Case Law Details

Case Name : Gujarat Steel Tube Employees Union & 1 Vs O.L. of Gujarat Steel Tubes Ltd. (In Liqn.) & 7 (Gujarat high court)
Appeal Number : Co. Application No. 264 OF 2008
Date of Judgement/Order : 06/08/2012
Related Assessment Year :
Courts : All High Courts (3799) Gujarat High Court (319)

HIGH COURT OF GUJARAT

Gujarat Steel Tube Employees Union & 1

Versus

O.L. of Gujarat Steel Tubes Ltd. (In Liqn.) & 7

K.M. THAKER, J.

CO. APPLICATION NO. 264 OF 2008

CO. PETITION NO. 7 OF 2001

AUGUST 6, 2012

JUDGMENT

COMA/264/2008

(I) Subject and Relief:-

1. The applicant unions “Gujarat Steel Tube Employees Union” and “Gujarat Mazdoor Sabha” (hereinafter referred to as the “applicant unions”) have taken out Judges Summons dated 17.3.2008 which is registered as Company Application No.264 of 2008 under Section 456 (1) of the Companies Act (hereinafter referred to as the “Act”) seeking below mentioned relief and directions:-

“(A) The Hon’ble Court be pleased to direct the official liquidator of M/s. Gujarat Steel Tubes Ltd. to comply with directions and file his reports as per order of this Hon’ble Court in para 14 of the oral order dated 27th September, 2007 passed in Company Application No.444 of 2007 and allied matters and further be pleased to make the order of final disbursement on the basis of such report.

        (B)**                                                      **                             **”

1.1 Heard Mr. Sinha, learned advocate for the applicant union and Mr. Hemang Shah, learned Advocate for the other union and Mr. Baxi, learned advocate for some of the workmen concerned in the proceedings (who claim that certain benefits to which they were entitled are not taken into consideration while calculating the total claim of the workmen) and Ms. Yagnik, learned advocate for official liquidator and Mr. Singhi and Ms. Shah for ICICI i.e. respondent No. 7. Mr. A.C. Gandhi, learned advocate for respondent No. 6. Ms. Lodha, learned advocate for respondents No. 3, 4 and 8.

(II) Factual Backdrop:-

2. The factual background is found in the affidavit dated 17.3.2008 filed in support of the Judges Summons. In the said affidavit the applicant union has stated, inter alia, that:-

“2. The applicants submit that by an order dated 27.12.2001, passed in Company Petition No. 7 of 2001 by this Hon’ble Court, the above named company has been ordered to be wound up and the official liquidator attached to this Hon’ble Court has been appointed as liquidator with all the powers under the provisions of the Companies Act, 1956.

        3**                                                         **                                   **

4. That this Hon’ble Court vide its order dated 27.11.2003 passed in OLR No. 87 of 2003 confirmed the sale of all assets and properties except land for Rs. 12.31 Crores and as per the information of the applicant herein, said amount has already been received by the official liquidator.

        5**                                                         **                                   **

6. The applicants submit that the applicants had filed company applications seeking disbursement out of the amount realized and last such application was filed which was registered as company application No. 444 of 2007. It is submitted that in the said company application the applicants have submitted the details of the development of winding up proceedings of the present matter till the date of filing said application. The copy of the said application along with all its annexure is annexed herewith and marked as Annexure-A. The applicants crave leave to refer to and rely upon all the submissions and averments made in the said application at the time of hearing.

7. The applicants submit that the said company application No. 444 of 2007, with other company application No. 174 of 2006, 379 of 2007, 438 of 2007, 439 of 2007 and OLR No. 233 of 2007 were heard together and this Hon’ble Court vide oral order dated 27.9.2007 ordered disbursement of Rs. 35 Crores in the ratio of 50:50 amongst the secured creditors and the workers. This Hon’ble Court was further pleased to direct the OL in para 14 of the said oral order to refer the documents which may be produced by all the secured creditors as well as the claim made by the applicant of company application No. 444 of 2007 to the chartered accountant for re-verification and after report received by him, a fresh OLR was directed to be submitted for final disbursement and the said exercise was to be completed within 3 months from the date of receipt of the copy of the order. The copy of the oral orders dated 27.9.2007 is annexed herewith and marked as annexure-B.

8. The applicants submit that the disbursement as directed vide order dated 27.9.2007 has already been made however fact remains that despite more than five months time have been elapsed, no OL report has been filed there by submitting verification report and proposing final disbursement ratio as direction by this Hon’ble Court by order dated 27.9.2007. The applicants submit that upon aforesaid order dated 27.9.2007 having been passed, OL has already provided necessary details including copy of company application No. 444 of 2007 the learned chartered accountant requesting them to reverify the claims and submit report vide letter dated 3.12.2007, copy of the said communication is annexed herewith and marked as annexure-C to this application.”

2.1 In view of the relief prayed for by the applicant union it would be appropriate and relevant, at this stage to take note of the directions passed by the Court in the said order dated 27.9.2007 in Company Application No. 444 of 2007. The directions read thus:

“10. Considering the aforesaid facts and circumstances and keeping in view the earlier order passed by this Court wherein the workers and the secured creditors were disbursed on the ratio of 60:40, I find that there is substantial difference in the claim of the workers as well as the claim of the secured creditors if the figures as finalized by the Chartered Accountant and mentioned in the OL Report are considered, keeping in view the claim made by the workers and the secured creditors.

11. Ultimately, it will be for the OL to refer the matter to the Chartered Accountant for reverification in light of the contents of the application being Company Application No. 444 of 2007 and it will be for the concerned Chartered Accountant to reexamine the matter and to give appropriate report. Similarly, even on the claim of the secured creditors, it will be for the concerned secured creditors to produce the proof of debts for prima facie examination by the Chartered Accountant and it will be for the concerned Chartered Accountant to finalize the figures of the outstanding amount of the secured creditors. In my view, such exercise can be completed at later stage. However, as the huge fund is available and no disbursement has taken place after the last disbursement of Rs. 4 crore, substantial amount can be made available for disbursement on adhoc basis. Keeping in view the alleged claim by the workers’ Union and the secured creditors, I find that the amount of Rs. 35 crore may be disbursed on the ratio of 50:50 amongst secured creditors and the workers. The remaining amount may be invested by the OL in a nationalized Bank until the final report, which may be submitted by the Chartered Accountant after verification of the workers’ claim as well as the proof of debts of the secured creditors.

12. So far as the claim made by the applicants of Company Application Nos. 438 and 439 of 2007 are concerned, they pertains to the wages on the basis that the termination was illegal and, therefore, for the present the claim of wages as mentioned in both the applications may be considered by the OL by adding their claim in the dues of the workmen.

13. Hence, it is ordered that the OL shall disburse the amount of Rs. 35 crore in the ratio of 50:50 amongst the secured creditors and the workers. Consequently the amount of Rs. 17.50 crore shall be required to be disbursed to the secured creditors and Rs. 17.50 crore shall be required to be disbursed to the workers. The mode of the disbursement shall be as under:-

(a)  It will be required for the secured creditors to produce proof of debts, including the documents which may be required by the OL for prima facie satisfaction of the outstanding dues of the secured creditors. It will also be required for all the secured creditors to nominate the lead Secured Creditor, which is stated as that of Bank of Baroda and it will be required for the Bank of Baroda to produce the authority letters of other remaining Secured Creditors together with the details of, inter se, ratio amongst them. Further all secured creditors will be required to file an usual undertaking to this Court, copy whereof shall be produced before the OL, to the effect that in the event it is so directed by this Court, the amount shall be returned or refunded within the time, as may be ordered by this Court.

(b)  After the aforesaid formality is completed, OL shall disburse the amount to the lead secured creditor within two weeks from the completion of such formality.

(c)  As regards disbursement to the workers are concerned, OL shall be at liberty to make disbursement by opening a separate Dividend Account and the payment by cheque shall be given by the OL to the concerned workers on production of proof of their identity. It will not be required for the OL to insist that the workmen concerned must be present with the representative of the Union only. The OL may take assistance of the workers’ Union. No payment shall be withheld by the OL to any worker, merely because he/she is resisted/opposed by the Union for one reason or another and if the OL is satisfied with the identity of the person concerned, he shall be at liberty to make payment. At the time of disbursement the claim made by the applicants of Company Application Nos. 438 and 439 of 2007 shall be considered in the workmen’s dues for proportionate payment to the concerned applicants. The aforesaid process shall be completed on or before 26th October, 2007.

14. The OL shall refer the documents, which may be produced by all the Secured Creditors as well as the claim made by the applicant(s) of Company Application No. 444/2007 to the Chartered Accountant for reverification and after the report is received by him, a fresh OLR shall be submitted for final disbursement of the amount. The aforesaid exercise shall be completed with a period of three months from the date of receipt of the order.”

2.2 Before proceeding further, it is relevant to note that according to Official Liquidator all properties and assets have been disposed of and now there are no more assets and properties of the company available for sale/disposal and total sum of Rs. 12,85,33,258/- is available with Official Liquidator for disbursement amongst the workers and the secured creditors.

2.3 It appears that there is a common grievance from the side of secured creditors as well as unions representing workers that the reports by the chartered accountant give out conflicting and contradicting conclusions and recommendations.

2.4 It appears that on earlier occasions Official Liquidator had placed on record chartered accountant’s reports dated 8.9.2004, 13.1.2007, 3.2.2007 and 24.2.2007.

2.5 Subsequently order dated 6.3.2007 was passed in Company Application No. 174 of 2006 directing the Official Liquidator to get the claims reverified. The relevant portion of the said order dated 6.3.2007 reads thus:-

“21. In view of the above finding, the Chartered Accountant is now required to reverify the claims of the workers. Thus, now the Chartered Accountant is required to consider the claims of all the workmen who are “workmen” within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/-, their claims are required to be considered for the purpose of making the payment under section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case).

22. So far as other objections raised on behalf of the secured creditors, such as considering the claims of those workmen who have not produced their age proof and/or birth date certificate; their actual date of retirement and/or superannuation and/or those persons who have died prior to the date of closure, the secured creditors are justified in making the grievance. Thus, before reverifying the claims of the workers as stated above, the Official Liquidator and/or the Chartered Accountant is required to call for such particulars and in fact it is for the concerned workers’ union who have submitted their claims to furnish necessary particulars with regard to date of birth. All those employees whose particulars are not given till date, they are directed to send the said particulars to the Official Liquidator/concerned Chartered Accountant within a period of six weeks from today and Chartered Accountant is directed to have fresh verification of only those workmen who have submitted the proof of date of birth and the Chartered Accountant is required to consider the claims of the concerned workmen accordingly i.e. considering the date of retirement. So far as the objections raised on behalf of the workers’ union under different heads, the Chartered Accountant is required to consider the claims under different heads as per the decision of this Court in Jubilee Mills case. The Official Liquidator and the Chartered Accountant are directed to complete the entire process of fresh verification of the claims of respective workmen in light of the observations made hereinabove within a period of four months from today and thereafter, the Official Liquidator is directed to submit the report before this Court for making necessary payment accordingly. It appears that the amount which is realized by the Official Liquidator/Sale Committee by selling the properties of the company in liquidation is at present lying idle without fetching any interest. Under the circumstances, the Official Liquidator is directed to invest the entire amount realized by selling the properties of the company in liquidation in a fixed deposit in nationalized bank initially for a period of six months.”

2.6 In pursuance of the said order dated 6.3.2007, the Chartered Accountant M/s. Kiran Shah and associates submitted a report dated 12.8.2007 (at page 107 to 149).

2.7 After the above referred report dated 12.8.2007 submitted by the Chartered Accountant was placed on record, the applicant union preferred application No. 444 of 2007. It appears that the said application was filed in September 2007. In the said application the applicant union placed on record a statement giving out the details of the claimants/workers and the individual and total claim amount. According to the said statement the total number of claimants/workmen was 1117 and the total claim amount was Rs. 46,13,54,855. In the said application the Court passed an order dated 27.9.2007 wherein, the Court inter alia, directed that the Official Liquidator should refer the documents which may be submitted by secured creditors and the workmen and forward all such documents to chartered accountant for re-verification and after the report from the chartered accountant is received, fresh report should be submitted by the Official Liquidator.

2.8 The effect of the said directions by order dated 27.9.2007 would be that all other/previous reports would not be relevant for any purpose and the report which the Chartered Accountant may submit after taking into account the directions contained in the order dated 27.9.2007 would be the relevant report. By the said order the Court directed that the calculation of the claims by the workmen should be undertaken in light of the judgment by the learned Single Judge in case of Textile Labour Association v. Official Liquidator of Jubilee Mills Ltd. [2000] 99 Comp. Cas. 189 (Guj.) and to consider claims of all workmen irrespective of any age limit and of the staff members drawing wages not exceeding Rs. 2000/-.

2.9 It was in pursuance of the said order that the chartered accountant forwarded a communication dated 11.3.2008 purporting to be part report which was followed by his letters dated 6.6.2008 (addressed to the secured creditors) and further communication/report dated 18.7.2008 wherein the chartered accountant suggested the claim ratio for the secured creditors (which, even according to the said charted accountant, was incomplete). About a month thereafter the said Chartered Accountant called for certain instructions from official liquidator.

2.10 In this background a company application came to be filed (i.e. company application No. 584 of 2008) wherein the Court passed order dated 18.11.2008 directing re-verification of all claims by another Chartered Accountant.

2.11 Consequently, official liquidator appointed another Chartered Accountant and assigned him the work of re-verification of all claims.

2.12 The Chartered Accountant appointed by official liquidator after the order dated 18.11.2008 submitted his reports in two parts viz. report dated 10.1.2009 about the claims by the workmen and report dated 17.2.2009 about the claims by the secured creditors. Official liquidator placed the said two reports dated 10.1.2009 and 17.2.2009 on record under his reports dated 27.1.2009 and 18.2.2009. The report dated 10.1.2009 submitted by the Chartered Accountant contained two annexures. One of the two annexures i.e. annexure-A contained details related to workmen and another annexure i.e. annexure-B contained details related to members of staff. According to the said report total eligible claim from the side of workmen was identified at Rs. 38,70,19,269 and for the staff members at Rs. 14,13,47,503/- (i.e. total Rs. 52,83,66,772/-) and it included diverse heads like basic wage, Variable Dearness Allowance (“VDA”, for short), Earned Leave, Gratuity and retrenchment compensation. So as to explain as to how the details were calculated and the claims were identified and determined the Chartered Accountant clarified in his report that he had taken into account the orders dated 6.3.2007, 27.9.2007 and 18.11.2008 and the judgment in the case of Official Liquidator of Jubilee Mills Ltd. (supra). The report also clarified that the total amount for eligible claim (for workmen) was calculated by taking into account the date of order of winding up i.e. dated 27.12.2001 and also the details about date of birth, date of joining, leave record, salary slips for the month of April 1997, of the concerned workmen for the purpose of preparing the report.

2.13 After the submission of the said reports the said Chartered Accountant also submitted another report dated 14.3.2009 giving details/calculation about the ratio of claims (for disbursement) by the secured creditors.

2.14 Since some grievance with reference to about 49 workmen was raised, more particularly about their entitlement for allowance @ Rs. 5 in view of the order by Industrial Tribunal, the matter was referred for further clarification/report by the Chartered Accountant and that therefore he submitted supplementary report 15.7.2009 dealing with the aforesaid aspect. As the said aspect resulted into variation in ratio of claims, the Chartered Accountant submitted the details of variations in his report dated 15.7.2009. The said details read thus:-

Sr. No.

Particulars

Claim Amount Rs.

Ration%

1

 Bank of Baroda

22,75,29,578/-

20.47

2

 State Bank of India

3,64,75,275

3.28

3

 Indian Overseas Bank

4,68,00,212

4.21

4

 State Bank of Patiala

10,39,22,907

9.35

5

 ICICI Bank Ltd.

6,43,59,726

5.79

6

 SBI/BOB Mutual Fund

10,10,19,274

9.08

7

 Workers and Staff Members

53,16,35,626

47.82

111,17,42,598

100.00

2.15 After the above referred reports by the Chartered Accountant, the secured creditors, particularly respondent No. 7 and respondent No. 3 filed their objections/affidavits dated 19.3.2009 (page 243 to page 326) and 19.3.2009 (pages 327 to 330/A) respectively against the reports by the Chartered Accountant. The respondent No. 7 also filed another affidavit/objections dated 22.8.2009 (page 339 to 344) and respondent No.6 also filed its objection/affidavit dated 18.3.2009 (pages 345 to 348).

2.16 Before proceeding further it is necessary to mention that vide order dated 15.3.2010 passed in Company Application No. 360 of 2009 the Court directed official liquidator to get claims of 49 workers re-verified. Thereafter another order dated 5.4.2010 was passed in company application No. 328 of 2008 directing official liquidator to get certain other verification done by the Chartered Accountant. In view of the said orders the official liquidator filed a report dated 7.7.2010 giving a composite view of the details of different verification reports submitted by the chartered accountant in pursuance of the orders passed by the Court. The said details are relevant for the purpose on hand. The official liquidator has mentioned in the said report dated 7.7.2010, on the basis of the reports of the chartered accountant that:-

        “1 and 2**                                             **                                   **

3. That M/s. Ajay J. Shah and Co., Chartered Accountants vide letter dated 16.4.2010 submitted his report in compliance of the order dated 15.3.2010 passed by this Hon’ble Court in Company Application No. 360 of 2009 as under:-

“With reference to the above, we have already submitted our report dated 13.11.2009 in this regard and made very clear that we have strictly followed the directions of settlement agreement signed by the Executive Director of GST Ltd., representative of Workers Union, Labour Contractor, Workers of Labour Contractor and Advocate of the company and the same is approved by the Hon’ble Judge of Industrial Court (Ref No. 222/85) on 23.7.1990. According to which for the calculation of gratuity and retrenchment compensation joining date as 1.1.1985 of 47 workers. Though as per salary slips joining date is 1.4.1990. In our report we have considered joining date is 1.4.1985 only for the calculation of gratuity and retrenchment compensation. We have not considered any other benefit except salary and leave wages. Thus from the above you will appreciate that we cannot ignore the settlement agreement signed by the Executive Director of GST Ltd., representative of Workers Union, Labour Contractor, Workers of Labour Contractor and Advocate of the company and the same is approved by the Hon’ble Judge of Industrial Court (Ref No. 222/85) on 23.7.1990.”

A copy of the letter dated 16.4.2010 is annexed and marked as annexure-G.

4. The official liquidator further most respectfully submits that M/s. Ajay J Shah and company chartered accountants vide letter dated 13.11.2009 submitted his report with regard to 49 workers of the company as under:-

Mainly two issues are raised in the said application viz. (i) joining dates and (ii) Rs. 5/- raise in salary. We have made the detailed study of the documents and give our comments as under:-

(1) Regarding joining date of 49 workers referred in the said application it is noticed that settlement agreement signed by the Executive Director of GST Ltd., representative Workers Union, Labour Contractor, Workers of Labour Contractor and Advocate of the company, which is approved by the Hon’ble Judge of Industrial Tribunal Court (Ref No. 222/85) on 23.7.1990. On verifying the same it is noticed that in respect of Mr. Hmesing N. Sekhavat the joining date is 1.7.1985 though in the salary slip joining date is 1.4.1990. We have also noticed that in case of Mr. Jogendersinh D. Sandhu joining date is 2.7.1993 as per salary slip. However, in case of 47 persons as per the settlement agreement joining date is 1.1.1985 though as per salary slips it is 1.4.1990. In the settlement agreement it is mentioned that for the calculation of gratuity and retrenchment compensation the joining date should be taken as 1.1.1985 of remaining 47 workers.

In view of the above we have calculated the working of gratuity and retrenchment compensation on the above mentioned basis as recorded in the settlement agreement.

(2) Regarding Rs. 5/- raise in the salary which we have considered on the basis of the settlement agreement referred in para No. (1). However, it is not cleared from the salary slip whether this raise was included in the pay slip or not. It appears that this amount may have been paid to the respective workers.

In view of the above, we have eliminated the said raise of Rs. 5/- from the calculation of dues for salary and other benefits. A fresh calculation as per annexure-A attached herewith in replacement of our old calculation submitted along with our letter dated 15.7.2009.

We submit out fresh calculations as per annexure-A attached therewith in replacement of our old calculation submitted along with our letter dated 15.7.2009.

Percentage ratio between secured creditors and workers and staff members:

Sr. No.

Particulars

Claim Amount Rs.

Ratio%

1

 Bank of Baroda

22,75,29,578/-

20.52

2

 State Bank of India

3,64,75,275/-

3.29

3

 Indian Overseas Bank

4,68,00,212/-

4.22

4

 State Bank of Patiala

10,39,22,907/-

9.37

5

 ICICI Bank Ltd.

6,43,59,726/-

5.80

6

 SBI/BOB Mutual Fund

10,10,19,274/-

9.11

7

 Workers and Staff Members

52,86,60,066/-

47.69

110,87,67,038/-

100.00

A copy of the letter dated 13.11.2009 along with annexure-A to the said letter of the chartered accountants is annexed and marked as annexure-H.”

2.17 It is also relevant and necessary to mention that on various occasions controversy about the total number of workmen i.e. claimant workmen was being raised. The learned advocate for Official Liquidator had also made grievance about the said aspect. Therefore, order dated 6.7.2011 was passed which was followed by another order dated 14.7.2011.

2.18 In response to the order dated 14.7.2011 the official liquidator filed report dated 18.7.2011 along with which a list containing names of the claimant workmen was placed on record by official liquidator. In view of the order dated 14.7.2011 the said details concerning the names and total number of concerned workmen mentioned therein, are to be treated as final. This aspect has been made clear in the subsequent order dated 25.7.2011. Below mentioned paragraph No. 5 of the said order dated 25.7.2011 deals with and clarifies the issue:-

“5. As noted hereinabove earlier, the order dated 14.7.2011 was passed in presence of all learned advocates representing the concerned parties, including Mr. Shah who has raised objection today. In the said order, as noted hereinabove earlier, it was clarified that “…..any claim by any person whose name does not figure in the said list may not be entertained, except in rare case with compelling facts.” In the very same order, it was also observed, in presence of all learned advocates and after hearing all concerned parties, that “…. the said list with the Official Liquidator shall be treated as final list containing details of the total number and names of the workmen of the company in liquidation…”. Therefore, considering the fact that the said order and declaration was not opposed by Mr. Shah, learned advocate, at the relevant time, and it was passed after hearing all learned advocates including Mr. Shah, any further dispute or objection with regard to the number of workers entitled for payment is now not to be taken into account and for all purposes, the list submitted by the OL pursuant to the order dated 14.7.2011 will be treated as final, more particularly when such dispute is going on since so many years and final resolution is not reached, which delays the disbursement and every time matter has to be sent to Chartered Accountant for verification which entails huge expenses towards Chartered Accountant’s fees and it in turn erodes the available funds and reduces the amount available for disbursement while paying available fees to the Chartered Accountant.”

2.19 The directions and relief prayed for by the applicant in application No. 264 of 2008 are required to be considered in light of the facts and circumstances recapitulated hereinabove and in light of the fact that the workmen and secured creditors have raised diverse objections against the conclusions by the chartered accountant in his reports dated 10.1.2009 and 17.2.2009 followed by couple of supplementary/explanatory reports.

(III) Other Aspects:-

3. As mentioned above, on one hand the applicant as well as the respondent secured creditors have made one common submission and request for disbursement of the amount which is available with official liquidator, whereas on the other hand both, they have raised objections against the report/s submitted by the chartered accountant.

3.1 Of course, while the tune is the same the notes are different inasmuch as the workmen would claim that the amounts/items which ought not have been and could not have been taken into consideration while considering and calculating the claims of the secured creditors, have been considered and included which has adversely affected the claim of the workmen and more importantly it has affected the quantum of amount available for disbursement to workmen.

3.2 Whereas, the secured creditors would submit that there are serious errors in considering the total number of workmen, their actual salary, the period for which claim can be entertained and the category of employees/workmen who ought to have been excluded from consideration and as a consequence of such errors and misconception on part of chartered accountant the amount available for disbursement to secured creditors is adversely affected.

3.3 Thus, it becomes necessary to take into account the objections submitted by the learned Counsel for the workmen and the secured creditors.

(IV) Submissions:-

4. Mr. Sinha, learned Counsel for the workmen has, inter alia, submitted that for the purpose of working out the ratio for purpose of disbursement of amount (i.e. disbursement ratio”) amongst the workmen and the creditors, the dues of only those secured creditors who hold first charge can be taken into account and only after the payment of total claim of the workmen is completed and the claim of the first charge holder secured creditors is taken care of, the claim of the second charge holder secured creditors can be taken into account and while determining the disbursement ratio the amount claimed by the secured creditors holding second charge should be excluded and since in present case Chartered Accountant has considered entire dues of all secured creditors, be it first charge or second charge and therefore present report so far as verification of dues of secured creditors is concerned cannot be accepted. Mr. Sinha, relied on the provision contained under Section 529 particularly Section 529(1)(c) and clause (c) of the proviso of section 529(1) and section 529(3)(c) and Section 529(A) of the Act and sections 47 and 48 of Insolvency Act. He also submitted that a sum of Rs. 27,19,360 which is taken into account by the chartered accountant while considering the claim of State Bank of Patiala, is an error and the said claim could not have been taken into account since the said amount represents the payment made by said secured creditor as “guarantee money” in High Court. It is submitted that the claim of ICICI Bank as Debenture Trustee on behalf of the Debenture holder for Rs. 3,50,00,000/- has been accepted as secured claim. Similarly in item No.4 claim of Rs. 3,00,00,0000/- in favour of SBI Mutual Fund and claim of Rs. 2,00,00,000/- with 15% interest till the date of winding up making it a claim of Rs. 10,10,19,274/- has been considered, however the said dues of the Mutual Fund do not enjoy first charge over the properties of the company in liquidation hence the said amount cannot be considered for disbursement as priority dues under Section 529(A) of the Companies Act, 1956. It is also submitted that amount of Rs. 27,19,360/- has been allowed as secured claim though the said amount is guarantee money paid to Hon’ble High Court, Mumbai which cannot be treated as dues payable to State Bank of Patiala. Mr. Baxi representing the workmen who claim inclusion of heat allowance in total eligible claim amount for workmen submitted that the said allowance should be included because it is granted by the award passed by learned Industrial Tribunal.

4.1 So far as the secured creditors are concerned, in view of one of the orders passed during hearing of the application, all secured creditors have raised/submitted common points of objections as summary of the objections mentioned in their respective affidavits. The learned Counsel appearing for the secured creditors have disputed the calculation and determination of the total claim amount which is considered eligible by the chartered accountant with reference to the workmen. It is contended that errors have crept in while considering the total number of workmen and their claims inasmuch as cases of some workmen have been considered for the entire period though they, reportedly, died before the date of closure or the date of winding up order and cases of even those workmen who would not fall within purview of the term workmen have also been taken into account and that certain items/heads (e.g. earned leave, leave encashment amount, other allowances) which could not have been taken into account for determining the eligible claim, have been included by the chartered accountant. It is also alleged that the date of joining and/or the date of superannuation in cases of certain workmen have not been properly examined in light of relevant documents i.e. birth certificate or such other authentic document. It is also alleged that cases of staff members drawing wages exceeding Rs. 2000/- have also been included as a result of which additional claim amount of Rs. 14,13,47,503/- is wrongly identified as eligible claim. It is also claimed that though the claim of senior officer, senior programmer, senior engineer, supervisor etc. could not have been included, such claims also have been taken into account. It is also claimed that the chartered accountant appears to have included the periodical increments in wages, which is misconceived and unsustainable. The secured creditors have also disputed the determination of amount claim toward unpaid gratuity. The learned Counsel for the secured creditors have opposed the submissions on behalf of the applicants.

4.2 The learned Counsel for official liquidator has submitted, inter alia, that the objection raised by ICICI in its affidavit dated 22.8.2009 with reference to the claim made by 14 workers is misconceived and does not survive in view of the fact that the chartered accountant has not considered the claim of 14 workers having regard to the fact that the said claim does not fall within the criterion mentioned in the judgment in case of Official Liquidator of Jubilee Mills Ltd. (supra). The learned Counsel for official liquidator has also submitted that the objections raised by the secured creditors with reference to the staff members drawing wages more than Rs. 2000/- is also misconceived and unsustainable inasmuch as the report submitted by the chartered accountant makes it clear that the chartered accountant has strictly applied the criteria and guideline laid down in the decision in case of Official Liquidator of Jubilee Mills Ltd. (supra). The learned Counsel for official liquidator has also opposed the submission on behalf of the secured creditor to the effect that the claims have been considered without verifying the proof of age of all workmen. With reference to the submission made on behalf of the secured creditors with reference to the workmen whose name appear at serial No.21 and 28 of annexure A to the C.A’s report, learned Counsel for official liquidator has submitted that the said submission or objection overlooks the details and clarification available on record (page 211 to page 228).

With reference to the secured creditors objections as regards calculation of gratuity, learned Counsel for official liquidator has submitted that the said calculation is in accordance with the decision in case of Official Liquidator of Jubilee Mills Ltd. (supra) particularly the observations in para 16.3 of said decision. With reference to the secured creditors’ objection that claims of senior programmer, senior engineer, marketing officer should have been excluded, learned counsel for official liquidator has submitted that the C.A’s report make it clear that the claims have been considered on the basis of the wages drawn by the person and not his designation. Learned Counsel official liquidator has submitted that the objections raised by the secured creditors against the report by the chartered accountant are misconceived and unsustainable. With reference to the reports submitted by the two chartered accountants and the submissions by the secured creditors and workmen the learned Counsel for Official Liquidator has, in its affidavit, that:-

“2. C.A. Kiran Shah has given several Reports but all of them are in parts and have not clearly show that secured creditors have not cooperated in giving relevant documents. The report is given on affidavit of proof and not actual documents comprising the proof of debt. His letter dated 20.8.2008 at page 200 shows that he required to re-examine ratio. Also see page 244 whereby mention regarding C.A.’s application before the High Court is made matter is still pending.

3. Before going to C.A. Ajay Shah Reports, it will be necessary to see the ground reality as far as the status of company is concerned as well as ratio laid down in the case of Jubilee Mills reported in 2000 (4) GLR page 2923.

As regards closure of the company, there is no document to show that the closure was legal and permission regarding legal closure was obtained. There is nothing on record to show this important aspect and hence, in view of this fact the workers continues to be workers till the date of winding up of the company. Thus, the period to be calculated for the claims of workers sill be upto the winding up date, i.e. from May 1997 (when GST suspended manufacturing activities without any permission from any authority) till the order of winding up of the company was passed by the High Court on 27.12.2001. Fact sheet showing relevant dates is annexed in the record at pages 104 to 106.

Relevant paragraphs of the Jubilee Mills Ltd. judgment are.

4. C.A. Ajay Shah’s Report is complete in all aspects and has followed the Jubilee Mills judgment. There cannot be comparison between reports submitted by C.A. Kiran Shah and the present C.A. as the later report has taken into account all the directions as laid down in Jubilee Mills judgment and also mentioned that the earlier C.A. had not taken into account these factors.

5. The objections taken by the secured creditors regarding expired/retired workers no longer survives as the same are taken care of at page 356 and 358″

4.3 The learned Counsel appearing for the contesting parties have, inter alia, relied on below mentioned decisions :-

(1)  Allahabad Bank v. Canara Bank [2000] 4 SCC 406.

(2)  ICICI Bank Ltd. v. SIDCO Leathers Ltd. [2006] 67 SCL 383 (SC)

(3)  Official Liquidator of Jubilee Mills Ltd. (supra).

(4)  Industrial Development Bank of India v. Official Liquidator of Rustom Mills & Industries Ltd. [Company Application No. 657 of 2006]

(5)  Textile Labour Association v. Official Liquidator of Rustom Mills Ltd. [O.J. Appeal No. 152 of 2008]

(6)  Gujarat Steel Tubes Employees Union v. Official Liquidator, Gujarat Steel Tubes Ltd. [2006] 70 SCL 407 (Guj.)

(7)  Official Liquidator of Raipur Mfg. Co. Ltd. v. ICICI Bank Ltd. [OLR No. 138 of 2006 in Company Application No. 475 of 2006]

(V) Relevant Provisions:-

5. Before taking up the submissions for consideration, it is appropriate to take into account Section 529, 529-A of Companies Act and section 47 of Provincial Insolvency Act. The said provisions read thus:-

“529. Application of insolvency rules in winding up of insolvent companies. – (1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to-

(a)  debts provable;

(b)  the valuation of annuities and future and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent:

[Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen’s portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,-

(a)  the liquidator shall be entitled to represent the workmen and enforce such charge;

(b)  any amount realised by the liquidator by way of enforcement of such charge shall be applied ratably for the discharge of workmen’s dues; and

(c)  so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen’s portion in his security, whichever is less, shall rank pari passu with the workmen’s dues for the purposes of section 529A.]

(2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section:

[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 3[pay his portion of the expenses] incurred by the liquidator(including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.]

[Explanation.-For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less amount which bears to such expenses the same proportion as the workmen’s portion in relation to the security bears to the value of the security.]

[(3) For the purposes of this section, section 529A and section 530,-

(a)  “workmen”, in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947(14 of 1947);

(b)  “workmen’s dues”, in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:-

(i)  all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947);

(ii)  all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution;

(iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such contract with insurers as is mentioned in section 14 the Workmen’s Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company;

(iv)  all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company;

(c)  “workmen’s portion”, in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen’s dues bears to the aggregate of-

 (i)  the amount of workmen’s dues; and

(ii)  the amounts of the debts due to the secured creditors.

Illustration

“………………… “

529A. Overriding preferential payment. – Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force in the winding up of a company-

(a)  workmen’s dues; and

(b)  debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts.

(2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.]

47. Secured creditors. – (1) Where a secured creditor realises his security, he may prove for the balance due to him, after deducting the net amount realised. (2) Where a secured creditor relinquishes his security for the general benefit of the creditors, he may prove for his whole debt. (3) Where a secured creditor does not either realise 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 been titled to receive a dividend only in respect of the balance due to him after deducting the value so assessed. (4) Where a security is so valued, the Court may at any time before realisation redeem it on payment to the creditor of the assessed value. (5) Where a creditor, after having valued his security, subsequently realises it, the net amount realised shall be substituted for the amount of any valuation previously made by the creditor, and shall be treated in all respects as an amended valuation made by the creditor. (6) Where a secured creditor does not comply with the provisions of this section, he shall be excluded from all share in any dividend.

6. It emerges from the record and the rival submissions that for one reason or another on various occasions and for diverse reasons, including objection by workmen and/or secured creditors, orders directing re-verification of claims by workmen as well as the secured creditors have been, or rather had to be, passed by the Court.

6.1 In the process almost 11 years have passed since the date on which the order for winding up of the company (i.e. 27.12.2001) came to be passed.

6.2 Amongst various orders the orders dated 6.3.2007 and 27.9.2007 were also passed by the Court. After the order dated 27.9.2007 another order dated 18.11.2008 has been passed which directed the Official Liquidator to appoint another Chartered Accountant and to call for fresh report from said another Chartered Accountant because in view of submissions and objections by the workmen and the secured creditors the Court considered it appropriate to direct re-verification of claims by another chartered accountant. The said order dated 18.11.2008 has not been challenged by any one and it has been acted upon.

6.3 In the said order the Court inter alia observed and directed, in paragraph No. 7 and 8 of the order that:-

“7. If we consider this report of the Chartered Accountant it becomes very obvious that the Chartered Accountant has not considered specific direction issued by this Court time and again nor he has considered the binding judgment of this Court in the case of Textile Labour Association v. Official Liquidator of Jubilee Mills Ltd., 2000 (4) GLR 2923, wherein this Court has observed that Sub-clause (i) of Section 529(3)(b) of the Act includes wages or salary payable to the workmen for the period of illegal closure and the fiction contained in sub-sec. (6) of Section 25-O of the I.D. Act is not limited to the workmen having a right to get wages for the period of illegal closure, but it also confers upon the workmen the right to get priority under Sections 529 and 529A of the Act in respect of their claim for unpaid wages during the period of illegal closure …..

8. ………. The Chartered Accountant has neither considered this claim nor considered the judgment of this Court, not refer to this aspect in his report. It appears that the Chartered Accountant has flouted the directions of this Court and given the report as if the judgment of this Court or directions issued by this Court are not relevant for the purpose of submitting his report. This Court is, therefore, of the view that the Chartered Accountant’s report is not at all reliable and on the basis of that report the claim of the workers cannot be denied nor the adhoc disbursement which was ordered earlier more or less on consensus cannot be flouted by any secured creditor……. Since repeated directions are issued and Chartered Accountant has not examined the claim the Official Liquidator is directed to refer this matter for re-verification to other Chartered Accountant and when the concerned Chartered Accountant has developed the tendency of ignoring the direction of this Court no work should be entrusted to that Chartered Accountant either for verification or for any other work of the Official Liquidator.” [Emphasis supplied]”

6.4 Ultimately reports dated 10.1.2009 (in respect of the concerned workmen) and report dated 17.2.2009 (in respect of the secured creditors) followed by supplementary or clarificatory reports dated 14.3.2009, 15.7.2009, 12.92009, 16.4.2010 (for 14 workmen) and another report of same date i.e. 16.4.2010 (for 49 workmen) are placed on record in light of which the orders for further disbursement of the amounts available with official liquidator are required to be passed.

6.5 The effect of the said order and directions would be that the previous reports, including the reports after the order dated 27.9.2007 would lose significance and would not be relevant for determining and/or resolving the issues related to disbursement and deciding the ratio. The reports which have been submitted pursuant to and as per the order dated 18.11.2008 are i.e. the reports dated 10.1.2009 and 17.2.2009 (and subsequent clarificatory reports) are relevant and will provide the base for disbursement, but of course after examining the said reports as against the objections raised by the parties.

6.6 The above mentioned details related to the factual aspects and developments which took place after 27.9.2007 go to show that after the order dated 27.9.2007 (i.e. the order on strength of which present application is preferred) certain other directions have been passed which have to be taken into account while making orders for further/final disbursement. Actually, in view of the directions passed by the Court vide order dated 18.11.2008 all previous reports submitted by the chartered accountant prior to 18.11.2008 will pale into insignificance. More particularly in light of the observations in paragraph No. 8 of the order dated 18.11.2008. Hence, any directions now cannot be passed only on the basis of or in light of order dated 27.9.2007 passed in application No.444 of 20007 and/or by overlooking the above referred two reports.

6.7 Actually in view of the nature and scope of the relief and direction prayed for in the summons which is registered as Company Application No. 264 of 2008, the application can be disposed of in view of the above referred order dated 18.11.2008 because as mentioned earlier now any order including order for interim or final disbursement cannot be passed merely on the basis of or in light of order dated 27.9.2007. However in view of the request and submissions made by learned advocates appearing for all contesting parties the matter is considered in light of the order dated 18.11.2008 and the reports dated 10.1.2009 and 17.2.2009 and the grievance and submissions made by the parties have been, with consent of all concerned parties, addressed in present order i.e. in light of the order dated 18.11.2008 and the reports submitted pursuant to and in compliance of the said and subsequent order/s. But for the said objections, directions for further/final disbursement could have been passed on the basis of the conclusions in the said two reports. Under the circumstances it is necessary to address the objections raised by both sides against the said report of the chartered accountant.

(VI) Objections by the secured creditors:

7. So far as the objections raised by the secured creditors are concerned, they are mentioned in their affidavits (i.e. the two affidavits dated 19.3.2009 and 22.8.2009 filed by respondent No.7 and the affidavit dated 19.3.2009 by respondent No.3 and affidavit dated 18.3.2009 by respondent No. 6).

7.1 In view of the clarificatory reports including the reports dated 14.3.2009, 15.7.2009, 12.9.2009, 13.11.2009 and 16.4.2010 which have been filed by Official Liquidator/Chartered Accountant in pursuance of the orders passed by the Court after the reports dated 10.1.2009 and 17.2.2009 the grievance and objections have to be considered in light of the said reports.

8. So far as the grievance that the claims by the workmen have not been properly assessed after examining the birth certificate or death certificate (in those cases where workmen have died) or the record containing date of joining is concerned it is relevant to take note of the below mentioned observations by the chartered accountant in the report dated 10.1.2009:

“With regard to verification and calculations of claim amount payable, We have relied on followings:

  1.  Salary Slips for the month of April-1997

  2.  Date of Birth

  3.  Date of Joining

  4.  Leave Records

  5.  Death Certificate (In the cases of persons who are expired)

Note: Wages/salary for the month of May 1997 was disbursed to Workers/Staff members on ad-hoc Basis. Hence, We have taken base for the month of April 1997.

(B) GENERAL

 1.  We have checked the list of workers and staff members with the abovementioned record produced for verification. We have considered name of workers of whom the complete details are made available for verification. We have also taken into consideration the date of joining date, date of birth and date of death of workers and staff members for the preparation of fresh list of payable Claim Amount. The said list are attached herewith as per Annexure-A for workers (Sr. No.1 to 1120) and Annexure-B for staff members (Sr. No. 1 to 307).

 2.  We have also perused the order dated 18.11.2008 of Honourable Gujarat High Court and it is noticed. ……….

 3.  We have also perused the order dated 06.03.2007 of Honourable Gujarat High Court and it is noticed. ……….

 4.  On perusal of the records of the company it is noticed that the practice of the company to issue letter before one month to the concerned employee that he is attaining the age of sixty and will be retired on such and such date. Hence we have considered the age of retirement is sixty for the calculation of claim amount.

We have verified the date of joining of each person. We have verified the date of retirement of each person.

We have checked the date of death with the Death Certificate where ever it is applicable.”

8.1 It becomes clear from the above quoted details from the chartered accountant’s report that the claim towards unpaid wages, gratuity and retrenchment/closure compensation etc. have been determined after verifying the details from the relevant record of the company and other relevant material made available. The official liquidator has also clarified and accepted this aspect in his report and learned Counsel for the official liquidator has admitted and asserted this aspect.

8.2 Another point which also requires to be taken into consideration is that while making the allegation that date of birth, date of joining and date of resignation/retirement have not been duly verified with help of birth certificate and such other documents, the secured creditors have, not mentioned/cited any specific case/s wherein, the date (Birth date or date of joining or date of superannuation) taken into account by the Chartered Accountant is/are different than the date recorded in Birth Certificate or in company’s register and only on basis of comparison between the previous report, i.e. the report dated 12.8.2007 on one hand (which has been disapproved by the Court in view of objections by workers and creditors) and the report dated 10.1.2009 and 17.2.2009 on the other hand, a sweeping and very generalized allegation about discrepancy and anomaly, about the details mentioned in the said reports is made by the secured creditors. The secured creditors have not placed on record any relevant material (e.g. copies of birth certificate of the workmen and/or any statutory record containing the details of date of birth and date of joining of the concerned workmen) to demonstrate and substantiate their allegation and to establish that the details which are taken into account by the Chartered Accountant and on basis of which the claim amount of individual workmen have been calculated, are incorrect.

8.3 Unless contrary is proved by the secured creditors with aid of relevant document (e.g. unless it is proved in case of particular workman that the birth date mentioned in birth certificate is different from the DoB accepted by chartered Accountant or that certain other workman was dead before the date accepted in his case as his date of retirement), there is no reason to disbelieve the details and clarifications stated in the reports. Merely on unsubstantiated allegations, the entire report cannot be set aside or ignored.

9. The secured creditors have also raised question about the total number of concerned/claimant workmen. Having regard to the allegations about some discrepancies which the respondents tried to demonstrate from the record, order dated 14.4.2011 was passed whereby the official liquidator was directed to place on record final list reflecting total numbers of concerned/claimant workmen and their names. In response to the said order the official liquidator has filed report dated 18.7.2011 to which the final list reflecting total number and names of the concerned/claimant workmen is attached. In view of the said order dated 14.7.2011 and subsequent order dated 25.7.2011 the said list is to be treated as final list reflecting total numbers and names of the concerned/claimant workmen.

10. The secured creditors have then alleged that the Chartered Accountant has committed error in considering and including the claim made by the staff members drawing Basic Wages exceeding Rs. 2000/-.

10.1 The allegation-contention runs counter to section 529(3)(a) of the Act inasmuch as the said provision only prescribes that for the purpose of section 529, 529A and 530, the term “workmen” means the persons who are within purview of the term “workmen” provided in the Industrial Disputes Act, 1947.Therefore, it is necessary to take into consideration the definition of said term under the said Act of 1947. The said term is defined under section 2(s) of the Act of 1947. According to the said Section 2(s):-

“workmen” means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward……. But does not include any such person-

        (i) and (ii)**                                           **                                   **

(iii) who is employed mainly in a managerial or administrative capacity; or

(iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.”

10.2 A plain reading of the said provision clarifies that except the persons who stand covered under the exclusion clause all persons employed to do manual unskilled, skilled, technical, operational, clerical or even supervisory work for hire or reward are covered within the meaning of the term workmen.

10.3 According to the said section, those persons who are “mainly” employed in managerial or administrative category (i.e. such duty should not be “incidental” to main duty) and/or those who are employed in supervisory category with wages exceeding prescribed limit stand excluded from the term “workmen” and consequently they would stand excluded for the purpose of section 529, section 529 A and section 530 of the Act.

10.4 Therefore the submission that all those persons who were drawing Basic wages exceeding Rs. 2000/- should have been excluded, without having regard to the issue as to whether they were employed “mainly” in managerial or administrative capacity or were employed in supervisory capacity with wages exceeding prescribed limit, or not is not in consonance with the relevant provision.

10.5 The secured creditors would claim that the submission is made in light of the order dated 6.3.2007. However on plain reading of said order dated 6.3.2007, it becomes clear that, that is not the purport of said order. In the order dated 6.3.2007 the Court, relying on the judgment in case of Official Liquidator of Jubilee Mills Ltd. (supra), observed and directed that:-

“21. In view of the above finding, the Chartered Accountant is now required to reverify the claims of the workers. Thus, now the Chartered Accountant is required to consider the claims of all the workmen who are “workmen” within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/-, their claims are required to be considered for the purpose of making the payment under section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case).

10.6 In light of the said observation if the report dated 10.1.2009 by the chartered accountant and more particularly para 3 thereof is examined it becomes clear that the chartered accountant has taken care of the said observations by the Court in the order dated 6.3.2007. The said para 3 in the report dated 10.1.2009 read thus:-

“3. We have also perused the order dated 6.3.2007 of Honourable Gujarat High Court and it is noticed that claims of all the workmen who are “workmen” within the meaning of IP Act irrespective of any wage limit and so far as staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/-, their claims are required to be considered for the purpose of making the payment under Section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case).”

10.7 Besides this, reference also needs to be made to the report submitted by the chartered accountant on 16.4.2010 (submitted in compliance of the order dated 5.4.2010) wherein the chartered accountant clarified that:-

“As per order “the claims of all workmen who are “workmen” within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/- their claims are required to be considered for the purpose of making the payment under Section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills Case)”

The said explanation demonstrates that the Chartered Accountant was alive to the relevant criterion/consideration and has not included claims of such persons whose cases are required to be excluded.

10.8 On this count it is necessary to mention that the chartered accountant (who came to be appointed pursuant to the order dated 18.11.2008) has divided his report concerning the workmen in two parts, viz. annexure-A and annexure-B. The first Annexure is related to workmen and second annexure-B pertains to staff members. So far as the second annexure related to staff members is concerned, it is relevant to take into account the observations and directions made by the Court in the judgment in the case of Official Liquidator Jubilee Mills Ltd. (supra). In the decision in case of Official Liquidator Jubilee Mills Ltd. (supra) this Court, while considering the pattern and practice of employment and designation/nomenclature in textile industry in Ahmedabad adopted the formula which was evolved in [company petition No.92 of 1993 in case of Aruna Mills Ltd.] and the Court observed that:-

“19.2 The controversy whether all the employees of the Company for whom the claims for priority are being made should be given the benefit of ad-hoc distributions from out of sale proceeds of the assets of the Company in liquidation was raised in a few applications filed by the Textile Labour Association earlier. In Company Application No. 159/96 in Company Petition No. 92 of 1993 in the matter of Aruna Mills Ltd. (in liquidation), a formula was evolved for the purpose of being followed in all textile mills where the Textile Labour Association appears as a representative union. As per the formula, the following 11 categories of the employees were excluded for the grant of benefit of ad-hoc distribution:-

 (i)  Manager

 (ii)  Factory Manager

(iii)  Secretary

(iv)  Spinning Master/Manager

(v)  Weaving Master/Manager

(vi)  Processing Master/Manager

(vii)  Printing Master/Manager

(viii)  Sales Manager

(ix)  Sales Executive

(x)  Doctor

(xi)  Administrative Officers and other Officers drawing the basic wages exceeding Rs. 2000/-.

There can be no controversy for exclusion of the first 9 categories as they would fall under exclusionary clause (iii) in Section 2(s) of the Industrial Disputes Act. As far as category (x) i.e. Doctor is concerned, there is no claim on behalf of the Textile Labour Association that the said category be included in the definition of workmen. However, there is some scope for controversy regarding category (xi) whether it would fall within the exclusion clause (iv) of the definition of workmen under the Industrial Disputes Act.

19.6 In view of the above discussion, the Court would proceed on the basis that a person employed in a textile mill in the State of Gujarat and drawing monthly basic pay of Rs. 2000/- or less (excluding allowances) cannot be said to be a person employed in a supervisory capacity or a person who exercises either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.

19.7 Hence, this Court would adopt the definition of “workmen” as worked out by the Textile Labour Association as recorded in the order dated 15.9.1998 in Company Application No. 159 of 1996 whereby only the aforesaid 11 categories of employees are excluded from the definition of “workmen” for the purpose of determining the ratio of workmen’s dues and the dues of the secured creditors of each textile Company in liquidation in the State of Gujarat and for the purposes of payment on priority basis u/s. 529 and 529A of the Companies Act. The Court finds that working out of such rough and ready formula for finding out as to which employees of textile mills in liquidation would fall within the definition of “workmen” under the I.D. Act as required by sub-clause (a) of Section 529(3) of the Companies Act would be more conducive to expeditious consideration of the claims for workmen’s dues. Otherwise, the entire exercise of working out the dues of workmen running into thousands of employees in each textile mill under liquidation and a large number of textile mills being in liquidation, the process of determining the ratio and ultimate distribution of sale proceeds will be delayed if the Official Liquidator is required to undertake inquiries into the nature of duties and functions of a number of individual employees drawing salary exceeding Rs. 1600/ per month. Looking to the fact that the number of employees admittedly falling within the definition of workmen under the I.D. Act is always much larger than the number of employees working in a supervisory capacity and drawing salary in excess of Rs. 1600/- per month, it appears to the Court that in any case adoption of such a rough and ready formula will not significantly alter the ratio of workmen’s dues and the dues of the secured creditors.”

10.9 It can be noticed from the above quoted observations that the said observations have been made having regard to the pattern of employment and the nomenclature/designations in textile industry in Ahmedabad whereas the company in liquidation was an engineering undertaking where similar nomenclature/designation may not have relevance or applicability inasmuch as in an engineering undertaking the pattern and employment and the nomenclature/designations would be differed and there would not be person employed in the category or on the post of spinning manager or weaving master etc.

10.10 Another aspect which would emerge from the said observation is about the common factor between the first 8 out of the total 11 categories mentioned by the Court. The said categories exclude only head of each department i.e. head of the factory, head of spinning department, weaving department, processing department, printing department and sales department. Meaning thereby the Court considered it appropriate, while evolving a common/general formula which may broadly take care of various categories, to exclude only heads of different departments (except in one or two cases). These aspects also clarify that the secured creditors’ objection is unjustified and misconceived.

10.11 In present case the matter is required to be examined from the perspective that the company in liquidation was an engineering undertaking and that therefore while excluding the persons from the purview of the term “workmen”, regard is required to be had to the definition under section 2(s) of the Act of 1947. Differently put all persons who were employed in supervisory category would not stand excluded only because they were employed in supervisory category unless each was drawing wages exceeding prescribed limit. Similarly merely because a person was drawing wages exceeding prescribed limit, he would not stand excluded (according to section 2(s) of Act of 1947), unless he was employed in supervisory category. Of course all persons employed mainly and purely in administrative or managerial capacity/category, would stand excluded.

10.12 The very same issue was considered by the Court while deciding company application No.174 of 2006 wherein the Court has in light of the above mentioned decision in case of Official Liquidator of Jubilee Mills Ltd. (supra) observed in the order dated 6.3.2007 that:-

“18. Considering the above observations of the learned single Judge in Jubilee Mills case, on fair reading of the same, it appears to the Court that the learned single Judge was considering to include the claims of those administrative officers and other officers for the purpose of considering their claims and to treat them as “workmen” without holding any inquiry to avoid delay to be caused while undertaking the inquiries into the nature of duties and functions of number of individual employees drawing salary exceeding Rs. 1600/- per month and in background of the same, this Court has held that even with regard to the category (xi) i.e. administrative officers and other officers drawing basic wages exceeding Rs. 2000/-, without undertaking any inquiry into the nature of duties and functions of the administrative officers and other officers drawing basic wages not exceeding Rs. 2000/- can be said to be a “workman” for the purpose of considering their claims while making the payment under section 529A of the Act. This Court in the said decision has never held that a “workman” drawing basic wages exceeding Rs. 2000/- will not be entitled to any payment towards their dues while making the payment under section 529A of the Act. On the contrary, on fair reading of the decision in Jubilee Mills case, it appears that in fact this Court has widened the scope in respect of the employees i.e. administrative officers and other officers and has directed that all employees i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/- are required to be considered as “workmen” while making the payment under section 529A of the Act and their claims are required to be included and this Court has further observed that while considering the scope of “expression workmen”, the employees i.e. administrative officers and the other officers drawing basic wages exceeding Rs. 2000/- are to be excluded. Under the circumstances and on fair reading of the decision in Jubilee Mills case, the submissions on behalf of the secured creditors that claim of all workmen drawing basic wages exceeding Rs. 2000/- are to be excluded for the purpose of section 529(3)(a) and 529A of the Act cannot be accepted. Even, otherwise, this Court in Jubilee Mills case had no occasion to consider the said dispute whether “workmen” drawing basic wages exceeding Rs. 2000/- are to be excluded for the purpose of section 529(3)(a) of the Act. In fact, such a controversy was not at all there in the said case. To accept the submission on behalf of the secured creditors on the basis of the decision in the Jubilee Mills case that all “workmen” drawing basic wages exceeding Rs. 2000/- are to be excluded for the purpose of section 529(3)(a) of the Act would be misreading the decision in Jubilee Mills case.

20. It appears that the dispute has arisen while considering the claims of the employees and the dues of the employees as referred to under section 530 of the Act and the dispute has arisen because of the proviso to section 530, more particularly, section 530(8)(bb) by which it is provided that “expression employee” mentioned in section 530 does not include a workman. The said explanation and the proviso is with a view to see that the “workmen” within the meaning of ID Act are not affected and their cases are not required to be considered while considering the claims of other employees while making the payment under section 530 of the Act. It appears that it is with a view to remove any doubt and the ambiguity and the “workmen” are in fact not affected, the same is clarificatory in nature and does not in any way taking away any right available to the workmen who are otherwise the “workmen” within the meaning of the ID Act. Thus, considering the provisions of section 529(3)(a) and (b) read with the definition of “workmen”. As per section 2S of the ID Act, claims of all “workmen” within the meaning of ID Act, irrespective of any wage limit are required to be considered while making the payment under section 529A of the Act. Meaning thereby, any workman within the meaning of ID Act drawing basic salary exceeding Rs. 2000/- will also be entitled to the payment pari passu along with other secured creditors as per section 529A of the Act.

21. In view of the above finding, the Chartered Accountant is now required to reverify the claims of the workers. Thus, now the Chartered Accountant is required to consider the claims of all the workmen who are “workmen” within the meaning of ID Act irrespective of any wage limit and so far as the staff members i.e. administrative officers and other officers drawing basic wages not exceeding Rs. 2000/-, their claims are required to be considered for the purpose of making the payment under section 529A of the Act without undertaking any further inquiry into the nature of duties and functions (as held by this Court in Jubilee Mills case).” [Emphasis Supplied]

10.13 Thus as per the order dated 6.3.2007 the claims of all persons who are “workmen” within meaning of ID Act, irrespective of any wage limit, are to be considered and claims only of administrative officers and other officers drawing basic wage not exceeding Rs. 2000/- are to be excluded. The said order does not direct that all persons drawing salary more than Rs. 2000/- are to be excluded. The order merely directs that claims of “administrative officer” and “other officers” drawing basic wage not exceeding Rs. 2000/- has to be excluded.

10.14 The order does not exclude the persons employed to do skilled, technical, operational work i.e. it does not refer to engineers and other technical persons. The said order dated 6.3.2007 has attained finality inasmuch as it is not challenged either by OL or by workmen or by secured creditors.

10.15 Therefore, while excluding the persons from category of workmen the Chartered Accountant was required to exclude “administrative officer” and “other officers” drawing basic wages exceeding Rs. 2000/- and not other staff members (i.e. the persons engaged to do skilled technical operational work like engineers, programmers, etc.) merely on the ground that the person was considered in category of staff members and drawing wages exceeding Rs. 2000/-.

10.16 The secured creditors have claimed, that all persons in the category of/on post of officer marketing, senior officer, senior programmer, senior engineer, engineer in (finishing) any engineer Q.A, senior engineer project and supervisor should have been excluded.

10.17 In view of the definition of the term workmen under Act of 1947 and in light of the observations made by the Court in case of Official Liquidator of Jubilee Mills Ltd.’s (supra) and order dated 6.3.2007 relying on the decision in Official Liquidator of Jubilee Mills Ltd.’s case (supra), the grievance of the secured creditors as regards engineer (finishing) and engineer (Q.A.) cannot be accepted since the persons employed in the said capacity cannot be said to be employed “mainly” in managerial or administrative capacity but they can be said to be employed to do skilled or technical or operational work and that therefore they would stand covered within the purview of section 2(s) of the Act of 1947 and the prescribed limit as regards wage would not be applicable in those cases. The reliance placed on the order dated 6.3.2007 as regards the persons engaged in said capacity is misplaced since even in the said order it is observed that all workmen within the meaning of I.D. Act are to be considered irrespective of wage limit. Even otherwise, in light of the foregoing discussion, the decision of Chartered Accountant not excluding persons employed in the said categories i.e. engineer (finishing) and engineer (Q.A.) cannot be faulted.

10.18 However the grievance of the secured creditors as regards head of department and/or supervisor Senior Officer, drawing “Basic Wage” in excess of Rs. 2000/- appears justified. The case of persons employed as senior engineer and senior programmer and senior engineer (project) is in grey area. The possibility that the persons employed in said category might be employed in supervisory category cannot be ruled out. Since as per the decision of Jubilee Mills further inquiry by official liquidator/chartered accountant is not contemplated and at this stage of proceedings it would not be possible either, having regard to the fact that the said positions are senior positions, it would not be improper to exclude persons engaged in said category and to accept the objection. Hence the objection qua the persons employed as senior engineer and senior programmer and senior engineer (project) is accepted. If claim of any person employed on the said post or in the said category is included by Chartered Accountant in the verified and eligible claim then it will have to be excluded/taken out after examining the record (e.g. wage register and/or wage slip) and any secured creditor or even any other workmen/staff member may, within two weeks, may submit objection against inclusion of claim of any particular persons being member of staff and drawing Basic Wage of more than prescribed limit and also employed as administrative officer or senior programmer or senior engineer (project) or senior engineer, with satisfactory and cogent material along with specific details as to the name of the staff member/s and his/their basic wage as on 27.12.2001 and if such details turn out to be correct then claims of such persons will have to be excluded. The said process shall be completed by the Chartered Accountant within two weeks.

11. Another ground on which the secured creditors have assailed the report, is alleged inconsistency between the earlier report dated 12.8.2007 and the report in question. It is claimed that in the previous report total eligible claim of the workmen was to the tune of Rs. 32,87,73,598/- whereas present report certifies that the total eligible claim of the workmen is to the tune of Rs. 52,83,66,772/- (Rs. 38,70,19,269 + Rs. 14,13,47,503 of workmen and staff members respectively). According to the secured creditors that is an error.

11.1 Merely because the subsequent report certifies higher amount as the total eligible claim amount for the workers, as compared to the previous report, the subsequent report does not become erroneous or unsustainable.

11.2 In this context it is necessary to recall that in the order dated 27.9.2007 (i.e. the order which came to be passed by the Court after the said report dated 12.8.2007 was submitted) the Court observed, inter alia, that:-

“7. It appears that as per the report of the Chartered Accountant, the admissible due towards the workers’ claim is found of about Rs. 32 crore, whereas as per the submission of Mr. Sinha, learned Counsel, the Chartered Accountant has not verified the claims to the fullest extent, more particularly after considering the decision of this Court (Coram: M.R. Shah, J.) dated 6.3.2007 in Company Application No. 174 of 2006. It is, therefore, submitted that if the proper verification is made, the workers’ dues would approximately come to Rs. 58 crore.”

From the said observations it becomes clear that while passing the said order the Court had taken into account the report dated 12.8.2007 as well as the court’s order dated 6.3.2007. In the same order dated 27.9.2007 the Court further observed that:-

“11. Ultimately, it will be for the OL to refer the matter to the Chartered Accountant for reverification in light of the contents of the application being Company Application No. 444 of 2007 and it will be for the concerned Chartered Accountant to reexamine the matter and to give appropriate report. Similarly, even on the claim of the secured creditors, it will be for the concerned secured creditors to produce the proof of debts for prima facie examination by the Chartered Accountant and it will be for the concerned Chartered Accountant to finalize the figures of the outstanding amount of the secured creditors. In my view, such exercise can be completed at later stage. However, as the huge fund is available and no disbursement has taken place after the last disbursement of Rs. 4 crore, substantial amount can be made available for disbursement on adhoc basis. Keeping in view the alleged claim by the workers’ Union and the secured creditors, I find that the amount of Rs. 35 crore may be disbursed on the ratio of 50:50 amongst secured creditors and the workers. The remaining amount may be invested by the OL in a nationalized Bank until the final report, which may be submitted by the Chartered Accountant after verification of the workers’ claim as well as the proof of debts of the secured creditors.”

Thereafter, while directing interim/ad-hoc disbursement the Court also observed in para 14 of the said order that:-

“14. The OL shall refer the documents, which may be produced by all the Secured Creditors as well as the claim made by the applicant(s) of Company Application No. 444/2007 to the Chartered Accountant for reverification and after the report is received by him, a fresh OLR shall be submitted for final disbursement of the amount. The aforesaid exercise shall be completed with a period of three months from the date of receipt of the order.”

11.3 When, after examining the said report dated 12.8.2007 and the objections against the said report, the Court directed reverification of the claims (in light of further/fresh documents which may be produced by the secured creditors and the workmen), it follows that the conclusions in the said report were not approved/accepted by the Court. Hence the said previous report cannot be used for and/or made base for, comparison or for any other purpose.

11.4 After the said order the said chartered accountant had submitted report/clarification/communication dated 11.3.2008, 6.6.2008, 18.7.2008 and 20.8.2008 and thereafter the Court passed the order dated 18.11.2008 which is relevant . It is necessary to take into account the observations by the Court in the said order dated 18.11.2008 wherein the court, while directing that another chartered accountant may be appointed, specifically observed, with reference to the said earlier report that:-

“8. …………The Chartered Accountant has neither considered this claim nor considered the judgment of this Court, not refer to this aspect in his report. It appears that the Chartered Accountant has flouted the directions of this Court and given the report as if the judgment of this Court or directions issued by this Court are not relevant for the purpose of submitting his report. This Court is, therefore, of the view that the Chartered Accountant’s report is not at all reliable and on the basis of that report the claim of the workers cannot be denied nor the adhoc disbursement which was ordered earlier more or less on consensus cannot be flouted by any secured creditor…………. Since repeated directions are issued and Chartered Accountant has not examined the claim the Official Liquidator is directed to refer this matter for re-verification to other Chartered Accountant and when the concerned Chartered Accountant has developed the tendency of ignoring the direction of this Court no work should be entrusted to that Chartered Accountant either for verification or for any other work of the Official Liquidator.” [Emphasis Supplied]

11.5 Thus, conjoint reading of the order dated 27.9.2007 (in COMA 444 of 2007) and 18.11.2008 (in COMA 584 of 2008) gives out that the report dated 12.8.2007 was not approved and accepted by the Court and the Court had to direct reverification of claims. Thus, the said report or the quantification therein cannot be said to be fit for comparison or for other purpose. Also it cannot be overlooked that the parties had objections against the said report as well.

11.6 In this view of the matter the objection by the secured creditors against the determination – quantification made by the chartered accountant vide report dated 10.1.2009 and 17.1.2009 by merely comparing the said reports with the report dated 12.8.2007 is not justified and cannot be accepted more particularly because the secured creditors have not supported and substantiated their allegations with help of any independent relevant and cogent documents.

12. Now, so far as the secured creditors’ objection against the quantification of workmen’s claim and the components included in “wage” and total quantum, is concerned, the secured creditors have alleged that without any clarification or justification different basic wage and VDA (i.e. different than what was mentioned in the report dated 12.8.2007) has been taken into consideration by the chartered accountant in his report dated 10.1.2009.

12.1 In this context it is necessary to note, at the outset, that the chartered accountant has clarified that for the purpose of verifying their claim and determining eligible claim amount, the date of winding up order has been taken into account (as the relevant date). In the communication dated 12.9.2009 the concerned chartered accountant has clarified that:-

“there is a variation in basic salary VDA and FDA. This is on account of that the earlier chartered accountant has not considered the specific direction issued the honourable high court and also have not considered the binding judgment of this Court in case of Textile Labour Association v. Official Liquidator of Jubilee Mills Ltd. ……….”

12.2 It is also relevant to take into account the provision under Section 529(3)(b)(i). According to the said provision all wages or salary, including wages payable in respect of services rendered to the company and compensation payable to any workmen under any provision of the Act of 1947, are to be included. In that view of the matter it becomes necessary to take into account the definition of the term “wages” under section 2(rr) of the Act of 1947. The said definition reads thus:

“2(rr) ‘wages’ means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes —

 (i)  such allowances (including dearness allowance) as the workman is, for the time being, entitled to;

(ii)  the value of any house accommodation, or of supply of light, water, medical attendance or other amenity, or of any service or of any concessional supply of foodgrains or other articles;

(iii)  any travelling concession;

(iv)  any commission payable on the promotion of sales or business or both;

but does not include —

(a)  any bonus;

(b)  any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the workman under any law for the time being in force;

(c)  any gratuity payable on the termination of his service;”

According to the definition, the term “Wages” includes “dearness allowance” without only distinction. Thus, both categories of D.A. i.e. variable and Fixed D.A. is included.

12.3 The definition includes, within the said term, all remuneration which would be payable to a workmen in respect of his employment or work done in such employment and includes such allowances including dearness allowance as the workmen would be entitled to. Furthermore, in view of Section 529(3)(b)(i) even the payment as “compensation” is also includible. Therefore the Chartered Accountant is justified in including VDA and FDA for the entire period until the date of winding up.

12.4 The secured creditors have failed to establish from the record that the rate of Basic Wage and VDA/FDA taken into account by Chartered Accountant is more than the rate of VDA/ FDA which was prevailing and applicable at the relevant time. Actually the report is assailed only by comparing it with the previous report dated 12.8.2007.

12.5 While making such allegation the secured creditors have not cited any particular instance and they have not placed any supporting and relevant documents/proof particularly any wage slip along with wage register to demonstrate and establish that as on the relevant date the basic wage of the said person was actually less than the basic wage considered by the chartered accountant in his report. Similarly the creditors have not placed wage slip of any workman along with any comparable material/data to establish that the rate of VDA at the relevant time was less than what is considered by the chartered accountant in case of the concerned workman.

12.6 So as to successfully assail the calculation of wages i.e. Basic Wage and VDA/FDA the secured creditors should have established, with help of relevant record which would demonstrate the rate of VDA/FDA prevailing and applicable at the relevant time (if at all it was actually different from/less than what is considered by Chartered Accountant) and on strength of such record it should have been demonstrated and proved that the Chartered Accountant has applied higher rate than what was prevailing/applicable at the relevant time.

12.7 However, from the available material or from company’s record, the creditors have not shown any document/material reflecting basic wage or VDA of the concerned workmen and they have not established that the basic wage and/or VDA of the concerned persons were actually less than what is considered by the Chartered Accountant.

12.8 In absence of such details and material the allegation by the secured creditors that the Chartered Accountant has committed error in calculating wages i.e. wage and VDA/FDA cannot be accepted, more so because on one hand the Chartered Accountant has clarified that the wage record of the company and the documents (e.g. wage slips) have been examined and relied on and on the other hand the secured creditors have instead of demonstrating the alleged error with help of document reflecting the basic wage and the rate of VDA/FDA prevailing and applicable at the relevant time merely relied on the comparison with (the amounts mentioned in) previous report dated 12.8.2007.

12.9 Similar is the position as regards the allegation with reference to Basic Wage. The Chartered Accountant has explained that (a) the wages paid for the month of April 1997 have been taken into account; and (b) for that purpose the wage slips for April 1997 are taken into account. The Chartered Accountant has clarified that:

“With regard to verification and calculations of claim amount payable, We have relied on followings:

6. Salary Slips for the month of April-1997

7. Date of Birth

8. Date of Joining

9. Leave Records

10. Death Certificate (In the cases of persons who are expired)

Note: Wages/salary for the month of May 1997 was disbursed to Workers/Staff members on ad-hoc Basis. Hence, we have taken base for the month of April 1997.

(B) GENERAL

1. We have checked the list of workers and staff members with the abovementioned record produced for verification. We have considered name of workers of whom the complete details are made available for verification. We have also taken into consideration the date of joining date, date of birth and date of death of workers and staff members for the preparation of fresh list of payable Claim Amount. The said list are attached herewith as per Annexure-A for workers (Sr. No. 1 to 1120) and Annexure-B for staff members (Sr. No. 1 to 307).”

12.10 From the said explanation and clarification it becomes clear that the chartered accountant has taken into account wage (basic wage, VDA and FDA) of the concerned workman by referring to and relying on the salary slip for the month of April 1997 since that was the last working month of the company and accordingly the wages for the period from June 1997 to 27.12.2001 (27.12.2001 being the date when order of winding up came to be passed) have been calculated.

12.11 Another limb of the said objection raised by the secured creditors is that the chartered accountant appears to have been included, while calculating the wage component of the claimant workmen, increments in their wage, for the entire period from closure to the date of winding up order. It is claimed that such inclusion is impermissible. The foregoing discussion clarifies that the term “wages” include all remuneration. In present case chartered accountant has clarified for the purpose of calculating and determining the workmen’s dues towards wage, the amount as reflected from the salary slip for the month of April 1997 has been taken into consideration. The secured creditors have not shown wage slips/wage register of workmen to establish that yearly increments have been included. Besides this what is more important is the fact that even if one proceeds on the premise that increments have been included then also the secured creditors have failed to establish that the workmen of the company were not entitled to yearly increments which are available to workmen every year automatically (i.e. on completion of 12 months every year). It is not the case of secured creditors that in the company there was no practice of yearly increments and the workmen were not entitled for yearly increments. Therefore, if the chartered accountant has taken into consideration, on the basis of details in the wage slips/wage register, yearly increments and has given effect to it then such action cannot be faulted.

12.12 With reference to the objection regarding quantification of claim for wages (Basic + VDA and increments) it would be appropriate to take into account the observations made by the Court in the decision in case of Official Liquidator of Jubilee Mills Ltd. (supra) wherein it is observed that:-

“11.9 The inescapable conclusion is that the expression all wages or salary. ….. in respect of services rendered to the company in Sec. 529(3)(b)(i) of the Companies Act includes all wages of salary payable by the Company to the workmen for the period of all illegal closure.”

12.13 When the report is examined in light of the abvoementioned facts and material and in light of the discussion in case of Official Liquidator of Jubilee Mills Ltd. (supra) and the provisions under section 529(3)(b)(i) of the Act and section 2(s) of the Act of 1947, it appears that the determination/quantification is based on the details derived and gathered from relevant record and it is in consonance with applicable provisions and discussion in case of Official Liquidator of Jubilee Mills Ltd. (supra).

12.14 When the chartered accountant has clearly mentioned which details and material have been taken into account the secured creditors cannot expect that their allegations, which are unsubstantiated and any material has not been placed on record to controvert and disprove or dislodge the details mentioned by the chartered accountant, may be entertained. The report and the working by the chartered accountant cannot be faulted only on the basis that the report dated 12.8.2007 reflects different amount/figure as basic wage and it cannot be claimed, much less established and justified, that the details mentioned and considered in the report dated 10.1.2009 are incorrect (or that the details mentioned in the report dated 12.8.2007 were correct). On such allegation and comparison, the report dated 10.1.2009 cannot be set aside in its entirety and direction for complete reverification of entire claim cannot be passed.

12.15 It is, however, clarified that it would be open to the secured creditors or even other workmen/staff members to submit objection, if any, with reference to the amount of wage of any particular workmen/staff member, within two weeks but along-with satisfactory and cogent material and specific details as to the name of the workmen/staff member/s and his/their basic wage as on 27.12.2001, must also be submitted so as to establish that the wages of the workmen included in the list were, as on the relevant date, less than what is mentioned in the report. If such material is submitted within two weeks then Official Liquidator will get the said material examined by the chartered accountant, and if the allegation/objection is found justified, then appropriate correction shall be made with reference to such workmen/staff member.

13. Besides the aforesaid objections the secured creditors have also raised objection against the chartered accountant’s decision with reference to workmen’s claim towards gratuity. Actually the said objection is another link of secured creditors’ objection against the quantification of claim towards wages.

13.1 The secured creditors have claimed that the base for quantifying claim towards gratuity is incorrect due to the error in determining the claim towards wages. In this context it is relevant to refer to the observation and clarification made by the chartered accountant in his report. The relevant part of the said observations and clarifications read thus:-

“C. GRATUITY

Gratuity has been calculated as per section 4(2) of the Payment of Gratuity Act, 1972. Gratuity shall be payable to an employee on employee on the termination of his employment after he has rendered continuous service for not less than five years. For every completed year of service or part thereof in excess of Six months, the employer shall pay gratuity to an employee at rate of 15 days wages/salary last drawn by the employee concerned. Workers/Staff members who have completed five years of service are eligible for gratuity for a period from the date of joining to the date of liquidation/retirement age or date of death which ever is applicable.

We have verified the date of joining of each person. We have verified the date of retirement of each person.

We have checked the date of death with the Death Certificate where ever it is applicable.

Accordingly the amount of Gratuity in the case of workers Rs. 6,43,28,373/- as per Annexure A and Rs. 3,14,75,891/- in the case of staff members as per Annexure B. Total amount of Gratuity of comes to Rs. 9,58,04,264/-“.

13.2 From the report dated 10.1.2009 it transpires that the chartered accountant has calculated the amount payable towards gratuity until the date of order of winding up in case of the workmen who had not expired and/or retired before the date of order of winding up and in case of the workmen who had either expired or retired before the date of order of winding up, the amount payable towards gratuity has been restricted until the date of death or retirement and for the said purpose the chartered accountant has, as expressly clarified in the report, relied on the record of the company/birth certificate or death certificate (in cases where applicable). Any material to prove contrary is not placed on record and/or calculation in case of any workmen is not shown to be incorrect with help of record of wages and record related to length of service. So far as the rate of wage is concerned, it is discussed hereinabove and it is noticed that the secured creditors have failed to demonstrate and establish any error and since the same rate is applied for calculating amount payable towards gratuity, there is no reason or justification to hold that any error is committed in quantifying the claim towards gratuity.

14. Another objection raised by the secured creditors is against inclusion of claim for amount due towards privilege leave/earned leave. From perusal of the report dated 10.1.2009 it appears that the Chartered Accountant has admitted and included the claim for payment of the amount towards privilege/earned leave for the period from closure to winding up. This is evident from below mentioned observation in the report dated 10.1.2009:

“We have checked the balances of earned leave as on 30-05-1997 and thereafter added the earned leave per year as per rules of the undertaking. We have checked the total earned leave and calculated the wages and salary for the workers and staff members. As per the rules of the undertaking maximum earned leave 90 days in the case of workers and 120 days in the case of staff members. We have verified wage/salary per day of the last salary i.e. for the month of December, 2001. Accordingly we have verified the arrears earned leave wage of Workers Rs. 1,65,81,086/- as per Annexure “A” and earned leave salary of Rs. 59,21,662/- of the staff members as per Annexure “B”. Total of arrears of earned leave wages/salary of Rs. 2,25,52,748/-.”

14.1 So far as the allegation is concerned, it is appropriate to take into account the observations by the Court in case of Official Liquidator of Jubilee Mills Ltd. (supra) wherein the Court has observed, inter alia, that:-

“14.4 However, in the aforesaid decision, this court does not appear to have been concerned with the question whether unclaimed privilege leave would be admissible for the period of closure also. In this case we are not directly concerned with legal closure i.e. closure for which permission or deemed permission is obtained under sub-section (2) or (3) of Section 25-O of the I.D. Act. However, as far as the period of illegal closure is concerned, while the unpaid wages of the workmen would certainly be entitled to priority under Sections 529 and 529A of the Act, it cannot be said that the same priority will be available to the wages in lieu of unclaimed privilege leave during the period of illegal closure. The fiction that during the period of illegal closure the workmen had rendered services to the Company cannot be extended to mean that during the period of illegal closure the Company is not only deemed to have been carrying on its business operations but also that the workmen must be deemed to have not availed of the privilege leave or that the employer must be deemed to have refused to grant the privilege leave. Suppose privilege leave available to a workman is one month’s leave in a year and the undertaking remained illegally closed for one full year. Did the Legislature intend that the workmen’s dues should be given priority not only for the unpaid wages for the period of 12 months of illegal closure, but also that even though actually the workmen could not render services on account of illegal closure, the workmen should be paid the 13th month’s wages by way of wages in lieu of unclaimed privilege leave ? The answer must be in the negative. While the priority for 12 month’s wages is in view of legislative fiction contained in Section 25-O(6) of the I.D. Act read with Section 529(3)(b)(i) of the Companies Act, there cannot be any fiction that the workmen would not have availed of one month’s privilege leave or that the employer would have refused to grant one month’s privilege leave even if applied for. Any such fiction would not only be unwarranted by the provisions of Sub-section (6) of Section 25-O of the I.D. Act, but would also run counter to the letter and spirit of the provisions of Sections 529, 529A and 530 of the Companies Act which intended to ensure that the workers/employees get priority/preference for their legitimate dues. The overriding priority given to the workmen’s dues is only for their legitimate dues which cannot include any fiction of unavailed/refused privilege leave. This reasoning will apply with greater force to such claim for the period of legal closure.

14.5 In view of the above discussion, the wages in lieu of unclaimed privilege leave/holiday remuneration during the period of closure (whether legal or illegal) would not qualify for priority under Sections 529, 529A and 530 of the Act.”

14.2 Thus, the claim for privilege leave/earned leave for the period of closure (legal or illegal closure) cannot be entertained and cannot be considered admissible/eligible for preferential payment under section 529A of the Act. The Chartered Accountant could not have included the claim for monetary value of PL/EL (i.e. wages for PL/EL) for the period from the date of closure until the date of the order of winding up.

14.3 From the report dated 10.1.2009 it is noticed that the Chartered Accountant has admitted and included the workmen’s claim for privilege leave for the period from the date of closure until the date of order of winding up which is quantified/assessed to the extent of Rs. 2,25,02,748/- and is admitted for preferential payment under Section 529A of the Act. According to the said decision, there cannot be any fiction or assumption that the workmen would not have availed the privilege leave or that the employer would have refused to grant privilege leave, thus such claim cannot be acknowledged and admitted for overriding priority (and preferential payment) which is granted to the workmen’s dues under Section 529A. In this view of the matter, the Chartered Accountant could and should not have entertained such claim in present case while determining the amount of workmen’s claim for preferential disbursement under Section 529-A of the Act.

14.4 Hence, at this stage, the claim in the sum of Rs. 2,25,02,748/- which is included by Chartered Accountant will have to be taken out. The Chartered Accountant is directed to make necessary correction, within two weeks, in the report dated 10.1.2009.

14.5 There is, however, an addendum to this issue. As another limb of this objection it is also claimed by the creditors that the quantification includes claim for leave encashment and since it is allowed, the report is incorrect. On this count it is necessary to take into account the below mentioned observation in the decision in case of Jubilee Mills:-

“The Court would, of course, hasten to add that if under a contract of employment or any statutory provision the workman is entitled to get wages in lieu of unavailed/refused privilege leave during the period when the Company was carrying on its manufacturing or business activities (i.e. for the period prior to the date of closure), the claim for such pre-closure unclaimed/refused privilege leave would fall within the definition of workmen’s dues under Section 529(3)(b)(ii) for the purposes of priority under Sections 529, 529A and 530 of the Companies Act.”

Thus, if the standing orders/service contract – order/settlement provide for encashment of leave, then, subject to such provision, the claim, only to the extent it pertains to the period prior to date of closure, will be permissible. However, in present case the workmen do not appear to have produced any standing order or service contract or settlement admitting right of encashment.

Claim of Secured Creditors:

15. The secured creditors have alleged that some of the justified and sustainable claims made by them are not allowed. So far as the respondent No. 7 ICICI is concerned, it has raised grievance with regard to some of its claim viz. compound interest/penal interest, premium amount (on debentures) trusteeship fees and liquidated damages, which according to the respondent No. 7 have not been allowed by the Chartered Accountant. Respondent No.3 has claimed that its claim for Rs. 50,000/- for reimbursement of amount paid to official liquidator is not allowed by chartered accountant.

15.1 The dues of the secured creditors are required to be determined as on the relevant date. According to the provision under section 530(8)(c)(i) of the Act, the relevant date would be the date on which order of winding up and appointment of provisional liquidator is passed.

15.2 In this context, it is appropriate to mention, at the outset, that so far as the debt of the secured creditors is concerned, the Chartered Accountant has submitted separate report, i.e. report dated 17.2.2009 wherein, the claims of secured creditors are considered by the Chartered Accountant and quantification has been determined. In the said report, the Chartered Accountant has also suggested the “disbursement ratio” for the purpose of disbursement of the dividend amongst secured creditors and the workmen by way of preferential payment under section 529-A of the Act. On perusal of the said report dated 17.2.2009, it comes out that besides the relevant material/documents e.g. the certificate by Registrar of Companies and other documents required to establish that the charge created by the company was registered in accordance with section 125 of the Ac, the Chartered Accountant has also taken into account the order/s, in the cases where it was made available, passed by the Debts Recovery Tribunal, for verifying the claims of the secured creditors and the said report dated 17.2.2009 and the determination made by the Chartered Accountant are based on such material/documents and the order/s by the learned Tribunal.

15.3 So far as the claim of respondent No.7 for trusteeship fees is concerned, it is relevant to note that from the observations by the chartered accountant in the report dated 17.2.2009, it appears that the said claim is covered under the learned Tribunal’s order dated 7.1.2009 in Application No. 40 of 2003 and since the chartered accountant has determined total claim of respondent No. 7 after taking into account the said order by learned tribunal the said claim is not sustainable. In this context it is relevant to mention that on perusal of the said report dated 17.2.2009 it transpires that while considering the claim by the secured creditors including respondent No. 7 ICICI Bank the chartered accountant has taken into account and relied on the order passed by the learned tribunal and the effect of the amount allowed by the learned tribunal has been given by the chartered accountant while determining the total debt/claim of the secured creditors whose claims have been considered in the said report dated 17.2.2009. Therefore, as aforesaid, the said claim for any other or further amount on this count does not deserves to be entertained.

15.4 So far as the secured creditors’ claim for interest at “compound” rate is concerned, it is necessary and appropriate to take into consideration the observation in the decision in Official Liquidator of Jubilee Mills Ltd.’s case (supra) wherein the Court has observed that:-

“20. INTEREST

20.1 In the instant case the workmen have also claimed interest on their dues. In view of the definition of relevant date as contained in Section 530(8)(c)(i) of the Act, for determination of the dues of the secured creditors as well as the workmen’s dues for the purpose of determination of ratio as well as for the purpose of priority payment u/s 529, 529A and also for the purpose of preferential payment u/s 530 of the Act, the relevant date would mean the date of the first appointment of a provisional liquidator and if no such appointment is made, the date of winding up order. Similar view is taken in the decision of the Division Bench of this Court in the case of ICICI v. Textile Labour Association rendered in OJ Appeal No. 80 and 81 of 1998, decided on 3-4 November 1998, as also in the case of Kerala Financial Corporation v. Official Liquidator reported in 87 Company Cases 183 and in the case of Anthony Raj v. Shanmugam reported in 80 Company Case 531. The dues of the workmen as well as the dues of the secured creditors are first required to be determined as on the aforesaid relevant date which is generally the date of winding up order and, therefore, no interest is to be calculated for the period after the date of winding up order either on the dues of the secured creditors or on the dues of the workmen. The question of payment of interest thereon after the relevant date would arise only if there is surplus.

20.2 As far as charging interest prior to the relevant date (generally, the date of winding up order) is concerned, the debts will carry interest only as per the terms of the contract. In the facts of the instant case, no contract or statutory provision is brought to the notice of this Court on the basis of which the workmen will be entitled to claim interest which can be considered for the payment of priority u/s 529, 529A and 530 of the Act, whereas secured creditors have relied upon the contracts providing for payment of interest.”

It follows from the above-quoted observations that the relevant date for the purpose of determination of the ratio as well as for the purpose of preferential payment is the date of the order of winding up and appointment of provisional liquidator.

15.5 Hence, so far as the claim for interest component of respondent No. 7 (any other respondent has not made such claim) is concerned, the said claim could be considered as on the relevant date. The report dated 17.2.2009 gives out that the Chartered Accountant has calculated the secured creditors’ claim for interest component as on the relevant date and that, therefore, the said decision, to the said extent, cannot be faulted. However the dispute is about the rate. Now, so far as the grievance about the rate of interest allowed by the Chartered Accountant is concerned, it is relevant to note that from the material available on record and particularly the report of the Chartered Accountant, it appears that the eligible claim amount of respondent No. 7 is adjudicated and determined by the learned Tribunal and the Chartered Accountant has relied on and taken into account the order passed by the learned Tribunal with reference to the claims of (secured creditors including) respondent No. 7.

15.6 When the observations and conclusions recorded by the chartered accountant in the report are examined in light of the provisions under section 529A, section 529 and section 125 of the Act and section 47 of the Provincial Insolvency Act as well as the above-mentioned observations by the Court in the decision by the Apex Court and Rule 156 of the Company Court Rules, it emerges that the secured creditors have failed to establish any error in the quantification of the claim amount determined by the chartered accountant with reference to the debenture interest. The decision of the chartered accountant holding that the applicant ICICI is entitled for simple interest from 6.2.2003 cannot be faulted. The said decision is based on the order passed by the learned Tribunal. The claim for interest @ 15% and/or for penal interest and/or for component rate cannot be entertained for preferential payment under section 529A of the Act.

15.7 So far as the claim for liquidated damages is concerned, the said claim cannot be entertained for purpose of preferential payment under Section 529A of the Act. The liquidated damages which are sought to be claimed are not ascertained amount and any material to establish that (i) any charge was created in respect of liquidated damages; and (ii) such charge for security payment towards liquidated damages was duly registered under Section 125 of the Act. The said claim for liquidated damages does not qualify as “Secured Claim” for the purpose of preferential payment or overriding priority contemplated under Section 529A of the Act and that therefore the said claim cannot be entertained at the stage when the disbursement is to be made according to and under the provisions under Section 529A read with section 529 of the Act.

15.8 On behalf of the Bank of Baroda it is submitted that during the pendency of the proceedings the respondent Bank had paid, on behalf of the official liquidator a sum of Rs. 50,000/- towards expenses on the understanding that the said amount will be reimbursed by official liquidator at the time of payment of its debts under Section 529A of the Act, however, the chartered accountant has not taken into account the said debts. The official liquidator has, therefore, directed to verify the said aspect and if such payment is made by respondent bank and if it it not included by the chartered accountant at the time of determining debt of respondent bank then the said amount shall have to be included.

(VII) Objections by the workmen:

Now, the objection by workmen against the debt/claim of secured creditors may be considered.

16. So far as the workmen’s objection to the effect that dues of only those secured creditors who hold first charge can be taken into account and only after the payment of total claim of the workmen and the claim of the first charge holder secured creditors is taken care of, the claim of second charge holder secured creditors can be taken into account and while determining the disbursement ratio the amount claimed by the secured creditors holding second charge should be excluded is concerned, it is necessary to take into account the provision under Section 529 and Section 529A of the Act.

16.1 Section 529A of the Act confers preference and priority in matter of disbursement of the proceeds received from sale of properties of company and it further provides that the debts payable to the workmen and secured creditors (to the extent such debts rank under clause (c) of proviso to subsection (1) of section 529 pari passu with such dues) shall be paid in full, unless the assets are insufficient to meet them and if the assets are insufficient then the said debt shall abate in equal proportion.

16.2 The workmen have claimed that since the debt of workmen has pari passu charge over the security of secured creditors, the debt of those secured creditors who hold second charge can be considered only after the claim of secured creditors holding first charge and workmen are paid in full.

16.3 In this context it is necessary to note that the contentions raised by the learned Counsel for the workmen are raised on the premise that the secured creditors who hold first charge and those who hold second charge form two different class.

16.4 However, examination of the provision under Sections 529 and 529A make it clear that the said understanding on part of the workmen is erroneous and not supported by plain reading of and apparent scope and meaning of Sections 529 and 529A. It is pertinent that when section 529A makes reference of secured creditor it is with reference to the provision under clause (c) of proviso to subsection (1) of section 529 and its proviso and that therefore the provision under clause (b) and/or under subsection (2) of section 529A cannot be read or considered without having regard to the provision under proviso to section 529(1) (c).

16.5 It is also pertinent to note that the proviso refers to securities of “every” secured creditor. It is provided that pari passu charge in favour of the workmen would be available against security of “every” secured creditor and not only against security of those secured creditors who hold first charge. The phrase “secured creditor” is preceded by the word “every” and it is not qualified by the words “who hold first charge”. If the contentions on behalf of the workmen were to be accepted then it would amount to reading something additional into the said section which is neither provided nor intended by legislature.

16.6 The scheme under the Act, particularly provisions under sections 529, 529A, 530 and section 125, makes it abundantly clear that for the purpose of said sections all secured creditors are clubbed together and they form one common class without any inter-se distinction and irrespective of the nature or category of charge held by each one of them, fall within one common class viz. “secured creditors”.

16.7 So far as creditors are concerned the Act and particularly the provisions related to winding up of limited company, recognize and contemplate two class of creditors viz. secured creditors and unsecured creditors and the said provisions do not distinguish the secured creditors by identifying or categorizing them on the basis of the nature/category of charge against security held by them i.e. in further sub division or further classification such as secured creditors holding first charge and secured creditors holding second charge.

16.8 The illustration under section 529(3)(c) indicates and explains in effective manner that the aggregate of “entire debt” of “all secured creditors” and the aggregate of “entire debt” of “all workmen” has to be taken into account. The provision does not differentiate between the nature or category of the charge held by the secured creditor. Merely on account of the nature or category of charge held by it a secured creditor does not lose his status and identity as a secured creditor i.e. it does not cease to be a secured creditor, so long as the requirements and condition prescribed under Section 125 of the Act are complied. The said contention, therefore, is misconceived and cannot be accepted.

16.9 However, it is equally relevant to note that so so far as creditors other than the workmen are concerned their inter-se rights (including right of priority in receiving disbursement) based on the nature and extent of charge held by them are not obliterated vis-a-vis the workmen. The provisions under section 529 and section 529-A of the Act do not, in any manner, admit or support the contention that while determining the distribution ratio for the purpose of distribution amongst the secured creditors and the workers, the debt of the secured creditors holding second charge should be excluded.

16.10 The security of the secured creditors and the charge against the company’s properties is subject to pari passu charge in favour of the workmen. Therefore the claim of the workmen would stand, on the same platform besides the debt of the secured creditors. The provision under section 529-A does not prescribe the order in which payment should be made between the secured creditors of first charge or second charge. The provision deals with the rights of secured creditors, hence it is to be understood in contradistinction to the rights of unsecured creditors and not inter-se amongst the secured creditors.

16.11 At the stage of making payment to the secured creditors the question about inter-se priority amongst the secured creditors (i.e. between secured creditors holding first charge and secured creditors holding second charge) would arise and at that time the order of priority for payment will be in accordance with the order prescribed under section 48 of Transfer of Property Act.

16.12 At this stage it is relevant to note that so far as the said objection is concerned, while considering and deciding company application no. 362 of 2004 with other connected/allied applications, the Court has already considered and dealt with the said contention/objection on behalf of the workmen in the order dated 9.1.2006 and the Court has observed that:-

“29. Considering the above referred legal position, the Court is of the view that the claim made by the Unions in these applications with regard to their exclusive right of satisfaction of their claim out of the sale proceeds of the assets of the Company in liquidation in priority of all other creditor secured as well as unsecured is not tenable. The Court is also of the view that simply because the secured creditors participate in the sale proceedings undertaken by the Court and they also became the members of the Sale Committee constituted pursuant to the directions issued by the Court does not mean that they have exercised their option of remaining outside the winding up and they have relinquished their security. As a matter of fact, relinquishment of security by the secured creditors require a positive action on the part of the secured creditors. They have never stated in any of the proceedings that they are relinquishing their securities. On the contrary, they have made it clear that they remain outside the winding up and they participate in the sale proceeds only with a view to facilitate the sale proceeds so as to get the auction proceedings completed as expeditiously as possible. There is also substance in the say of the secured creditors that as soon as the assets of the companies are sold and realization is taken place, their securities are converted from the specified assets into cash and they have equal right in cash which is realized on sale of the assets of the Company in liquidation. In the above view of the matter, the ratio between the secured creditors and the workmen will have to be determined and the distribution will take place as per the ratio so decided or determined.”

Thereafter again in 2008 the Court considered similar contentions on behalf of the workmen while deciding OLR No. 138 of 2006 and observed in the order dated 7.5.2008 that:-

“14. Having heard learned advocates appearing for the respective parties and having considered their pleadings contained in the reports, affidavits and documents produced before the Court as well as having minutely examined the relevant statutory provisions and the case law on the subject, the Court is of the view that the prayer made by the Official Liquidator in the present report cannot be granted and at this stage, the secured creditors are not required to refund the amount. Keeping aside for the time being the controversy relating to the exact amount of their entitlements, the basic question which is to be decided is with regard to as to whether the dues of the secured creditors having second charge are required to be taken into consideration for the purpose of determining the ratio between the secured creditors and workers and secondly, only the principal amount and not the debts due on the date of winding up which includes interest is required to be taken into consideration.

15. As far as the first issue is concerned, the position in law is well settled. This Court in the case of IDBI v. Official Liquidator of M/s. Rustom Mills & Industries Limited and others has already decided this issue. While rejecting the contention raised on behalf of Textile Labour Association to the effect that the secured creditors for the purpose of distribution can be considered for only those who are secured creditors for the first charge and secured creditors having second charge or having charge other than first charge are required to be included for the purpose of giving effect to charge as per Section 529 read with Section 529-A of the Companies Act, 1956, this Court has held that the said contention deserves to be rejected because the language is “every secured creditors” and not “the secured creditor having first charge”. Reliance placed on the decision of the Hon’ble Supreme Court in the case of ICICI Bank Limited (Supra) by Mr. Yadav, does not lead the case of the Official Liquidator any further. Firstly, the said decision has already been taken into consideration by this Court while deciding the case of IDBI v. Official Liquidator of M/s. Rustom Mills & Industries Limited and others, and secondly, in that case, it was not the issue whether the dues of the secured creditor having second charge should be taken into consideration. While dealing with the said decision, the Court has held that even if distribution takes place after considering the claim of the secured creditors having second charge, the rights of the secured creditors may have to be considered by the appropriate forum as per the provisions of the Transfer of Property Act. The Court has specifically held that in any event, there is no dispute brought to the notice of this Court against the inter-se secured creditors and further, the workmen would not be entitled to additional amount on the basis of the claim of the secured creditors having second charge be excluded. The Court, therefore, clearly held that the said decision should not help either the Official Liquidator or to the Textile Labour Association.

16. This very issue was dealt with by the Delhi High Court and after elaborate discussion, the Delhi High Court has taken the view that there is no question of excluding the secured creditors having second charge while working out the ratio between the secured creditors and the workmen. This Court is in respectful agreement with the view taken by the Delhi High Court as well as by this Court in its earlier decision. The Court, therefore, holds that the claim of the secured creditors having second charge is not required to be excluded while working out the ratio between the secured creditors and the workmen.”

16.13 It is informed that OJ Appeals against the said decisions are admitted, however, the said view and the order are not stayed.

16.14 In this context it is appropriate at this stage to refer to the decision by the Apex Court in the case between SIDCO Leathers Ltd. (supra) wherein the Apex Court, inter alia, addressed three issues viz. (a) Whether significance is lost in respect of inter se right of priority between two sets of secured creditors in view of Section 529A of the Companies Act? (b) Whether Section 48 of the Transfer of Property Act stands over-ridden by Section 529A of the Companies Act and (c) Whether the Appellant can be said to have relinquished his right to claim as a secured creditor as it had not opted in terms of Section 47 of the Provincial Insolvency Act. In the said decision, while dealing with the said issues the Hon’ble Apex Court also considered the provision under Transfer of Property Act particularly section 48 of the Transfer of Property Act, which prescribe different type of charges and observed that:-

“41. While enacting a statute, the Parliament cannot be presumed to have taken away a right in property. Right to property is a constitutional right. Right to recover the money lent by enforcing a mortgage would also be a right to enforce an interest in the property. The provisions of the Transfer of Property Act provide for different types of charges. In terms of Section 48 of the Transfer of Property Act claim of the first charge holder shall prevail over the claim of the second charge holder and in a given case where the debts due to both, the first charge holder and the second charge holder, are to be realized from the property belonging to the mortgagor, the first charge holder will have to be repaid first. There is no dispute as regards the said legal position.

42. Such a valuable right, having regard to the legal position as obtaining in common law as also under the provisions of the Transfer of Property Act, must be deemed to have been known to the Parliament. Thus, while enacting the Companies Act, the Parliament cannot be held to have intended to deprive the first charge holder of the said right. Such a valuable right, therefore, must be held to have been kept preserved. [See Workmen of M/s. Firestone Tyre and Rubber Co. of India (P.) Ltd. v. Management and Ors. [1973] 1 SCC 813].

43. If Parliament while amending the provisions of the Companies Act intended to take away such a valuable right of the first charge holder, we see no reason why it could not have stated so explicitly. Deprivation of legal right existing in favour of a person cannot be presumed in construing the statute. It is in fact the other way round and thus, a contrary presumption shall have to be raised.

44. Section 529(1)(c) of the Companies Act speaks about the respective rights of the secured creditors which would mean the respective rights of secured creditors vis-a-vis unsecured creditors. It does not envisage respective rights amongst the secured creditors. Merely because Section 529 does not specifically provide for the rights of priorities over the mortgaged assets, that, in our opinion, would not mean that the provisions of Section 48 of the Transfer of Property Act in relation to a company, which has undergone liquidation, shall stand obliterated.

45. If we were to accept that inter se priority of secured creditors gets obliterated by merely responding to a public notice wherein it is specifically stated that on his failure to do so, he will be excluded from the benefits of the Dividends that may be distributed by the Official Liquidator, the same would lead to deprivation of the secured creditor of his right over the security and would bring him at par with an unsecured creditor. The logical sequitor of such an inference would be that even unsecured creditors would be placed at par with the secured creditors. This could not have been the intendment of the legislation.”

16.15 While considering conjoint effect of sections 529 and 529A the Apex Court, in the case between Rajasthan State Financial Corp. v. Official Liquidator [2005] 63 SCL 468 has observed, inter alia, that:-

“A combined reading of Sections 529-A and 529 indicates that notwithstanding anything contained in any other law for the time being in force or in the Companies Act itself, there is a preferential payment provided for workmen’s dues and debts due to the secured creditors to the extent such debts rank under clause (c) of the proviso to Section 529(1) pari passu with such dues. Therefore, when the assets of the company are sold and the proceeds realized, the debts by way of workmen’s dues and that of the secured creditors have to be paid in full if the assets are sufficient to meet them and if they are not sufficient, in equal proportions.”

16.16 The question as to whether the inter-se rights are lost or obliterated for the purpose of considering priority or for the purpose of disbursement amongst them (i.e. the secured creditors holding first charge and second charge) has been considered by the Hon’ble Apex Court in the case of SIDCO Leathers Ltd. (supra). The following observations by the Hon’ble Apex Court in the said decision are relevant:-

“20. The questions therefor which arise for our consideration are :

(a)  Whether significance is lost in respect of inter se right of priority between two sets of secured creditors in view of Section 529A of the Companies Act?

(b)  Whether Section 48 of the Transfer of Property Act stands over-ridden by Section 529A of the Companies Act.

(c)  Whether the Appellant can be said to have relinquished his right to claim as a secured creditor as it had not opted in terms of Section 47 of the Provincial Insolvency Act.

26. For those who desire to go before the Company Court for dividend by relinquishing their security, in accordance with the Insolvency Rules, Section 529 of the Companies Act would be attracted.

27. The relevant portion of Section 47 of the Provincial Insolvency Act reads as under :

“47. Secured creditors.-(1) Where a secured creditor realises his security, he may prove for the balance due to him; after deducting the net amount realized.

(2) Where a secured creditor relinquishes his security for the general benefit of the creditors, he may prove for his whole debt.

(3) Where a secured creditor does not either realise 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 a dividend only in respect of the balance due to him after deducting the value so assessed.

        (4) and (5)**                                          **                                   **

(6) Where a secured creditor does not comply with the provision of this section, he shall be excluded from all shares in any dividend.”

28. The second class of the secured creditors are those who come under Section 529-A (1)(b) of the Companies Act, i.e., those who opt to stand outside the winding up to realize their security. They also can, in certain circumstances, go before the Company Court.

38. Section 529-A of the Companies Act does not ex facie contain a provision (on the aspect of priority) amongst the secured creditors and, hence, it would not be proper to read thereinto things, which the Parliament did not comprehend. The subject of mortgage, apart from having been dealt with under the common law, is governed by the provisions of the Transfer of Property Act. It is also governed by the terms of the contract.

41. While enacting a statute, the Parliament cannot be presumed to have taken away a right in property. Right to property is a constitutional right. Right to recover the money lent by enforcing a mortgage would also be a right to enforce an interest in the property. The provisions of the Transfer of Property Act provide for different types of charges. In terms of Section 48 of the Transfer of Property Act claim of the first charge holder shall prevail over the claim of the second charge holder and in a given case where the debts due to both, the first charge holder and the second charge holder, are to be realized from the property belonging to the mortgagor, the first charge holder will have to be repaid first. There is no dispute as regards the said legal position.

42. Such a valuable right, having regard to the legal position as obtaining in common law as also under the provisions of the Transfer of Property Act, must be deemed to have been known to the Parliament. Thus, while enacting the Companies Act, the Parliament cannot be held to have intended to deprive the first charge holder of the said right. Such a valuable right, therefore, must be held to have been kept preserved. [See Workmen of M/s. Firestone Tyre and Rubber Co. of India (P.) Ltd. v. Management and Ors. [1973] 1 SCC 813].

43. If Parliament while amending the provisions of the Companies Act intended to take away such a valuable right of the first charge holder, we see no reason why it could not have stated so explicitly. Deprivation of legal right existing in favour of a person cannot be presumed in construing the statute. It is in fact the other way round and thus, a contrary presumption shall have to be raised.

44. Section 529(1)(c) of the Companies Act speaks about the respective rights of the secured creditors which would mean the respective rights of secured creditors vis-a-vis unsecured creditors. It does not envisage respective rights amongst the secured creditors. Merely because Section 529 does not specifically provide for the rights of priorities over the mortgaged assets, that, in our opinion, would not mean that the provisions of Section 48 of the Transfer of Property Act in relation to a company, which has undergone liquidation, shall stand obliterated.

45. If we were to accept that inter se priority of secured creditors gets obliterated by merely responding to a public notice wherein it is specifically stated that on his failure to do so, he will be excluded from the benefits of the Dividends that may be distributed by the Official Liquidator, the same would lead to deprivation of the secured creditor of his right over the security and would bring him at par with an unsecured creditor. The logical sequitor of such an inference would be that even unsecured creditors would be placed at par with the secured creditors. This could not have been the intendment of the legislation.”

In the decision in the case of Rajasthan State Financial Corpn. (supra) the Hon’ble Apex Court, observed in paragraph 16 that:-

“16. In International Coach Builders Limited v. Karnataka State Financial Corporation [2003] 10 SCC 482), this Court considered the correctness of the views expressed by the Karnataka High Court and the Gujarat High Court. This Court held that a right is available to a financial corporation under Section 29 of the SFC Act against a debtor, if a company, only so long as there is no order of winding up. When the debtor is a company in winding up, the rights of financial Corporations are affected by the provisions in Sections 529 and 529-A of the Companies Act. It was also held that the proviso to Section 529 of the Companies Act creates a “pari passu” charge in favour of the workmen to the extent of their dues and makes the liquidator the representative of the workmen to enforce such a charge. The decision of the Bombay High Court in Maharashtra State Financial Corpn. v. Ballarpur Industries Ltd. (AIR 1993 Bom 392) was approved. The reference to a larger bench was occasioned by the fact that the decision in Allahabad Bank v. Canara Bank and Anr. (supra) was not adverted to in this decision. This decision recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529-A of that Act in a case where the debtor is a company-in-liquidation. As far as we can see, there is no conflict on the question of the applicability of Section 529-A read with Section 529 of the Companies Act to cases where the debtor is a company and is in liquidation. The conflict, if any, is in the view that the Debts Recovery Tribunal could sell the properties of the Company in terms of the Recovery of Debts Act. This view was taken in Allahabad Bank v. Canara Bank and Anr. (supra) in view of Recovery of Debts Act being a subsequent legislation and being a special law would prevail over the general law, the Companies Act. This argument is not available as far as the SFC Act is concerned, since Section 529-A was introduced by Act 35 of 1985 and the overriding provision therein would prevail over the SFC Act of 1951 as amended in 1956 and notwithstanding Section 46-B of the SFC Act. As regards distribution of assets, there is no conflict. It seems to us that whether the assets are realized by a secured creditor even if it be by proceeding under the SFC Act or under the Recovery of Debts Act, the distribution of the assets could only be in terms of Section 529-A of the Act and by recognizing the right of the liquidator to calculate the workmen’s dues and collect it for distribution among them pari passu with the secured creditors. The Official Liquidator representing a ranked secured creditor working under the control of the company Court cannot, therefore, be kept out of the process.”

Thus, the provisions under section 529-A(1)(b) of the Act recognizes the class of the secured creditors who opt to stand outside the winding up to realise their security. The Apex Court has observed that such secured creditors also can, in certain circumstances, go before the Company Court.

16.17 On behalf of the workmen it is also submitted that the claim of the workmen should be satisfied first and only upon satisfaction of the workmen’s claim the disbursement to the secured creditors can be made because the secured creditors have not relinquished their security and have not proved the whole debt as required by the provisions under Section 47 of Insolvency Act.

16.18 So far as the said objection is concerned it is necessary to mention that the same contention was raised on behalf of the workmen when the Court considered and decided company application No. 362 of 2004. In the order dated 9.1.2006 in the said company application No. 362 of 2004 the Court has dealt with and decided the said contention.

Neither section 529 nor section 529-A of the Act mandate that to claim priority and preferential payment under section 529-A the secured creditors must join winding up and cannot stand outside the winding up and/or it must relinquish its security. As observed in case of Rajasthan Financial Corpn. (supra):-

“….This decision recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529-A of that Act in a case where the debtor is a company-in-liquidation……………………..”

it is recognized that whether a secured creditor is standing outside the winding up or not, the disbursement has to be made amongst the secured creditors and workmen in terms of section 529-A read with section 529 of the Act. It is also held that in certain circumstances the secured creditors can come before the Company Court and claim priority over other creditors even though the said creditor is standing outside the winding up. On the premise that the secured creditor is standing outside the winding or that it has not relinquished its security, the disbursement under section 529-A of the Act cannot be denied to the secured creditors on the said ground, when the property over which the said secured creditors has a charge and such charge is registered under Section 125 of the Act is sold by the official liquidator and sale proceeds are received by official liquidator and are put up for disbursement under section 529-A of the Act.

16.19 At this stage it is relevant to refer to the observations in the decision in the case between Allahabad Bank (supra) wherein the Hon’ble Apex Court observed that the secured creditors fall under two categories viz. (i) those who desire to go before the Company Court; and (ii) those who like to stand outside the winding up. From the said observations by the Apex Court it follows that the option of standing outside the winding up is not a prohibited or impermissible option. In paragraph No.62 to 64 and 67 of the said decision the Hon’ble Apex Court has observed thus:-

“62. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in section 529. The insolvency rules are those contained in sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the official liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank with the unsecured creditors and has to take his dividend as provided in section 529(2). Till today, the Canara Bank has not made it clear whether it wants to come under this category.

63. The second class of secured creditors referred to above are those who come under S. 529A(1)(b) read with proviso (c) to section 529(1). These are those who opt to stand outside the winding up to realise their security. Inasmuch as section 19(19) permits distribution to secured creditors only in accordance with section 529A, the said category is the one consisting of creditors who stand outside the winding up. These secured creditors in certain circumstances can come before the Company Court (here the Tribunal) and claim priority over all other creditors for release of amounts out of the other monies lying in the Company Court (here, the Tribunal). This limited priority is declared in section 529A(1) but it is restricted only to the extent specified in clause (b) of section 529A(1). The said provision refers to sub-clause (c) of the proviso to section 529(1) and it is necessary to understand the scope of the said provision.

64. Under sub-clause (c) of the proviso to section 529(1), the priority of the secured creditor who stands outside the winding up is confined to the “workmen’s portion” as defined in S. 529(3)(c). ‘Workmen’s portion’ means the amount which bears to the value of the security, the same proportion which the amount of the workmen’s dues bears to the aggregate of (a) workmen’s dues and (b) the amounts of the debts due to all the creditors. This is explained in the illustration under the said provision. If the workmen’s dues in all are (say) Rs. 1 lakh and the debt due to all secured creditors is Rs. 3 lakhs, the total amount due to all of them comes to Rs. 4 lakhs. Therefore, the workmen’s share come to 25% (Rs. 1 lakh out of Rs. 4 lakhs). Now if the value of the security of a secured creditor (like Canara Bank) is Rs. 1 lakh, the ‘workmen’s portion’ will be Rs. 25,000 which is the pro-rata amount to be shared by the said secured creditor. By virtue of section 529A(1)(b) his priority over all others out of other monies available in the Tribunal is restricted to Rs. 25,000 only.

67. In our opinion, the words “so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of the proviso” obviously mean the amount taken away from the private realisation of the secured creditor by the liquidator by way of enforcing the charge for workmen’s dues under clause (c) of the proviso to section 529(1) “rateably” against each secured creditor. To that extent, the secured creditor – who has stood outside the winding up and who has lost a part of the monies otherwise covered by security – can come before the Tribunal to reimburse himself from out of other monies available in the Tribunal, claiming priority over all creditors, by virtue of section 529A(1)(b).”

16.20 The said observations by the Apex Court, particularly the observations in paragraph No.67 where the apex court has observed that the secured creditors who stood outside the winding up and lost a part of the monies otherwise covered by security can claim to be reimbursed from out of other monies available while claiming priority over all creditors, by virtue of section 529 -A (1)(b) leave no room to entertain the said objection of the workmen. The observation in paragraph No.63 of the said decision, particularly the observation “These secured creditors in certain circumstances can come before the Company Court (here the Tribunal) and claim priority over all other creditors for release of amounts out of the other monies lying in the Company Court (here, the Tribunal). This limited priority is declared in section 529A(1) but it is restricted only to the extent specified in clause (b) of section 529A(1)……” makes it further clear that the objections raised by the workmen against the claim of secured creditors holding second charge cannot be accepted.

16.21 In this context it is necessary to also refer to the observations by the Apex Court in the decision in case of Rajasthan Financial Corpn. (supra) wherein the Hon’ble Apex Court has, inter alia, observed that:-

“16………….. The reference to a larger bench was occasioned by the fact that the decision in Allahabad Bank v. Canara Bank and Anr. (supra) was not adverted to in this decision. This decision recognizes that, whether a creditor is standing outside the winding up or not, the distribution of the proceeds has to be in terms of Section 529 of the Companies Act read with Section 529-A of that Act in a case where the debtor is a company-in-liquidation. As far as we can see, there is no conflict on the question of the applicability of Section 529-A read with Section 529 of the Companies Act to cases where the debtor is a company and is in liquidation. The conflict, if any, is in the view that the Debts Recovery Tribunal could sell the properties of the Company in terms of the Recovery of Debts Act. This view was taken in Allahabad Bank v. Canara Bank and Anr. (supra) in view of Recovery of Debts Act being a subsequent legislation and being a special law would prevail over the general law, the Companies Act. This argument is not available as far as the SFC Act is concerned, since Section 529-A was introduced by Act 35 of 1985 and the overriding provision therein would prevail over the SFC Act of 1951 as amended in 1956 and notwithstanding Section 46-B of the SFC Act. As regards distribution of assets, there is no conflict. It seems to us that whether the assets are realized by a secured creditor even if it be by proceeding under the SFC Act or under the Recovery of Debts Act, the distribution of the assets could only be in terms of Section 529-A of the Act and by recognizing the right of the liquidator to calculate the workmen’s dues and collect it for distribution among them pari passu with the secured creditors. The Official Liquidator representing a ranked secured creditor working under the control of the company Court cannot, therefore, be kept out of the process.”

16.22 The above quoted observations also clarify that the right of secured creditors to claim payment on priority/preferential basis under Section 529A is not lost and cannot be denied on the ground that the secured creditor has not relinquished the security or has stood outside the winding up.

16.23 It follows from the observations by the Apex Court and it emerges from the reading of the provisions under section 529 and 529A of the Act with section 47 of the Provincial Insolvency Act that the said provisions do not admit the contention or interpretation that without opting in terms of section 47 of Provincial Insolvency Act or while standing outside the winding up the secured creditors cannot lodge their claim for payment under Section 529A of the Act. The said objection is not sustainable and deserves to be rejected.

17. In view of the foregoing discussion and in light of the above quoted observations by the Hon’ble Apex Court the said contention of the workmen deserves to be rejected and is accordingly rejected. The claim/debt of the secured creditors holding second charge is not to be excluded at the time of determining the distribution ratio for the purpose of distribution/payment between the secured creditors and the workmen.

18. Another objection which is raised by the workmen against the claim of secured creditors is with reference to the claim of State Bank of Patiala. It is submitted that while calculating the debt/claim of State Bank of Patiala a sum of Rs. 27.19 Lacs is allowed/included by the chartered accountant which is incorrect and unjustified inasmuch as the said amount represents the amount deposited by the said bank before the Hon’ble High Court of Bombay. The said objection appears justified. On perusal of the report dated 17.2.2009 by the chartered accountant it emerges that while considering and calculating the claim of secured creditors, particularly claim of State Bank of Patiala, the chartered accountant has included/allowed a sum of Rs. 27,19,360/- though the said amount represents the amount deposited/paid towards guarantee in the Hon’ble High Court of Bombay. The amount seems to have been paid after the order of winding up. Besides this, the said amount appears to have been paid by the State Bank of Patialaas as guarantee money in certain proceeding before the High Court of Bombay wherein the said bank might be party to the proceedings as petitioner/applicant or opponent. The said claim not being “secured claim”, cannot be considered at the time of disbursement under Section 529A of the Act though it could be permissible, subject to proof, at the time of disbursement under Section 530 of the Act. Therefore, the chartered accountant shall have to take out said amount of Rs. 27,19,360/- from the amount of claim/debt determined by the chartered accountant for State Bank of Patiala.

18.1 The workmen have also submitted that the dues of the mutual fund do not enjoy first charge over the properties and therefore the said claim should not have been included. In view of the earlier discussions whereby the objection against inclusion of the debt of secured creditors holding second charge is rejected, the aforesaid objection also stands rejected.

19. In view of the above discussion, clarifications and directions the “distribution ratio” will have to be respondent-calculated and shall have to be determined afresh. Thus, the chartered accountant shall complete the entire process within two weeks and for that purpose official liquidator shall forward appropriate intimation with copy of this order to the chartered accountant.

20. As a result of the foregoing discussion and for the aforesaid reasons the objection by the secured creditors against the report dated 10.1.2009 and 17.2.2009 are not accepted except with regard to (i) the objection against inclusion of the workmen’s claim towards privilege/earned leave and (ii) the inclusion of claim, if any, of persons employed in the categories of/employed as Senior Engineer, Senior Programmer, Senior Engineer (project) and Senior Officer, subject to production of proof in support of the complaint. The official liquidator shall consider such cases and get them verified by chartered accountant within period of two weeks from receipt of such details.

20.1 So far as the secured creditor’s claim (claim of respondent No.7) that the Official Liquidator/Chartered Accountant should have included the claim for liquidated damages, trusteeship fees and penal/compound interest while determining the admissible claim for purpose of section 529-A, is concerned, the said claim is also not accepted.

20.2 It is clarified that two weeks time is granted to the secured creditors and the workmen to submit the details with supporting documents, to point out case of particular workmen, if any, in whose cases any error with regard to date of birth (and consequently in determining date of superannuation) or date of joining or date of death (in cases where any workman has died) or with regard to the wage as on relevant date (basic wage or VDA/FDA) have actually occurred. The chartered accountant shall verify as to whether cases of any person employed as senior engineer, senior engineer (project), senior programmer and senior officer treating basic wage of more than Rs. 2000/- or not and if any case of such category is found then claim of such person shall be taken out of the total claim of workmen and necessary correction shall be accordingly made.

20.3 Likewise, out of the total claim amount which is determined by the chartered accountant i.e. quantification of workmen’s claim, the amount allowed towards claim for wages towards privilege leave/earned leave shall be taken out. The said claim is not permissible for purpose of disbursement under Section 529A, and could not have been included in the quantification of workmen’s claim. Therefore, to that extent correction shall be carried out by the chartered accountant.

20.4 Furthermore, after getting confirmation from the official liquidator with regard to the payment said to have been made by the Bank of Baroda towards expenses (i.e. Rs. 50,000/-) the said claim shall be included in the total claim/debt of Bank of Baroda.

20.5 So far as the claim of State Bank of Patiala is concerned, the claim in the sum of Rs. 27,19,360/- which is allowed by the chartered accountant vide report dated 17.2.2009 is not permissible at this stage of disbursement under Section 529A of the Act and that therefore the said amount will have to be taken out from the total claim amount quantified by the chartered accountant for State Bank of Patiala and necessary correction shall be made by the chartered accountant.

20.6 The chartered accountant shall, after making necessary and appropriate correction and modification in the reports dated 10.1.2009 and 17.2.2009 as per the clarifications, observations and directions in present order, recalculate the disbursement ratio.

20.7 Thereafter fresh report shall be submitted to the official liquidator within two weeks. Thereafter the official liquidator shall file fresh report containing the recommended distribution ratio as well as details about corrections/modifications made in the reports dated 10.1.2009 and 17.2.2009 and other relevant details and he shall thereby make appropriate request including the request for permission for final disbursement according to the ratio recommended by Chartered Accountant.

With the aforesaid clarifications, observations and directions present application stands disposed of accordingly.

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