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15. The main submission on behalf of the Bank in laying challenge to the impugned judgment is two fold, (one) the workmen have no claim or right over the security held by a bank or financial institution. Their dues can only be adjudicated in an appropriate court (e.g. Industrial Tribunal) when the company is not in liquidation and DRT has no competence in this regard and (two) if the debtor company is in liquidation and the security is sold in proceedings before DRT and Recovery Officer, the sale proceeds will be distributed by taking into account the pari passu charge to a limited extent of the “workmen’s portion” as laid down in Section 529(1)(c) proviso read with Section 529A of the Companies Act, 1956 (for short, 'Companies Act’).

18. Learned senior counsel for the Bank submitted that by virtue of a legal fiction contained in the proviso to Section 529(1)(c) read with Section 529(3)(c), the workmen are entitled to participate along with the concerned creditor to a limited extent in the distribution of the sale proceeds by the DRT under Section 19(19). Otherwise, they can have no claim at all. He would submit that Section 529(1)(c) proviso and Section 529A of the Companies Act form part of a composite scheme and can be brought into play only in the case of a company which is being wound up. In a running company, the dues of workmen are not quantified or determined and, therefore, workmen’s portion also cannot be quantified. The workmen have no charge on any asset. By a legal fiction, a pari passu charge is created to a limited extent only under Section 529(1)(c) proviso and that too to be determined by the liquidator and none else. Section 19(19) can, thus, have application only if the debtor company is being wound up and not otherwise.

52. A. P. State Financial Corporation v. Official Liquidator[8], was a case where the Corporation had made applications under Section 446(1) of the Companies Act read with Sections 29 and 46 of the State Financial Corporations Act, 1951 (for short, `1951 Act’) before the Company Judge of the High Court for permission to stay outside the liquidation proceedings. The Company Judge granted conditional permission. One of the conditions was that Corporation will undertake to discharge the liability due to the workmen, if any, under Section 529A of the Companies Act. This Court noted that 1951 Act was a Special Act for grant of financial assistance to industrial concerns with a view to boost up industrialization and also recovery of such financial assistance if it becomes bad; similarly, the Companies Act deals with companies including winding up of such companies. The proviso to sub-section (1) of Section 529 and Section 529A being a subsequent enactment, the non obstante clause in Section 529A must prevail over Section 29 of the 1951 Act. This Court further said that the statutory right to sell the property by Corporation under Section 29 of the 1951 Act has to be exercised with the rights of pari passu charge of the workmen created by the proviso to Section 529 of the Companies Act. Under the proviso to sub-section (1) of Section 529, the liquidator shall be entitled to represent the workmen and enforce the above pari passu charge and, therefore, the conditions imposed by the Company Court were justified. If such conditions were not imposed to protect the rights of the workmen, there was every possibility that the secured creditor might frustrate the pari passu right of the workmen.

53. In International Coach Builders6, the question under consideration before this Court was whether the rights of the State Financial Corporation under Section 29 of the 1951 Act to sell and realize the security could be exercised without reference to the Company Court when a winding up order is made against the Company. This Court noticed the provisions of the 1951 Act and Sections 529 and 529A of the Companies Act and the divergent views of Bombay High Court, Andhra Pradesh High Court, Punjab and Haryana High Court and Gujarat High Court. This Court approved the decision of the Bombay High Court in Maharashtra State Financial Corporation v. Ballarpur Industries Ltd.[9] and held that when the Company was in winding up, the State Financial Corporation to which the assets of the company were charged cannot proceed to realize the security without intervention of the Company Court. It was stated that as a result of amendment in Section 529 a pari passu charge to the extent of the workmen’s portion is created on the security of every secured creditor when he opts to realize security by standing outside the winding up. The Court found no real conflict between Section 29 of the 1951 Act and the Companies Act. Following the decision of this Court in Andhra Pradesh State Financial Corporation8, it was observed that even if it was assumed that there was conflict in the above provisions, Section 29 of the 1951 Act cannot override the provisions of Sections 529(1) and 529A of the Companies Act inasmuch as Financial Corporations cannot exercise the right under Section 29 of the 1951 Act ignoring a pari passu charge of the workmen. In para 32 (pg. 498) of the Report this Court concluded its opinion as under: