Section 529A of the Companies Act, 1956

HIGH COURT OF MADHYA PRADESH, GWALIOR BENCH Official Liquidator, Jiyajeerao Cotton Mills Ltd. v. BIFR (MP) R.S. GARG AND ABHAY GOHIL, JJ. MISC. COMPANY APPEAL NO. 5 OF 2007 AND COMPANY PETITION NO. 4 OF 1997 November 16, 2007 Section 529A of the Companies Act, 1956 - Winding up - Overriding preferential payment - Company came under liquidation on a petition filed by secured creditors and official liquidator was appointed - Subsequently, Company Judge on application of respondent no. 3, i.e., employees provident fund organization, directed official liquidator to deposit certain amount with it -Whether since section 529A treats dues of workmen and debts due to secured creditors at par, company court is obliged to see as to whether amounts already paid or proposed to be paid to workmen would stand pari passu with rights of secured creditors - Held, yes - Whether since In instant case, company court did not see as to whether payment of amount in question would still be under provisions of section 529A, whether it would come beyond pari passu claim of workmen and whether respondent No.3 would still be entitled to recover money before settlement of dues of secured creditors so also of workmen, impugned order passed by it was to be set aside and matter was to be remitted for fresh disposal in accordance with law - Held, yes FACTS The company came under liquidation on petition filed by secured creditors and an official liquidator was appointed. Subsequently the respondent no. 3 i.e., Employees provident fund corporation filed a claim regarding the company’s contribution towards the provident fund. The Company Judge directed the official liquidator to deposit amount with the respondent no. 3 organisation. On appeal : HELD Section 529 relates to the application of insolvency rules in winding up of insolvent companies. It declares as to how the company would be put under winding up, how the money would be realized and how the money would be distributed. However, section 529A controls the rights of the parties and issues a mandate to the court. [Para 11] A fair reading and understanding of section 529A would make it clear that notwithstanding anything contained in any other provision of the Act or any other law for the time being in force, in the winding up of a company, the workmen’s dues and 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. [Para 12] It is indisputable that the right to recover the money is conferred upon the workmen so also on the secured creditors. The amount is to be distributed pari passu. After the claims of the secured creditors and workmen are satisfied and money is left then the money shall be paid in accordance with section 530. [Para 13] The respondent no. 3 repeatedly submitted that the provisions of section 11(2) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 shall have an overriding effect over the provisions of the Companies Act, therefore, section 529A would be subserving section 11(2) of the 1952 Act. [Para 14] It is to be seen that the 1952 Act is of the year 1952 while the Companies Act is of 1956. If one Act fixes the priorities and rights of the parties to some extent or makes it absolute then such provisions of the Act would be applicable but however, if any Act comes into force or operation subsequent to the first Act and later Act starts with a non-obstante clause that notwithstanding anything in any other law for the time being in force then the provisions of the subsequent law would override the first law. The Companies Act being Act of 1956 would even otherwise have overriding effect over the provisions of the 1952 Act. [Para 15] Once it is held that section 529A has effected overriding preferential payment and treats the dues of the workmen and debts due to the secured creditors at par then before entering into any other controversy the company court is obliged to see as to whether the amounts already paid or proposed to be paid to the workmen would stand pari passu with the rights of the secured creditors. [Para 17] The single judge did not see as to whether the payment of amount in question would still be under the provisions of section 529A, whether it would come beyond the pari passu claim of the workmen and whether the Department still would be entitled to recover the money before settlement of the dues of the secured creditors so also of the workmen. It appeared that all these arguments were not raised before the single judge and the question for making an order on those lines never cropped up before the single judge. [Para 18] Accordingly, the judgment / order passed by the single judge was set aside. As a consequence of this order, respondent no. 3 was directed to deposit back the amount in question with the official liquidator. The matter to the single judge with a request to reconsider the entire matter in accordance with law. [Para 19]