- (1.) In Company Petition No. 27 of 1971 for winding up of the Company - M/s. Glass Carboys and Pressedwares Limited - on the ground, contained in Clause (e) of section 433 of the Companies Act, 1956 (hereinafter referred to as "the Act"), that the Company was unable to pay its debts, the learned Company Judge of the Bombay High Court made a winding up order on 15-11-1972; and the Official Liquidator took possession of the assets of the Company. The appellant UCO Bank was a secured creditor of the Company. It chose to stand outside the winding up proceedings and obtained a decree on 22-4-1976 to recover its debt. In pursuance of the decree obtained by the appellant, the High Court's Commissioner for Taking Accounts was directed to sell certain moveables of the Company. In the meantime, the Companies Act, 1956 was amended by the Companies (Amendment) Act, 1985 (hereinafter referred to as "the Amending Act") with effect from 24-5-1985 by which sections 529 and 530 of the Principal Act were amended and section 529-A was inserted therein. One of the effects of the amendment, as mentioned in the Statement of Objects and Reasons of the Amending Act, is as under : "2. Another announcement made by the Finance Minister in his Budget speech relates to the decision of the Government to introduce necessary legislation so that legitimate dues of workers rank pari passu with secured creditors in the event of closure of the company and above even the dues to Government. The resources of companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate event of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the produce of their labour and effort. It is accordingly proposed to amend sections 529 and 530 of the Companies Act and also to incorporate a new section in the Act, namely, section 529-A (vide Clauses 4, 5 and 6 of the Bill)". (Emphasis supplied)
(2.) In this appeal, the question for decision is as to the true meaning and scope of the proviso to sub-section (1) of section 529 inserted by the above amendment as a part of the aforesaid scheme. Sub-section (1) of section 529 including the said proviso is as under : "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 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 529-A.]" (emphasis supplied)
(3.) The contention of the appellant, a secured creditor, which was accepted by the learned Company Judge but, on appeal, has been rejected by the Division Bench of the High Court in the impugned order dated 16-10-1991 in Appeal No. 920 of 1991, was that the aforesaid amendment including the above-quoted proviso is inapplicable in the present case since the decree had been obtained by the appellant prior to the above amendment made in the Principal Act. The submission of Dr. S. Ghose, learned Counsel for the appellant, is that the above amendment including the said proviso has no application to a secured creditor's claim based on a decree obtained prior to the said amendment. In other words, the submission is that the said proviso does not apply to a decree obtained for realisation of the security available to the secured creditor if the decree was obtained prior to the amendment even though realisation of the security by execution of the decree is subsequent to the amendment. We find no merit in this contention.;