of workers of the Corporation who have been covered by the Second Arbitration Award for Cement Industry.
(1) The total emoluments of all the eligible employees shall be increased by Rs. 890/- permonth with effect from J.4.1996, as follows:
a) Increase in Basic Wage Rs. 285/- P.M.
b) Increase in House Rent Allowance Rs. 75/- PM
c) Increase in Conveyance Allowance Rs. 300/- P.M.
d) Increase in Education Allowance Rs. 30/- PM
e) Increase in Leave Travel Allowance Rs. 150/- PM
f) Increase in Washing Allowance Rs. 25/- PM
g) Increase in Dust Allowance Rs. 25/- PM
Total Rs. 890/- PM
(2)(a) The fixed Dearness Allowance payable from 1.4.1996 at All India Consumer Price Index Number 1500 ( 1960 = 100) would be Rs. 2204. JO, which includes earlier fixed D.A. Of Rs. 824.30 and variable D.A. For 690 points (1500-810 points) at Rs. 2.00 per point i.e. Rs. 1380.00
(b) From 1.4.1996 for every point rise or fall in All India Consumer Price Index Number above 1500 (1960 = 100) the existing rate of variable Dearness Allowance of Rs. 2.00 per point shall be revised to Rs. 2.05 per point. The rate of variable Dearness Allowance of Rs. 2.05 per point will be further revised to Rs. 2.10 per point rise or fall 1.4.1998.
(c) The existing method of calculation of Dearness Allowance on quarterly basis would continue.
(3)(a) The Annual Increments in the respective scales of pay will be revised as follows with effect from 1.4.1996:
Grades Present quantum Revised quantum
of increment of increments
E. Rs. 8.00 Rs. 24.00
D. Rs. 11.00 Rs. 33.00
C Rs. 15.00 Rs. 45.00
B Rs. 20.00 Rs. 60.00
A. Rs. 26.00 Rs. 78.00
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TC Rs. 13.00 Rs. 39.00
I Rs. 16.00 Rs. 48.00
II Rs. 20.00 Rs. 60.00
III Rs. 22.00 Rs. 66.00
IV Rs. 28.00 Rs. 84.00
V Rs. 32.00 Rs. 96.00
VI Rs. 36.00 Rs. 108.00
VII Rs. 40.00 Rs. 120.00
(b) The revised annual increment would be given on the next due date of increment of each workmen.
(4) Such of the workmen who were on the rolls of Cement Companies as on 1.4.1996 and who had completed continuous service of five years and above shall be given one additional graded increment on 1.4.1996 in their revised pay scale as service weightage. Such of the workmen who had completed fifteen years and above continuous service as on 1.4.1996 shall be given two additional graded increment in their revised pay scales as service weightage.
(5) The earlier settlement benefit of Rs. 115.00 will be treated as basic wage and termed as special pay in stages as detailed below:
Special Pay Settlement benefit On 1.4.1996 Rs. 15.00 Rs. 100.00 On 1.4.1997 Rs. 55.00 Rs. 60.00 On 1.4.1998 Rs. 85.00 Rs. 30.00 On 1.4.1999 Rs. 115.00 Nil
As and when a portion of settlement benefit is treated as special paw the existing settlement benefit will be reduced by such amount.
(6) The settlement is valid for a period of 4 years from 1.4.1996.
(7) All categories of workers who have been covered by the Second Arbitration Award shall continue.
(8) All the existing service conditions, benefits and privileges shall continue to be operative till revised.
(9) If any workman reaches the ceiling of his grade during the pendency of this Settlement, he will continue to draw his annual increment at the rate last drawn.
(10) The salary for the month of February 1997 shall be computed and paid to the workers oh the above basis. Arrears for the period 1.4.19% to 31.1.1997 shall be paid separately as spelled out in para (B) above and as already discussed with the representative of workmen.
(P.L. Loi) Managing Director Dated March 2, 1997.
42. The court finds that the objection of the workmen, for implementation of the wage board award, accepted vide office Memorandum dated 12.3.1997 after settlement with the workmen due to workmen, is valid. The settlement was in fact implemented and that the workmen had started receiving their salaries in terms of the settlement w.e.f. 1.2.1997 paid to them upto July 1998. The OL has considered the increase of wages with the implementation of the wage board award. The OL however, has not accepted the increments and the increased dearness allowance to be calculated and paid on quarterly basis. The OL committed an error in refusing to accept the settlement notified by Office Memorandum dated 12.3.1997. The OL will admit the Increments, Special Pay, Settlement Benefits, and the quarterly increased in Dearness Allowances payable to the workmen from July 1998 to the date of winding up i.e. 8.12.1999.
b) Arrears due to workmen on account of Awards of Labour Court/Industrial Tribunal and other Industrial Adjudication Boards.
43. The OL has taken into consideration all the awards of the Labour Court and Industrial Tribunals, which were placed before him along with claims of the workmen. He has taken into consideration the awards, the implementation which was stayed by the High Court. Shri Ashok Mehta, learned Counsel for Official Liquidator submits that following Awards of the Labour Court and Industrial Tribunal were not considered by the OL as the details of these Awards and the calculations of the amount was not produced and annexed with the claims. These details are as follows:
1. Award by Industrial Tribunal, Allahabad delivered by Shri H.N. Misra in Adjudication Case No. 19 of 1984 dated 27.3.1985. This award covers 24 workmen terminated on 23.6.1980. Their termination was set aside with 75% back wages. In writ petition No. 12767 of 1985 by interim order dated 17.9.1985, this Court stayed the back wages and directed that the workmen be reinstated. The writ petition was dismissed by this Hon'ble Court on 25.5.2001. Shri Mehta submits that a computation of the award under Section 6H(1) of the U.P. Industrial Disputes Act 1947 was made on 9.8.1985 for five workmen for Rs. 211470/-. The other 19 workmen did not get apportioned. One of the workman covered under this Award is C-920 (Dalla) Shri Din Dayal.
2. Award by Labour Court, Allahabad by Shri H.N. Srivastava in Adjudication Case No. 8 of 1981 dated 9.7.1983 published on 4.8.1983. This award covers Shri India Deo Singh, Assistant Store Keeper, a workmen terminated on 23.6.1980. The Labour Court directed reinstatement with full back wages. In writ petition No. 13861 of 1983 by interim order dated 10.10.1985 the back wages were stayed. The writ petition was dismissed by this Hon'ble Court on 30.8.1981. In 1 this case the workman is entitled to back wages i.e. full wages from 23.6.1980 to 4.8.1983 and half wages from 4.8.1983 till the date of reinstatement. In the interim order only half wages were stayed from 4.8.1983 to the date of reinstatement.
3. Award by Labour Court, Allahabad by Shri Hari Mohan Misra in Adjudication Case No. 9 of 1984 dated 22.1.1985. In this award 122 workmen had claimed that they be made permanent w.e.f. 22.1.1985. Writ Petition No. 9708 of 1985 filed against the award was dismissed on 11.1.1989. By Special Leave Petition No. 8128 of 1989 against the judgment of High Court was dismissed on 7.3.1991. There is a calculation under Section 6H(1) of the U.P. Industrial Disputes Act 1947 in respect of this; award dated 30.3.1991 for Rs. 3104149.78 to which these 122 workmen are entitled.
4. Award in Adjudication Case No. 26 of 1988 by Industrial Tribunal. Allahabad presided over by Hon'ble Mr. Justice B.P. Mathur dated 3 1.11.1990. This award covers 19 workmen for payment of higher grade of Rs. 110-270 w.e.f. 16.3.1978. The claim was allowed and writ petition No. 594 of 1992 against this award was dismissed on merit on 9.4.1998. Out of 19 workmen covered under the award only 16 have applied. The OL has allowed claims of some of these workmen beginning from C-26891. It has observed that the claim of Hirawati wife of Lambodhar Prasad (C-1668) cannot be entertained as he died on 16.8.1989. She has not filed the appeal against the order and is otherwise not entitled to any amount. The rest of the 15 workmen, who have applied for enforcement of the award, are entitled to the amount, according to the calculation made by them.
5. Award in Adjudication Case No. 119 of 1986 by Industrial Tribunal presided over by Justice B.P. Mathur dated 5.1.1991 awarding claim of 404 workmen to be treated as permanent when they completed three years of service. A writ petition No. 30260 of 1991 was filed against the award in which the stay order was granted on 6.8.1996. The writ petition was dismissed on 24.9.2004. Recall application dated 29.7.2005 filed by the OL is still pending.
6. Out of these 404 workmen, 23 have left and 05 did not make any claim leaving 376 workmen. They are entitled to the award subject to calculation to be made as to when they are entitled to be made permanent on completing three years of service.
44. One Shri Munna Prasad, casual labour, Dalla Cement Factory, Dalla has filed an objection to the part rejection of his claim as workmen on the ground that there was an agreement between the management of the company (in liquidation) and 587 workmen, who were employed between 1971-1973 as casual labours (unit) and in 1981 as casual labours KCCP (Kajrahat Chunar Cement Project). A seniority list was issued in.19881 (Annexure No. 1 to the objection/appeal) and that all of them were working. In 1991 there was a Labour Court's award with regard to casual workmen and accordingly an agreement was entered into between the management and the workmen on 16/20.7.1992 (Annexure No. 2 to the objection/appeal) in which workmen were divided into two groups, in the first group, 122 workmen were kept, out of 02 had died and 02 had retired and remaining were kept in the second category. The management agreed that the second category will also be regularised in accordance with the orders of the then Managing Director dated 7.11.1978. According to this policy, if 30% of the 118 workmen were to be regularised, 70% of 275 workmen in category two were to be regularised simultaneously. Shri Harendra Pandey appearing for Munna Prasad submits that this agreement was withheld and that all 122 casual labour of first category were treated regular. The OL should have considered the fact that under the agreement 70% casual labours of the second group were also entitled to be regularised for which an objection was filed with the OL on 25,11.2006.
45. The workers covered under the award will be benefited in terms of this award by the Industrial Tribunal and Labour Court. The agreements can be accepted only if they are registered under Section 6B of the U.P. Industrial Disputes Act 1947. The agreement dated 16/20.7.1992 was not'a1 registered agreement. The settlement was not arrived in conciliation' proceedings and has not received the approval of the Deputy Labour Commissioner. The Court, as such, cannot recognise this settlement and thus no further relief except the award of the claim with further benefit given in the court in which order can be given to Shri Munna Prasad and similarly situate casual workmen.
46. The Court has gone through all the Awards of Industrial Adjudicatory Bodies and find that they were required to be implemented and the wages of the workmen covered by the Award were requires to be included in admitting their claims. The OL is directed to implement these Awards and to include the amount of the claims of the workmen who were beneficiaries of these industrial adjudication.
47. The OL has admitted almost all the arrears/demands of which were submitted by the workmen. There are no other arrears to be admitted. It was submitted by Shri P.N. Saxena that the workmen were also entitled to amenities allowances like dhoolbhatta over the uniforms, shoes and raincoat and helmet implemented w.e.f. 5.5.1997. The court finds that the production in all the plants had come to an end before 5.5.1997. There was no mining activity or production carried out after that date. The amenities allowances were admitted to the workmen in case they were actually found working. Since the workmen were not working, these benefits cannot be treated to be workmen's dues for the services rendered to the company (in liquidation).
Issue No. 6 & 7 : Whether, workmen are entitled to retrenchment Compensation under Section 25FFF of the Industrial Disputes Act 1947 calculated @ 15 days salary for every completed year of service and one month's notice pay treating them to be retrenched under Section 25F of the Industrial Disputes Act 1947 and whether the workmen are entitled to one month's notice pay treating them to be retrenched under Section 25F of the Industrial Disputes Act 1956?
48. A total number of 5919 workmen submitted their claims to the OL. Out of these, the OL, on the recommendation of the SCC, admitted 5229 claims and rejected 393 claims for want of proofs. The total amount claimed by the workmen towards the dues is Rs. 342,01,73,620/-. Out of this, the OL has admitted only Rs. 117, 18, 99,001/-. There are 16 categories of workmen including muster roll employees; casual employees; visiting teachers and 143 officers. The OL has considered and calculated salaries by approximating the gross salary of each category of workmen with the highest claim in the category as the indicator. The workmen were treated as overriding, preferential creditors under Section 529A of Companies Act 1956. The observation of the SCC accepted by the OL with regard to workmen is quoted as below:
WORKMEN : (Annexure 1a, 1b, 1c, 1d, 1e, 1f, 1g) While adjudicating the claims of Workmen in the above named company under liquidation, the claims committee has gone through the records as were made available by the Official Liquidator. However, most of the records made available do not pertain to the period under consideration.
Payrolls of the workers do not appear to be accurate and authentic as the same are not signed or counter signed by any of the competent authority. The Committee also requested the employees provident Fund commissioner, Varanasi to submit the audit report and form VI (in which details of Workmen Salary and deductions are given), but the same has not been made available to the committee as yet.
We have examined the affidavit and supporting documentary evidence filed by the claimants and also taken into consideration available records, pay rolls and particularly the manpower report (indicating the grade-wise and designation wise gross salary), filed in Writ Petition No. 15134 of 1998, by Shri Harendra Pandey, the representative of one of the Workers Union before the Hon'ble Court. (Annexure : 1a) It is admitted; in the affidavit of majority of employees that they have been paid salary upto 12th July, 1998.
Keeping in view the Supreme Court judgment sin S.K. Maini V Carona Sahu Co. Ltd. AIR 1994 SC 1824 and also in Burma Shell Oil Storage & Dist. Co. of India Management Staff' Association AIR 1971 SC 922, we have classified employees and workmen accordingly.
After careful scrutiny of the records and proofs, we have admitted workmen unpaid salaries till the date of winding up order. The workmen have also been allowed leave encashment, three months salary as retrenchment compensation as per Section 25FFF of the Industrial Dispute Act 1947 and Gratuity. Many of the workers have claimed bonus for the year 1993-94. In order to maintain uniformity, the committee has decided to grant Rs. 2,499.00 as bonus to all the workmen. Simple Interest @ $% per annum has been awarded on the net wages of the workmen from the date of winding up order till the last date of submission of claim i.e., 31th July 2006. (Annexure No. 1b, 1c, 1d) Note : Last salary drawn and service period has been mentioned on the affidavits of every workmen. Remarks like retired or died have also been mentioned on the affidavits. Complete calculation has Been done on computer and the print out of each calculation sheets containing 25 claims of workmen have been affixed on each bundle of claims file.
Some of the workmen have committed calculation mistakes. While some other workmen have claimed interest without mentioning the amount thereof, and therefore interest amount has not been included in the claimed amount. Some workmen have not specifically claimed retrenchment compensation, but as a policy decision we have allowed interest and retrenchment compensation to all the workmen. In such cases, admitted dividend may appear higher than the amount claimed. The benefit of retrenchment compensation has not been given to those who died or retired before the date of winding up order.
The statutory retirement benefits to the retired employees have also been allowed. We have also adjudicated the claims of workmen who have filed their claims on the basis of the orders passed by the Hon'ble Supreme Court, Hon'ble High Court, other Courts. Industrial Tribunal and Arbitrators. The claims found improper or doubtful have been rejected. (Annexure No. 1e, 1f 1g)
49. The workmen have been allowed unpaid salaries with classification of pay scales till the date of winding up i.e. 8.12.1999. The workmen have also been allowed leave encashment; three months salary as retrenchment compensation under the proviso to Section 25FFF of the Industrial Disputes Act, 1947 and gratuity. In order to maintain uniformity, the OL has granted Rs. 2499/- as bonus to all the workmen and then allowed simple interest @ 4% per annum under Rule 156 of the Companies (Court) Rules 1959 on the net wages from the date of winding up to till the last date of submission of claims i.e. 31.7.2006. The retired workmen were not treated as workmen on the date of winding up as they were not in employment. The statutory retirement benefits, however, have been allowed to the retired workmen.
50. Shri B.D. Mandhyan, Senior Advocate; Shri P.N. Saxena, Senior Advocate and Shri Ravi Kant, Senior Advocate submit that the workmen are entitled to retrenchment compensation. According to Section 25F read with Section 25FFF of Industrial Disputes Act 1947 which enables them to get one month's salary for the notice period and 15 days salary for each completed period of service. They have relied upon S. Anthony Raj v. A. Sanguman 1994 Com Cases (80) 531 in support of their submissions that compulsory winding up of a company on the ground that very substrjatum of the company was gone, will be covered under Section 25F read with Section 25FFF of the Industrial Disputes Act 1947. Such a case could not be covered by the proviso to Section 25FFF. The compulsory winding up on1 the recommendation of Board of Industrial and Financial Reconstruction under Section 20 of the Sick Industrial Companies (Special Provision) Act 1985 is not closure on account of unavoidable circumstances beyond the control of the employer.
51. In A. Sanguman Pilot Pen (India) Ltd. the winding up order was passed by Madras High Court on 27.10.1978 under Section 433 of the Companies Act 1956 after recording finding that the company was unable to pay its dues. The Madras High Court noticed the judgments of Kerela High Court and Bombay High Court and the interpretation of the definition of retrenchment by Supreme Court. In Madhav Chandra v. Nalini Manna (1963) 67 Cal WN 1037 the Kerela High Court held : "if the closure is held4 ay a consequence of the winding up and the employees are removed for that reason, they are not entitled to the benefit under Clause (i) of Section 25FFF which are governed by the proviso thereof." The Kerela High Court in Palai Central Bank Employees Union v. Official Liquidator (1965) 35 Com. Cases 279 held that closure as a consequence of notice under Section 445(3) of the Companies Act is one for unavoidable circumstances.
52. The Bombay High Court took a contrary view in Shri Madhav Mills in Re and held that the explanation to the proviso must be read in the context that the employer has to prove that the circumstances mentioned in the explanation to the proviso only refers to particular contingency in which the legislature decide that a finding would have to be made that the closure was not due to unavoidable circumstances beyond t lie control of the employer. The financial difficulties resulting out of usual trading activities are not unavoidable circumstances beyond the control of the employer.
53. In Hari Prasad v. A.O. Devakar AIR 1957 SC 121 and Hathi Singh Mafg. Co. Ltd. v. Union of India ; the Supreme Court held that the word 'retrenchment' in Section 25F of the Act means discharge of surplus labour or staff by the employer for any reason whatsoever, otherwise than a punishment inflicted by way of a discharge action and does not include termination of services of all workmen oh a bonafide closure of the undertakings or change of ownership of the management. In A. Anthony Raj (supra) the Division Bench of Madras High Court held that in most cases the compulsory winding up by the Court is based upon the power of employers/owners of the company to discharge their debts in due course of their business and that such an event cannot be treated as unavoidable circumstances beyond the control of the company. The Madras High Court allowed retrenchment compensation under Section 25F of the Act.
54. A conspectus of the above decisions and a reading of Section 25FFF would show that only those cases where the management of the company had no control over the events which led to closure and which will also include winding up that proviso to Section 25FFF would apply. These cases may include situations where the business suffered closure on account of change of policy by the Government, act of God like earthquake, floods, unforeseen and unpreventable riots, terrorist activities or change of fiscal polices by the Government. In these cases the management would have no control over the events leading to closure. In the present case the UP State Cement Corporation Ltd. (in liquidation) suffered losses due to bad governance, questionable management practices, excessive labour, out dated machinery and failure to adopt the modern techniques of manufacturing cement. All these circumstances indicated by the Board of Industrial and Financial Reconstruction were the causes for recurring losses, coupled with the fact that the State Government inspite of several opportunities did not infuse funds, led to situation in which the company was unable to survive and was consequently directed to be wound up. These events either singly or taken together are the circumstance which were not beyond the control of the management. The closure of industry on the winding up order passed in such an event will not fall in the proviso to Section 25FFF of the Industrial Disputes Act 1947. The workmen as such are entitled to full retrenchment compensation and pay for one month's notice in addition to the gratuity admitted by the Official Liquidator.
Issue No. 8 : Whether the workmen are entitled to interest @ 12% or interest not exceeding the rate of 4% on the wages from the winding up till the last date of submission of proofs and any other dues subsequent to thereof?
55. It is submitted that the worker's dues should bear the same interest rate as is paid on delayed pension. Learned Counsels, appearing for the workmen, have relied upon some judgments of Supreme Court in the matter of delayed pension. In these cases, it was observed that a pension is payable by operation of statutory service rules on the date of retirement. Any delay in payment of pension, which is no longer bounty or award, results into severe deprivation and hardships. The payment of pension is not dependent upon the mercy of employer.
56. In the present case, the sale of the assets was confirmed on 11.10.2006. The claims were invited before the confirmation of the sale. The workers and employees do not have a right to receive any interest on their dues payable under Section 529 and 529A and 530 of the Act until the sale was confirmed and thereafter the statutory period during which the claims are to be invited, rejections notified under Rule 163 of the Rules. Rule 156 of the Rules of 1959 provide for claim for interest after winding up. There is no interest either reserved or agreed to be paid on worker's dues, on the date of winding up order. Rule 146 provides an outer limit to which the creditors may prove for interest upto the date from the date sum was payable. The Rules provide that such interest shall not be exceeding to 4% per annum. Learned Counsels for workmen submit that since workmen's dues have priority over all other debts, they should be paid interest as there is sufficient amount left to be distributed. The Court cannot override the provisions of law, in adjusting equities. It is true that the workmen have not paid wages since July 1998 and that most of the workmen or their families were starving. The equity may however not cloud the discretion of the Court to be guided by the statutory provisions. In Anthony Rai (s) v. A. Sanmugam (1994) 80 CC 531, a Division Bench of Madras High Court did not agree with the view taken by learned Single Judge in awarding 12% interest to the workmen from the date of winding up.
57. The objections with regard to payment of interest @ 12% as such cannot be sustained. The OL has rightly admitted interest to the workmen @ 4% per annum on the dues to which they are entitled on the date of winding up of the company (in liquidation).
Issue No. 9. Whether the workmen are entitled to bonus in addition to the bonus of Rs. 2499/- awarded at flat rate for the year 1993-94?
58. The OL had admitted bonus at a flat rate of Rs. 2499/- in the year 1993-94, it is reported that all the workmen did not claim bonus and that the bonus at flat rate for the year 1993-94 was worked out and included in their claims on the basis of claim of some of the workmen. No one has-claimed more than this amount and for any subsequent year. Learned Counsel appearing for the workmen did not advance any argument on bonus. The workmen appeared to be satisfied that this one presumably on the ground that there was no mining activities and production in the unit after 1994 and that there were getting salaries upto July 198 on the grants given by the State Government. It may also be possible that workmen have received the bonus along with such grants at a statutory minimum rate. In any case since no argument was addressed, the court finds the award of bonus at a flat rate of Rs. 2499/- for the year 1993-94 justified with no further claim of bonus to be paid to the workmen as part of their wages.
Issue No. 10. Whether workmen dues are barred by limitation?
59. The workmen's dues are to be paid in preference to all other creditors except secured creditors for the purposes of payment of their dues. The workmen are ranked as secured creditors under Section 529 and 529A of the Act. In the present case, the workmen were paid upto 12.7.1998 from the grants given by the State Government. They have not received their wages since thereafter. The right to receive the wages accrued as soon as the assets were put to sale and sale proceeds were received by the OL. The workmen as such became entitled for payment of their dues on 13.11.2006. Their dues are as such not barred bv limitation.
60. All the objections/appeals of the workmen are consequently allowed to the extent that after correction of the mistakes those in their claims and those which have crept in on account of preparing the data, the Official Liquidator will admit to the workmen all the wage board arrears in term of paragraphs 39 to 46 of this judgment. The Official Liquidator will admit retrenchment compensation under Section 25FFF of the Industrial Disputes Act, 1947 calculated at 15 days salary for every completed years of service and one month's notice pay, leave encashment to the extent which was admissible under the Rules/Notifications/Orders of the Corporation (in liquidation) and 4% interest after the date of winding up till the declaration of final dividend by the Official Liquidator.
THE EMPLOYEES/OFFICIERS OF THE CORPORATION (IN LIQ)
61. These appeals by way of objections have been filed by eight officers of the company (in liquidation) represented by Shri Alok Yadav, Advocate. During the course of argument, Shri Alok Yadav made a statement that he does not want to press these objections except the objections of Shri Vinod Shanker Mehta (O-17) and Raman Bihari Saxena (O-14). He has filed supplementary affidavit stalling that in June 1997, their last pay was Rs. 11525/- and Rs. 10550/- respectively, whereas the OL has considered their salary at Rs. 10,000/- and Rs. 8700/- per month. However, during the further argument, Shri Alok Yadav did not press these appeals/objections.
SECURED CREDITORS
62. The company (in liquidation) was heavily indebted on the date it was wound up by the Court on 8.12.1999. It had taken loans by way of term loans from financial institutions namely DDBI Ltd; IFCI Ltd; LIC, working capital loans from State Bank of India, and terms loans from Allahabad Bank. The compan (in liquidation) had also taken terms loans from ICICI Ltd.
63. Shri V.B. Singh, Senior Advocate assisted by Shri Om Prakash Misra appears for IDBI and IFCI; Shri J. Nagar for LIC; Shri S.N. Verma, Senior Advocate assisted by Shri Joyant Banerji, for State Bank of India, and Shri V.K.S. Chaudhari Senior Advocate assisted by Shri P.N. Tripathi for Allahabad Bank. The loan of ICICI has been assigned to Kotak Mahindra Ltd. rep rented by Shri Om Prakash Misra.
64. The company (in liquidation) filed 'Statement of Affairs' on 6.3.2000 verified by Shri Yashpal Sharma, Company Secretary on Form No.57 on the" basis of audited balance sheets as on 31.3.1996. List 'B' annexed to the statement of affairs gives the assets specifically pledged and creditors wholly or partly secured. The estimated value of security of fixed assets mortgaged to FIs and Banks as on 6.3.2000 was disclosed at Rs. 31836.60 lacs and raw material, stores and spare parts hypothecated to bank for working capital loans were shown at Rs. 1205.50 lakhs (Total Rs. 33042.10 lacs). The principal amount borrowed from the banks and financial institutions, according to the loan agreements and the outstanding as on 6.3.2000, when the statement of affairs was filed, was disclosed at Rs. 25875.78 lacs.
65. In list 'B' of the 'Statement of Affairs' the company has declared securities and the amounts of debentures as follows:
________________________________________________________________________________________ Particulars Date Estimated No. Name of Creditor Addres Amount Debt when Surplus of assets when value of s and of debt contracted from specifically secur security occupat security pledged ity ion given _______________________________________________________________________________________
i)Fixed assets Term Loans mortgage to 31836.60 i)IDBI 2974.70 from financial ii)IFCI 344.20 Institutions institutions iii)LIC 630.00 and & Banks iv)SBI 500.00 Banks are (Details as v.Intt.Accruded secured by a per and due on the 20461.88 charge over annexure-1 loan immovable
vi) Outstanding properties present and future by way
ii) Raw working capital 465.00 of joint material 1205.50 loan of SBi/Alld Equitable store & Bank mortagage by spares parts deposit of hypothecated Title deed and to bank for Hypothecation working of all movaible capital loan and other (Details as assets present per and (future annexure-2) except book debts). The mortage and charge created rank paripassu and are subject to prior charge created/to be created in favour of company banker in respect of stores and spares and stock in trade and book bebts for borrowing for working capital 33042.10 25875.78 7166.32
66. All the secured creditors, including IDBI; IFCI; LIC; Kotak Mahindra Bank Limited (for ICICI Debentures); SBI and Allahabad Bank, have submitted claims which were verified by the OL. The observations of SCC dated 2.12.2006 accepted by the OL for verifying and admitting the claims of the secured creditors to prove are; given as below:
3. SECURED CREDITORS (Annexure No: 3) The committee has verified the claims of following secured creditors as per the documents and affidavits made available.
i. IDBI ii. LIC iii. IFCI iv. State Bank of India (Inch Working capital loan) v. Allahabad Bank (Incl. Working capital loan) vi. Kotdk Mahindra Bank Ltd. (ICICI : I & II Loan) After perusal of affidavits and documents it was found that only State Bank of India has filed their Statement of Accounts from April 1980 to December 1987 and the company has serviced the interest part on the term loan upto 31St December 1987.
Allahabad Bank has filled the statement from 1992 onwerds. The State Bank of India is the lead Bank of the consortium. On perusal of the documents and statement of accounts it has been assumed that the term debts of all the above mentioned Financial Institutions and Banks were serviced by the Company upto 31.12.1987. Principal Debts of the Company has been taken as per list 'B' annexed with the statement of affairs submitted by the Company with the Official Liquidator. We have calculated the interest part on following pattern.
1. From 1.1.1988 to, 8.12.1999 (Date of winding up order), Simple Interest @ 11% per annum has been granted. This is in consonance with the rate of interest as per the agreement on term loan advanced by IDBI. It is relevant to mention that the present prime lending rate of the State Bank of India is 11% per annum.
2. From 09.12.1999 to 31s' July 2006 i.e., last date of filling Claim (31st July 2006), simple interest @ 4% per annum has been granted as per the Company Court Rule No. 156.
67. Shri Ashok Mehta, learned Counsel for OL, has made a preliminary objections to the maintainability of the claims of the secured creditors on, the ground that all the claims of the secured creditors are barred by limitation. The company (in liquidation) defaulted in payment of interest due and instalment of principal loans since 1986-87. The secured creditors did not file any confirmation of balances. They submitted copy of the letters calling back loans but did not file suit against the company (in liquidation) for decree within due time. Shri Ashok Mehta further submits that the secured creditors cannot claim to be overriding preferential creditors under Section 529A of the Companies Act 1956 as assets specifically mortgaged are not registered as charges under Section 125 of Companies Act 1956 and in any, case the overriding preferential claims of the secured creditors will only be, to J tin extent of value of the assets specifically pledged.
68. Shri Ashok Mehta submits; that date of filing of suit by IDBI in DRT (Original Application1 No. 265/1999) was not given. The IFCI also did not give the date of filing pf suit in DRT (Transfer Application No. 45 of 2002). The LIC, State Bank; of India and Kotak Mahindra Ltd. (ICICI) did not mention about any suit filed against the company. The Allahabad Bank also did not give the date of filing of suit in DRT (Transfer Application No. 149 of 1999). So far objections filed by State Bank of India and Allahabad Bank for working capital loans, the OL recommended that if there is any surplus amount after meeting the claims of first charge holder and workers overriding preferential claimants under Section 529A, their claims may be considered.
69. Regarding payment of interest, Shri Mehta called in aid Rule 156 of the Company (Court) Rules 1959. Since no demand in writing was made available by the secured creditors from the company, the secured creditors, according to the OL, are liable to be paid only 4% interest from the date of winding up.
70. Shri V.B. Singh, Senior Advocate appearing for IDBI and IFCI submits that Section 22(5) of Sick Industrial Companies (Special Provisions) Act 1985 excludes the period of limitation for the period the stay under Section 22(1) is operative. In the present case, the accumulated losses of the company were more than its assets and that the company lost its net worth in the audited balance sheet for the year ending 31.3.1991. A reference was made by the company under Section 15(1) of the Act of 1985 on 28.3.1992, which declared the company as sick industrial undertaking under Section 3O of the Act, on 7.10.1992. By an order dated 2.7.1997, the BIFR formed an opinion under Section 20 of the Act of 1985 to wind up the company and referred the matter to the Court which ultimately wound up the company on 8.12.1999 after the appeal was dismissed by AAIFR and the writ petition filed by workmen against the order of AAIFR was dismissed. Shri V.B. Singh submits that the period of limitation was arrested on 28.3.1992 and will re-start from 2.7.1997.
71. Shri V.B. Singh, Senior Advocate and Shri Om Prakash Misra submit that the company (in liquidation) has admitted the dues in the audited balance sheet as on 31,3.1996 and that the same admission is reflected in the 'Statement of Affairs' filed by the Company Secretary of the Company (in, liquidation) filed on 6.3.2000. In the meantime the IDBI, IFCI and ICICI filed claim petitions in Debt Recovery Tribunal, which was the only remedy available to the secured creditors to realize their dues. The date chart with regard to dues of IDBI, IFCI and ICICI (now represented by Kotak Mahindra Bank Limited) with regard to their dues for the purpose of working out whether the debts are barred by limitation is given as below:
1. Industrial Development Bank of India Limited (IDBI Ltd.)
1. 27.2.1978, 1st Loan Agreement executed between IDBI Ltd. and the company. In pursuance thereof Rs. 2300 Lacs (Rupee Term Loan) was fully disbursed to be paid @ 11% per annum payable half early on 20th June and 20th December each year. In the event of default a further interest @ 0.5% per annum by way of liquidated damages over and above the rate of interest was payable upon the, footing of compound-interest. The first charge on the movables and immovable assets of the company (in liquidation) was created ranking pari passu with other secured creditors.
2. 22.12.1980, 2nd Loan Agreement was executed. In pursuance thereof Rs. 700 Lacs (Rupee Term Loan) was fully disbursed. The company (in liquidation) was to pay interest at the rate of 11.85% per annum payable half yearly on 20th June and 20th December each year. In the event of default a further interest @ 2% per annum was payable by way of liquidated damages over and above the footing of compound interest. First charge on the movable and immovable of the company (in liquidation) was created ranking pari passu with other secured creditors.
3. 10.1.1983, the third Term Loan Agreement of Rs. 100 Lacs was executed and this third loan was fully disbursed to be paid @ 14% per annual payable half yearly on 20th June and 20thDecember each year. In the event default a further interest of @ 2% per annum was payable by way of liquidated damages over and above the footing of compound interest. First charge on the movable and immovable of the company (in liquidation) was created ranking pari passu with other secured creditors.
4. 8.12.1999 the company was wound up by the High Court.
5.16.4.2002 the Debt Recovery Tribunal (DRT) Mumbai by order dated 16.4.2002 decreed the claim of IDBI in Original Application No. 265/1999 for an amount of Rs. 1, 29, 58, 09, 262/- together with pendelite and future interest and other damages till its realisation.
6. IDBI submitted details of claims by affidavit of proofs of debts amounting Rs. 1, 63, 38, 10, 436/- as on 8.12.1999 (the date of winding up order) and further interest upto 30.4.2006 amount Rs. 3, 41, 82, 87, 199/-.
7. The OL has admitted an amount of Rs. 7667.29 Lacs only.
II IFCI
1. 21.12.1980, 1st Term Loan Agreement executed and Rs. 300 Lacs (First Rupee Term Loan) was fully disbursed payable with interest @ 11.85% payable half yearly on 20th March and 20th September each year. In the event of default 1 further interest of @2% per annum was payable by way of liquidated damages over and above the footing of compound interest. First charge on the movable and immovable of the Company (in liquidation) was created ranking pari passu with other secured creditors.
2. 22.12.1980 2nd Term Loan Agreement executed for Rs. 100 lacs was fully disbursed1 payable with interest @ 11.85% per annum payable on 20th March and 20th September each year. In the event of default a further interest of @ 2% per annum was payable by way of liquidated damages over and above the footing of compound interest. First charge on the movable and immovable of the company (in liquidation) was created ranking pari passu with other secured creditors.
3. 10.1.1983 the 3rd Term Loan Agreement executed and Rs. 24 Lacs (3rd Rupee Term Loan) was fully disbursed. The interest to be paid @ 14% payable half yearly on 20th March and 20th September each year. In the event of default a further interest of @ 2% per annum was payable by way of liquidated damages over and above the footing of compound interest. First charge on the movable and immovable of the company (in liquidation) was created ranking pan passu with other secured creditors.
4. 5.6.2003, the Debt Recovery Tribunal, Lucknow vide order dated 5.6.2003 decreed the claim of the IFCI in Transfer Application No. 45 of 2002 for m amount of Rs. 25,48,21,578/- together with pendelite and future interest till its realisation.
5. IFCI submitted details of claims with affidavit of proofs of debts amount of Rs. 26, 45, 21, 731/- as on 8.12.19199 (the date of windng up order) with further interest upto 30.4.2006 amounting Rs. 70,14,49,794/-.
6. 15.12.2006 the OL admitted an amount of Rs. 887.18 Lacs.
III) Kotak Mahindra Bank Ltd. (assignee of the loans of ICICI Ltd)
1. 18.11.1980 1st Facility Agreement executed between ICI& Bank Ltd. and the Company (in liquidation). In pursuance thereof Rs. 400 Lacs was fully disbursed. The interest @ 12 % per annum was payable half! yearly on 1st January and 1st July each year, In the v. event of default, a further interest of @ 1% per annum by way of liquidated damages over and above the rate of interest was payable upon the footing of compound interest. The first charge was created ranking pari passu with IDBI Ltd, LIC, IFCI Ltd. and SBI (Term Loan of Rs. 500 Lacs) Loan of Rs. 500 Lacs) and SBI as a trustee for the Debentures of Rs. 400 Lacs held by ICICI Bank Ltd. The GUP furnished irrevocable and unconditional guarantees for payment of loan.
2. 7.10.1981, 2nd Facility Agreement was executed for grant of financial assistant of Rs. 100 Lacs disbursed by way of subscribing debentures carrying an interest @ 12% redeemable during May 15, 1982 to November 15, 1987. Against this disbursement the outstanding amount was Rs. 75.10 lacs. A first charge on the movable and immovable assets of the Company (in liquidation) was created ranking pari passu with IDBI Ltd, LIC, IFCI Ltd, SBI (Term Loan of Rs. 500 lacs) and Allahabad Bank (Term Loan of Rs. 500 Lacs) and SBI as a trustee for the debentures of Rs. 400 Lacs held by ICICI Bank Limited. The GUP furnished irrevocable and unconditional guarantees for payment of the loan.
3. 6.12.2006 the Debt Recovery Tribunal, Allahabad vide order dated 6.12.2006 in Original Application No. 291 of 2001 between ICICI Bank Ltd. v. UP State Cement Corporation Ltd. decreed the claim and held that Kotak Mahindra Bank Ltd. is entitled for recovery of an amount of Rs. 56,41,37, 770/- together with pendelite and future interest @ 12 % per annum with half yearly interest.
4. 15.6.2006 Kotak Mahindra Bank Ltd. submitted demand of1 claims on affidavit of proofs amounting to Rs. 46,59,51,812.32 as on the date of winding up.
5. 15.12.2006 the OL admitted an amount of Rs. 1224.54 Lacs only.
72. Shri V.B. Singh submits that with regard to term loan, the contractual rate of interest will prevail over the interest provided under Rule 156 and that even after the winding up order the agreed rate of interest will continue. The OL has no right to fix any rate of interest and that Section 529A is fully attracted. The IDBI filed a claim before DRT Mumbai, which has issued a recovery certificate of Rs. 1,29,58,09,262.00 with pendentilite and future interest till the date of its realization on 18.4.2006. According to Shri V.B. Singh, the company (in liquidation) is indebted to IDBI for Rs. 3,41,82,87,199.00 with agreed interest upto 30.4.2006 and submitted the claim with complete details against three term loans with relevant supporting documents in proof of debts in Form-66 to the OL. He submits that the notice of the OL. accepting the claims only for Rs. 7667.29 Lacs and rejecting the claim of Rs. 29615.58 lacs is illegal and against the provisions of the (sic).
73. There is no dispute with regard to the principal amount borrowed from the financial institutions and banks by way of terms loans, working capitals loans and debentures. In the objections filed by FIs and Banks, the Court is concerned with only two objections; firstly, the loan is barred by limitation as claimed by the workmen and secondly, if the loans are not barred by limitation, the rate of interest to which the financial institutions and banks are entitled upto date of winding up order and thereafter till the date of declaration of dividend. In case the answer to both the questions raised as above is in favour of the FIs and Banks, the third question regarding overriding preferential claims of the secured creditors to the extent of the securities specifically pledged, mortgage and hypothecated for the purposes of Section 529 and 529A will arise.
74. It is admitted that in proceedings before the DRT Mumbai and DRT Allahabad, the OL was represented by his counsel Shri Arnab Banerji. A written statement was filed by the OL. The decree as such granted by DRT is binding on OL. He has not challenged the decree in the appeal. The IDBI, IFCI and Kotak Mahindra Bank Ltd. have already put the decree in execution which are pending before the Recovery Officer, DRT. As a result of these proceedings, the OL cannot challenge that the claims of the IDBI, IFCI and Kotak Malvndra Bank Ltd. are barred by limitation. In fact the OL has not treated the claims to be barred by limitation and has adjudicated them. He has admitted the principal amount to proof. The OL, however, has reduced the interest at a simple rate of 11% per annum on the basis that it was the prime lending rate of the financial institutions and banks prevalent in the period fixed by RBI, and has admitted only 4% interest after the date of. winding up. Till the date the claims were invited i.e. 31.7.2006.
75. The laws of insolvency are applicable for payment of secured debts. It is agreed and it is admitted to the counsels for the secured creditors including IDB1, IFCI, Kotak Mahindra Bank Ltd, LIC, SBI and Allahabad Bank that under the consortium agreement, the term loans granted by FIs and Banks are secured as first charge on the movable and immovable assets of the company (in liquidation) ranking pari passu with other secured creditors. This leaves only the working capital loans which were secured by hypothecation of raw materials, stores and spare parts. The estimated value of the security of the fixed assets, mortgaged to financial institutions and banks given as per Annexure No. 1 of the statement of affairs dated 6.3.2000 is Rs. 31836.60 lacs and the estimated value of raw materials, stores and spare parts hypothecated to the banks in working capital loans detailed as per Annexure No. 2 of the 'Statement of Affairs' dated 6.3.2000 is Rs. 1205.50 Lacs.
76. The entire assets of the company have been sold as is where is and whatever there is basis including actionable claims. These assets include fixed assets, stocks, and raw material, lease hold rights and reliefs and concessions which have been detailed in the order. The valuation of, the security of the secured creditors with regard to term loan has been given in the 'Statement of Affairs' as on 6.3.2000 which has not been disputed by any of the party or their counsel appearing in the matter. The amount of debts due to the banks and financial institutions both by way of term loans and working capital loans of Rs. 25875.78 lacs on 6.3.2000 was as such fully secured and represented by the estimated value of the security of Rs. 33042.10 Lacs, leaving a sum of Rs. 7166.3 lacs as surplus from security. This estimated debt will further bear the interest at the agreed rate with half yearly rest as agreed under the agreement and with a further penal interest in terms of the agreements. These have to be calculated upto the date of winding up i.e. 8.12.1998 and thereafter these amounts will bear a simple interest under Rules 156 and 179 only at 4 % per annum as nothing would be left as surplus after payment in full of all the claims of creditors admitted to proof is to be paid interest only at a rate not exceeding 4% per annum from the date of winding up order to the date of declaration of final dividend.
State Bank of India
77. Shri S.N. Verma, Senior Advocate assisted by Shri Jayont Banerji, Advocate have appeared in support of their Appeal No. O-22 under Rule 164 of Rules of 1959 supported by the affidavit of Shri Maheep Kumar, Assistant General Manager, SBI Stressed Assets Management Branch, Lucknow as supplemented by affidavit of Shri M.C. Panday, Manager-, SBI, Stressed Assets Management Branch, Lucknow that Form-69 dated 15.12.2006 received by the SBI enclosing reasons of the OL in partly rejecting the claim is erroneous as it does not include the other admitted amount of Rs. 301.27 lacs in respect of the cash credit limit and that the OL has illegally and arbitrarily, partly rejected the claim of the State Bank of India (SBI).
78. The SBI claimed Rs. 5544.94 lacs, out of which only an amount of Rs. 1288.75 lacs was admitted by OL towards term loan.
79. There is an obvious error in Form-69 dated 15.12.2006 inasmuch as the OL has admitted Rs. 1590.02 lacs which includes Rs. 1288.75 lacs towards term loan with interest and Rs. 301.27 lakhs towards working capital loan with interest.
80. Shri S.N. Verma, Senior Advocate states that SBI has no objection to the acceptance of the claim of Rs. 301.27 lacs towards working capital loan witli interest and is pressing his objection only with regard to interest of component of the term loan. It is submitted that the calculation of simple interest @ 11% from 1.1.1988 to 8.12.1999 (the date of winding up) ignores the contractual rate of interest.
81. In paragraphs 9 and 10 of the appeal it is stated that Term Loan Account No. 1 was served only upto 31.3.1985 and Term Loan Account No. 2 was served upto 30.0.1987. Thereafter the company was liable to pay the contracted rate of interest. Para 6(ii) of the consortium loan agreement deals with the rate of interest and liquidated damages on SBI loans. The clause reads as under:
The Company shall pay to SBI interest at SBI advance rate subject to a minimum rate of 12.5% per annum on the principal amount of the SBI loan advanced and outstanding from time to lime. Interest will be payable on the 31st march, 29th June, 30th September and the 30th December each year. In the event of default of regular payment of interest on the due date, compound interest at 13.5% per annum from the relative due date to the date of payment shall become payable on the monies due
82. Further para 9(i) of the consortium loan agreement prescribes the manner in which the payments received have to be appropriated. The paragraph reads as under:
Any payment made by the Company to the lenders under these presents shall be appropriated in the following order of priority:
(a) first towards the commitment charges due and payable:
(b) Secondly towards the other cheques, costs, expenses and other monies due and payable, if any under these presents:
(c) Thirdly towards penal interest or additional intent, due by way of liquidated damages;
(d) Fourthly towards interest and compound intent due and payable respectively; and
(e) Lastly towards installments of principal.
83. Shri S.N. Verm a has relied upon Central Bank of India v. Ravindra and Ors. in which the principal amount issue was considered by the Supreme Court and it was observed:
Subject 10 a binding stipulation contained in a voluntary contract between the parties and/or an established practice or usage interest on loans and advances may be charged on periodical rests and also capitalised on remaining unpaid. The principal sum actually advanced coupled with the interest on periodical rests so capitalized is capable of being adjudged as principal sum on the date of suit.
84. According to Shri S.N. Verma, Term Loan Nos. 1 and 2 with agreed account of interest was fully secured as first charge under the consortium agreement and that sufficient amount was available in the security available with the company disclosed in the 'statement of affairs'. The amount claimed by the State Bank of India was decreed on 6.12,2006 by Debt Recovery Tribunal, Allahabad in TA No. 1496 of 2000 in which the OL was also a party. The Slate Bank of India's shares in the consortium finance of Rs. 77 crores in the nature of term loan was Rs. 5 crores, between 17.8.1979 to 1.10.1980. The DRT decreed the claim of SBI and issued recover) certificate for Rs. 62, 08, 50, 394.53 together with pendelite and future interest @ 17.75% per annum (the award is annexed to the supplementary affidavit).
85. In para 19 of the memorandum of appeal the total amount due upto date of winding up towards both the term loans at contributed rate of interest @ 17.5% per annum is quantified at Rs. 5290.90 lacs. The bank has claimed simple interest @ 4% after the date of winding up if the amount is available after satisfying the secured creditors and workmen.
86. After reading Clause 6(ii) of the consortium loan agreement quoted in para 12 of the memorandum of appeal, Shri S.N. Verma very fairly stated that in the event of default of regular payment of interest, on due date the SBI could get the maximum interest @ 13.5 per annum compounded quarterly upto date of winding up and accordingly Shri Jayont Banerji in the presence of Shri M.C. Panday, Manager, SBI, Stressed Assets Management Branch, Lucknow submitted a fresh calculation of interest @ 13.50%. The total outstanding term loan as on 31.3.1993 was Rs. 16,37,39478/-. Adding compound interest the amount upto date of liquidation i.e. 8.12.1999 due on term loan 1 + 2 account comes to Rs. 39,80,875, 79.00 (Rupees Thirty Nine Crores Eighty Lacs Eighty Seven Thousand Five Hundred Seventy Nine only). The SBI pressed its claim for this amount and if anything is left in liquidation, a further simple interest @ 4% to be added till the declaration of final dividend.
87. The other submission of Shri. S.N. Verma regarding liquidation expenses has been dealt with while considering the claims of the UP Power Corporation. In substance he submitted that any amount other than the amount spent for preservation pf assets-, referred to in Sections 556, 557, and proviso to Section 529(2) of the Act read with Rule 338 of the Rules of 1959 cannot affect the security of the bank. The amount legally claimed by the UP Power Corporation for supply of the electricity under the orders of the Court was for the benefit of workmen and that workmen and the occupants of the properties enjoying electricity as goods must pay the amount either from their shares or from their pockets. Shri S.N. Verma has also relied upon proviso to Section 529(2) to apportion the liquidation expenses between the secured creditors and he workmen.
Allahabad Bank
88. Shri V.K.S. Chaudhari, Senior Advocate assisted by Shri P.N. Tripathi appearing for the Allahabad Bank have seriously disputed part rejection of their claim in the OL communication on Form 69 dated 15.12,2006 in which the OL has communicated that out of amount claim of Rs. 39747.05 lacs, the amount of only Rs. 1288.75 lacs is admitted.
89. Shri V.K.S. Chaudhari states that Allahabad Bank ha> no grievance and is not making any objection with regard to claim admitted towards working capital loan with interest of Rs. 368 lacs. The bank, however, has serious objection to the rejection of the claim and agreed interest under the consortium agreement on term loans as the Allahabad Bank has been worst sufferer.
90. Shi V.K.S. Chaudhari, learned Senior Advocate states that Allahabad Bank has all along maintained its stand that it wants to keep out of the winding up. The bank has not participated in the liquidation proceedings except by submitting proof of debts in response to the notice of the OL. Shri Chaudhari has relied upon ICICI Bank v. Sidco Leathers (2006) 5 CLJ 470 (para 53 and 54) in support of the submission that by submitting the affidavit of proofs the bank shall not been taken to have joined the winding up. He submits that bank has neither relinquished the security nor has given up the guarantee and offer to the extent the bank's claim is rejected. The outstanding will be secured by the guarantees given by the Government of Uttar Pradesh. He has referred to the observations made in the order dated 14.2.2002 rejecting the application of the State Government to accept the offer of M/s Grasim Industries Ltd. as well as ground No. 9 and 10 of the appeal and the observations made by the Division Bench in Special Appeal No. 346 of 2002. In para 6 (iii) of the consortium agreement quoted in para 19 it was agreed by the company (in liquidation) with the Allahabad Bank as follows:
(iii) The Company shall pay to AB interest at the AB advance rate subject to a minimum of 12.5% per annum on the principal amount of AB loan advanced, and] outstanding from time to time. Interest will be payable on the 31st March, the 29th June, the 30th September and the 30st December each year. In the event of default of regular payment of interest on the due dates compound interest at 1% per annum over the interest rate applicable for the time being from the relative due date to the date of payment shall become payable on the moneys due.
In the event of default in payment of an instalment of principal, the Company shall be liable to pay to AB by way of liquidated damages additional interest calculated at the rate of 1% per annum over the interest rate applicable for the time being on the instalment in default from the due date till it is paid. The payment of compound or additional interest shall not affect any liability of the Company hereunder for such default, nor will it affect the rights of AB to proceed against the Company for such default.
91. It is stated in paragraph 19 of the memorandum of appeal that at the time of disbursement of the loan in 1981 the MLR/PLR of the bank was 19.5% and the bank rate was 12%. While at the time of NPA of the account in March 1992, the rate of PLR/MLR was 18.5% while the interest of CC limit was agreed subject to minimum rate of 18% per annum quarterly rests.
92. The Clause (iii) of the Agreement dated 3.7.1984 of CC limit is not in issue as the bank is not questioning the amount of interest paid and the quantum of admitted on CC limit by the OL.
93. Shri V.K.S. Chaudhari submits that the term loan of Rs. 500 lacs was divided into two accounts namely TL-1 of Rs. 300 lacs had Rs. 570.14 lacs on 6.6.1989 and TL-2 of Rs. 200 lacs had 527.38 lacs on 6.6.1989. These amounts with interest on 8.12.1999 for Term Loan No. 1 at the agreed interest rate which comes Rs. 4986.51 lacs and for Term Loan No. 2 had Rs. 4757.18 lacs and thus on 8.12.1999 a total amount of Rs. 9743.69 lacs was due.
94. The Allahabad Bank was required to give an official statement of the bank rate at which the interest could be charged under the agreement. The bank rate and minimum lending rate and/or PLR of Allahabad Bank (except sick units of other private sectors where concessions are given) shows that the bank rate in 1989 was 10% and that it never exceeded 12% upto 1999. The Allahabad Bank as such was required to explain as to how it has charged an amount of more the AB advance rate.
95. There is a difference between consortium agreement with SBI in Clause 6(ii) and with Allahabad Bank in Clause 6(iii). Whereas in respect of SBI the compound interest is indicated at 13.5% per annum, in respect of Allahabad Bank, in the event of default in payment of principal, the company was liable to pay to Allahabad Bank by way of liquidated damages additional interest calculated @ 1% per annum and that the interest rate applicable for time being on the instalment. In the event of default of regular payment of interest, a compound interest @ 1% per annum over the interest rate applicable was payable from the due date without effecting the liability of; the company. In the supplementary affidavit of Shri I.D. Tiru, Senior Manager, Allahabad Bank, Churk Branch, Sonbhadra, U.P., it is stated that final calculation of the total outstanding of the term loan till 9.12.1999 given in paragraph b had reached to Rs. 58, 18, 64, 530.00 (Term Loan-I Rs. 29,03,85,380.00 and Term Loan II Rs. 29,14,79,150.00). This is the final calculation on the admitted rate of compound interest and penal interest without compounding.
One lime Settlement
96. Shri V.K.S. Chaudhari submits that the financial institutions had agreed to one time settlement. He has referred to the orders of the Court and the orders in Special Appeals It is submitted that once the financial institutions and banks had agreed to on, time settlement of their term loans. They cannot claim any amount higher than the amount offered from the sick industry.
97. The argument does not merit any consideration inasmuch as the one time settlement principally agreed by the financial institutions and bank was not finalised in the meetings. The financial institutions and banks had agreed towards request of the State Bank of India to one time settlement of their dues in view of the offered of M/s Grasim Industries Ltd. The State Government had persuaded the financial institutions and banks that there was no possibility of getting any amount higher than the amount Rs. 241 crores offered by M/s Grasim Industries Ltd. including workmen's dues and offer for voluntary retirement scheme to the workmen. The acceptance to the offer of one time settlement by the banks and financial institutions was under the shadow of persuasion by the State Government to sell the assets. The negotiations did not materialize as the Court rejected the offer of State Government to sell the assets to M/s Grasim Industries Ltd. and proceeded to advertise the sale through OL in accordance with the provisions in the Companies Act. All the financial institutions and Banks excluding Life Insurance Corporation filed their claims before the Debt Recovery Tribunal and that all these claims have been decreed. In the circumstances, there is no substance in the objections taken by the Allahabad Bank that the financial institutions and banks had agreed to one time settlement of their dues and that they should not be allowed to claim anything more the amount offered by them in the year 2001.
98. Shri V.K.S. Chaudhari submitted that the domestic supply of electricity dues to the porkers, cannot be included in the liquidation expenses to dilute the security of the bank. In the matter of payment of public dues under Section 529 and 529A to the secured creditors, only that much amount can be treated as liquidation expenses, which is necessary for preserving the assets of the company. The domestic supply of electricity was made to the workmen and thus they are liable to pay the electricity bills to the UP Power Corporation. There cannot be any element of discretion or orders to be passed, for protecting fundamental rights of the workers, who were required to vacate the residential accommodations as soon as the company was wound up. If the OL failed to discharge his liability of the evicting the workmen and to obtain vacant possession, the banks securities cannot be diluted. The law and order is a problem of the State Government and not of the OL or the, Court, to give any extra benefit out of the security charged for repayment of the dues of the banks. Shri Chaudhari has relied upon judgment in Wonders Tupiterchits 1992 (74) CC 215 (Kerela High Court) in support of his submission regarding liquidation expenses. He has further relied upon Indian Bank v. OL that the court's decree has to be accepted by the OL irrespective of the renewal of charge under sec on 125 of the Companies Act; State Bank of India v. Wasangi Venketeshwar Rao (para 7 and 8) in support of his submission that the contract with a secured creditors cannot be varied and in which the contract of interest at the RBI rate subject to minimum of 13.50% was upheld by the Court.
Life Insurance Corporation
99. Shri J. Nagar, Advocate, appearing for Life Insurance Corporation (LIC), has filed an Appeal under Rule 164 of the Rules of 1959 (O-39) challenging the part rejection of the proof of debts submitted by LIC. As against Rs. 4996.30 lacs claimed by LIC, the OL admitted only Rs. 1623.83 Lacs treating the term loan to be inoperative from 1.1.1988 and adding 11% simple interest upto date of winding up and 4% simple interest thereafter till the date of filing their claim.
100. Adopting the arguments addressed by Shri V.B. Singh, Senior Advocate appealing for IDBI and IFCI; Shri Om Prakash Misra, Advocate for Kotak Mahindra Bank Ltd; Shri S.N. Verma, Senior Advocate for State Bank of India and Shri V.K.S. Chaudhari, Senior Advocate for Allahabad Bank, Shri J. Nagar submits that according to the judgment in ICICI Bank v. Sidco Leather Ltd. (2006) 5 CL.T 470 claim of LIC is entitled to the entire principle with the contracted rate of interest. He submits that the term loan granted by LIC under the consortium agreement was disbursed in three instalments vide pronote dated 8.12.1979; 29.1.1980 and 30.10.1980. The account became inoperative after 31.12.1987. The first term loan was for Rs. 5,10,00,000/- and the second term loan was for Rs. 90 lacs. The company (in liquidation) agreed to pay interest @ 12% per annum and further agreed that in case of default of principal amount, default of interest of 1% and in case of default of interest an additional penal interest of 1% will be payable. According to Shri J. Nagar, the interest @ 12% on the principal amount was payable on half yearly basis. The penal interest, however, will not be compounded in view of judgment in Central Bank of India v. Ravindra (2002) 1 SCC 368. In this judgment the Supreme Court held that a person, deprived of the use of money to which he is legally entitled, has a right to be compensated for the deprivation, which may be called as interest compensation or damages subject to a binding stipulation contained in a voluntary contract between the parties and/or and established practice or use of interest and loan and advance may be charged on periodical rests and also capitalized on remaining unpaid. Principal sum actually advanced coupled with the interest on periodical rests so capitalized as capable being adjudged) as principal sum on the date suit (para 58). The interest once capitalized ceases to be interest and becomes a part of principal sum or capital and therefore the question of awarding interest on interest does not arise a all. The Supreme Court further held in para 55 (1) that penal interest cannot Lie capitalized. It will be opposed to public policy. Further interest i.e. interest on interest whether simple, compound or penal cannot be claimed on the mount of penal interest.
101. On the law laid down in Central Bank of India's case (supra) and further on the act that there was no agreement or established practiced or use nor any such established practice of use has been pressed into service, the compounding of penal interest cannot be claimed by the financial institutions and banks.
102. The LIC did not file any suit for recovery of principal and interest in the Civil Court or in the Debt Recovery Tribunal. Shri J. Nagar submits that though loan w is inoperative from 1.1.1988 and that the reference made to BIFR was registered on 10.7.1992vand the winding up order was passed on 8.12.1999, the claim of LIC will not be barred by limitation as under Article 63 of the Limitation Act 1963 the limitation for filing a suit for foreclosure of mortgage is 30 years and thus the claim filed by LIC is within the limitation of the creation of mortgage in 1978-79. Shri J. Nagar submits that the entire due of the LIC were secured by mortgage of the fixed assets of the company under the consortium agreement and that these assets were much more the in the amount claimed by the LIC. The claim as such is not barred by limitation.
103. In the present case the entire debts of the banks and financial institutions were secured by simple English mortgage by deposit of title deals. In the Statement of Affairs' as prepared on the basis of the balance sheet as on 31.3.1996 filed on 613.2000 the total amount due to secured creditors with interest was disclosed to Rs. 25875.78 lacs and that the fixed assets mortgaged to financial institutions and banks were estimated to be valued at Rs. 31836.60 lacs. The loan was entirely covered by fixed assets mortgaged to he financial institutions and banks. Section 17 of the Recovery of Debts due o Banks and Financial Institutions Act 1993 provides for same, limitation as it is provided by limitation Act 1963 and thus the limitation for filing suit by the mortgagors for foreclosure under Article 63(a) is 30 years. The claims of LIC are as such not barred by law of limitation.
104. LIC had claimed an amount of Rs. 4996.30 lacs from the OL. This claim was based on 15% interest and also capitalizing it by compounding on half yearly basis. Along with his appeal, Shri J. Nagar has given a fresh calculation of both the terms loans calculated @ 12.50 % compounded on half rest yearly basis. On the first term loan of Rs. 5,40,00,000/- and second term loan of Rs. 90 lacs the interest has been calculated @ 15 % compounded on half yearly basis. The total dues of LIC calculated in the aforesaid manner upto date of winding up i.e. 8.12.1999 are Rs. 324,391,121/-. The LIC has agreed not to charge the penal interest.
105. The Appeals/Objections of the secured creditors including the, IDBI, IFCI, Kotak Mahindra Bank Ltd, SBI, LIC and Allahabad Bank are consequently partly allowed with directions to the OL to recalculate the amount as follows:
106. In ICCI Bank Ltd. v. Sidco Leathers Ltd. and Ors. (2006) 5 CLJ 470 the Supreme Court set, aside the order of High Court at Allahabad dated 4.8.2004 in Special Appeal No. 698/2002, affirmed the judgment of Single Judge (Company Judge) dated 24.5.2002. Sidco Leathers Ltd. was wound up on 16.12.1993 and the OL was appointed as Liquidator of the company. The IDBI, IFCI, ICICI had given Rupees Term Loans and Foreign Currency Loan to the company. The Punjab National Bank advanced working capital funds. A first charge was created in favour of ICICI Bank Ltd. along with other financial institutions by equitable mortgage with deposit of title deeds of the immovable properties. The Punjab National Bank secured its loan by second charge by way of constructive delivery of title deeds. The charge of Punjab National Hank was subservient to the charges in favour of IFCI, IDBI and ICICI. The ICICI filed a suit which was transferred to DRT Bombay. The High Court permitted the suit to continue under Section 446 of the Companies Act. The PNB also filed a suit in the court of Civil Judge, Fatehpur. The OL sold the assets and had a sum of Rs. 71,00,351/- available with him for distributions to the creditors of the company. Relying on Allahabad Bank v. Canara Bank and Anr. AIR 2000 SC 1535 the Company Judge held that IFCI and IDBI have joined the winding up proceedings and have submitted proofs of debts before the OL They shall be taken to have given up their securities and thus they will not claim any priority over the debt of PNB on the fixed assets. The Division Bench held in appeal that the appellant, haying opted to remain outside the liquidation, will have second claim of beneficial right. The right of secured creditors under Section 529A is a contingent right and that the ICICI Bank Ltd. was rank with unsecured creditors to' take its dividend under Section 529(2) of the Act.
107. The Supreme Court while setting aside the judgment held that corporate insolvency procedure serve a variety of functions which include collective execution by unsecured creditors, facilitation of corporate rescue and the enforcement of security which would also include corporate morality. The liquidation proceedings are collective enforcement mechanism for the benefit of unsecured creditors. The liquidation is also an action for termination of company affairs. Applying pari passu principles, creditors' claims are to be treated alike, a single point of time at which the assets are liable 10 be quantified must be pinpointed, but then subsequent events are also required to be considered. For those who desired to go before the Company Court for dividend by relinquishing their security, in accordance with the Insolvency Rules, Section 529 of the Companies Act will be attracted. Under Section 47 of the Provincial Insolvency Act, a secured creditors may realise his security and prove for balance due to him; after deducting the net amount realized. Where a secured creditor relinquishes his security for general benefit of the creditors, he may prove for ids whole debt. Sub-section (3) provides that where a secured creditor does not either realize; or relinquish his security, he shall before being entitled to have his debt entered in the Schedule, state in his proof the particulars of his security and the value at which he assesses it and shall be entitled to receive the dividend only in respect of the balance due to him after deducting the value so assessed. Sub-section (6) provides that where a secured creditor does not comply with the provisions of this section, he shall be excluded from all shares in any dividend. The second class of the secured creditors are those who come under Section 529A(1)(b) of the Companies Act, who opt to stand outside the winding up to realise their security. They also come, in certain circumstances, go before the Company Court. The Apex Court held that though Section 529A of the Companies Act contains a non-obstante clause but in construing the provisions thereof, it is necessary to determination the purport and object for which the same was enacted. Earlier the dues of the workmen were not to be treated pari passu with the secured creditors. It is only after insertion of Section 529A the workers' dues are pari passu with the secured creditors.
108. it was held by the Apex Court that secured creditors have a valuable righi which must be preserved. The Parliament had by amending the provisions of the Companies Act did not intend to take away respective rights of the secured creditors under Section 529(1)(c) of the Companies Act or vis-a-vis unsecured creditors. It does not envisage respective rights amongst the secured creditors. Section 48 of the Transfer of Property Act will not stand obliterated inter-se priority of secured creditors. It does not get obliterated by merely responding to public notice and that unsecured creditors are not to be placed at par with the secured creditors. The filing of affidavits or proofs of claims does not amount to relinquishing the security. In substance it was held that in submitting the affidavits or proofs of the claims with the OL, for distribution of the claims beyond realized assets, the inter-se contract with regard to the priority of charges between secured creditors has to be enforced by the OL. If the OL proceeds to sell the security the Court first has to pay the amount on which the security was valued to the secured creditors out of the sale proceeds.
109. A consortium agreement was entered into between IDBI; State Bank of India; and Allahabad Bank on 27.2.1978 with the U.P. State Cement Corporation Ltd. (in liquidation). Under this agreement annexed in the appeal filed on behalf of IDBI and also annexed as Annexure No. 3 to the appeal filed by the State Bank of India (O-22), the term loans were agreed, to be the first charge on the fixed assets of the company (in liquidation). Schedule-III of the agreement for security clause for equitable mortgage provided in para-1 that the loan amounts of the lender together with interest compound and/or additional and/or penal interest, liquidated damages, commitment charge, other charges, cost expenses and other monies payable shall be secured by way of equitable mortgage by deposit of title deeds on all the immovable properties of the company present and in future and by charge by way of hypothecation of the movable properties of the company present and in future. In the event of default in para-2 the lenders reserved a right to take over the management of the company and for this purpose in para-3 the company was required to execute undertaking for creating registered legal mortgage (s) in English form whenever called upon by the lenders, the company was also required to execute revocable power (s) of attorney authorizing the lenders to execute on behalf of company a registered moral mortgage (s) in English forms. The charge in para-4 all the lenders were put subject to charge created or to be created by the company in favour of its bankers on stocks of raw materials; semi-finished; finished goods; consumable stores and books debts for its working capital requirement. Para-5 provided that the charge in favour of lenders was to be first charge ranking pari passu for the term loan of Rs. 400 lacs of ICIC1; Rs. 700 lacs of LIC; Rs. 300-lacs of IFCI; Rs. 500 lacs of SBI and Rs. 500 lacs of Allahabad Bank. In schedule-5 the company and State Government agreed to furnish a joint undertakings to the IDBI that they shall procure for the company at the appropriate time on terms acceptable to lenders funds to meet shortfall in internal resources as estimated to be available for financing the proposed project and short fall in finishing overrun, if any, in the case of project.
110. The secured creditors namely Allahabad Bank, LIC and SBI have submitted fresh calculations of their dues taking into account the dates after which the term loans were not serviced by the company (in liquidation) and the rate of interest in the consortium agreement as well as penal interest. The court after hearing all these secured creditors, who had given term loans to the company (in liquidation), finds and holds that they are all entitled to their dues with the agreed rate of interest to be compounded in accordance with the terms of the agreement upto the date of winding up of the company (in liquidation). They are also entitled to penal interest. In view of Central Bank of India v. Ravindra, they will not be entitled compounding of penal interest. The interest after the date of winding up of the company (in liquidation) may be considered only if sufficient amount is left after the dues of secured creditors and workmen are computed on pari passu basis under Section 529A of the Act at simple interest rate of 4% per annum. With regard to working capital loans the bank and financial institutions have not addressed any argument as they are satisfied with the amount adjudicated by the OL. The foal calculation of the debt of IDBI Ltd, IFCI Ltd. and ICICI Ltd. (assigned to Kotak Mahindra Bank Ltd) a the agreed rate of compound interest and penal interest (not compounded) given by their counsel Shri Om Prakash Misi a is as follows:
KOTAK MAHINDRA BANK LTD First Loan- Rs. 400 lacs Rate of interest- 12% Penal interest- @ 1% amounting to Rs. 547 lacs Second Loan- Rs. 100 lacs (Rs. 75 lakhs disbursed) Rate of interest 12% Penal interest @ 1% amounting to Rs. 61.59 lakhs Total penal interest Rs. 609 lacs (penal interest not compounded) IFCI Ltd.
First Loan Rs. 300 loans Rate of interest 11.85% per annum payable half yearly Penal nterest @ 2% per annum amounting to Rs. 224 lakhs Second Loan Rs. 100 lakhs Rate of interest- 11.85% per annum payable half yearly Penal interest @ 2% per annum amounting to Rs. 12.13 lakhs Third Loan Rs. 24 lakhs Rate of interest 14% per annum payable half yearly Penal interest @ 2% per annum amounting to Rs. 11.26 lakhs Total penal interest Rs. 247 lakhs (penal interest not compounded) IDBI Ltd. First Loan Rs. 2300 lakhs Rate of interest 11% per annum payable half yearly Penal interest @ 0.5% per annum amounting to Rs. 303 lakhs Second Loan Rs. 700 lakhs Rate of interest 11.85% per annum payable half yearly Penal interest @ 2% per annum amounting to Rs. 932 lakhs Third Loan Rs. 100 lakhs Rate of interest 14% per annum payable half yearly Penal interest @ 2% per annum amouting to Rs. 163 lakhs Total penal interest Rs. 1398 lakhs (penal interest not compounded). THE UTTAR PRADESH POWER CORPORATION
111. Heard Shri W.H. Khan, learned Counsel appearing for U.P. Power Corporation.
112. The Corporation had filed an application (A-68) for directions to the OL to register their claims. The application (A-70) filed by the Corporation under Section 530 of the Companies Act in April 2002 to register their claims for payment of electricity dues of Rs. 22,96,85,962.50. The OL was required to submit his comments on the application.
113. Shri W.H. Khan, appearing for the U.P. Power Corporation, submits that the corporation supplied electricity to the residential colonies of the company tin liquidation) under the orders of the Court. He submits that the Corporation is bound by writ of mandamus and that electricity dues along with late payment surcharge for the period after the date of winding up are to be paid by the OL in preference all other claimants. The electricity bills prepared under the statutory provisions must be paid by way of liquidation expenses to the corporation. If the Court is not inclined to pay these wages as liquidation expenses, the payment of these bills should be treated as secured debts.
114. Shri V.B. Singh, Senior Advocate appearing for IDBI and IFCI; Shri Om Prakasli Misra appearing for Kotak Mahindra Bank Ltd; Shri S.N. Verma, Senior Advocate appearing for State Bank of India; Shri V.K.S. Chaudhari, Senior Advocate appearing for Allahabad Bank and Shri J. Nagar appearing for Life Insurance Corporation, all secured creditors, submit that the electricity dues incurred after the date of winding up are not liquidation expenses to be paid in parity to secured creditors and workmen's' dues under Sections 29, 529A and 530 of the Act. It is submitted that the liquidation expenses or those expenses, which the OL has to properly incur in preserving, realizing or getting in assets. They have relied upon provisions of Sections 456, 457, which enumerating the powers of the OL for preserving and sale of assets of the company (in liquidation) and Rule 338 of the Rules of 1959. Shi S.N. Verma has relied upon the proviso to Section 529(2) of the Act which reads as follows:
Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay, his portion of the expenses incurred by the liquidator including provisional liquidator, if any, for the preservation of the security before its realisation of the secured creditor.
115. The directions of the Court for continuous supply of the electricity to the residential colonies of the workmen were made at the instance of the workmen, w ho were living in the quarters. It is reported that about one third of the quarters were occupied by the officers and employees of the District Magistrate, Superintendent of Police and District judiciary of district Sonbhadra. The directions were issued by the Court in liquidation proceedings for realization of the house rent and electricity charges for the Government servant occupying the company accommodations. The workmen, however, were exempted as it was found that they are entitled for payment of the dues and they have not received salaries since 12.7.1998.
116. In Textile Labour Association and Anr. v. Official Liquidator and Anr. the ONGC Ltd. supplied gas to Ambica Mills Ltd. in pursuance of the directions issued by the Supreme Court on 17.10.1997 in IAs Nos. 168-78 by the Official Liquidator with directions that out of the assets of the company (in liquidation) the dues of ONGC Ltd. are required to be paid off first and the question or making any payment to any other creditors can arise only out of the surplus, if any remaining, after the full dues of ONGC Ltd. have been paid of. In a review petition, the Supreme Court relied upon Supreme Court Bar Association v. Union of India and held that the Supreme Court in exercise of its powers under Article 142 cannot ignore any substantive statutory provisions dealing with the subject. It is only residuary powers supplementary and complementary to the powers specifically conferred on the Court by Statutes exercisable to do complete justice between the parties, wherever it is just and equitable to do so. It is intended to prevent any obstruction to the extreme of justice, Paras 8, 9 and 10 of the report relevant for the purposes of claim of the UP Power Corporation are quoted as below:
8. The effect of Sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen's dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under Section 529A to the extent of the workmen's dues. The purpose of Section 529A is to ensure that the workmen should not be deprived of their legitimate claim in (he even of the liquidation of the company and the assets of the company would remain charged for the payment of the workers' dues and such charge will be pari pass a with the charge of the secured creditors. There is no other statutory provision overriding the claim of the secured creditors except Section 529A. This section overrides preferential claims under Section 530 also. Under Section 529A the dues of the workers and debts due to the secured creditors are to be treated pari passu and have to be treated as prior to all other dues.
9. Therefore, the law is clear on the matter as held in UCO Bank case that Section 529A, will override all other claims of other creditors even where a decree has been passed by a Court.
10. Therefore, claims, if any, of ONGC will have to be worked out in accordance with Sections 529 and 529A of the Companies Act as well. The contention advanced on behalf of ONGC by Shri Raju Ramachandran that if mandamus had been issued, it will prevail over any law is not tenable and is rejected.
117. In order to effectively, liquidate the company in which the payment to the workmen is a condition precedent in settling the dues from the realization of the assets the Court gave certain-directions to the UP Power Corporation not to disconnect the electricity and to continue to raise the bills to the OL. If the electricity was disconnected the workmen could have been restless as their families could have seen untold hardships. The Court issued directions to supply continuous electricity for the welfare of the workmen and their families.
118. In order to avoid unrest and to calm down the workmen an interim, order was passed directing that the UP Power Corporation be paid a sum of Rs. 7 Crores as 10% of their dues as claimed by them along with late payment surcharge with an undertaking that this amount shall be adjusted ill the final dividend. It now appears that this payment was over and above made due to the UP Power Corporation.
119. The question that falls for consideration is whether in the given situation in which the orders were passed to continue to provide electricity, at the instance of the workmen the electricity charges are expenses properly incurred in preserving, realizing or getting in assets as provided in Section 457(2) of the Act illustrated in Rule 338 of the Rules of 1959. There was no mining or production, carried out in the company (in liquidation) after the winding up order. The then management continued upto 31.7.2001 and the OL did not pass any order to carry out any business activity. The directions to supply continue electricity were not given for the purposes of preserving, realizing or getting in-the assets but by way of a facility to the workmen, to continue to live in the accommodations till they are paid then dues. Article 21 of Constitution of India provides that no one shall be deprived of his life and liberty except in accordance with the law. The Supreme Court has interpreted the right to life to, include to right to live with dignity. The delay caused in sale of assets virtually deprived the workmen who were entitled along with secured creditors to have charge over the assets to pay their dues. Though they could be asked to vacate the quarters under Section 630 of the Act, it was not equitable or just for the Court to have directed their eviction or to allow them to live without the basic amenities like electricity, water, primary education, and health services. The Court was under the constitutional duty to accept the request of the workmen to provide them basic amenities for a decend and dignified life. The directions to continue to supply electricity as such were issued for effective liquidation of the company (in liquidation) and for proper and smooth sale and transfer of the assets to the purchaser. The Court cannot foresee a situation, which may nave arisen in the long process of liquidation in refusing to provide basic amenities of the life to the workmen. The continuous supply of the electricity o the residential accommodations provided to the workmen was absolutely essential for effective liquidation of the company (in liquidation) and thus these charges can be included along with the charges of security, inspections, valuation, expenses of settlement claims committee etc., in the liquidation expenses to be borne by the OL for effective winding up of the affairs of the company mid for distribution of its assets. The proviso to Sub-section (2) of Section 529 will not be attracted as it is applicable in a situation where secured creditor, instead of relinquishing his security and proving for his debts, proceeded to realise his security and for that purpose the liquidator to bear the expenses for preservation of security before its realization. The workmen cannot be treated to be secured creditors, who do not relinquish their security and proceed to realize their debts as security.
120. the liquidation expenses have not been defined in the Act or the Rules. The OL, however, is required in law under Section 457 of the Act to protect and preserve the properties of the Company (in liquidation). He has also powers under Rule 457(1)(e) to do all such other things as may be necessary for winding up lo affairs of the company and distributing its assets. In order to sale the properties, the OL may be required to employ security for protection and dissolution of the assets, institution and defend the suit for prosecution to carry on business of the company so far as may be necessary for beneficial winding up of the company and to raise on the security of assets in requisite money. All these powers under Section 457(1) are necessary for the purposes of effective liquidation.
121. The judgment cited by Shri V.B. Singh, Senior Advocate in Wonder Jupiterchit 1992 (74) CC 215 by Kerela High Court is as such not applicable lo the facts of the case. The ratio of the judgment in Textile Labour Association (supra) is also not attracted as in the said case the directions to supply gas were given by the Apex Court on 15.4.1987 before the company was wound up by the High Court on 17.1.1997. The ONGC Ltd. as such was only a unsecured creditor. The mandamus issued by the Supreme Court did not help ONGC Ltd. for recovering its dues as the sale proceeds could be distributed only in accordance with Section 529 and 529A of the Act.
122. Having settled the issue that the electricity dues are part of the liquidation expenses, objections were raised with regard to correctness of the bills raised by the UP Power Corporation Ltd. The State Government in the MOU had announced waiver of the electricity dues of Rs. 110.10 crores. The UP Power Corporation found that in fact these waivers are only to the extent of Rs. 76.40 crores. According to Shri W.H. Khan, the waiver was only in respect of the electricity for industrial use and not for domestic consumption. He has placed on record a scheme by which the dues to the extent of Rs. 76.40 crores of the three divisions were waived. According to affidavit filed by Slid W.H. Khan the entire industrial dues were waived while keeping the amount for domestic consumptions which were not waived. These amounts will not tie liquidation expenses as the electricity prior to the date of winding up was riot Supplied to the residential colonies under the orders of the OL or under the orders of the Court.
123. Three meters insalled at single points feeding the colonies were not maintained properly. The reading were not regularly taken and the bills were initially prepared on LMB-6 (industrial use). In his report the OL submitted:
6. U.P. POWER CORPORATION LETD. : (Annexure No. 6) There are two divisions, responsible for supply of electricity to the various units of the company under liquidation, namely Sonbhadra and Mirzapur division. No documents or statement of power units consumed upto 31.3.1999 in various units and colonies of the above said company was made available to the committee, despite demand and explanation raised with the competent authorities of the respective divisions of U.P. Power Corporation. In the above circumstances we have-admitted 50% of the arrears so claimed.
For the period, April 1999 to May 2006, the following adjudications were undertaken:
a. Sonebhadra Division The units of electricity consumed in residential colonies of Dalla unit is 603X40 from June 2001 to March 2006. From April 2006 onwards unit of electricity consumed as per meter reading was less than 50% of 603840 units of electricity supply shown. From perusal of statement of meter reading for the period under consideration, it is abundantly clear that feeding was not undertaken on regular basis. As such, the electricity bills for the units consumed have been claimed arbitrarily. Under the given circumstances and after due consideration the committee decided to pay 60% of the amount as claimed for Dalla residential colony. The committee has not considered the claim with regard to Late Payment Surcharge (LPS).
For other units i.e., Churk colony and Gurma colony, the committee has considered 100% of the claims against the units of electricity consumed as per the statement submitted by the Sonebhadra Division.
b. Mirzapur Division The documents submitted on affidavit for claim is upto may 2006. In reply to our queries the officers of the Mirzapur Division submitted monthly consumption of power by the ex-workers residing at Chunar residential colony and the Water Pump House at Chunar. After verification 100% of the claimed amount for Power consumption except Late Payment Surcharge (LPS) has been admitted for Chunar residential colony. For the period April 1999 to 06.02.2002, we have observed that from December 2002 to May 2006, bills were raised for 181315 units of power consumption. The monthly consumption as claimed by the division from Feb 2002 to Nov 2002 were too high in variance and appears p have been made arbitrarily. Considering the above facts the claim committee has admitted 66.33% of the claimed amount for the period 7th February, 2002 to 31st May, 2006.
c. Jamuhar Tubewell, Sonebhadra:
Details of monthly electricity consumption were not made available to the committee. The claim includes Late Payment Surcharge (LPS). As such, 50% of the amount claimed has been admitted.
124. Shri W.H. Khan, appearing for U.P. Power Corporation in support of objections/application (O-9), has filed copies of the bills of September 2006, October 2006 and November 2006 as well as copies of the bills upto 31.3.1994. During the course of argument, it was found that these bills include the period prior to the date of winding up. Shri W.H. Khan took time and has filed four supplementary affidavits. The first supplementary affidavit sworn by Shri Ram Saran, Executive Engineer, Electricity Distribution Division-1, Mirzapur is dated 17.1.2007. The second supplementary affidavit of the same officer is dated 22.1.2007. The third supplementary affidavit of Shri Gopal Singh, Executive Engineer, EDD, Robertsganj, Sonebhadra is dated 23.1.2007 and that List improved supplementary affidavit, filed during the course of submissions made by Shri W.H. Khan, is affirmed by Shri Gopal Singh, Executive Engineer, EDD Robertsganj, Sonbhadra. The details of the bills given in the last supplementary affidavit are given as below:
(a) The total principle amount upto 8.12.1999 is Rs. 22,760,039-67 & late payment surcharge is Rs. 5,04,14,689-33, and from. 9.12.1999 to 11.10.2006 is Rs. 2,11,411,565-08 & late payment surcharge is Rs. 37,49,27,458-58 and from 12.10.2006 to Jan, 2007 is Rs. 7,367,365-57 & late payment surcharge is Rs, 570,110,576-18. The total principle amount comes to Rs. 241, 538, 970-32 and total late payment surcharge comes to Rs. 570,110,576-18. True copy of the calculation chart showing break up of the arrears, the principle amount and late payment surcharge in respect of residential colonies of Churk, Dala & Gurma is being filed herewith and marked as Annexure SA-1 to this affidavit.
(b) Similarly the principle amount of Chunar residential colony upto 31.3.1999 is (-)1,73,505/- and Jamuhar Tube Well is Rs. 1,09,198/-. From 1.4.1999 to 8.12.1999 of Chunar residential colony the principle amount is Rs. 47,69,536 & late payment surcharge is Rs. 2,45,844/-. The principle amount of Jamuhar Tube Well is Rs. 9, 61, 352/- & late payment surcharge is Rs. 66,025/-. For the period 9.12.1999 to 11.10.2006 the principal amount of residential colony of Chunar is Rs. 4,48,93,442A & late payment surcharge is Rs. 3,58,72,607/-. The principle amount of Jumuhar Tube Well is Rs. 98,70,487/- & late payment surcharge is Rs. 79,99,687/-. For the period i.e. From 12.10.2006 to 31.1.2006 the principle amount of Chunar residential colony is Rs. 30,86,935/- & late payment surcharge is Rs. 24,32,168/- and of Jamuhar Tube Well the principal amount is Rs. 1,71,057/- and late payment surcharge Rs. 6,01,831/-. thus, the total principals amount of Chunar residential colony upto 31.1.2007 comes to Rs. 5,25,76,408 & late payment surcharge Rs. 3,85,50,619/- and of Jumuhar Tube Well the principal amount comes to Rs. 1,11,12,094 & late payment surcharge comes to Rs. 86,67,543/-. True copy of the calculation chart showing break up of the arrears upto the principal amount and late payment surcharge in respect of Chunar residential colony & Jamuhar Tube Well is being filed herewith and marked as Anenxure SA-2 to this supplementary affidavit.
125. It has been found that the supply of the electricity under the orders of the Court was absolutely necessary to maintain industrial peace as well as to protect and preserve the assets of the company (in liquidation). The UP Power Corporation as such is entitled to the actual bills for supply of the electricity. It is, however, found from these bills that a large component of these bills is of late payment surcharge. Shri W.H. Khan submits that late payment surcharge is part of statutory tariff and as such the Court may not deny the amount to the UP Power Corporation. He has relied upon the UP Electricity Supply Code 2Q05 and the rate schedule of the UP Power Corporation Limited, as per Order dated 10.11.2004 of UP Electricity Regulatory Commission, effective from 1.12.2004. Para 6.7 of UP Electricity Supply Code, 2005 and para 12 of Rate Schedule LMV-2, effective from 1.12.2004 are quoted as below:
Uttar Pradesh Electricity Supply Code, 2005 6.7 Late Payment Surcharge In case of dispute regarding levy of surcharges, the licensee shall settle the dispute within in two billing cycles from the date, of protest by the consumer after giving him opportunity for reply and personal hearing.
Rate Schedule LMV-2
12. Surcharge/Penalty:
(i) Delayed Payment If the bill is not paid by the due date specified therein, a late payment surcharge shall be levied @ 1.25% per month upto first three months and subsequently @ per month. Late payment surcharge shall be calculated proportionately for the number of days for which the payment is delayed beyond the due date specified in the bill and levied on the unpaid amount of the bill excluding surcharge. This surcharge is without prejudice to the right of the Licensee to disconnect the supply or take any other measure permissible by law.
(ii) Charges for exceeding Contracted Demand:
If the maximum demand in any month of the consumer having TVM/MDI/TOD meters exceeds the Contracted Load, such excess demand shall be levied at twice the normal rate.
This additional charge shall be without prejudice to the licencees right to take such other appropriate action including disconnection of supply, as may be deemed necessary to restrain the consumer from exceeding his contracted load.
126. The statutory provision of levy of late payment surcharge in the UP Electricity Supply Code, 2005 made in exercise of powers conferred by Sections 50 and 181 read with Sections 43 to 48, 50, 55, 59 of the Electricity Act, 2003 ( Act No. 36 of 2003) by the U.P. Electricity Regulatory Commission, provides that licensee shall settle the dispute regarding levy of surcharges within in two billing cycles from the date of protest by the consumer after giving him opportunity for reply and personal hearing. The Rate Schedule (LMV-2) in para 12 (i) provides for late payment surcharge @ 1.25% per month upto first three months and subsequently @ 1.5% per month.
127. The electricity supply was given to the colonies and Jamuhar Tube Well under the orders of the Court. The OL did not have any money in his account for payment of these bills until the amount was realised from the sale of the assets of the Company (In Liq.). There was as such no question of default and willful non-payment by the OL. The electricity supply was allowed to be maintained in the; extraordinary situation. Although, the workmen and officers & employees of both the Company (in liquidation) and State Government were in occupation of residences in the colonies, the liability of payment of bills is of the OL under the supervision of the Court and then to collect from the State Government employees and unauthorised occupants. In the circumstances it cannot be said that those workmen, who are not getting salaries and were virtually starving and that the OL committed am default or were in a position to raise any dispute with regard to quantum of the bills. The workmen have protested to these bills on the ground that the electricity supply was limited to a few hours in a day and that a large number of unauthorised connections were taken out of main supply and further that a large number of stone crushers were operating illegally from the same supply in connivance with the officials of the power corporation, the Court, however, is not taking cognizance of these complaints a it is not the appropriate stage to do so. The fact remains that the electric supply was given in pursuance of the order of the Court and that OL or the Court cannot be treated to be defaulter for payment of late payment sun urge. The OL had no money in the account of the company and as such he was not in a position and could not have paid or even raised a dispute The bills of the UP Power Corporation given in supplementary affidavit of Shri Gopal Singh dated 20.2.2007 are admitted to proof except late payment surcharge. The OL shall make payments of the actual bills except the late payment surcharge to the UP Power Corporation upto the date of declaration of final dividend. In compliance with these orders, the interim payment of Rs. 7 crores made to the UP Power Corporation in compliance of the order dated 22.11.2006 shall be adjusted out of the final payment. It is made clear that the OL will not be liable to make payment of electricity charges after the declaration of final dividend. The disbursement has been stayed by Hon'ble Supreme Court in SLP (Civil) No. 19132 of 2006 RPJ Mineral Pvt. Ltd. v. S.K. Saxena and Ors. on 9.2.2007. The final disbursement of the amount, shall be made only after the decision and in terms of the orders of the" Supreme Court. The electricity supply will continue until the logical conclusion of these proceedings and the amount is disbursed to the workmen after its final adjudication or under the orders of % the Supreme Court, as the case may be.
UP CEMENT VETAJVBHOGISAHKARI RIN SAMITI Ltd. CHURK (UPCVSRNL)
128.Shri W.H. Khan and Shri Ravi Prakash Srivastava, appearing for the UPCVSRNL. have prayed for condonation of delay for their application/objection (0-85) and have prayed for a deduction of Rs. 34 lacs from the salary of the workmen of UP Cement Corporation Ltd. (in liquidation) to lie paid to the society and further an amount of Rs. 94 lacs is due against the members/employees, which have not been deducted by the Company (in liquidation) may be got paid to the appellant-society from the amount which the members/employees have to get after settlement of their claims by the OL.
129. It is stated that the UPCVSRNL is a cooperative society of the workmen established for their welfare. The entire records of the society are under the lock of the OL in the premises at Churk factory district Sonbhadra. The Claims Committee has illegally and arbitrarily rejected the claim of the society. The rejection order has not been served. He has prayed for condonation of delay. The cause; shown is sufficient. The delay is condoned.
130. The cooperative society was established for the benefit of the workmen, in 2003 (Vol 115) Comp Cases 207 Bank of Baroda v. Nutan Mills Mills Employees Cooperative Credit Society Ltd., Gujarat High Court in the matter of winding up of the company held that the sums outstanding to the cooperative society of the workmen from the company are to be treated as wages in arrears. Hon'ble Justice R.K. Abichandani and Hon'ble Justice A.K. Trivedi, relying upon Baroda Spinning and Weaving Mills Co. Ltd. v. Baroda Spinning and Weaving Mills Cooperative Credit Society Ltd. (1976) 4 Comp Cas 1, held that the amount like a trust money and that the credit society can make a preferential claim before the exercise of distribution of the proceeds realised by disposing of the assets of the company. The details of the defaults made by the workmen apparently on the ground that the wages were not paid since Jule 1998 have been enclosed along with affidavit of proof of debt1 submitted by Shri Prem Chandra, ADO Cooperative, Chapka Block Robertsganj, District Sonbhadra/Liquidator, UPCVSRNL. From these affidavits, it appears that Deputy Registrar. Cooperative Societies, Vindhyachal Region, Mirzapur has passed orders under Section 72(2)(c) of the UP Cooperative Societies Act 1965 for winding up of the cooperative society appointing Shri Prem Chandra. ADO, Cooperative as the liquidator. The claim also includes the details of the dues and the list of the workmen, who are liable to pay these dues.
131. The amounts do not exceed more than few hundreds and in some cases few thousands of the workmen. The Court as such finds that these dues of the cooperative society (in liquidation) have to be paid treating them to the workmen's dues as preferential payment. The application/objection is allowed. The OL is directed to deduct the amount from each of the defaulter workmen, list of which is given along with 'proof of debt'. The interest, however, calculated @ 12% shall not be payable to the cooperative society as these defaults cannot be said; to be made by the concerned workmen intentionally. The defaulter-workmen were not getting their wages since July 1998 and a such they will not be liable to pay the interest both 6% calculated in the chart of the defaults as well as 12% in calculation of the total amount annexed to the 'affidavit of proof of Shri Prem Chandra, ADO Cooperative/Liquidator of the society.
132. Shri W.H. Khan very fairly quantified this amount to Rs. 34 lacs to be deducted from the salaries of the employees, a list of which is included with the 'affidavits of proof' and further an amount of Rs. 94 lacs. The OL will deduct the interest component of this amount and shall make the payment 10 the Registrar, Cooperative Societies, UP for payment in the account of the UPCVSRNL (in liquidation) to be utilised in the manner in which it is provided under the UP Cooperative Societies Act.
LIQUIDATION EXPENSES
133. Out of total sale proceeds, of Rs. 459 crores, the OL has made available for Rs. 435 crores for distribution leaving 24 crores towards. liquidation expenses. The details and break up of the liquidation expenses, have not been provided in his report.
134. Section 457 of the Companies Act, read with Rule 338 of the Company (Court) Rules 1959, provides for liquidation expenses payable out of assets in a winding up by the Court. The assets of the company in a winding up be the Court remaining after payment of fees and expenses properly incurred in preserving, realising or getting in the assets, shall, subject to any order of the Court and to the rights of the secured creditors, if any, be liable to the payments, the table of which in descending order is provided in Rule 338. Firstly, the taxed costs of the petition, then costs and expenses of the persons in making the companies statement of affairs, then necessary disbursements of the Official Liquidator other than expenses properly incurred in preserving, realising or getting in the properties of the companies; the cost of any person properly employed by the Official Liquidator; the fees to be credited to the Government under Section 451(2) and the actual out of pocket expenses necessarily incurred by the members of the Committee of Inspection, and sanctioned by the Court are to be paid by the OL. In the present case following persons have claimed the amounts which may be included in liquidation expenses:
1. Cost of security in preserving assets.
2. Cost of valuation of the assets.
3. Cost of the advertisement for sale.
4. Cost of members of asset sale committee.
5. Cost incurred by the OL in transportation, preservation and making copies of the records for being given to the workmen for securing employment as retrenched employees.
6. Cost of the committee appointed for making inventories of the accommodation, occupation of the workmen and for deciding their objections.
7. Cost of the settlement claims committee.
8. The dues of UP Power Corporation for domestic supplies and to tube well, both under the orders of the Court as well as the orders of the local administration.
9. Cost of running the schools and the salaries of teachers and other staff of such schools which were taken over by the OL from the corporation.
10. Costs to be incurred on salaries and wages of the officers and employees for maintaining water and electricity supplies to the residential colonies.
11. Costs of salaries and expenses of maintaining Churk and Dalla provident fund account.
12. Cost of salaries and other expenses for maintaining dispensaries for health care of the workers.
13. Other miscellaneous costs which were necessary for preserving assets of the company.
135. Secured creditors have raised dispute with regard to payment of electricity and salaries of the teachers & staff for water and electricity expenses and staff for maintaining Churk and Dall provident fund account and the cost and expenses for security staff of the company upto 31.7.2001 under the orders of the then management of the corporation continuing even after winding up till the OL took over the possession. These objections have been raised on the ground that facilities given by the court to workmen, shop keepers, government officers and other authorised or unauthorised persons living in the colonies or occupying the company properties without any legal authority cannot be legally incurred by the OL. The secured creditors submit that these facilities which were essential services were incurred for the benefit of the workmen and that the workmen must pay for these facilities from out of the amount reserved for them. These expenses cannot be apportioned between the secured creditors and the workmen as these expenses cannot be treated to be properly incurred for preserving and maintaining the assets for their sale and distribution.
136. Shri Yogesh Agarwal and Shri K.C. Vishwakarma appearing in Appeals/Objections No. 0-47 (primary school teachers of Chunar), No. O-48 (primary schools teachers of Dalla), O-73 (Secondary school teachers and 11 staff of Churk). O-74 (Primary school teachers of Dalla) and 0-75 (primary schools teachers of Churk); Shri Narendra Mohan appearing for staff of the EPF trust; Shri P.N. Saxena appearing for watch and ward stall and Shri Ashok Kumar Srivastava appearing for staff maintaining electricity and water supplies submit that right of the employees under Articles 19 and 21 the Constitution of India do not get suspended on the winding up of the company order to effectively liquidate the company and for protecting and preserving the assets, which was necessary that the workmen should have occupied the houses as they were involved in preserving assets but were also provided sufficient check in theft and dissipation of the goods of the company which were spread over 80 kms areas including factory sides, colonies and mines. The Court recognised these rights and both as ex workmen and citizens of the country and allowed workmen to stay in the colonies and for their health, education of their children and for maintaining power and water supplies. The winding up of the corporation wholly owned and controlled by the State does not cease to take away its liabilities towards the workmen until they are paid their dues in full. The OL simply steps in shoes of the company and has to safeguard the fundamental rights of the workmen. Shri. Yogesh Agarwal has relied upon judgment in Kapila Hingorani's case 2003 (5) JT SC 1 in support of the submissions and has further relied upon Article 23 of the Constitution of India which prohibits 'begar'. He has also relied upon Article 21A of the Constitution of India which gives guarantees to the children upto age of 14 years to receive free education. The legitimate expectation of the workmen to continue to live in the colonies with dignity until they are paid can only be defeated by overriding public interest. In the present case no such public interest intervened in their rights to continue in the colonies and to receive the basic amenities which are required for dignified life.
137. The primary school of the company (in liquidation) at Churk has 600 students and the primary school at Chunar has 257 students. The 10 primary school teachers and employees of Dala; 06 primary school of teachers; staff of Chunar and 22 primary school teachers of Churk have relied upon the orders of the General Manager of the company dated 24.3.2000 and court's orders dated iS.8.2001 to allow these primary schools to continue. These schools were handed over to OL on 3.8.2001.
138. It cannot be said that running of these schools was business of the company (in liquidation). The workmen were however living in the colonies, and their children could not be ignored by the OL and the Court. The State under Article 21A of the Constitution of India guarantees free education the children upto age of 14 years. The State has a corresponding duty to provide facility for free education. The OL is an officer of the Central Government and Court are also state within the meaning of Article 13 of the Constitution of India. The OL as such could not have ignored fundamental rights of the children of the workmen living in the colonies of education in the schools which were run by the company (in liquidation). The business of the company under Section 445(iii) of the Act of 1956 includes all incidental activities. The OL as such was under constitutional duty to provide facilities of primary school to the children of the workmen. The Court had directed the Secretary of Education (Primary) Government of UP to take over these schools under 'Sarva Shiksha Abhiyan Scheme'. The Secretary of Education (Primary) Government of UP had appeared in the Court and had informed that a proposal in this regard has been put to the State cabinet. The State Government thereafter agreed to take over these schools and consequential orders were issued. District Basic Education Officer and District Magistrate, Sonbhadra directed the OL to hand over the building and land of the primary schools so that salaries may be disbursed. The request surprised the Court as the Government Order which translated the decision of the State cabinet to take over the schools was not communicated to the Court earlier than the confirmation of the sale of assets. The matter with regard to taking over schools are still pending in special appeal in the Court.
139. The fundamental right of the children to receive primary education in the schools, which are so available, run in the premises of the company (in liquidation), which have not yet been handed over to the purchaser, would compel the OL to pay the salaries of the Assistant Teachers and employees of these primary schools. These expenses as such will be charged on the liquidation expenses and shall be paid as liquidation expenses by the OL until the schools are taken over by the State or till the purchaser takes over these schools and makes arrangement for education of the children. On such date, the liability of the OL to pay salaries of headmaster, teachers and staffs, of these primary schools will come to an end. The appeals/objections No. O-47, O-48, O-74, O-75 are allowed. To that extent, the appeal/objection No. O-73 by Secondary School Teachers at Churk, who was appointed as, Lecturer (Physics) visiting teacher cannot be considered as all the secondary schools have been taken over by the State Government and that salaries only those teachers were not disbursed who were teaching classes for which the grant-in-aid was not given Shri Mahaveer in his appeal/objection No. O-73 was visiting teacher appointed on a consolidated salary. His salary as such cannot be disbursed by the OL and his appeal/objection is accordingly dismissed.
UNSECURED CREDITORS
140. The appeals/objections O-13 ( Executive Engineer, PWD, Auraiya and O-23 to 27, O-28 (Parash Nath Cement Pvt. Ltd), O-29 to 34, O-44 and by the Forest Department, O-61 to 63, O-81 & 82, O-88 have been filed by the Government departments unsecured creditors, who had completed works or made advanced for supply of cement. Some of these unsecured creditors are dump/depot holders/transporters with their claims against the company (in liquidation). These persons falling in the category of unsecured creditors. Having parth admitted the appeals/objections of the secured creditors and workmen and having separated the amounts detailed in the order as liquidation expenses, there will be no amount left to be paid to the Government departments and unsecured creditors under Section 530 of the Act. The considerations of the appeals/objections of secured creditors and workmen has not left amount to be paid in full to the secured creditors and workmen and that a pari-passu deduction has to be made of their admitted claims under Section 529A of the Companies Act 1956. In the circumstances, the determination of admittance of proofs of their claims of the State Government departments and unsecured creditors as well as their appeals/objections are dismissed. Some of these appeals by Government departments and unsecured creditors were decided separately and that all were dismissed.
Nagar Panchyat Churk/JAIL
141. Nagar Panchayat Churk has filed their objections O-2 through Shri U.N. Shanna, Senior Advocate assisted by Shri Ravi Shanker Prasad with regard to exclusion of 30 shops constructed at old plot 933 Gata No. 933 new numbers 438/439 area 0.4746 hectares, on which the Nagar Panchayat Churk had constructed the shops after sanction of the map by Sub Divisional Magistrate of notified area/prescribed authority, on 15.4.1991 These objections are not to be considered and adjudicated in these appeals/objections under Rule 164 of the Companies (Court) Rules 1959. These will be considered separately considering the reply given by Official Liquidator and JAL. Similarly objection 0-86 filed for separating the area acquired and on which a Jail is being constructed shall be considered separately SHRI G.S. BIRDI, VALUER
142. The appeal/objections (O-53) is filed by Shri G.S. Birdi, a registered valuer on the panel of the OL for settlement of the bills out of the liquidation lunds. He has claimed Rs. 33 lacs as his fee for valuation based on rules framed under the Wealth Tax Act in terms of the orders passed by this Court in special Appeal No. 271 of 2002 by Grasim Industries Ltd. and Special Appeal No. 316 of 2003 by State of UP.
143. Shri Pankaj Bhatia appearing for G.S. Birdi states that the valuation was carried out in accordance with the rules in pursuance of the orders of the Court and thus the amount may be charged to the liquidation expenses of the Company (In Liquidation).
144. The assets of the company (in liquidation) were valued by Shri A.F. Furgusan &. Company in 1995 in pursuance of the directions of BIFR. Thereafter, Shri N.K. Agarwal, a registered valuer valued the assets in the year 2001. These two valuations were the basis of documents of sale prepared by the State Government. The third valuation by Shri G.S. Birdie was in act revaluation of the assets for which he had sufficient material available on record in the reports of A.F. Fargusan & Company and N.K. 4 Agarwal. Shri G.S. Birdie did not carry out any fresh measurements of the mines, factories, building, plant and machinery etc. He did not prepared any fresh inventories of the stores and material lying on the spot.
145. There is difference between the valuation of the properties and 3 revaluation which is based on earlier reports. In the cases of revaluation the valuer may only verify the measurements and inventories of the earlier valuation and may include such items which were left or have to be added to the valuation or which may have stolen or destroyed. In any event of revaluation, the valuer is not required to carry out the same extensive exercise. His job in revaluation is much simple and is confined to verification rather than valuation.
146. Shri Pankaj Bhatia, learned Counsel appearing for G.S. Birdie left the matter of settlement of his bills to the discretion of Court. The discretion given to the Court in such matters cannot be exercised arbitrary or unreasonably. It must be based on sound judicial principles, which rest the claim on statutory provisions or precedents. Shri Pankaj Bhatia did not cite any rule or precedent which may give an indication to the court for exercising its discretion. In the circumstances, the Court is left to exercise discretion on the basis of the work done by the valuer taking into account the earlier two reports. The Court finds that 50% of the amount claimed by him, which may include his expenses and the fees of the services which he may have hired, would be sufficient to cover his expenses and fees for revaluation of the assets of the company (in liquidation). The OL will charge this amount to the liquidation expenses.
EMPLOYEES LOOKING AFTER EPF TRUST DALL AND EPF TRUST CHURK
147. The officers and workmen maintaining electricity supply, water supply, teachers in primary school, staff of the dispensaries, workmen employed for security of the godowns and stores by the management, and the officers and staff managing the Employees Provident Fund Trust Churk and Employees Provident Fund Dalla have claimed their salaries from the liquidation expenses. They have relied upon orders passed by the Court by which the Court directed the electricity and water supplies, schools and hospitals to function. I have already found that the officers and staff maintaining water and electricity, primary education and health are entitled to some token which is yet to be determined from the liquidation expenses. The situation of employees looking after the employees provident fund trust is slightly different.
148. The LPF Trusts Dall and Churk were exempted from the provisions of the Employees Provident Fund and Miscellaneous Provisions Act 1954. These trusts were run and managed by the company (in liquidation) and the administrative expenses over and above the expenses charged to the trusts were borne to the company (in liquidation). If there was any shortfall in the payment of interest, the same was also required to be borne by the company (in liquidation). Some complaints were made with regard to irregularities in the trusts on which orders were passed on 19.5.2005, 14.7.2005 and 5.4.2006 under which the trusts were directed to be handed over to the EPF Commissioner and audited by the Chartered Accountant nominated by the EPF Commissioner. The accounts of these trusts were finalised for which the EPF Trust Churk was given a sum of Rs. 50,000/- from the liquidation expenses. The EPF Trust Dalla did not claim any amount. Shri G.S. Rai, General Manager was Chairman and Shri A.K. Upadhyay, an employee of the company (in liquidation) was Secretary of EPF Trust Dalla and was looking niter the trust with three employees out of which one had retired. Shri Suhail Sultan was Secretary of the EPF Trust Churk. He was looking after the trust with the help of 06 employees. All these employees were working in the accounts department of the company.
149. The accounts of these trusts were audited and that objections made by1 the auditors were removed and that by order dated 2.8.2006 these accounts were finally transferred to the Regional Provident Fund Commissioner, Varanasi who was called to the Court on about three occasions and were given detailed directions with regard to the disbursement of the amount. On the advise of the RPEF Commissioner, Varanasi the loan transactions out of these trusts were stopped and final accounts were directed to be prepared. It is reported that the accounts are being settled with the workmen and that out of 5000 employees who are members of the trusts, almost 80% of the employees of the EPF Trust of Dall and 50% employees of EPF Trust Churk have been paid EPF amount calculated upto 12.7.1998.
150. The employee's share to be contributed to the trust from 13.7.1998 to 9.12.1999 from the wages to be paid to the workmen under the EPF scheme, ilk workmen also entitled the employer's share on this amount which was increased to 10% w.e.f. 1.5.1997. Most of the workmen covered under the Employees Pensions Scheme 1995 and that a contribution of 8.33% was.-abject to maximum of Rs. 417/- per month calculated on the contribution of Rs. 5000/- (per annum) was payable to the pension fund.
151. Now since the EPF Trust account has been closed, employee's share on the wages from 13.7.198 to 8.12.1999 may not be deducted and be directly paid over to the workmen. The employer's share also has to be paid over to the workmen by the OL except 8.33% of the amount subject to maximum of Rs. 417/- per month from out of employer's shares is to be contributed tow aids the Pension Fund 1995, if the EPF Commissioner, Dalla is entitled to employees to claim their pension w.e.f. 8.12.1999 i.e. the date when the company (in liquidation) was wound up by the Court. The winding up date will be the date on which the employees will cease to be a member of the EPF Trust and will exit from the EPF membership. The trustees clerks and employees shall be paid wages after the date of winding up in accordance with the rates given in para 189 of this judgment.
EMPLOYEES PROVIDENT FUND
152. Shri D.K. Pandey and Shri Dhanjai Awasthi appear for Provident Fund Commissioner and have filed objections O-36, on behalf of Employees : Provident Fund Commissioner, verified by Shri Gopal Ram, S.S.A. At S.R.O. : Varanasi. The workmen of the UP State Cement Corporation (in liquidation) were contributing to Employees Provident Fund Trusts at Churk and Dalla. I Both these trusts were exempted by the State Government under Section 17(1)(a) of the Employees Provident Fund and Misc. Provisions Act 1952 (EPF Act of 1952). the recommendations for grant of exemption by the Regional Provident Fund Commissioner dated October 24, 1990 under : Section 17(1)(a) of the PF Act 1952 have been placed on record along with the affidavit of Shri A.A. Siddiqui, Enforcement Officer, EPF Organisation, Allahabad.
153. In the liquidation proceedings, some of the workmen raised doubts about the manner in which the trusts were functioning. By orders passed in the proceedings the Court directed the Secretary of both the trusts namely Shri A.K. Upadhyay and Shri Suhail Sultan to hand over accounts of the trusts to the Regional Provident Fund Commissioner, Varanasi for audit by an auditor nominated by the Provident Fund Commissioner, New Delhi. Both these accounts were audited and discrepancies pointed out by the auditors were removed in a series of meeting carried out under the orders of the Court. The entire securities with the trustees were handed over to the Regional Provident Fund Commissioner, Varanasi. The accounts were finally closed and directions were issued on the recommendations of the Regional Provident Fund Commissioner, Varanasi not to disburse any further loans and to finally settle these accounts. Thereafter, detailed orders were issued by the Court, directing Regional Provident Fund Commissioner, Varanasi for verifying the claims to finally settle the claims in favour of employees by giving them appropriate interest in accordance with provisions of the trust, h is reported that most of the accounts have been settled. The court has not received any complaint from the workmen regarding any shortfall in payment of the amount including the employees contribution and interest. In these orders, the Court had made it clear that the Regional Provident Fund Commissioner, Varanasi will pay the entire employer's shares and interest which will be given to the workmen at the time of closing of the accounts and that entire administrative expenses including the audit fees shall be paid. The trustees informed the Court that the trust v as having an excess amount realized from the securities as the statutory interest was i1 reduced by the Central Government. The Employee's Pension Scheme 1995 is closely left with the Employees Provident Fund Act 1952 and Employees Provident Fund Act 1970. The part of the contribution was given in EPF Act 1995 for the purposes of payment of pension payable after the date of superannuation of the workmen. The prayer has been made on behalf of the workmen that although the accounts of trust have been closed on the date of winding up, the contribution to EPF Act 1995 from the Act of EPF be made upto the date when the possession of unit was taken over i.e. 31.7.2001 so that all the employees may get the benefit of pension calculated upto July : 2001.
154. That Shri J.K. Pandey, Assistant Provident Fund Commissioner, Sub Regional Office, Varanasi submitted claims on behalf of both these trusts, winch were handed over to RPFC Varanasi. The details of claims, claims, admitted and net dividend payable is given as below:
SI Name Unit Claimed Claim admitted Net divident
No. payable
1 J.K. Pandey Churk & Claimed 2898-46508
Asst. Provident Chunar amount
Commissioner, EPF-1952 100568970
Sub Regional 104-1971
Office, Varansi &
EPS-1995
Audit fee 238000
Total 100806970 100806970
2 J.K. Pandey Dalla & Claimed 155471240
Asst. Provident Chunar amount
Commissioner, EPF-1952 53797575
Sub Regional 104-1971
Office, Varansi &
EPS-1995
Audit fee 218000
Total 54015575 54015575
3 J.K. Pandey Supple- & Claimed 1157351
Asst. Provident -mentry amount
Commissioner, Claim EPF-1952 1133746
Sub Regional for Chu- Claim
Office, Varansi rk and Processing
Dalla expenses
Audit fee 23605
Total 1157351 1157351
Grand Total 446475099 155979896
155. Shri Ashok Mehta, learned Counsel appearing for Official Liquidator, has not raised any objections with regard to employer's contribution upto date of winding up on 8.12.1999 and the interest paid by EPFC Varanasi to the workmen on behalf of the trust. He, however, has raised objections with regard to any claim towards penal interest and damages under Section 7Q and damages under Section 14B for default in employer's contribution claimed by the Assistant provident Fund Commissioner, Varanasi.
156. Shri Dhananjai Awasthi was asked to substantiate the claim with regard to penal interest under Section 7Q and damages under Section 14B of, regard the EPF (MP) Act 1952. He has filed an affidavit of Shri M.L., Verma, Assistant Accounts Officer (Legal) EPFC Allahabad and thereafter on the direction of the Court, an affidavit of Shri A.A. Siddiqui, Enforcement Officer, EPFC Allahabad has been field. A perusal of the affidavit of Shri A.A. Siddiqui shows that the interest on the PF Contribution paid to the workmen in case of both the trusts is calculated on the basis of the interest notified by the Central Government. The rate of interest calculated and paid to the workmen is as follows:
"CALCULATION OF INTEREST PAYABLE TO THE P.F. MEMBER OF U.P. STATE CEMENT CORPORATION LIMITED, CHURK SONEBHADRA, P.F. CODE No. UP/423 Year Rate of Intt. P.F. Opening Interest Closing Balance P.A. Contribution Balance Payble 97-98 12% 44462622 0 1774505 1774505 98-99 12% 56206348 44362622 9470899 53833521 99-00 12% 0 111814374 13417725 125232099 00-01 11.25% 0 125232099 14088611 139320710 01-02 9.50% 0 139320710 13235467 152556177 02-03 9.50% 0 152556177 14492837 167049014 03-04 9.50% 0 167049014 15869656 182918670 04-05 9.50% 0 182918670 17377274 200295944 05-06 8.50% 0 200295944 17025155 217321099 06-07 8.50% 0 217321099 18472293 235793392 1340870709 135224422 1476095131 CALCULATION OF INTEREST OF PAYABLE TO THE P.F. MEMBER OF U.P. TATE CEMENT CORPORATION LIMITED, DALLA, SON EB IADRA, P.F. CODE No. UP/4427 Year Rate of Intt. P.F. Opening Interest Closing Balance P.A. Contribution Balance Payble 97-98 12% 27423622 0 1096945 1096945 98-99 12% 26373953 28520567 526846 60163165 99-00 12% 0 60163165 7219580 67382745 00-01 11.25% 0 67382745 7580559 74963304 01-02 9.50% 0 74963304 7121514 82084848 02-03 9.50% 0 82084818 7798058 89882876 03-04 9.50% 0 89882876 8538873 98421749 04-05 9.50% 0 98421749 9350066 107771815 05-06 8.50% 0 107771815 9160604 116932419 06-07 8.50% 0 116932419 9939256 12687167 0 726123458 73074101 799197559
157. The calculating the rate of interest as given above on the opening balance of the PF contribution of Rs. 4, 43, 62, 622/-; closing balance as on 20.3.2007 conies to Rs. 147, 60, 95, 131/- for EPF Trust Churk, Sonebhadra PF Code UF 423 and on the, opening balance of Rs. 2, 74, 23622/- and closing balance as on 20.3.2006 comes to Rs. 79, 91, 97, 559/- in respect of EPF Trust Dal la, Sonebhadra PF Code UP/4427.
158. There is no dispute with regard to employer's contribution, administration charges and audit fees, which have been admitted in full amount to the PF Commissioner. The dispute only centres about penal interest under Section 7Q and damages under Section 14B of the EPF Act 1952.
159. The EPF rust Churk and Dalla were exempted trusts maintained by the company(in liquidation). The company was wound up on the recommend of BIFR on 9.12.1999 and appeal against the winding up order was dismissed. The company was suffering severe losses and closed its production since 1994. The wages were paid from the grants given by the State Government and thus the employer's contribution was not deposited in the trust. Thereafter the possession of the unit was taken over by the Official Liquidator in July 2001 and process of sale continued upto November 2006. Section 7Q of the EPF Trust 1952 provides that the employer shall be liable to pay simple interest @ 12% per annum and at such higher rate as may be J specified in the scheme and any amount due from him under the Act from the date it becomes due is provided higher rate of interest specified in the scheme shall not exceed to lending rate of interest charged by any scheduled bank. Section 14B of EPF Act 1952 provides for recovery of damages on the employer making default in making contribution to the fund. For this purpose a notice has to be given, to the employer and opportunity of hearing has to be given before levying and recovering damages. Section 17(1-A)(a) provides that where exemption has been granted to any establishment under Clause 17-A(a) the provisions of Section 6, 7A, 8 and 14B shall, so far as may be, apply to the employer of the exempted establishment in addition such other conditions as may be specified in the notification granting such exemption and where the4 employer contravenes, or makes default complying with any of the said provides, or conditions or any other provision this Act, he shall be punishable under Section 14 as if the said stablishment has not been exempted under the said Cause (a).
160. Shri Dhananjai Awasthi submits that as soon as default was made, the exemption will be deemed to be withdrawn and that the statutory liability under Section 7Q and 14B will automatically come into play.
161. I do not find any good ground to accept the prayer of payment of penal interest and damages under Section 7Q and 14B of EPF Act 1952. Section 7Q of the EPF Act 1952 is a penal provision applicable where the employer makes default on any amount due under the scheme from the date when the amount becomes due at the rate of 12% per annum or as such hi-her rate as is being specified in the scheme, which shall not exceed lending rate of interest charged by the scheduled bank. Firstly the scheme does not provide for payment of any such interest and secondly in the present case the default was not intentional. Although the Official Liquidator steps in shows of the employer where the industry stooped production and cannot be rehabilitated and has to be wound up. The question of payment of penal interest does not arise. Section 7Q is as such clearly inapplicable and in any case the rate of 12% interest from the date when the amount fall due cannot 1 be awarded out of sale proceeds. This amount will not be paid to they workmen to be part of Section 529, and to be made part of the wages to be paid IO the workmen under Section 529(3)(b) of the companies Act 1956. The court as such cannot allow the amount realized from the assets to be distributed in accordance with the Section 529A to be included in wages of the workmen.
162. The object and purpose of damages under Section 14B were considered by Supreme Court in AIR 1998 SC 688. The vires of Section 14B was upheld on the ground that it provides a show cause notice and a reasoned order after following principle of natural justice and giving a reasonable opportunity of hearing (para 28) before the damages can be levied. This Court in the Northern India Press Works v. Regional provident Fund Commissioner 1983 LAB I.C. 1314, the Delhi High Court in Atlantic Engineering Services (P) Ltd. N. Delhi v. Union of India and Anr. 1979 LAB. I.C. 695 & Supreme Court in Organo Chemical Industries and Anr. v. Union of India and Ors. AIR 1979 SC 1803 held that though there is no limitation of power under Section 14B for levying of the damages is to be exercised by giving opportunity of hearing to the concerned party. Same view was taken in Regional Provident Fund Commissioner U.P. v. Allahabad Canning Co. Bamrauli Allahabad 1978 LAB I.C. 998 and Kerela High Court in Calicut Modern Spinning & weaving Mills Ltd. 1982 LB I.C. 1422.
163. In the resent case the employer was not at fault in failing to deposit as there was no production nor there was any special grants given by the State Government. The trusts were managed by the company and not by EPF Commissioner. The trusts were managed by the company and not by EPF Commissioner. There was no notice given to the management or the Official Liquidator nor any proceedings were taken or any reasoned order passed to impose damages under Section 14B of the EPF Vet, 1951. The claim of the Provident Fund Commissioner as such under Section 7Q and Section 14B of EPF Act, 1952 is rejected. The amount claimed towards employer's contribution and administrative expenses including audit fee is held to be admissible and has been so admitted to proof by the Official Liquidator.
Appeal No. 8574 of 2007 (O-57) filed by C-14 Jai Ram Sharma and 11 others.
164. Heard Shri K.C. Vishwakarma for the 12 applicants. The applicant Nos. 1 to 11 are claiming to be working even after the date of winding up for supplying electricity to Cement Factory Colony Chunar and Jamohar Water Pump. The applicant No. 11 himself to be Executive Engineer and appears to have certified that the applicant Nos. 1 to 10 have worked regularly. The application was forwarded by the Sub Divisional Magistrate, Chunar to the Official Liquidator. The applicant No. 12 is the Churk Adhikari Kalyan Samiti.
165. Shri K.C. Vishwakarma submits that Sub Divisional Magistrate has verified that the applicant Nos. 1 to 11 have worked for supplying electricity to the residential colonies of the company at Chunar.
166. All the workmen engaged in maintaining supply of water and electricity had approached the Court in the year 2001-02 and were given specific orders to continue to work to maintain the water and electricity supplies and that a provision was made to pay Rs. 1000/- per month by way of interim measure. These applicants were not included in that group and that they have not been receiving the benefit of Rs. 1000/- per month. The Court therefore, has doubt over their working as they were never claimed may amount for maintaining water and electricity supplies from 1999 to 2006.
167. Shri Yogendra Singh, who claims himself to be Executive Engineer in 2001 also has not submitted any proof and was never authorised by the Official Liquidator or the Court to function as such the claims of these workmen and Shri Yogendra Singh for payment after the date of winding up are as such rejected. For the period before the date of winding up they will not be cow red by the decisions taken with regard to other workmen and employees.
168. Shri Viswakarma then submitted that the officers, who were not working in supervisory capacity and are to be treated workmen, are also entitled to be CCI scales, they were given to them in 1979 and 1986 and approved to be implemented for further revision w.e.f. 1.4.1996. He has relied upon a letter dated 11.8.1998 sent by the Senior Personnel Officer, Headquarters, U.P. State Cement Corporation Ltd. (in liquidation) for implementing the Cement Corporation of India's pay scale w.e.f. 1.4.1996. The consequential orders were not passed and that on the date of winding up they were not receiving the wages in terms of the CCI pay scales.
169. These officers were receiving central dearness allowances. They are claiming Industrial Dearness Allowance, for which they have not shown any entitlement and implementation. The claims for IDAR arc also not applicable and are rejected.
170. There are many categories of workmen, who are claiming entitlement of higher wages. The Court is not required to adjudicate whether they were entitled to such wages and will rely last wages drawn by the claimants. Wherever the Wage Board Award and CCI scales were not implemented, the workmen/employees will not be entitled to the same. The appeal/objection is disposed of accordingly.
Appeal No. 11527 of 2007 (O-59) filed by Harish Chandra Mishra and 7 Ors.
170. The claims of these workmen will be considered in accordance with the general directions given for calculating the wages. These workmen have claimed that they were looking after the water and electricity supply. They however, have not furnished any proof for the same. They had not approached earlier to the Court and are not workmen who are directed to continue to work either by the Official Liquidator or the Court. The payment, from the liquidation expenses will be made only to those workmen, who aim, permitted by the Official Liquidator or the Court to continue to work to supply water and electricity to the colonies.
Appeal No. 14012 of 2007 (O-66) filed by Ram Bali Singh and 05 Ors.
171. The claim of these applicants, who were working as workmen at Chunar Cement Factory Colony for supply of water and electricity were allowed to continue and the payment of Rs. 1000/- on an interim basis half be governed for the date prior to the date of winding up by the orders passed as above for all the workmen and for a period after the winding up, they will be paid Rs. 3000/- per month for skilled workmen and Rs. 2000/- per month for unskilled workmen after making deduction the amount already made to them by the Official Liquidator.
Appeal No. 37580 of 2007 (O-63) filed by Yogendra Kumar Mathur and three Ors.
172. The claims/objections of these workmen are covered by the general direction issued in this order. The Official Liquidator will calculate their claim accordingly.
Appeal No. 14009 of 2007 (O-65) filed by Chhavi Nath S/o Late Mangaroo, resident of Village-Bakiabad, Post Chunar, District Mirzapur.
173. The applicant has claimed arrears on the basis of Labour Court Award passed by H.M. Misra, dated 27.3.1985 in Adjudication Case No. 19 of 1984 by which it was held that his services were wrongly terminated on 23.6.1980.
174. The Court has already accepted all the awards under the Industrial Dispute, Act and adjudications by the Labour Court. The Official Liquidator will consider his implication accordingly.
Appeal No. 14014 of 2007 (O-67) filed by Haridas son of Dukhi Seth Resident of Qtr No. SF-1/1/50 Chunar Cement Factory Colony Post Chunar District Mirzapur.
175. The applicant has claimed arrears on the basis of Labour Court Award passed by H.M. Misra, dated 27.3.1985 in Adjudication Case No. 19 of 1984 by which it was held that his services were wrongly terminated on 23.6.1980.
176. The Court has already accepted all the awards under the Industrial Disputes Act and adjudications by the Labour Court. The Official Liquidator will consider his application accordingly.
Appea No. 15367 of 2007 (O-69) filed by Nand Kumar Mehta and 103 Ors.
177. The workmen of Dalla, Sonbhadra are covered by Award in Adjudication case No. 9 of 1984 decided by H.M. Misra, Presiding Officer, Industrial Tribunal-I UP Allahabad dated 22.1.1985 by which it was held that these workmen were entitled to regularisation. The matter has been dealt with and that all Labour Court awards and adjudications have been accepted to be considered and award by the Official Liquidator. The appeal is disposed of accordingly.
Appeal No. 16S92 & 16897 of 2007 (O-72) filed by Ramesh Kumar Singh, Proprietor, Vidyaman Cement Agency, Jamui Chatti, Chunar, Mirzapur.
178. The applicant is proprietor of M/s Vidyaman Cement Agency and was an agent of the Company (in liquidation). He deposited Rs. 10,000/- as security and claimed Rs. 25,000/- which has been accepted partly for Rs. 10,000/ the principal amount deposited by him.
179. The rejected part of the claim will fall in the category ot unsecured creditors. Alter excluding liquidation expenses and payment 10 secured creditors and workmen under Section 529 and 529A on pari passu basis, nothing will be left for payment to unsecured creditor. The appeals are accordingly rejected.
Appeal No. 18040 of 2007 filed by Smt. Dulari Devi and 8 Ors. And Appeal No. 18651 of 2007 filed by Radhey Lal and 21 Ors.
180. These appeals/objections have been filed by Smt. Dulari Devi and 8 others, non-teaching staff of Primary School, Sectors A, B, C, D, Dala, Sonbhadra and Radhey Lal and 21 others. In appeal No. 18651 of 2007, the application No. 1 is Principal applicant Nos. 2 to 17 are Assistant Teachers and 10 to 22 are peon of Cement Factory Primary Pathshala Churk Sonbhadra. These primary teachers were allowed to continue to serve to primary schools or teaching to children of the Cement Factory Colonies. The orders were passed to allow them to continue to serve. They however were not paid salary. It has been decided as above that their services were essential for preservation of the assets and also to serve the fundamental rights of the children of the residents of the colonies. The Principal as such will be paid at he rate on which the Supervisory staff will be paid i.e. Rs. 5000/- per month from the date of winding up to the date of declaration of final dividend : the teachers will be paid as skilled employees and peon as unskilled employees at the rate of Rs. 3000/ and Rs. 2000- per month respectively. For the period prior to the date of winding up they will be paid wages in accordance with the wages, which they were received. The applications are accordingly disposed of.
Appeal/Objection No. 47487 of 2007 (O-91) filed on behalf of Awadesh Pratap Singh and 8 Ors.
181. Heard Sri O.P. Singh, learned Counsel for the appellant/objectors. By this application, Shri Awadhesh Pratap Singh and 8 others, the Principal and Teachers of Junior High School Ghurma and Cement Factory Inter College Ghurma, district Sonbhadra, established and run by the company (in liquidation), have prayed to recall/modify the order dated 29.11.2006 by which the Court noticed that Jaiprakash Associate Ltd. the confirmed purchase the assets of the company (in liquidation) want to run the school through 'Jaiprakash Sewa Sansthan'. They however do not have any plan to disturb any school upto academic year 2006-07. It was thereafter observed in para 17 that let individual teachers apply for either transfer of their seruas or for adjustment of their services in any other state schools. They were also given liberty to negotiate with JAL, in case they are upto the standaids for retaining their services on fresh terms and conditions. The Court however was not inclined to give any protection order in the matter.
182. It is contended that the land namely plot No. 1329 area 12.375 acres was acquired by the State Government by notification dated 28.9.1979 under Section 4(1) read with Section 17(4) and Section 6 of the Act, for the purposes of establishing residential quarters and for school building for the workmen working in the mines of the U.P. State Cement Corporation Ltd. Churk (in liquidation) in Markundi (Ghurma). The copy of the khatauni certified by the Survey Tehsildar dated 11.12.2006, records a 'school' of Gurma Khadan-1. These documents go to show that the land was acquired for the Company (in liquidation) for school building and was entered as school in revenue records. The School however did not have any independent legal personality. It was established as Junior High School on 13.6.1979 and up graded as High School on 19.3.1980 and thereafter and Intermediate without any grant in aid on 4.3.1983. There was no society or trust constituted to establish an independent legal personality to claim the status independent from the Company (in liquidation).
183. The applicants have prayed a direction to the State of U.P.; District Inspector of Schools, the Administrator, U.P. State Cement Corporation Ltd. Inter College Ghurma, Sonbhadra; and Official Liquidator, U.P. to establish the applicants' college at its own level and not to change the nature of land, building of the college and the fund (in the form of Grant-in-Aid) to the applicants' college as well as to direct the respondents not to interfere in the functioning of the applicants w.e.f. 1.7.2007 onwards under the supervision of control of J AL and by any other private party.
184. Upon hearing Shri Ashok Mehta, appearing for Official Liquidator, I do not find that the Company Court has any such jurisdiction in liquidation proceedings to pass such orders. Once the assets have been sold, the sale was confirmed and part possession of the assets have been given to the purchaser, the arrangement to continue the school till the academic year was made with the consent of purchaser. The Court has no jurisdiction to pass any order either directing the State Government or the JAL to run the school with the grant-in-aid of the State Government. The application is accordingly rejected with liberty to the applicants to seek their remedies, if they have any, in accordance with the law, before the appropriate forum.
Appeal/Objection No. 16878 of 2007 (O-71) tiled on behalf of Hari Shanker Prasad and 26 Ors. and Appeal/Objection No. 19922 of 2007 filed on behalf of Paras Nath Singh and 15 Ors.
185. There two appeals/objections filed by Shri Hari Shanker Prasad and 26 others and Paras Nath Singh and 15 others claiming to be workmen looking after watch and ward of the Chunar Cement Factory Colony, P.S. Chunar, District Mirzapur. They have been treated by Official Liquidator as workmen upto the date of winding up of the company (in liquidation) i.e. Upto 9.12.1999. These workmen have now claimed salary from 10.12.1999 to 27.7.2001 on the ground that they had been working as security guards/watch and ward under the supervision of Senior Security Officer. 169. The Official Liquidator took possession of the assets under the orders of the Court on 27.7.2001. On the date of winding up their services were dispensed with under Section 445(3) of the Companies Act 1956.
186. Their claim is in two parts (a) wages, retrenchment compensation, bonus, etc. as workmen upto date of winding up; and (b) salary from 10.12.1999 to 27.7.2001 under the supervision of the Senior Security Officer of the Company (in liquidation).
187. So far first part of the claim is concerned, the applicants are entitled to the same relief as other workmen have been provided in the order. The claim of salary the second part from 10.12.1999 to 27.7.2001 cannot be accepted. The appellants did not work under the orders or in supervision of the Official Liquidator. The Official Liquidator did not allow them to be engaged as watch and ward staff after the date of winding up. They never approached the Court either by themselves or through their supervisors seeking permission of the Court having custody of the assets of the company (in liquidation) under Section 456 of the Companies Act 1956 to continue to work. The Senior Security Officer had no authority thereafter to deploy them or to verity their work and performance. Their claim in the second part is rejected and their appeals to that extent is dismissed.
188. It may be noticed that some of the claimants/objectors have not titled their representations against the report of the OL as Company Appeal under Rule 164 of the Company (Court) Rules of 1959. Most of these appeals were titled as company applications or objections. The court has tried to avoid the technicality and has treated all these applications/objections as company appeals and has decided all of such applications/objections/appeals. In some of the applications/objections/appeals, the orders have been passed separately. In this judgment, the Court has considered the applications/objections/appeals of the secured creditors, UP Power Corporation, Employees Provident Fund Commissioner, UP Cement Vetanbhogi Sahkari Rin Samiti Ltd. and some of the appeals filed by the workmen.
189. In Order to clarify the OL is directed that all those workmen/employees, who were engaged either by the orders of the Court or otherwise for the purposes of maintenance of employees provident fund accounts, schools and colleges (other than those who are paid from the Government grant regularly) hospitals & dispensaries, water and electricity supplies, will be paid from out of liquidation expenses to the extent that the supervisory managerial category persons namely trustees of the two employees provident fund trusts, doctors, principals and the general manager, who were asked to look after the assets by an interim arrangement, as salary @ Rs. 5000/- per month. The other skilled employees including teachers, pharmacists, nurses and clerks (a Rs. 3000/- per month and all other workmen @ Rs. 2000/- per month (subject to deduction of Rs. 1000/- per month paid to the employees maintaining water and electricity upto date of declarantion of final dividend).
190. With this judgment, the Court has concluded the hearing on the objections appeals for admitting the 'proofs of debts', dismissed or allowed by the OL n part. All the applications/objections/appeals are consequently partly allowed except those, which have been rejected by the Court. The OL will proceed to recalculate the amount for distribution, taking into account the direction is given by the Court. He will first separate liquidation expenses and the amount for taxation and audit and then work out the overriding preferential claims and apply the pari passu rule under Section 529A. It is only, if some amount is left over and above the liquidation expenses then the preferential claimants will be entitled to the interest. The application/objections/appeals of the officers and unsecured creditors are according dismissed.
191. The OL will keep Rs. 4.59 crores i.e. one percent of the total sale consideration with him for a period of one year for any claim of the workmen or other category, left out by either inadvertence or which could not be filed on account of delay or other unforeseen circumstances. This amount shall be disbursed subject to the orders of the Supreme Court after the period of one year on pari passu basis between all the claimants in accordance with the judgment. The OL will also notify the summary of this judgment within two weeks in all leading news papers, having wide circulation in and around the districts Mirzapur and Sonebhadra for the benefit of he workmen, as well as the orders of the Supreme Court by which the disbursement has been stayed.
192. The OL is reminded that in RPJ Mineral Pvt. Ltd. and Anr. v. S.K. Saxena, Official Liquidator and Ors., Hon'ble Supreme Court, while hearing Special Leave Petition (Civil) No. 19132 of 2006, arising out of judgment dated 27.10.2006 in Civil Appeal No. 1239 of 2006 and the orders dated 20.9.2006, 5.6.2007 and 11.10.2006 in Misc. Company Application No. 4 of 1997, has passed an order on 9.2.2007 "no money will be disbursed during the pendency of the special leave petition." The Official Liquidator will comply with the orders of the Hon'ble Supreme Court. He may consider and adjudicate the claims/proofs of debts in tennis of this judgment but shall not disburse the amount during the pendency of the special leave petition in Supreme Court, and will comply with the orders of the Supreme Court, in this regard.