Ahmednagar Zilla Shramik Sanghtana vs STATE BANK OF INDIA on 5 April 2025

JUDGMENT

(Delivered on 05th April, 2025)

1. Challenged herein an order dated 19th October, 2005 passed by the learned Recovery Officer, Debts Recovery Tribunal, Aurangabad in Recovery Proceedings No.119/2003 whereby claim of Ahmednagar Municipal Corporation ( For short : Corporation ) was allowed.

Before proceeding further, it is necessary to give brief sketch of the litigation which is as under:

HISTORY OF LITIGATION

2. Respondent No.2 M/s. Modern Foundry and Machine

Works Ltd. company had declared lockout around October, 1996 while strength of workmen in employment had been about 147. The lockout continued over a long period of time constraining majority of workmen to resign to the circumstances ending up in collection by them of their gratuity and other amounts due.

3. The case of respondent No.2 had been referred to Board of Industrial Finance and Reconstruction (BIFR) under Sick Industrial Companies Act and BIFR had recommended winding up of the company and accordingly, order dated 13th July, 2001 had been passed by High Court. Care of thirty one employees, who continued to be on the roll of the company was not being taken. They had approached Labour Court at Ahmednagar under various proceedings in application (IDA) No. 12 of 2001 to 40 of 2001 under section 33 C (2) of the Industrial Disputes Act, 1947. Their claims were allowed by Labour Court under judgment and order dated 6th August, 2005. Pursuant to the same, on 18th August, 2005, Assistant Commissioner of Labour, Ahmednagar had issued a recovery certificate for an amount of Rs.34,72,924/-. In another application bearing IDA No.4 of 2004, claim of workmen to the tune of

Rs.26,98,200/- had been allowed by the labour court, Ahmednagar on 18th March, 2006. Judgment of the labour court got confirmed under order of high court dated 18th February, 2008.

4. During the Course of above proceedings, respondent No.2 – bank had moved Debts Recovery Tribunal, Aurangabad in Original Application No.94 of 2002 for recovery of its secured dues. Said application was allowed by the Tribunal in November, 2003. With reference to the same, recovery certificate had been issued in December, 2003 in favour the bank for recovery of amount to the tune of Rs.1,93,08,973.79Ps. Accordingly, execution proceedings were initiated by respondent No.1 bank bearing RP No.119 of 2003. In said proceedings, notice for public auction of properties of respondent No.2 had been published, specifically referring to that “From the balance amount if left after satisfaction of amount as per Recovery Certificate, the dues on account of MSEB, Corporation, Workers claim etc. have to be paid if the amount is available”. This was around March, 2005. Properties of the debtor had been put on sale in April, 2005. Highest bid offered had been of Rs.3,27,00,000/- and purchaser had deposited entire amount with the Debts Recovery Tribunal and accordingly the sale had been confirmed in May, 2005. From the same, after payment of amount of decree holder bank, towards satisfaction of the dues, a sum of Rs.71,27,000/- had remained surplus in balance.

5. The petitioner had appeared before the Recovery Officer of Debts Recovery Tribunal at Aurangabad by filing objection bearing Exhibit-69 in R.P. No.119 of 2003, pursuant to section 19 (19) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, pointing out that an amount to the tune of Rs.1.5 Crore towards dues of workmen and requesting allocation / apportionment according to decisions on the claims of the workmen by competent court.

6. The Labour Court had already allowed the claims of the workmen in applications bearing (IDA) No. 12 of 2001 to 40 of 2001 and recovery certificate had been issued by Assistant Commissioner of Labour. Those were placed on record before Recovery Officer under application Exhibit- 117 dated 26th August, 2005.

7. The Respondent No.3 namely Municipal Corporation, Ahmednagar had filed application Exhibit-106 in RP No.199

of 2003 staking claim for an amount of Rs.43,31,063/- towards arrears of corporation tax. Under order dated 19th October, 2005, Recovery Officer, Debts Recovery Tribunal had allowed application dated 26th February, 2005 filed by the Municipal Corporation purporting to reject other applications.

8. The petitioner, in these circumstances, had preferred Appeal No.19 of 2005 before Presiding Officer, Debts Recovery Tribunal, Aurangabad which was allowed vide order dated 10th November, 2006 and order dated 19th October, 2005 passed by the Recovery Officer was set aside. The Recovery Officer was directed to hear objections of the objectors and if satisfied, to refer the file to Presiding Officer for issuing revised recovery certificate. Consequently, recovery officer had directed respondent No.3 corporation to pay back amount of Rs.43,31,063/-, which was allowed out of surplus amount left after adjusting the debt amount by the secured creditor i.e. respondent No.1 Bank.

9. Respondent No.3 Corporation preferred an appeal No.26 of 2007 before Debts Recovery Appellate Tribunal at Mumbai. The Debts Recovery Appellate Tribunal, Mumbai under order dated 17th July, 2014 had allowed the appeal filed by respondent No.3, restoring order dated 19th October, 2005 passed by Recovery Officer.

10. Aggrieved by the Order dated 17th July, 2014, the present petitioner preferred a Writ Petition No.4538 of 2015 before the Hon’ble High Court of Bombay Bench at Aurangabad which was allowed vide Judgment dated 01st April, 2019 and relevant part of the Judgment is as under :- Para–31. Taking overall view of the matter in the circumstances, it would be expedient and it would be appropriate that the presiding officer, debts recovery tribunal would take into account all the relevant aspects involved in the matter and grant proper revised certificate. This shall not affect already satisfied claim of the secured creditor. Para–32. Having regard to aforesaid, writ petition is allowed in terms of prayer clause “A”. Appeal No.19 of 2005 filed by the petitioner against the order of recovery officer dated 19th October, 2005 is restored for consideration of the matter as referred to above. Rule is made absolute in aforesaid terms. Writ Petition stands disposed of.

SUBMISSIONS OF THE PARTIES

11. The learned counsel for the appellant argued that Hon’ble High Court vide Order dated 01.04.2019 passed in Writ Petition No.4538/2015 has clearly laid down that the workmen of Respondent No.2 having superior right than that of Respondent No.3 Municipal Corporation Ahmednagar and this Tribunal has to distribute the sale proceeds of the company among its secured creditor in accordance with Provisions of Section 529A of the Companies Act 1956. The Secured Creditor Respondent No.1 has realized his full debt worth Rs.1,93,08,973.79 Ps. (Rupees One Crore Ninety-Three Lacs Eight Thousand Nine Hundred Seventy-Three and Paise Seventy-Nine Only) out of sale proceed of Rs.3,27,00,000/- (Rupees Three Crores Twenty-Seven Lacs only) and surplus amount was to be distributed to the workmen but the Recovery Officer has committed error while giving priority to respondent No.3 and allowed them to withdraw Rs.43,31,063/- (Rupees Forty-Three Lacs Thirty-One Thousand Sixty-Three only). When the Order of the Recovery Officer was set-aside and this Tribunal directed the Recovery Officer to hear the objections of the objectors and if satisfy, to refer the file to the Presiding Officer for issuing revised recovery certificate and thereafter the Recovery Officer has directed Respondent No.3 Corporation to pay back amount of Rs.43,31,063/- (Rupees Forty-Three Lacs Thirty-One

Thousand Sixty-Three only) taken by the Corporation out of sale proceeds of the immovable property of the Company. It was argued that the Respondent No.3 Corporation has used the amount for a long time and the amount is recoverable from the Corporation alongwith prevailing market rate interest and prayed for setting aside the order of the Recovery Officer dated 19.10.2005 and to accept the present Appeal.

12. The learned counsel for the bank argued that the bank has already realized their entire debt out of sale proceeds of immovable property of the company and now they having no claim against surplus amount.

13. The learned counsel for the Respondent No.3 Ahmednagar Municipal Corporation argued that amount claimed by the Corporation as a arrears of Corporation Tax and that amount being Rs.43,31,063/- (Rupees Forty-Three Lacs Thirty-One Thousand Sixty-Three only) has been utilized by the Corporation for the welfare of the General Public and the recovery of this amount with interest at prevailing market rate of interest would be injustice to the Corporation whereas the Corporation is ready to pay back amount of Rs.43,31,063/- (Rupees Forty-Three Lacs Thirty-One

Thousand Sixty-Three only) without any interest.

14. After having heard both the sides and going through the material on record, I am of considered view that the present Appeal is liable to be accepted for the reasons recorded hereinafter.

REASONS

15. In order to avoid repetition of the facts, the Hon’ble High Court of Bombay Bench at Aurangabad has settled the controversy with findings that the dues of the workmen of the company have to be recovered first and priority is to be given to these due as compare to the claim of the Municipal Corporation in Writ Petition No.4538/2015 decided on 01.04.2019. The Hon’ble High Court in this Judgment has discussed the various Judgments on the matter in issue and found that the claim of the workmen has priority in this case and the claim of the appellant is to be settled as per following provisions: Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, reads, thus -

19. Application to the Tribunal – (1) Where a bank or a financial institution has to recovery 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. Section 529A of Companies Act, 1956 reads, thus- “ 529A. (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 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”

16. In view of above provisions of recovery of Debts Due to the Banks and Financial Institution Act as well as Section 529A of the Companies Act 1956, the workmen’s dues shall have overriding preferential claim over other dues of a Company in liquidation. The similar position has been reflected in Section 326 of Companies Act, 2013. Therefore, in the given facts and circumstances of the case and law laid down by the Hon’ble High Court in Judgment dated 01.04.2019, the workmen dues shall be paid in priority towards all other debts and surplus amount is to be paid to the workmen of the appellant in accordance with the Judgment dated 06.08.2005 passed by the Judge, First Labour Court, Ahmednagar in Application (I.D.A.) No.12 to 40 of 2001 and the Judgment dated 18.03.2006 passed by the Judge, Second Labour Court Ahmednagar in Application (I.D.A.) No. 4 of 2004. Since the Labour Courts have already settled the amount of the workmen in above referred two cases and therefore, the surplus amount is to be distributed among workmen as settled by the Labour Courts.

17. The Recovery Officer has already allowed Rs.43,31,063/- (Rupees Forty-Three Lacs Thirty-One Thousand Sixty- Three only) to Respondent No.3 Corporation and when this amount was demanded back by the Corporation in view Appeal Judgment dated 10.11.2006 passed by the Debts Recovery Tribunal, the present Respondent No.3 Corporation preferred appeal before the Debts Recovery Appellate Tribunal, Mumbai and that Appeal was allowed. The appellant moved before the Hon’ble High Court for setting aside the order of the DRAT dated 17.07.2024 as referred above.

18. In these circumstances, the Respondent No.3 Corporation has used the money worth Rs.43,31,063/- (Rupees Forty- Three Lacs Thirty-One Thousand Sixty-Three only) for its own benefit whereas the Corporation was not legally entitled to this amount. The welfare of the workmen has predominant effect over the concept of welfare of general public argued by the learned counsel for the Corporation. The Corporation (Respondent No.3) has not preferred any appeal against the Judgment dated 01.04.2019 passed by the Hon’ble High Court. Therefore, the Corporation is liable to pay Rs.43,31,063/- (Rupees Forty-Three Lacs Thirty-One Thousand Sixty-Three only) to the Recovery Officer alongwith interest @6% per annum (simple) from the date of receipt of this amount till its payment.

19. At the last argued that the workmen are also entitled for interest at prevailing market rate interest as they are suffering from 2001. In this case the First Labour Court, Ahmednagar passed Award on 06.08.2005 pertaining to 29 workers having total claim of Rs.34,72,924/- (Rupees Thirty- Four Lacs Seventy-Two Thousand Nine Hundred Twenty- Four only). Whereas the Second Labour Court, Ahmednagar passed Award on 18.03.2006 pertaining to 24 workers having total claim of Rs.26,98,200/- (Rupees Twenty-Six Lacs Ninety-Eight Thousand Two Hundred only). Therefore, the claim of the workmen was allowed in the year 2005 and 2006 by the Labour Courts Ahmednagar. Hence, workmen are entitled for interest @6% per annum (Simple) from the date of filing of this Appeal i.e. 13.12.2005 till final payment.

20. For the reasons recorded above, the present Appeal No.19/2005 filed by the appellant is liable to be accepted and the impugned order dated 19.10.2005 passed by the

Recovery Officer, Debts Recovery Tribunal, Aurangabad is liable to be set-aside.

21. In the result, I pass the following order.

ORDER

(A) Appeal No.19/2005 is accepted and impugned Order dated 19.10.2005 passed by the Recovery Officer, Debts Recovery Tribunal, Aurangabad is hereby set-aside. (B) The Respondent No.3 Municipal Corporation Ahmednagar is directed to deposit Rs.43,31,063/- (Rupees Forty-Three Lacs Thirty-One Thousand Sixty-Three only) immediately alongwith interest @6% per annum (simple) from the date of receipt of this amount till its payment to Recovery Officer, Debts Recovery Tribunal, Aurangabad. (C) Recovery Certificate be issued in terms of Award passed by the First Labour Court, Ahmednagar in Application (I.D.A.) No.12 to 40 of 2001 and in Application (I.D.A.) No.4 of 2004 passed by the Second Labour Court, Ahmednagar, in favour of the workmen alongwith interest @6% per annum (Simple) from the date of filing of this Appeal i.e.

13.12.2005 till final payment. (D) Copy of this Judgment and Recovery Certificate be supplied free of costs to the parties. Pronounced in open Court. Date :05.04.2025.

Sd/- (Dr. J.R. Chauhan) Presiding Officer Debts Recovery Tribunal, Aurangabad