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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7045 OF 2005

Bank of Maharashtra …  Appellant

         Vs.

Pandurang Keshav Gorwardkar & Ors.                  …  Respondents

WITH

CIVIL APPEAL NO. 7046 OF 2005

JUDGMENT

R.M. LODHA,J.

These  two  appeals  from the  Bombay  High  Court  came up  

before  a  two-Judge  Bench  (B.P.  Singh  and  R.V.  Raveendran,  JJ.)  on  

21.11.2005. While granting leave on that day, the Bench was of the view  

that the question whether the claims of the workmen who claimed to be  

entitled  to  payment  pari  passu have  to  be  considered  by  the  official  

liquidator or whether their claims have to be adjudicated upon by the Debts  

Recovery Tribunal (for short, ‘DRT’) is likely to arise in a large number of  

cases where recoveries are sought to be made pursuant to the certificates  

issued by the DRT and, therefore,  these appeals required consideration  

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preferably by a Bench of three-Judges. This is how these appeals have  

come up before us.   

2. The appellant in one appeal is Bank of Maharashtra and in the  

other, Indian Banks Association. As a matter of fact, the main appeal is by  

Bank of Maharashtra.  The Indian Banks Association was not a party to the  

proceedings before the High Court or before the DRT but it has preferred  

appeal,  after  permission  was  granted,    as  in  its  view  the  impugned  

judgment  if  implemented  would  have  far  reaching  implications  on  the  

banking industry as a whole.

3. As will  appear,  the High Court was concerned with the writ  

petition filed by the workmen/employees of Paper and Pulp Conversions  

Ltd. (for short, ‘Company’) praying therein that direction be issued to the  

Recovery Officer, Debt Recovery Tribunal, Mumbai III (for short ‘DRT III’) to  

recover the amount of Rs. 3 crores from Bank of Maharashtra  (‘the Bank’)  

which was allowed to be withdrawn being the money realised from the sale  

of movables of the Company and for issuance of further direction to the  

Recovery Officer to adjudicate the claims/dues of the workmen/employees  

as per the list  annexed with the writ  petition and after  adjudication,   in  

priority  over  all  the  claims,  release  the  amount  due  to  them.  The  

workmen/employees  also  prayed in  the writ  petition for  direction to  the  

Central Government to make rules laying down procedure to be followed  

by  the  Recovery  Officer  under  Recovery  of  Debts  due  to  Banks  and  

Financial Institutions Act, 1993 (for short, ‘1993 Act’).

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4. The  facts  and  circumstances  on  which  the  workmen relied  

before the High Court are these: The Company had taken loan from the  

Bank  somewhere  in  1980.  In  1984-85,  the  Company  faced  liquidity  

problems. One of the creditors of the Company filed a company petition  

being Company Petition No. 604/1986 before the Bombay High Court in  

1986 for winding up of the Company. On 14.01.1987, the company petition  

was admitted.  

5. The  Company  was  closed  in  1992.  In  the  same  year,  a  

reference  was  made  by  the  Company  to  the  Board  for  Industrial  and  

Financial  Reconstruction, New Delhi  (BIFR) under Section 15(1) of  Sick  

Industrial Companies (Special Provisions) Act, 1985 (for short, ‘SICA’). On  

1.9.1993,  BIFR  passed  an  order  for  winding  up  of  the  Company.  The  

Company challenged the order of the BIFR before the appellate authority  

but was unsuccessful.

6. In or about 1995, the Bank filed a suit against the Company  

and its Directors for recovery of a sum of Rs. 25,39,08,282.79 with future  

interest thereon at the agreed rate and cost in the Court of Civil  Judge,  

Senior Division, Panvel.  The suit was transferred to the DRT III in 1999  

and was numbered as original application no. 344/1999.

7. On 19.07.2001,  the DRT III  allowed the original  application  

made by the Bank by directing the Company and its Directors to pay jointly,  

severally  and  personally  a  sum  of  Rs.  25,49,91,756.94  with  cost  and  

interest at the rate of 6% per annum with quarterly rests from the date of  

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application till  its realization. The DRT III further directed in its judgment  

that in the event of failure of the Company and its Directors to pay the  

amount  to  the  Bank,  as  directed,  the  Bank  shall  be  entitled  to  sell  

hypothecated and mortgaged and other immovable and movable properties  

of  the  Company  and  the  Directors  and  the  sale  proceeds  shall  be  

appropriated towards due amount.

8. Consequent upon the Judgment dated 19.7.2001, the DRT III  

issued recovery certificate on 21.08.2001. In the recovery certificate, it was  

directed  that  the  Recovery  Officer  shall  realize  the  amount  as  per  the  

certificate in the manner and mode prescribed under Sections 25 and 28 of  

the 1993 Act from the certificate debtors as specified in the certificate. As  

regards legal heirs of one of the deceased directors, it was directed that  

they would be liable only to the extent they inherited the property from their  

predecessor in interest.         

9. In the recovery proceedings, the workmen/employees of  the  

Company through their Association made an application on 17.9.2003 and  

prayed that they be allowed to intervene in the matter and their claims be  

registered before any auction takes place. The workmen also sent a notice  

to the Company and its Managing Director requesting them to pay their  

dues.  The Company, however, disputed their claim.

10. On 22.01.2004, the Recovery Officer auctioned the movable  

properties of the Company and received an amount of Rs. 4,70,55,000/- by  

way of sale proceeds. Of  that amount,  Rs. 3 crores were disbursed to the  

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Bank on 10.03.2004 and remaining amount of Rs. 1,70,55,000/- was kept  

aside towards the likely claim of the workmen of the Company.

11. The workmen made an application in the company petition No.  

604/1986 before the Bombay High Court on 19.03.2004 for appointment of  

Provisional Liquidator and for staying further proceedings before the DRT  

III arising out of the above recovery proceedings. The Bank opposed the  

application of the workmen before the Company Court  and submitted that  

any restraint on the sale of the Company’s assets would adversely affect  

the interest of not only the secured creditors but also the workmen.       

12. By an order dated 08.10.2004, the Company has been ordered  

to be wound up by the Bombay High Court and official liquidator has been  

appointed as liquidator of the Company with the usual powers under the  

Companies Act.  

13. On 18.06.2004, the workmen filed a writ  petition before the  

Bombay High Court  for  the reliefs  as noted above.   The Bombay High  

Court  in the impugned Judgment after  hearing the parties  held that the  

jurisdiction to determine the payment and its priorities was totally vested  

with  the  DRT under  the  1993  Act  and,  therefore,  the  workmen should  

approach the DRT  for  the purpose of  determination of  their  claim and  

consequential  payment in respect thereof. The relevant directions in  the  

impugned judgment  read as follows :

1. The Debt Recovery Tribunal is directed to retain the  sum of  Rs.  1,17,55,000/-  and  not   to  disburse  the  same  either to the 2nd respondent or to any other person till   and  until the claim of the workers is determined.  

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2. The Presiding Officer of the Debt Recovery Tribunal,  Mumbai shall  adjudicate  upon the claims of  the petitioner  workers  and  more  particularly  of  the  employees  whose  names are set out in Exhibit “A” and determine the salaries  payable either as and by way of arrears or otherwise to each  of the workers.  

3. Once the claim of each of the workmen is determined,  the Debut Recovery Tribunal shall make payment of the said  dues  to the workers out of the amount lying with him of the  said Rs. 1,17,55,000/- and if there is a short fall,  then the  Debt Recovery Tribunal will be permitted to call for the said  balance amount from the 2nd respondent out of the sum of  Rs. 3 crores which has already been withdrawn by the 2nd  respondent from the sale proceeds of the auction sale of the  movable properties of respondent no. 1.  

4. The Debt  Recovery Tribunal  shall  in the meantime  deposit the said amount of Rs.1,17,55,000/- in fixed deposit   with a nationalized bank initially for period of three months  and then renewable for a further period of three months.  

14. The High Court in the impugned judgment, inter alia, has also  

issued certain guidelines to the DRT III while adjudicating the claim of the  

workmen and other secured creditors for determination of priorities.  

15. The main submission on behalf of the Bank in laying challenge  

to the impugned judgment is  two fold, (one) the workmen have no claim or  

right over the security held by a bank or financial institution. Their dues can  

only be adjudicated in an appropriate court (e.g. Industrial Tribunal) when  

the company is  not  in  liquidation  and DRT has no competence in  this  

regard and  (two) if the debtor company is in liquidation and the security is  

sold in proceedings before DRT and Recovery Officer, the  sale proceeds  

will be distributed by taking into account the pari passu charge to a limited  

extent of the “workmen’s portion” as laid down in Section 529(1)(c)  proviso  6

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read with Section 529A of the Companies Act, 1956 (for short, 'Companies  

Act’).

16. Elaborating the above grounds, Mr. Bhaskar P. Gupta, learned  

senior counsel for the Bank, submitted that under the 1993 Act, DRT has  

exclusive jurisdiction to entertain and decide applications only from banks  

and financial institutions for adjudication and recovery of debts due to such  

banks  and  financial  institutions.   The  principal  purpose  of  the  DRT  is  

adjudication and recovery of dues of the banks and financial institutions. It  

also has certain ancillary and incidental powers like giving interim orders  

by way of receiver, injunction, attachment etc. After determination of dues  

due to banks and financial  institutions,  the mode of  recovery has been  

provided in Section 25. However, DRT has not been given any powers to  

adjudicate the dues of the workmen of the debtor company and none can  

be read into Section 17 or Section 19 of the 1993 Act. This adjudication is  

a substantive matter between the workmen and the debtor company (when  

it is a going concern) and between the workmen and the liquidator when  

the company is  in liquidation. When the debtor company has gone into  

liquidation, Section 529(1)(c) proviso by a legal fiction creates a pari passu  

charge to  a limited  extent on the security  of  the creditor  which can be  

recovered  along  with  the  creditor  on  a  priority  basis  against  the  sale  

proceeds of the security under Section 19(19) of the 1993 Act read with  

Section  529A  of  the  Companies  Act.  When  the  debtor  company  is  in  

liquidation, the dues of  workmen can only be determined by the official  

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liquidator including the extent of the deemed charge and the limits.  The  

DRT has neither the competence nor the machinery to adjudicate upon or  

decide dues of the workmen of the debtor company.  

17. Learned senior  counsel  for  the Bank argued that unless an  

order  of  winding  up  was  made  and  the  liquidator  or  the  provisional  

liquidator has been appointed and all the steps as provided in Sections 443  

to 450 and 456 are taken, it cannot be said that Company is in winding up  

and until the Company is in winding up, the workmen of the Company have  

no claims on the assets of the Company nor do they have any locus to  

approach the DRT to participate in a proceeding filed by a bank or financial  

institution; they are not creditors secured or otherwise. The only remedy  

that the workmen have is to approach the appropriate court e.g.,  Industrial  

Tribunal etc., for determination and realization of their dues. Section 19(19)  

of the 1993 Act and Section 529A of the Companies Act do not help the  

workmen as they are not secured creditors. However, where the order of  

winding up has been made and liquidation proceedings started against a  

Company,   Mr. Bhaskar P. Gupta, learned senior counsel would submit  

that in such a case the liquidator would be in custody and  control of all the  

assets of company. But in view of exclusive jurisdiction conferred on DRT,  

no leave of the Company Court needs to be taken by  DRT for adjudication  

under Section 17 and execution of the recovery  certificate issued under the  

1993 Act.  In support of his submissions, learned senior counsel placed  

reliance upon paragraphs 50, 63, 64 to 70 of the decision of this Court in  

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Allahabad Bank v. Canara Bank & Anr.1 . He also referred to Jitendra Nath  

Singh v. Official Liquidator & Ors.2  which has followed Allahabad Bank1 .  

18. Learned senior counsel for the Bank submitted that by virtue of  

a  legal  fiction  contained  in  the  proviso  to  Section  529(1)(c)  read  with  

Section 529(3)(c), the workmen are entitled to participate along with the  

concerned  creditor  to  a  limited  extent  in  the  distribution  of  the  sale  

proceeds by the DRT under Section 19(19). Otherwise, they can have no  

claim at all.  He would submit that Section 529(1)(c) proviso and Section  

529A of the Companies Act form part of a composite scheme and can be  

brought into play only in the case of a company which is being wound up. In  

a running company, the dues of workmen are not quantified or determined  

and, therefore, workmen’s portion also cannot be quantified. The workmen  

have no charge on any asset. By a legal fiction,  a  pari passu  charge is  

created to a limited extent only under Section 529(1)(c) proviso and that  

too to be determined by the liquidator and none else.   Section 19(19) can,  

thus, have application only if the debtor company is being wound up and  

not otherwise.

19. Learned senior counsel for the Bank contended  that Section  

529 of the Companies Act entrusts to the liquidator the competence and  

responsibility to determine the dues of all creditors who participate in the  

winding  up  and  determine  the  priorities  amongst  them  under  the  

supervision of the Company Court. In  support  of  his  submissions,  Mr.  

1  (2000) 4 SCC 406 2  (2013) 1 SCC 462

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Bhaskar P. Gupta, learned senior counsel for the Bank also relied upon  

decisions of this Court in Andhra Bank v. Official Liquidator and Another3,   

Radheshyam Ajitsaria and Another  v.  Bengal Chatkal Mazdoor Union &  

Ors.4 and  Rajasthan State Financial  Corporation and Another v.  Official  

Liquidator and Another5 .

20. Mr.  L.  Nageshwar  Rao,   learned  senior  counsel  for  Indian  

Banks’ Association adopted the submissions of Mr. Bhaskar P. Gupta and  

further  submitted  that  the  High  Court  proceeded  on  a  fundamental  

misconception that the workmen had a  pari passu  charge at the relevant  

time.  According  to  Mr.  L.  Nageshwar  Rao  at  the  relevant  time  of  (a)  

judgment   by  the DRT-III  allowing the Bank’s claim  on 19.07.2001,  (b)  

issuance of recovery certificate dated 21.08.2001, (c) sale of movables on  

22.01.2004 and (d) payment of partial sale proceeds to the bank (secured  

creditor)  on  10.03.2004,  no  winding  up  order  had  been  passed  under  

Section 443(d) of the Companies Act qua the  Company and Company’s  

properties  had not come to the custody of  official  liquidator  in terms of  

Section 456. In this view of the matter,  the workmen did  not enjoy any  

secured charge on the assets of the Company for the purposes of Section  

529A.  Accordingly,  he  would  submit  that  workmen cannot  claim  under  

Section 19(19) of the 1993 Act when they even cannot claim under the  

Companies  Act.  In this  regard,  Mr.  L.  Nageshwar  Rao relied  upon the  

decision of this Court in Radheshyam Ajitsaria4 . 3  (2005) 5 SCC 75 4  (2006) 11 SCC 771 5  (2005) 8 SCC 190

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21. Relying upon the decision of this Court in International Coach  

Builders  Ltd. v.  Karnataka  State  Financial  Corporation6 and  Rajasthan  

State  Financial  Corporation5,  Mr.  L.  Nageshwar  Rao  argued  that  the  

workmen’s claim can only be considered under Section 19(19) of the 1993  

Act where winding up order has been made and the liquidator  is in the  

custody of company’s assets.

22. Mr. L. Nageshwar Rao argued that the view of the High Court  

was clearly in error as DRT is a limited Tribunal created by a statute for  

adjudication  of  specific  disputes  for  the  benefit  of  banks  and  financial   

institutions and not all kinds of persons. DRT is not a civil court of unlimited  

jurisdiction or a Company Court with elaborate statutory powers to address  

all disputes that may arise in adjudicating workmen’s claims in winding up  

proceedings. In this regard, he relied upon a decision of this Court in Nahar  

Industrial  Enterprises  Ltd.  v.  Hong  Kong  And  Shanghai  Banking  

Corporation7 and submitted that it  would be jurisdictionally improper and  

entirely  incongruous for a DRT to itself  examine,  determine and decide  

upon workmen’s claims under Section 529A.

23. It  may be noted here that General  Industries Kamgar Union  

(for short,  ‘Kamgar Union’) has made an application being I.A. No. 3 of  

2005 in one of the appeals praying therein that they may be impleaded as  

party  respondent  since  it  is  a  registered  trade  union  of  the  workmen  

employed in the Company and it represents the entire body of workmen.  

6  (2003) 10 SCC 482 7  (2009) 8 SCC 646

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Having regard to the controversy involved in these appeals, we thought it fit  

to  hear  Kamgar  Union  as  it  represents  the  entire  body  of  workmen,  

including the respondents.    

24. Mr. Colin Gonsalves, learned senior counsel for the Kamgar  

Union, stoutly defended the order of the High Court. He  submitted that the  

argument of the appellants that winding up of a company begins only when  

the winding  up order  is  made  is  misconceived  as  it  overlooks  Section  

441(2) of the Companies Act which says that in cases other than those  

covered under sub-section (1) of Section 441, the winding up of a company  

shall be deemed to commence at the time of presentation of the petition for  

winding up. In the present case, the winding up of the Company has begun  

with the order dated 01.09.1993 whereby BIFR recommended winding up  

of the Company under Section 20 of the SICA. According to learned senior  

counsel for the Kamgar Union, the present case is a case of a company in  

winding up as Section 20 of  SICA makes it  mandatory for the Court  to  

make a winding up order on the recommendation of  the BIFR. He also  

referred to para 50 of the Allahabad Bank1 in this regard.  

25. As  regards  Section  19(19)  of  the 1993 Act,  learned senior  

counsel  would  submit  that  this  provision  is  not  restricted  to  a  situation  

where  company  is  in  winding  up;  it  also  covers  situations  where  the  

company though not in winding up will  be rendered an empty shell if  the  

assets of the company are sold and proceeds handed over to the bank and  

financial institutions. In the latter circumstances, it is the duty of the DRT  to  

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anticipate such a situation and if  DRT comes to the conclusion that by  

selling the assets and paying the proceeds to the bank and/or  financial  

institutions there will  be nothing left  for  the payment of  the dues to the  

workmen, it  is  bound to disburse  the proceeds between the banks and  

financial institutions, other secured creditors and the workmen as if Section  

529A of  the Companies Act  applies.  It  was submitted  on behalf  of  the  

Kamgar Union that a close look at Section 19(19) of the 1993 Act  will   

indicate  that  it  is  legislation  by  reference  and  not  legislation  by  

incorporation and therefore it is not required that the company must be in  

liquidation to attract the provisions of Section 19(19).

26. Mr.  Colin  Gonsalves  heavily  relied  upon a  decision  of  this  

Court   in  Rajasthan State Financial Corporation5  and submitted that the  

issue  of  jurisdiction  of  the  Company Court  and the  DRT in  respect  of  

companies in liquidation was referred to a three-Judge Bench in view of the  

apparent  conflict  between  the  decisions  in   Allahabad  Bank1 and  

International  Coach Builders6.  He particularly  referred  to  paragraphs 16  

and  17  of  the  Report  in  Rajasthan  State  Financial  Corporation5   and  

submitted that the official liquidator represents the entire body of creditors  

and also holds a right on behalf of the workmen to have a distribution pari  

passu  with the secured creditors.  The official  liquidator has the duty for  

further distribution of the proceeds on the basis of the preference contained  

in Section 530 of the Companies Act under the directions of the Company  

Court and, therefore, to ensure the proper working out of the scheme of  

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distribution,  it  is  necessary  to  associate  the  official  liquidator  with  the  

process of sale so that he can ensure in the light of the directions of the  

Company Court that a proper price is fetched for the assets of the company  

in liquidation.  It  is  the contention of  Mr.  Colin Gonsalves that when the  

impugned judgment was passed by the Bombay High Court,  Allahabad  

Bank1 held the field and based on that the High Court issued guidelines to  

the  DRT.   Later,  in  Rajasthan State  Financial  Corporation5,  the  basic  

proposition of Allahaba\d Bank1 relating to exclusive jurisdiction cannot be  

said to hold good. He, thus, submitted that in light of the law laid down in  

Rajasthan State Financial Corporation5  there is no conflict on the question  

of the applicability of Section 529A read with Section 529 of the Companies  

Act in cases where the debtor is a company and is in liquidation.

27. Mr. Colin Gonsalves argued that all sale proceeds in respect  

of assets sold prior to the date of impugned judgment should be brought to  

the DRT by the banks and financial  institutions; all  future sale of assets  

should  be  done  under  the  supervision  of  the  High  Court;  the  official  

liquidator, Bombay High Court should calculate the respective portions of  

dues of  the secured creditors and the workmen in accordance with Section  

529A of the Companies Act and the DRT should then distribute the sale  

proceeds  in  accordance  with  the  directions  of  the  High  Court  and  in  

accordance with law.

28. On  a  careful  examination  of  the  record,  we  find  that  the  

submission  made  by  the  learned  Senior  Counsel  for  the  Bank  that  

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Company is not in winding up within the meaning of Sections 529 and 529A  

of the Companies Act is  founded on erroneous assumption that no order  

for winding up the Company has been made. In I.A. 7 of 2013 filed by the  

respondent no. 1, the copy of the Report dated 01.08.2011 of the official  

liquidator  has  been placed  on  record.  It  is  apparent  therefrom that  on  

08.10.2004, the Company Judge has ordered the Company to be wound up  

and the official liquidator has been appointed as liquidator of the Company  

with the usual powers under the Companies Act. There is thus no doubt  

that on and from 08.10.2004, the Company is in liquidation and the official  

liquidator stands appointed.

29. In the backdrop of the above factual position, we think that the  

question framed in the referral order may be examined by us.  

30. It  is  important first  to notice  some of the provisions of  the  

1993 Act  and the Companies  Act.    The question can be conveniently  

answered in light of the statutory provisions.  

31. Section 2(d) of the 1993 Act, defines ‘bank’, which, inter alia,  

means a banking company. Under Section 2(e) ‘banking company’ has the  

meaning assigned to it in clause (c) of Section 5 of the Banking Regulation  

Act, 1949.  ‘Financial  institution’ is defined in Section 2(h). The ‘tribunal’  

established under Section 3 is known as Debts Recovery Tribunal.  Under  

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Section 17, the tribunal (DRT) has been conferred jurisdiction, powers and  

authority to entertain and decide applications from the banks and financial  

institutions  for  recovery  of  debts  due  to  such  banks  and  financial  

institutions. Section 18 bars the jurisdiction of all  other courts and other  

authorities except the Supreme Court and High Court exercising jurisdiction  

under Articles 226 and 227 of the Constitution in relation to the matters  

specified in Section 17.

32. Section 19 provides  a comprehensive procedure before the  

DRT for making an application where a bank or a financial institution has to  

recover any debt from any person.  It also enables DRT to issue  certificate  

of recovery, its execution and all  such orders and directions as may be  

necessary to give effect to its orders or to prevent abuse of its process or to  

secure the ends of justice.  Omitting the unnecessary clauses, to the extent  

Section 19 is relevant for the purposes of consideration of these appeals  

the same is reproduced as under:  

“Section  19.   Application  to  the  Tribunal.—(1)  Where  a  bank or a financial institution has to recover any debt from  any  person,  it  may make an  application  to  the  Tribunal  within the local limits of whose jurisdiction—

… … …

19)  Where  a  certificate  of  recovery  is  issued  against  a  company registered under the Companies Act, 1956 (1 of  1956)  the Tribunal  may order  the sale proceeds of such  company to be distributed among its secured creditors in  accordance  with  the  provisions  of  section  529A  of  the  Companies Act, 1956 and to pay the surplus, if any, to the  company.

… … …

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(22) the Presiding Officer shall issue a certificate under his  signature on the basis of the order of the Tribunal  to the  Recovery  Officer  for  recovery  of  the  amount  of  debt  specified in the certificate.

… … …

(25) The Tribunal  may make such orders and give such  directions as may be necessary or expedient to give effect  to its orders or to prevent abuse of its process or to secure  the ends of justice.”

33. Section 22, inter alia, empowers the DRT to regulate its own  

procedure. It is not bound by the procedure laid down by the Code of Civil  

Procedure, 1908 (‘CPC’) but is guided by the principles of natural justice  

and  subject  to  the  provisions  of  the  1993  Act  and  the  rules  framed  

thereunder. It has same powers as are vested in a civil  court under the  

CPC in respect of the matters set out in Section 22(2).

34. Section 25 provides  the modes of  recovery  of  debts.   The  

Recovery  Officer  on  receipt  of  the  copy  of  the  recovery  certificate  is  

required  to  proceed  to  recover  the  amount  of  debt  specified  in  the  

certificate  by  one or  more  of  the modes  set  out  in  that  Section  which  

includes  attachment  and  sale  of  the  movable  or  immovable  

property/properties  of  the  certificate  debtor.  Under  Section  28,  the  

Recovery Officer may recover the amount of debt under the certificate by  

one or more of  the modes provided thereunder without prejudice to the  

modes of recovery specified in Section 25.  Section 28(4) provides that the  

Recovery Officer may apply to the court in whose custody there is money  

belonging to the certificate debtor for payment to him of the entire amount  

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of such money, or if  it  is  more than the amount of debt due an amount  

sufficient to discharge the amount of debt so due.

35. Section 34 gives the 1993 Act overriding effect. Sub-section  

(1) thereof provides that the provisions of the 1993 Act shall have the effect  

notwithstanding anything inconsistent therewith contained in any other law  

or in any instrument having effect by virtue of any law.  Sub-section (2) of  

Section 34 provides that the provisions of the 1993 Act or the rules made  

thereunder shall be in addition to and not in derogation of the enactments  

stated therein.

36. Section 36 empowers the central government to make rules to  

carry  out  the  provisions  of  the  1993  Act.  In  exercise  of  the  powers  

conferred under Section 36, the central government has framed the Debts  

Recovery Tribunal (Procedure) Rules, 1993.  

37. The Companies Act has undergone substantial  amendments  

by the Companies (Second Amendment)  Act  2002 (11 of  2003) but no  

notification has been issued so far  bringing Act  11 of  2003 into  effect.  

Though Section  441  has  been substituted  by  Section  56  of  the  above  

Amendment Act but since it has not come into force, we reproduce Section  

441 as it stood prior to amendment:

“441. Commencement of winding up by Court--( 1 ) Where, before  the presentation of a petition for the winding up of a company by  the  Court,  a  resolution  has  been  passed  by  the  company  for   voluntary  winding  up,  the  winding  up  of  the  company  shall  be  deemed to  have  commenced  at  the  time  of  the  passing  of  the  resolution,  and  unless  the  Court,  on  proof  of  fraud  or  mistake,  

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thinks fit to direct otherwise, all proceedings taken in the voluntary  winding up shall be deemed to have been validly taken. ( 2 ) In any other case, the winding up of a company by the Court   shall  be deemed to commence at the time of the presentation of  the petition for the winding up.”

  38. Section 443 provides for powers of Court on hearing petition  

which, inter alia, enables it to make an order for winding up the company  

and also make an interim order that it thinks fit.  

39. The effect of the winding up order is provided in Section 447.  

Accordingly, an order for winding up a company operates in favour of all  

the creditors and all  the contributories of the company as if  it  has been  

made on the joint petition, of a creditor and of a contributory.

40. The appointment  of  official  liquidator  so far  as  it  relates  to  

winding up of a company is dealt with in Section 448. Section 451 deals  

with  general  provisions  as to  liquidators.  Inter  alia,  it  provides  that  the  

liquidator shall  conduct the proceedings in winding up the company and  

perform such duties in reference thereto as the court may impose.

41. Section 456 provides that where a winding up order has been  

made or where a provisional liquidator has been appointed the liquidator or  

the provisional liquidator, as the case may be, shall take into his custody or  

under his control all the properties, effects and actionable claims to which  

the company is or appears to be entitled.

42. Section  457  empowers  the   liquidator  to  do  acts  stated  in  

paragraphs (a) to (e) of sub-section (1) with the sanction of the court. In a  

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winding up by the court, the liquidator has power to do all acts set out in  

clauses (i) to (v) of sub-section (2).

43. Section 529,  to the extent it is relevant,  reads as follows:

“Section 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-

. . . . . .  .;

(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 rateably 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) . . . . . . . .

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

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(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) to (iv)  . . . . . . . .

(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.  –  The  value  of  the  security  of  a  secured  creditor of a company is Rs. 1,00,000.  The total amount of  the workmen’s dues is Rs. 1,00,000.  The amount of the  debts due from the company to its secured creditors is Rs.  3,00,000.  The aggregate of the amount of workmen’s dues  and of the amounts of debts due to secured creditors is Rs.  4,00,000.   The  workmen’s  portion  of  the  security  is,  therefore, one-fourth of the value of the security, that is Rs.  25,000.”

44. Section 529A is crucial for consideration of these appeals and  

it is reproduced as it is:

“Section  529A  -  Overriding  preferential  payment.--  (1)  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

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(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.”

45. It  may be immediately observed that 1993 Act has not only  

conferred exclusive jurisdiction upon DRT for determination of the matters  

specified in Section 17 but has also ousted jurisdiction of all other courts  

and other authorities in entertaining and deciding such matters. The powers  

of  the Supreme Court  and the High Court  under Articles  226 and 227,  

however, remain unaffected. The applications for recovery of debts due to  

banks or financial institutions  can be decided by DRT alone after coming  

into  force  of  the  1993  Act  and  no  other  forum.  In  other  words,  the  

jurisdiction of DRT in regard to matters specified in Section 17 is exclusive.

46. DRT has also been vested with power, on adjudication of the  

application for recovery of debts due to banks or financial institutions,  to  

issue certificate  of  recovery.  On issuance of  certificate  of  recovery,  the  

exclusive  jurisdiction  has  been conferred  upon the  Recovery  Officer  in  

regard to its execution. A complete procedure has been laid down in the  

1993 Act for recovery of the debt as per the recovery certificate issued by  

DRT.   Accordingly, adjudication of liability and the recovery of the amount  

by  execution  of  the  certificate  are  respectively  within  the  exclusive  

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jurisdiction of DRT and the Recovery Officer and no other court or authority  

can go into the said questions, except as provided in 1993 Act.  

47. In  Allahabad Bank1,  the issues relating to the impact  of  the  

1993 Act  on the provisions of  the Companies Act  fell  for  consideration  

before this Court.  In that case, the following six points were framed for  

determination:  

(1)  Whether  in  respect  of  proceedings under  the RDB  Act at the stage of adjudication for the money due to the  banks  or  financial  institutions  and  at  the  stage  of  execution for recovery of monies under the RDB Act, the  Tribunal  and  the  Recovery  Officers  are  conferred  exclusive jurisdiction in their respective spheres? (2) Whether for initiation of various proceedings by the  banks and financial institutions under the RDB Act, leave  of the Company Court is necessary under Section 537  before a  winding-up  order  is  passed  against  the  company  or  before  provisional  liquidator  is  appointed  under  Section 446(1)  and whether  the Company Court  can  pass  orders  of  stay  of  proceedings  before  the  Tribunal, in exercise of powers under Section 442?  (3) Whether  after a winding-up order is passed under  Section  446(1)  of  the  Companies  Act  or  a  provisional   liquidator is appointed, whether the Company Court can  stay proceedings under  the RDB Act,  transfer  them to  itself and also decide questions of liability, execution and  priority under Section 446(2) and (3) read with Sections  529,  529-A  and  530  etc.  of  the  Companies  Act  or  whether  these  questions  are  all  within  the  exclusive  jurisdiction of the Tribunal? (4) Whether in case it is decided that the distribution of  monies is to be done only by the Tribunal, the provisions  of  Section  73  CPC  and  sub-sections  (1)  and  (2)  of  Section 529, Section 530 of the Companies Court also  apply — apart from Section 529-A — to the proceedings  before the Tribunal under the RDB Act? (5) Whether in view of provisions in Sections 19(2) and  19(19)  as  introduced  by  Ordinance  1  of  2000,  the  Tribunal  can  permit  the  appellant  Bank  alone  to  appropriate  the  entire  sale  proceeds  realised  by  the  appellant  except  to  the  limited  extent  restricted  by  Section  529-A.  Can  the  secured  creditors  like  Canara  Bank  claim  under  Section  19(19)  any  part  of  the  

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realisations made by the Recovery Officer and is there  any difference between cases where the secured creditor  opts to stand outside the winding up and where he goes  before the Company Court?  (6) What is the relief to be granted on the facts of the  case  since  the  Recovery  Officer  has  now  sold  some  properties  of  the  Company  and  the  monies  are  lying  partly in the Tribunal or partly in this Court?

48. As regards first point, this Court held in Allahabad Bank1  that  

the adjudication of liability and the recovery of the amount by execution of  

the certificate are respectively within the exclusive jurisdiction of DRT and  

Recovery Officer and no other court or authority much less the civil court or  

the company court can go into the said questions relating to the liability and  

the recovery,  except as provided in the 1993 Act.  On second and third  

point, it  was held that at the stage of adjudication under Section 17 and  

execution of the certificate under Section 25, the provisions of 1993 Act  

confer  exclusive  jurisdiction  on  the  DRT  and  the  Recovery  Officer  in  

respect of debts payable to banks and financial institutions and there can  

be  no interference by  the company court  under  Section  442 read  with  

Section 537 or under Section 446 of the Companies Act. In respect of the  

moneys realized under the 1993 Act, the question of priorities among the  

banks and financial institutions and other creditors can be decided only by  

DRT and in accordance with Section 19(19) read with Section 529A of the  

Companies Act and in no other manner.  To this extent, the Companies Act  

must  yield  to  the provisions  of  the 1993  Act.  The Court  held  that  this  

position holds good during the pendency of the winding up petition against  

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the debtor company and also after a winding up order is passed. No leave  

of  the  company  court  was  necessary  for  initiating  or  continuing  the  

proceedings under the 1993 Act.

49. As regards fourth and fifth point,  this Court stated the legal  

position that it was not correct to say that Section 19(19) of the 1993 Act  

gives priority to all  “secured creditors” to share the sale proceeds before  

DRT/Recovery  Officer.  It  is  only  limited  class  of  secured creditors  who  

have priority over all others in accordance with Section 529A. It was also  

held that under 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 Section 529(3)(c).  This Court agreed  

with the proposition that the first part of clause(c) of the proviso to Section  

529(1) is  to be read along with the words “or the amount of workmen’s  

portion in the security, whichever is less”. That is, the priority of the secured  

creditor  is  only to the extent that any part of the said security is lost  in  

favour of  the workmen consequent to demands made by the Liquidator  

under clauses (a) or (b) or clause (c) to proviso to  Section 529(1).  

50. On  sixth  point,  it  was  held  in  Allahabad  Bank1    that  the  

“workmen’s  dues”  have  priority  over  all  other  creditors,  secured  and  

unsecured, because of Section 529A(1)(a) and no secured or unsecured  

creditor,  including banks or financial  institutions, can be paid before the  

workmen’s dues are paid.

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51. The view in  Allahabad Bank1   that the workmen’s dues have  

priority over all other creditors, secured and unsecured, because of Section  

529A(1)(a) is no longer a good law and has been held to be so first by a  

three-Judge Bench in  Andhra Bank3 and recently again by a three-Judge  

Bench in Jitendra Nath Singh2.   

52. A. P. State Financial Corporation v. Official Liquidator8, was a  

case where the Corporation had made applications under Section 446(1) of  

the Companies Act read with Sections 29 and 46 of the  State Financial  

Corporations Act, 1951 (for short, `1951 Act’) before the Company Judge of  

the High Court for permission to stay outside the liquidation proceedings.  

The Company Judge granted conditional permission. One of the conditions  

was that Corporation will  undertake to discharge the liability  due to the  

workmen, if  any, under Section 529A of the Companies Act.  This Court  

noted that 1951 Act was a Special Act for grant of financial assistance to  

industrial  concerns  with  a  view  to  boost  up  industrialization  and  also  

recovery  of  such financial  assistance  if  it  becomes  bad;  similarly,  the  

Companies  Act  deals  with  companies  including  winding  up  of  such  

companies.  The proviso  to  sub-section (1)  of  Section 529 and Section  

529A being a subsequent enactment, the non obstante clause in Section  

529A must prevail over Section 29 of the 1951 Act. This Court further said  

that the statutory right  to sell the property by Corporation under Section 29  

of the 1951 Act has to be exercised with the rights of pari passu charge of  

8  (2000) 7 SCC 291 26

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the workmen created by the proviso to Section 529 of the Companies Act.  

Under the proviso to sub-section (1) of Section 529, the liquidator shall be  

entitled to represent the workmen and enforce the above pari passu charge  

and,  therefore,  the  conditions  imposed  by  the  Company  Court  were  

justified.  If such conditions were not imposed to protect the rights of the  

workmen,   there  was  every  possibility  that  the  secured  creditor  might  

frustrate the pari passu right of the workmen.

53. In  International  Coach  Builders6,  the  question  under  

consideration  before  this  Court  was  whether  the  rights  of  the  State  

Financial Corporation under Section 29 of the 1951 Act to sell and realize  

the security could be exercised without reference to the Company Court  

when a winding up order is made against the Company. This Court noticed  

the  provisions  of  the  1951  Act  and  Sections  529  and  529A  of  the  

Companies Act and the divergent views of  Bombay High Court,  Andhra  

Pradesh High Court,  Punjab and Haryana High Court  and Gujarat  High  

Court.  This  Court  approved  the  decision  of  the  Bombay  High  Court  in  

Maharashtra State Financial Corporation v.  Ballarpur Industries Ltd.9  and  

held  that  when  the  Company  was  in  winding  up,  the  State  Financial  

Corporation  to  which  the  assets  of  the  company  were  charged  cannot  

proceed to realize  the security without intervention of the Company Court.  

It was stated that as a result of amendment in Section 529 a  pari passu  

charge to the extent of the workmen’s portion is created on the security of  

9  AIR 1993 Bom 392 27

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every secured creditor when he opts to realize security by standing outside  

the winding up. The Court found no real conflict between Section 29 of the  

1951 Act and the Companies Act.   Following the decision of this Court in  

Andhra Pradesh State Financial Corporation8,  it was observed that even if  

it was assumed that there was conflict in the above provisions, Section 29  

of the 1951 Act cannot override the provisions of Sections 529(1) and 529A  

of the Companies Act inasmuch as Financial Corporations cannot exercise  

the right under Section 29 of the 1951 Act ignoring a pari passu charge of  

the workmen. In  para 32 (pg. 498) of the Report this Court concluded its  

opinion as under:

1. The right unilaterally exercisable under Section 29 of  the SFC Act is available against a debtor, if a company,  only so long as there is no order of winding up. 2. SFCs cannot unilaterally act to realise the mortgaged  properties  without  the  consent  of  the  official  liquidator  representing workmen for the pari passu charge in their  favour  under  the  proviso  to  Section  529  of  the  Companies Act, 1956. 3. If the official liquidator does not consent, SFCs have  to move the Company Court for appropriate directions to  the official liquidator who is the pari passu charge-holder  on  behalf  of  the  workmen.  In  any  event,  the  official   liquidator cannot act without seeking directions from the  Company Court and under its supervision.

54. In  the  case  of  Andhra  Bank3,  a  three-Judge Bench framed  

three questions for consideration.  As regards  the question, whether the  

statement of  law contained in para 76 of  the Judgment of  this  Court in  

Allahabad Bank1  was a good law, this Court answered the question in the  

negative. Dealing with the question whether the workmen could be directed  

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to be paid on an adhoc basis having regard to their claim of past dues vis-

à-vis the claim of Andhra Bank, this Court observed that when a matter was  

not pending before the DRT under the 1993 Act, in terms of Section 19(19)  

thereof, the secured creditors would not get priority per se as language in  

Section 19(19) is qualified by the words “in accordance with the provisions  

of Section 529A”.  The claims of the secured creditors are thus required to  

be considered giving priority over unsecured creditors but their claim would  

be  pari passu  with the workmen. While  dealing with Section 446 of  the  

Companies Act, this Court held in para 31 (pg. 88) of the Report as follows:  

“31.  Section  446  of  the  Companies  Act  indisputably  confers  a  wide  power  upon  the  Company  Judge,  but  such a power can be exercised only upon consideration  of the respective contentions of the parties raised in a  suit or a proceeding or any claim made by or against the  company. A question of determining the priorities would  also fall for consideration if the parties claiming the same  are before the court. Section 446 of the Companies Act  ipso  facto  confers  no  power  upon  the  court  to  pass  interlocutory  orders.  The  question  as  to  whether  the  courts have inherent power to pass such orders, in our  opinion,  does  not  arise  for  consideration  in  this  proceeding…….”

55. Rajasthan State Financial Corporation5, was a matter that was  

referred to a three-Judge Bench as the two-Judge Bench before whom the  

matter came up for consideration was of the view that there was a conflict  

between the decisions of this Court in  Allahabad Bank1  and  International  

Coach Builders6. This Court considered the decisions of some of the High  

Courts, the decisions in Allahabad Bank1 and International Coach Builders6   

and the provisions of Section 29 of the 1951 Act and Sections 529 and  

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529A of the Companies Act and held that when the assets of the company  

are sold and the proceeds realized, the debts by way of workmen’s dues  

and debt 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. It  

was expressly noted  that there was no inconsistency between Allahabad  

Bank1 and International Coach Builders6. The legal position was summed  

up in para 18 (pg. 201) of the Report as follows :

18. In the light  of the discussion as above, we think it  proper to sum up the legal position thus: (i) A Debts Recovery Tribunal acting under the Recovery  of  Debts  Due  to  Banks  and  Financial  Institutions  Act,  1993 would be entitled to order the sale and to sell the  properties of the debtor, even if a company-in-liquidation,  through its Recovery Officer but only after notice to the  Official  Liquidator  or  the  Liquidator  appointed  by  the  Company Court and after hearing him. (ii)  A  District  Court  entertaining  an  application  under  Section 31 of the SFC Act will have the power to order  sale of the assets of a borrower company-in-liquidation,  but  only  after  notice  to  the  Official  Liquidator  or  the  Liquidator  appointed  by  the  Company  Court  and  after  hearing him.  (iii) If a financial corporation acting under Section 29 of  the  SFC  Act  seeks  to  sell  or  otherwise  transfer  the  assets of a debtor company-in-liquidation, the said power  could  be  exercised  by  it  only  after  obtaining  the  appropriate  permission  from  the  Company  Court  and  acting in terms of the directions issued by that court as  regards associating the Official  Liquidator with the sale,  the  fixing  of  the  upset  price  or  the  reserve  price,  confirmation  of  the  sale,  holding  of  the  sale  proceeds  and the distribution thereof among the creditors in terms  of Section 529-A and Section 529 of the Companies Act. (iv) In a case where proceedings under the Recovery of  Debts Due to Banks and Financial Institutions Act, 1993  or  the  SFC  Act  are  not  set  in  motion,  the  creditor  concerned  is  to  approach  the  Company  Court  for  appropriate  directions  regarding  the  realization  of  its  securities consistent with the relevant provisions of the  Companies Act regarding distribution of the assets of the  company-in-liquidation.   

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56. What  is  important to be noticed is  that in  Rajasthan State  

Financial Corporation5   the three-Judge Bench stated in no unambiguous  

terms  that  once  a  winding  up  proceeding  has  commenced  and  the  

Liquidator is put in charge of the assets of the company being wound up,  

the  distribution  of  the  proceeds  of  the  sale  of  the  assets  held  at  the  

instance of the banks or financial institutions coming under the 1993 Act or  

of financial corporations coming under the 1951 Act can only be with the  

association  of  the  Official  Liquidator  and  under  the  supervision  of  the  

Company  Court.   It  has  also  been stated  that  whether  the  assets  are  

realized by a secured creditor even if it be by proceeding under 1993 Act or  

the 1951 Act, the distribution of assets would only be in terms of Section  

529-A of the Companies Act and by recognizing the right of the Liquidator  

to calculate the workmen’s dues and collected for distribution among them  

pari passu with the secured creditors.  By noticing that there is no conflict  

on the question of applicability  of Section 529A  read with Section 529  of  

the Companies Act  to cases where the debtor  is  a  company and is  in  

liquidation, it was observed that the conflict, if any, is in the view that DRT  

could sell the properties of the Company in terms of the 1993 Act and to  

that extent, the 1993 Act shall prevail over the Companies Act  being the  

general law.   

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57. In  ICICI  Bank  Ltd.  v.  SIDCO  Leathers  Ltd  and  Ors.10,  

interpretation  of  Sections  529  and 529A  of  the  Companies  Act  fell  for  

consideration but  in  a  different  fact  situation.  This  Court  with regard to  

Sections 529 and 529A of the Companies Act exposited that Section 529A  

was brought in the Companies Act with a view to bring the workmen’s dues  

pari passu with the secured creditors but Section 529A of the Companies  

Act does  not ex facie contain a provision on the aspect of priority amongst  

the secured creditors.  Whilst holding so, this Court also said that insofar  

as the amounts realised under the 1993 Act were concerned, the priorities  

have to be worked out by DRT alone.   

58. In Central Bank of India v. State of Kerala and Ors 11, a three-

Judge  Bench  of  this  Court  was  concerned  with  the  question  whether  

Section 38-C of the Bombay  Sales Tax Act, 1959 (for short, “the Bombay  

Act”) and Section 26-B of the Kerala General Sales Tax Act, 1963  (for  

short,  “the Kerala  Act”)   and similar  provision  contained in  other  State  

legislations  by which first charge has been created   on the property of the  

dealer  or  such  other  person,  who  is  liable  to  pay  sales  tax,  etc.  are  

inconsistent with the provisions contained in the 1993 Act for recovery of  

“debt” and the Securitisation and Reconstruction of Financial Assets and  

Enforcement  of Security Interest Act, 2002 (for short, “the Securitisation  

Act”) for enforcement of security and whether  by virtue of non obstante  

clauses contained in Section 34(1) of the 1993 Act and Section 35 of the  

10 (2006 ) 10 SCC 452  11 (2009) 4 SCC 94

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Securitisation Act, the two Central legislations will  have primacy over the  

State legislations.  The scheme of  1993 Act  was highlighted and it  was  

stated that the said Act facilitated creation of specialized fora i.e.  Debts  

Recovery  Tribunals  and  the  Debts  Recovery  Appellate  Tribunals  for  

expeditious adjudication of disputes relating to recovery of the debts due to  

banks and financial institutions.  It was noted that there was no provision  

either in 1993 Act or the Securitisation Act by which the first charge has  

been created in favour of banks, financial institutions or secured creditors  

qua the property of the borrower.  With reference to Section 13(9) of the  

Securitisation  Act,  this  Court  said  that  the legislature  has  ensured that  

priority given to the claim of the workmen of a company in liquidation under  

Section 529A of the Companies Act vis-a-vis  the secured creditors like  

banks was duly respected; the provisions are only part of the distribution  

mechanism evolved  by  the legislature  and are  intended to  protect  and  

preserve the right of the workmen of the Company in liquidation  whose  

assets are subjected to the provisions of the  Securitisation  Act and are  

disposed of by the secured creditor in accordance with Section 13 thereof.  

59. Then in paragraphs 128, 129, 130 and 131 (pages 141-142) of  

the Report, this Court in Central Bank of India11 stated the legal position as  

follows:     

128. If the provisions of the DRT Act and the Securitisation   Act  are  interpreted  keeping  in  view  the  background  and  context  in  which  these  legislations  were enacted  and the  purpose  sought  to  be  achieved  by  their  enactment,  it  becomes  clear  that  the  two  legislations,  are  intended  to  

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create a new dispensation for expeditious recovery of dues  of  banks,  financial  institutions  and  secured  creditors  and  adjudication of the grievance made by any aggrieved person  qua  the  procedure  adopted  by  the  banks,  financial  institutions and other secured creditors,  but the provisions  contained therein cannot be read as creating first charge in  favour of banks, etc. 129.  If  Parliament intended to give priority  to the dues of  banks, financial institutions and other secured creditors over  the  first  charge  created  under  State  legislations  then  provisions similar to those contained in Section 14-A of the  Workmen's Compensation Act,  1923,  Section 11(2)  of  the  EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section  25(2)  of  the  Mines  and  Minerals  (Regulation  and  Development) Act, 1957, Section 30 of the Gift Tax Act, and  Section 529-A of the Companies Act, 1956 would have been  incorporated in the DRT Act and the Securitisation Act. 130.  Undisputedly,  the  two  enactments  do  not  contain  provision similar to the Workmen's Compensation Act, etc.  In the absence of any specific provision to that effect, it is   not  possible  to  read  any  conflict  or  inconsistency  or  overlapping between the provisions of the DRT Act and the  Securitisation Act on the one hand and Section 38-C of the  Bombay Act and Section 26-B of the Kerala Act on the other  and the non obstante clauses contained in Section 34(1) of  the DRT Act and Section 35 of the Securitisation Act cannot  be invoked for declaring that the first charge created under  the  State  legislation  will  not  operate  qua  or  affect  the  proceedings  initiated  by  banks,  financial  institutions  and  other  secured  creditors  for  recovery  of  their  dues  or  enforcement of security interest, as the case may be. 131. The Court could have given effect to the non obstante  clauses  contained  in  Section  34(1)  of  the  DRT  Act  and  Section 35 of the Securitisation Act vis-à-vis Section 38-C of  the  Bombay Act  and Section  26-B of  the  Kerala  Act  and  similar other State legislations only if  there was a specific  provision  in  the  two  enactments  creating  first  charge  in  favour of the banks, financial institutions and other secured  creditors but as Parliament has not made any such provision  in either of the enactments, the first charge created by the  State legislations on the property of the dealer or any other  person, liable to pay sales tax, etc., cannot be destroyed by  implication or inference, notwithstanding the fact that banks,  etc. fall in the category of secured creditors.

60. In  Jitendra Nath Singh2  again interpretation of Sections 529  

and 529A of the Companies Act came up for consideration.   There was a  34

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divergence of opinion among the Judges hearing the matter.  The majority  

view gave the following  interpretation to Sections 529 and 529A of the  

Companies Act:

16.1. A secured creditor has only a charge over a particular   property or asset of the company. The secured creditor has  the  option  to  either  realise  his  security  or  relinquish  his  security. If the secured creditor relinquishes his security, like  any other unsecured creditor, he is entitled to prove the debt  due to him and receive dividends out of the assets of the  company  in  the  winding-up  proceedings.  If  the  secured  creditor opts to realise his security, he is entitled to realise  his  security  in  a  proceeding  other  than  the  winding-up  proceeding  but  has  to  pay  to  the  liquidator  the  costs  of  preservation of the security till he realises the security. 16.2. Over the security of every secured creditor, a statutory  charge has been created in the first limb of the proviso to  clause  (c)  of  sub-section  (1)  of  Section  529  of  the  Companies Act in favour of the workmen in respect of their  dues from the company and this charge is pari  passu with  that  of  the  secured  creditor  and  is  to  the  extent  of  the  workmen’s portion in relation to the security of any secured  creditor  of  the  company  as  stated  in  clause  (c)  of  sub- section (3) of Section 529 of the Companies Act. 16.3. Where a secured creditor opts to realise the security  then so much of the debt due to such secured creditor as  could not be realised by him by virtue of the statutory charge  created  in  favour  of  the  workmen  shall  to  the  extent  indicated in clause (c) of the proviso to sub-section (1) of  Section 529 of the Companies Act rank pari passu with the  workmen’s dues for  the purposes of Section 529-A of  the  Companies Act. 16.4. The workmen’s dues and where the secured creditor  opts to realise his security, the debt to the secured creditor  to the extent it  ranks pari  passu with the workmen’s dues  under clause (c) of the proviso to sub-section (1) of Section  529 of the Companies Act shall  be paid in priority over all   other dues of the company.

61. Whilst there was divergence of opinion on certain aspects, as  

regards the exposition of law in paragraph 76 of the judgment in Allahabad  

Bank1  that workmen’s dues have priority over all  other creditors, secured  

and  unsecured  because  of  Section  529A(1)(a),  the  Bench  was  of  

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unanimous opinion that the said statement in Allahabad Bank1  was not a  

good law.

62. Section 529A was inserted by Companies (Amendment) Act,  

1985. By incorporation of this provision, workmen’s dues rank pari passu  

with secured creditors.  In other words,  the workmen of  the company in  

winding  up  acquire  the  status  of  secured  creditors.  Pertinently,  while  

inserting  Section  529A  in  the  Companies  Act   by  the  Companies  

(Amendment) Act, 1985, the proviso to sub-section (1) of Section 529 was  

also inserted which provides 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.

63. A cumulative  reading of Sections 529A and 529(1)(c) proviso  

leads to an irresistible conclusion that where a company is in liquidation, a  

statutory charge is created in favour of workmen in respect of their dues  

over the security of every secured creditor and this charge is  pari passu  

with that of the secured creditor. Such statutory charge is to the extent of  

workmen’s portion in relation to the security held by the secured creditor of  

the company. This position, in our opinion,  is equally applicable where the  

assets  of  the  company  have  been  sold  in  execution  of  the  recovery  

certificate obtained by the bank or financial  institution against the debtor  

company when it was not in liquidation but before the proceeds realised  

from such sale could be fully and finally disbursed, the company had gone  

into  liquidation.  Stated  differently,  pending  final  disbursement  of  the  

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proceeds realised from the sale of security  in execution of the recovery  

certificate  issued by the DRT,  if  debtor  company becomes company in  

winding  up,  Sections  529A  and  529(1)(c)  proviso  come  into  operation  

immediately  and  statutory  charge  is  created  in  favour  of  workmen  in  

respect of their dues over such proceeds.

64. Having regard to the scheme of law, it appears to us that the  

relevant date for arriving at the ratio at which the sale proceeds are to be  

distributed amongst workmen and secured creditors of the company is the  

date of the winding up order and not the date of sale.

65.  Where the sale of security has been effected in execution of  

recovery certificate issued by  DRT under the 1993 Act, the distribution of  

undisbursed proceeds has to be made by the DRT alone in accordance  

with Section 529A of the Companies Act. It is so because Section 19(19) of  

the 1993 Act provides that DRT may order distribution of the sale proceeds  

amongst the secured creditors in accordance with Section 529A where a  

recovery  certificate  is  issued against  the company registered  under the  

Companies Act. The workmen  of the company in winding up acquire the  

standing of secured creditors on and from the date of the winding up order  

(or where provisional liquidator has been appointed, from the date of such  

appointment) and they become entitled to distribution of sale proceeds in  

the ratio as explained in the illustration appended to Section 529(3)(c) of  

the Companies Act. The question is whether Section 19(19) of the 1993 Act  

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clothes DRT with jurisdiction to determine the workmen’s claims against  

the debtor company? We do not think so for reasons more than one.

66. In the first place,  1993 Act has provided for special machinery  

for speedy recovery of dues of banks and financial institutions in specific  

matters.   It is with this objective that it provides for establishment of DRT  

with the jurisdiction, power and authority for adjudication of claims of the  

banks and financial institutions.  1993 Act also provides for the modes of  

recovery of the amount so adjudicated by the DRTs.  1993 Act has not  

brought within its sweep, the  adjudication of claims of persons other than  

banks  and  financial  institutions.  DRT  has  not  been  given  powers  to  

adjudicate  the dues of  workmen of  the debtor  company.  Section 17  or  

Section 19 of the 1993 Act cannot be read in a manner that allows such  

exercise to be undertaken by the DRT.  DRT does not possess necessary  

statutory  powers  to  address  all  disputes  that  may  arise  in  adjudicating  

workmen’s  claims  in  winding  up  proceedings.  The  adjudication  of  

workmen’s claims against the debtor company is a substantive matter and  

DRT has neither competence nor machinery for that.  Certain incidental  

and ancillary powers given to DRT do not encompass power to adjudicate  

upon or decide dues of the workmen of the debtor company.   

67. Secondly,  Section 19(19) of the 1993 Act is  a provision of  

distribution mechanism and not an independent adjudicatory provision. This  

provision  follows  adjudication  of  claim  made  by  a  bank  or  financial  

institution.  It  comes  into  play  where  a  certificate  of  recovery  is  issued  

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against a company registered under the Companies Act which is in winding  

up. Where the debtor company is not in liquidation, Section 19(19) does  

not  come into  operation at  all.  Following  Tiwari  Committee  Report  and  

Narasimham  Committee  Report,  the  present  Section  19(19)  was  

incorporated in 1993 Act for protection of  pari passu  charge of  secured  

creditors, including workmen’s dues at the time of distribution of the sale  

proceeds  of  such  company.  The  participation  of  workmen  along  with  

secured  creditors  under  Section  19(19)  is,  to  a  limited  extent,  in  the  

distribution of the sale proceeds by the DRT and not for determination of  

their claims against the debtor company by the DRT. Once the company is  

in winding up, the only competent authority to determine the workmen’s  

dues and quantify workmen’s portion is the liquidator. The liquidator has  

the responsibility and competence to determine the workmen’s dues  where  

the debtor company is in liquidation.

68. Thirdly,  the  expression,  ‘the  Tribunal  may  order  the  sale  

proceeds of such company to be distributed among its secured creditors in  

accordance with  the provisions of  Section 529A of  the Companies Act’  

occurring  in  Section  19(19)  does  not  empower  DRT  to  itself  examine,  

determine and decide upon workmen’s claim under Section 529A.  The  

above expression means  that where the debtor company is in winding up,  

the sale proceeds of such company realized under the 1993 Act are to be  

distributed among its secured creditors by following Section 529A of the  

Companies Act.  Mention of Section 529A in Section 19(19) is neither a  

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legislation by reference nor a legislation by incorporation. What it requires  

is  that  DRT  must  follow  the  mandate  of  Section  529A  by  making  

distribution in equal proportion to the secured creditors and workmen of the  

debtor company in winding up.

69. We are unable to accept the submission of the learned senior  

counsel  for the Kamgar Union that Section 19(19) is  not restricted to a  

situation where the debtor company is in winding up.  In our view, Section  

19(19) covers situation where a debtor company is in winding up or where  

a  provisional  liquidator  has  been  appointed  in  respect  of  the  debtor  

company  and  in  no  other  situation.  If  the  debtor  company  is  not  in  

liquidation nor any provisional liquidator has been appointed  and merely  

winding up proceedings are pending, there is no question of distribution of  

sale  proceeds  among  secured  creditors  in  the  manner  prescribed  in  

Section 19(19) of the 1993 Act.   

70. The position stated in Allahabad Bank1   that priorities, so far  

as  the amounts  realized  under  the 1993 Act  are  concerned,  are  to  be  

worked out only by DRT admits of no ambiguity and is legally sound but  

this  statement cannot be read  as  laying down the proposition  that  in  

respect of the amounts realized under the 1993 Act, the DRT has power,  

competence or authority to determine the workmen’s dues of the debtor  

company.   The  manner  of  distribution  among  secured  creditors  of  the  

monies realized under the 1993 Act does not clothe DRT to adjudicate the  

claims of secured creditors other than the banks and financial institutions  

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against the company under Section 19(19).  Any statement of law to the  

contrary in Allahabad Bank1    must be held to be not a good law.  

71. In  Rajasthan  State  Financial  Corporation5,  this  Court  

propounded the proposition that a DRT acting under the 1993 Act would be  

entitled to order the sale of the properties of the debtor, even if a company  

is in liquidation, through its Recovery Officer but only after notice to the  

official  liquidator  or the liquidator  appointed by the Company Court and  

after hearing him. We are in agreement with the above view. Where the  

winding up petition against the debtor company is pending but no order of  

winding  up  has  been  passed  nor  any  provisional  liquidator  has  been  

appointed in respect of such company at the time of order of sale by DRT  

and the properties of the debtor company have been sold in execution of  

the recovery certificate and proceeds of sale realized and full disbursement  

of the sale proceeds has been made to the concerned bank or financial  

institution,   the  subsequent  event  of  the  debtor  company  going  into  

liquidation is no ground for reopening disbursement by the DRT. However  

before full and final disbursement of sale proceeds, if the debtor company  

has gone into liquidation and a liquidator  is  appointed, disbursement of  

undisbursed  proceeds  by  DRT  can  only  be  done  after  notice  to  the  

liquidator  and  after  hearing  him.  In  that  situation  if  there  is  claim  of  

workmen’s dues, the DRT has two options available with it. One, the bank  

or financial institution which made an application before DRT for recovery  

of  debt from the debtor company may be paid the undisbursed amount  

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against due debt as per the recovery certificate after securing an indemnity  

bond of restitution of the amount to the extent of workmen’s dues as may  

be finally determined by the liquidator of the debtor company and payable  

to workmen in the proportion set out in the illustration appended to Section  

529(3)(c) of the Companies Act. The other, DRT may set apart tentatively  

portion of the undisbursed amount towards workmen’s dues in the ratio as  

per the illustration following Section 529(3)(c)  and disburse the balance  

amount  to  the  applicant  bank  or  financial  institution  subject  to  an  

undertaking by such bank or financial institution to restitute the amount to  

the extent workmen’s dues  as may be finally determined by the liquidator,  

falls short  of the amount which may be distributable to the workmen as per  

the above illustration. The amount so set apart may be disbursed to the  

liquidator towards workmen’s dues on ad hoc basis subject to adjustment  

on final  determination of the workmen’s dues by the liquidator.  The first  

option must be exercised by DRT only in a situation where no application  

for distribution towards workmen’s dues against the debtor company has  

been made by the liquidator or the workmen before the DRT.

72. In light of the above discussion, we sum up our conclusions  

thus:

(i) If the debtor company is not in liquidation nor any provisional  

liquidator  has  been  appointed   and  merely  winding  up  

proceedings are pending, there is no question of distribution  

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of  sale  proceeds  among  secured  creditors  in  the  manner  

prescribed in Section 19(19) of the 1993 Act.   

(ii) Where  a  company  is  in  liquidation,  a  statutory  charge  is  

created in favour of workmen  in respect of their dues over  

the security of every secured creditor and this charge is pari  

passu with that of the secured creditor. Such statutory charge  

is to the extent of workmen’s portion in relation to the security  

held by the secured creditor of the debtor company.

(iii) The above position is equally applicable where the assets of  

the  debtor  company  have  been  sold  in  execution  of  the  

recovery  certificate  obtained  by  the  bank  or  financial  

institution  against  the debtor  company  when it  was  not  in  

liquidation but before the proceeds realized from such sale  

could be fully and finally disbursed, the company had gone  

into liquidation. In other words, pending final disbursement of  

the proceeds realized from the sale of security in execution of  

the recovery certificate issued by the debt recovery tribunal, if  

debtor  company becomes company in winding up, Section  

529A read with Section 529(1)(c) proviso come into operation  

and  statutory  charge  is  created  in  favour  of  workmen  in  

respect of their dues over such proceeds.

(iv) The relevant date for arriving at the ratio at which the sale  

proceeds  are  to  be  distributed  amongst  workmen  and  

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secured creditors of the debtor company is the date of the  

winding up order and not the date of sale.

(v) The  conclusions  (ii)  to  (iv)  shall  be  mutatis  mutandis  

applicable where provisional liquidator has been appointed in  

respect of the debtor company.  

(vi) Where the winding up petition against the debtor company is  

pending but no order of winding up has been passed nor any  

provisional liquidator has been appointed in respect of such  

company  at  the  time  of  order  of  sale  by  DRT  and  the  

properties of the debtor company have been sold in execution  

of the recovery certificate and proceeds of sale realized and  

full disbursement of the sale proceeds has been made to the  

concerned bank or financial institution,  the subsequent event  

of the debtor company going into liquidation is no ground for  

reopening disbursement by the DRT.  

(vii) However, before full and final disbursement of sale proceeds,  

if  the  debtor  company  has  gone  into  liquidation  and  a  

liquidator  is  appointed,  disbursement  of  undisbursed  

proceeds  by  DRT  can  only  be  done  after  notice  to  the  

liquidator  and after hearing him. In that situation if  there is  

claim of workmen’s dues, the DRT has two options available  

with it. One, the bank or financial institution which made an  

application before DRT for recovery of debt from the debtor  

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company may be paid the undisbursed amount against due  

debt  as  per  the  recovery  certificate  after  securing  an  

indemnity bond of restitution of the amount to the extent of  

workmen’s  dues  as  may  be  finally  determined  by  the  

liquidator of the debtor company and payable to workmen in  

the proportion set out in the illustration appended to Section  

529(3)(c)  of  the Companies  Act.  The other,  DRT may set  

apart tentatively portion of the undisbursed amount towards  

workmen’s dues in the ratio as per the illustration following  

Section 529(3)(c)  and disburse the balance amount to  the  

applicant  bank  or  financial  institution  subject  to  an  

undertaking by such bank or financial  institution to restitute  

the amount to the extent workmen’s dues  as may be finally  

determined by the liquidator,  falls short  of the amount which  

may  be  distributable  to  the  workmen  as  per  the  above  

illustration. The amount so set apart may be disbursed to the  

liquidator towards workmen’s dues on ad hoc basis subject to  

adjustment on final determination of the workmen’s dues by  

the liquidator.  

(viii) The first option must be exercised by DRT only in a situation  

where no application for distribution towards workmen’s dues  

against the debtor company has been made by the liquidator  

or the workmen before the DRT.

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(ix) Where the sale of security has been effected in execution of  

recovery certificate issued by the DRT under the 1993 Act,  

the distribution of sale proceeds has to be made by the DRT  

alone in accordance with Section 529A of the Companies Act  

and by no other forum or authority.

(x) The  workmen  of  the  company  in  winding  up  acquire  the  

standing of  the secured creditors  on and from the date of  

winding up order (or where provisional  liquidator  has been  

appointed,  from  the  date  of  such  appointment)  and  they  

become entitled  to  the distribution of  sale  proceeds in  the  

ratio  as  explained  in  the  illustration  appended  to  Section  

529(3)(c) of the Companies Act.  

(xi) Section 19(19)  of  the 1993 Act  does  not  clothe  DRT with  

jurisdiction  to  determine  the  workmen’s  claim  against  the  

debtor company. The adjudication of workmen’s dues against  

the debtor company in liquidation  has to be made by the  

liquidator. In other words, once the company is in winding up  

the  only  competent  authority  to  determine  the  workmen’s  

dues  is  the liquidator  who obviously  has to  act  under  the  

supervision of the  company court and by no other authority.

(xii) Section 19 (19) is attracted only where a debtor company is  

in winding up or a provisional liquidator has been appointed  

in respect of such company. If the debtor company is not in  

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liquidation  or  if  in  respect  of  such  company  no  order  of  

appointment  of  provisional  liquidator  has been made  and  

merely winding up proceedings are pending, the question of  

distribution of sale proceeds among secured creditors in the  

manner prescribed in Section19(19) of the 1993 Act does not  

arise.

73. For the above conclusions, we hold, as it must be held, that  

the claims of the workmen who claim   to be entitled to payment  pari  

passu have to be considered and adjudicated by the liquidator of the debtor  

company and not by the DRT.  We answer the question accordingly.  

74. The impugned judgment is  set  aside.   The Debt Recovery  

Tribunal,  Mumbai  III  and  the  official  liquidator  of  the  Company  shall  

proceed  further  now  concerning  workmen’s  dues  as  indicated  in  this  

judgment.  The appeals are allowed with no order as to costs.  All pending  

applications stand disposed of.    

  ……………………….J.    (R.M. Lodha)

                 ..…..………………...J.  

    (J. Chelameswar)

                                             .……………………...J.       (Madan B. Lokur)

NEW DELHI MAY 7, 2013.

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