KAMDAR PRAGATISHEEL MANDAL vs INVENT ASSETS SECURITISATION AND RECONSTRUCTION PVT LTD on 14 February 2024

**JUDGMENT**

1. 1. This appeal is preferred by the Appellants against the order dated 22/07/2022 passed by Ld. Recovery Officer-II, DRT-II, Ahmedabad ("Ld. RO" for short) in Transferred Recovery Proceedings No.06/2003.

2. 2. The Appellant is union of employees of Respondent No.2 Company who are waiting for recovery of their hard earned money since last two decades. As the assets of the Company were not sold out for one or the other reasons, the workers were not able to get their claim from the office of DRT. The Appellant's workers have to recover more than Rs.7 Crore from the CD.

3. 3. It would be pertinent to note certain facts emerging from the record of the case. Ld. RO had issued Sale Proclamation for sale of certain assets of Respondent No.2 Company, more particularly described in para 5.4 of

the Memo of Appeal and fixed auction to be held on 08/03/2022. The bid of Respondent No.3 was accepted finally by Ld. RO despite objection of Respondent No.4.

1. 4. It is the case of the Appellant that Ld. RO is supposed to release the workers' dues as a matter of priority before passing any direction in favour of Respondent No.1. However, instead of releasing the workers' dues, financial and accounting jugglery was made while calculating and distributing amount.

2. 5. It is further the case of the Appellant that order of Ld. RO dated 16/11/2021 itself states that Ld. RO has obtained two valuation reports from two different valuers. However, while deciding the price of auction at Rs.26.66 Crore compromises were made for the reasons best known to Ld. RO. He intended to sell the properties on 03/01/2022. However, the said auction failed. Though Ld.RO incorporated the dues of workers to the tune of Rs.7 Crore besides other statutory dues, the said dues were de-recognized by Ld. RO at later point of time.

3. 6. It is also the case of the Appellant that it was not open for the Respondents to sell the properties at a discounted price. After the auction scheduled on 03/01/2022 failed, Ld. RO attempted to sell the properties vide Sale Proclamation on 31/01/2022 wherein the reserve price of the properties was reduced drastically to Rs.21 Crore, in a span of one month only.

1. 7. It is further the case of the Appellant that office of OL had already filed its claim vide communication dated 26/05/2022 as per order dated 02/08/2005 passed by the Hon'ble Bombay High Court in Company Petition No.1184/1999 read with order dated 12/04/2022 passed by Ld. RO. The office of OL had requested Ld. RO to deposit sale proceeds with the office of OL so that distribution of sale proceeds can be done in accordance with the provisions of the Companies Act. Ld. RO, on 22/07/2022, besides the fact of claim of the Appellant/workers on record, passed order with observations unknown to law and offered calculation and accounting formula, which he was not supposed to do. The calculations were made to ripe benefit to the purchaser, after recognizing he claim of the Appellant to the tune of Rs.6,39,59,553/- and lowering the claim to Rs.45,13,757/- and that too by observing in para 3 of the impugned operative order that the workers have already lodgd the claim with OL. However, direction was given to Respondent No.1 - ARC to transfer funds of Rs.45,13,757/- only against the claim and payable amount of Rs.6,39,59,553/-. The Appellant has stated that the formula adopted by Ld. RO is illegal and Ld. RO has not observed the provisions of the Companies Act. Ld. RO has misunderstood and misinterpreted the concept of priority of dues. The direction given for

appropriation of Rs.6,02,86,928/- is also illegal and de-hors. As such, the impugned order dated 22/07/2022 passed by Ld. RO is liable to be quashed and set aside.

1. 8. Respondent No.1 has filed its reply to the present Appeal vide Exh.R/13 and denied the averments and statements made by the Appellant / workers. It has further contended that the Appellant had not filed any objection in respect of fixation of reserve price and therefore, the Appellant is now estopped from making any grievance in respect thereof at this stage. It has also contended that as per Section 529A of the Companies Act, the sale proceeds are required to be distributed on pro-rata basis and to arrive at the ratio, date of winding-up is cut-off date. Respondent No.1 had submitted calculation sheet regarding the claim as on date of winding-up and even if the alleged claim of the workers is considered, the ratio on pro-rata basis for distribution of sale proceeds between Respondent No.1 and workers comes to 97.87% and 2.13% respectively. The workers had not submitted any supportive and conclusive documentary evidence in support of their alleged claim before Ld. RO.

2. 9. Respondent No.1 has further contended that Respondent No.1 had also sent letters dated 24/06/2022, 30/08/2022, 12/09/2022 and 30/09/2022 and had requested the Official Liquidator to furnish the details regarding alleged claim of the workers along with

supporting documents. In spite of receipt of such letters and personal follow-up, the Official Liquidator has not furnished any details regarding alleged claim of the workers and supporting documents. Therefore, Ld. RO has legally passed the impugned order dated 22/07/2022 after taking into consideration the relevant provisions of the Companies Act. As such, Respondent No.1 requested to dismiss the present Appeal with compensatory cost.

1. 10. I have heard Ld. Counsel for the parties and considered written submissions filed by the respective parties along with documentary evidence on record.

2. 11. On perusal of the impugned order dated 22/07/2022 passed by Ld. RO, it appears that though Ld. RO has quoted the provisions of Section 529A of the Companies Act, 1956 and Section 31-B of RDB Act, 1993, the same are not applied in their true spirit. Looking to the calculation given in the operative part of the impugned order, it appears that Ld. RO has allowed the claim of workers on pro-rata basis. Accordingly, he has allowed the claim of only Rs.45,13,757.50 against the workers' claim of Rs.6,39,59,553/-. In this context, it would be pertinent to refer to Section 529A of the Companies Act, 1956, which reads as under: /

"529A. Overriding preferential payments

*(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*

*(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 paripassu 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."*

1. 12. It is clear from the above provision that workmen's dues are required to be paid in priority to all other debts and such dues shall be paid in full unless the assets are insufficient to meet them. It is an undisputed fact that the assets of Respondent No.2 Company were not insufficient to meet with the dues of the workers. Therefore, the dues of the Appellant herein ought to have been paid in full and not on pro-rata basis as calculated by Ld. RO.

2. 13. Though Ld. RO appears to have allowed Claim of EPFO to the tune of Rs.27,99,314/- and claim of ESIC to the tune of Rs.24,00,000/- in full, he has erred in not appreciating the relevant provisions contained in Section 529A of the Companies Act, 1956. As such, this Tribunal is of the view

that the matter deserves reconsideration by Ld. RO in light of the provisions of the Companies Act, 1956.

14. In light of the aforesaid factual and legal position, the following order is passed:

**O R D E R**

- ➤ The present appeal is hereby partly allowed.

- ➤ The impugned order dated 22/07/2022 passed by Ld. RO, DRT-II, Ahmedabad in RP No.06 of 2003 is hereby quashed and set aside.

- ➤ The matter is ordered to be remanded to Ld. RO, DRT-II, Ahmedabad for hearing afresh by considering all the relevant provisions contained in the Companies Act, 1956.

- ➤ All the parties shall be at liberty to raise their respective contentions afresh in Recovery Proceedings before Ld. RO.

- ➤ The present Appeal accordingly stands disposed of with no order as to cost.

- ➤ All pending interim applications, if any, stand disposed of.

- ➤ Registry is directed to provide copy of this Judgment free of cost to all the parties.

Pronounced in the open Court on 14^th day of February, 2024.

1 (Laxman Madnani) Presiding Officer DRT-II, Ahmedabad

\*ykb\*