Holding

Section 529A of the Companies Act, 1956 overrides all other creditor claims, and any order made under Article 142 must be read subject to the provisions of Sections 529 and 529A.

Summary

The Official Liquidator of Ambica Mills Ltd., a company under liquidation, sought the court’s permission to sell the company’s immovable assets and to distribute the proceeds, directing that the dues of ONGC Ltd. be paid first. The Textile Labour Association and another workers' union, representing workmen owed more than Rs. 40 crore, were not parties to the earlier proceedings and filed review petitions challenging the order that prioritized ONGC’s claims. The Supreme Court examined whether Sections 529 and 529A of the Companies Act, 1956, which make workmen’s dues secured or preferential creditors, override other creditor claims and a mandamus issued under Article 142. The Court held that Section 529A indeed supersedes all other creditor claims, including those arising from a decree, and that any order made under Article 142 must be read subject to the statutory provisions. Consequently, the earlier order was modified to give workmen’s dues pari‑passu status with secured creditors, and the review petitions were allowed.

Issues considered

Whether Section 529A of the Companies Act, 1956 overrides the claims of other creditors, including those established by a court decree, in a liquidation proceeding.
Whether a mandamus issued under Article 142 of the Constitution can prevail over the statutory provisions of the Companies Act.
What is the priority of workmen’s dues under Sections 529, 529A and 530 of the Companies Act in relation to secured creditors.
Whether the delay in filing the review petitions should be condoned.

Legislation cited

Companies Act, 1956s. 529, s. 529A, s. 530
Constitution of Indias. Article 142

Subjects

Companies Act 1956Section 529ALiquidationWorkmen's duesPreferential creditorSecured creditorArticle 142MandamusReview petitionPriority of claims

Judgment

TEXTILE LABOUR ASSOCIATION AND ANR. A
v.
THE OFFICIAL LIQUIDATOR AND ANR.

APRIL 12, 2004

[S. RAJENDRA BABU, DR. AR. LAKSHMANAN AND B
G.P. MATHUR, JJ.]

Companies Act, 1956:

Ss. 529, 529-A and 530-Company under liquidation-Priority of C
claims-Held, s.529-A will override all claims of other creditors even where
a decree has been passed by a court-Purpose of s.529-A is to ensure that
workers should not be deprived of their legitimate claims and assets of the
Company would remain charged for payment for workers' dues- Such charge
will be pari passu with the charge of secured creditors and have to be treated D
accordingly-Constitution of India, 1950-Article 142.
)
In the civil appeals disposed of by the Supreme Court, the official
liquidator filed an application seeking permission to sell immovable
properties of the Company under liquidation and to disburse the sale
proceeds. In the said application n.either any of the Workers' Union nor E
the workmen were impleaded as parties. The Court by its order dated
17.10.1997 directed that out of the assets of the company full dues of the
ONGC would be paid first and payment to any other creditor would be
considered thereafter. When the petitioner-Labour Unions made claim for
outstanding dues of the workmen of the company, the Official Liquidator F
communicated to them that in view of Supreme Court's order dated
17.10.1997, he was unable to make payment to anyone except the ONGC.
Aggriev.ed, the Labour Unions filed the present petitions seeking review
of the order dated 17.10.1997.

Allowing the petitions, the Court
G
HELD: 1.1. Section 529A of the Companies Act, 1956 will override
all claims of other creditors even where a decree has been passed by a
court. Though the order of this Court in respect of which review is sought
for may be read as having been made pursuant to exercise of powers under
1161 H
1162 SUPREME COURT REPORTS [2004] 3 S.C.R.

A Article 142 of the Constitution, still the same will have to be read in the
light of the decision of this Court in Supreme Court Bar Association's
case*. [1166-B-El

*Supreme Court Bar Association v. Union of India and Anr., [1998) 4
SCC 409 and UCO Bank v. Official Liquidator, High Court, Bombay and Anr.,
B [19941 5 sec 1, relied on.

Industrial Credit and Investment Corporation of India Ltd. v. Srinivas
Agencies and Ors., [1996) 4 SCC 165; Allahabad Bank v. Canara Bank and
Anr., [2000) 4 SCC 406 and A.P. State Financial Corporation v. Official
C Liquidator, [2000) 7 SCC 291, cited.

1.2. The effect of Sections 529 and 529A of the Companies Act is that
the workmen of the company become secured creditors by operation of
law to the extent of the workmen's dues provided there exists secured
creditor by contract. If there is no secured creditor then the workmen of
D the company become unsecured preferential creditors under Section 529A
to the extent of the workmen's dues. The purpose of Section 529A is to
ensure that the workmen should not be deprived of their legitimate claims
in the event of liquidation of the company and the assets of the company
would remain charged for the payment of the workers' dues. Under this
Section dues of workers and debts due to the secured creditors are to be
E treated pari passu and have to be treated as prior to all other dues. There
is no other statutory provision overriding the claim of the secured creditors
except Section 529A. This Section overrides preferential claims under
Section 530 also. Therefore, claims, if any, of ONGC will have to be
worked out in accordance with Sections 529 and 529A as well. Order made
F by this Court on 17.10.1997 will have to be read subject to provisions of
Sections 529 and 529A of the Companies Act. [1166-C-F)

CIVIL APPELLATE JURISDICTION : Review Petition Nos. 1193-
1203 of 200 I.
IN
G I.A. Nos. 168-178 of 1997
IN
Civil Appeal Nos. 8530-40 of 1983.

From the Judgment and Order dated 30 .7 .83 of the Gujarat High Court
in S.C.A. Nos. 883179 with S.C.A. Nos. 913179, 1897/81, 2316, 2384, 2445,
H 2470, 2977, 4194, 4520 and 2542 of 1982.
TEXTILE LABOUR ASSN. v. OFFICIAL LIQUIDATOR [RAJENDRA BABU, J] J J63

Raju Ramachandran, Additional Solicitor General, Mahendra Anand, A
--'
. A.K. Ganguli, R.F. Nariman, P. Krishnamurthy, Collin Gonsalvas, Rajan
Narain, Ms. Puja Sharma, Siddharth Datta, Ms. Louleen Bhullar, K.R.
Sasiprabhu, Shahid Rizvi, Manish Garg, Ms. G. Indira, M.K.S. Menon, Rakesh
K. Sharma, Ms. Manik Karanjawala, Arun K. Sharma, Ms. Vandana Shamia,
~
V. Pal Singh, Ms. Pratibha Jain, Sushi! Kumar Jain, Vinay Garg, Shri Narain,
B
. Sandeep Narain, Ms. Anjali Jha, Ms. B. Vijayalakshmi Menon, A. Deb Kumar,
Sudarsh Menon, B.S. Sharma, K.V. Mohan, P.H. Parekh, Ms. Ranjeeta
Rohatgi, Pramod, B. Agarwala, Ms. Aparna Bhat and Ms. P. Ramesh Kumar
for the appearing parties.

The Judgment of the Court was delivered by
c
RAJENDRA BABU, J. This Court in a set of appeals arising out of
certain orders made in a batch of writ petitions by a Division Bench of High
Court of Gujarat in Association of Natural Gas Consuming Industries and
'
~ Ors. v. Oil and Natura( Gas Commission and Anr., (1983) 24 (2) Gujarat
Law Reports 1437, examined various aspects of the matter in relation to price D
fixation and upheld the prices fixed by the appellant and allowed the appeals.
)
However, during the pendency of the appeals in this Court, the interim orders
granted by the High Court continued to be in operation and the respondents
received gas at Rs.1000 per 1OOOM3.

In I.A. No. 168-178 of 1997 filed by the Official Liquidator appointed E
in respect of Ambica Mills Ltd. in Civil Appeal No. 8530-40 of 1983, this
Court on 17.10.1997 held as under:-

"All that is necessary to be said is that out of the assets of the company
under liquidation, the dues of ONGC Ltd., are required to be paid off
first and the question of making any payment to any other creditor F
can arise only out of the surplus, if any, remaining after the full dues
of the ONGC Ltd. have been paid off. The High Court is, therefore,
to proceed with the matter in this manner. I.As stand disposed of."

The petitioners in these review petitions contend that an application G
had been made before the High Court of Gujarat in Company Application
No. 143 of 1997 in Company Petition No. 121 in which the High Court
directed that the Official Liquidator should make an application before this
Court after i·11pleading the company concerned; that pursuant thereto, he
filed an application No. 168-178 seeking for permission to sell the immovable
properties of the Company and to disburse the sale proceeds in accordance H
I

/
i
1164 SUPREME COURT REPORTS [2004] 3 S.C.R.

A with law; that to this application none of the Unions of the workmen or other
workmen were impleaded as respondents nor did the Official Liquidator in
course of his application raised any pleading regarding the priority of
disbursement of sale proceeds or application of Sections 529 and 529-A of
the Companies Act; that Petitioner No. I before us is a labour Association
B representing the workmen of Shri Ambica Mills Ltd. and petitioner No. 2 is
labour Union representing the workmen of Ambica Tubes, a division of Shri
Ambica Mills Ltd.; that the workmen of these two establishments have not
received wages and employment benefits amounting to more than Rs. 40
crores by their employer Shri Ambica Mills; that on 15.4.1987 this Court
had directed ONGC to supply gas to its consumers subject to the undertaking
C that they would not charge, encumber or alienate any of their immovable
assets without the leave of this Court; that Company Petition No. 66 of 1988
was filed for winding up of Shri Ambica Mills Ltd.; that, however, during
the pendency of this petition, a reference under the Sick Industrial Companies
(Special Provisions) Act, 1985 was filed before the Board for Industrial and
Financial Reconstruction ('BIFR' for short); that BIFR forwarded its opinion
D to this Court under Section 20 of the Sick Industrial Companies (Special
Provisions) Act, 1985 to the effect that it was just and equitable that the
company should be wound up; that the opinion of BIFR was registered as
Company Petition No. 121 of 1995 and winding up order came "to be passed
on 17.1.1997 on Company Petition No. 66of1998 with Petition No. 121 of
E 1995 and others. The petitioners made claim of the outstanding dues of the
workmen of Shri Ambica Mills and the Official Liquidator in this regard
communicated to the petitioners that he does not have any funds at his disposal
and even if the amounts are realised out of sale of the assets he would not
be in a position to make any payment to anybody including the workmen,
except ONGC in view of the order made by this Court in I.A. No. 168-178
F in C.A. No. 8530-40 of 1983. Similar letter was also sent to Vatva Industries
Mazdoor Sabha on 12.8.1989. The Textile Labour Association received that
letter on 6.9.1999. It is only on coming to know from the Official Liquidator
that the workmen who are members of the petitioners' association would not
be able to get their dues, they sought for intervention in the matter.
G The basic submission made before us is that the review petitioners were
not parties to the proceedings before this Court and on the passing of the
winding up order on 17.1.1997 the provisions of the Companies Act will
come into force and will be effective in the light of the decisions of this
Court in UCO Bank v. Official Liquidator, High Court, Bombay and Anr.,
H [1994] 5 SCC 1; Industrial Credit and Investment Corporation of India ltd.
TEXTILE LABOUR ASSN. v. OFFICIAL LIQUIDATOR [RA.IENDRA BABU, J] 1165

v. Srinivas Agencies and Ors., [1996] 4 sec 165; Allahabad Bank V, Canara A
Bank and Anr., [2000] 4 SCC 406 and A.P. State Financial Corporation v.
Official Liquidator, [2000] 7 SCC 291.

Shri Raju Ramachandran, learned Additional Solicitor General appearing
for ONGC in these review petitions, submitted that there is inordinate delay
on the part of the review petitioners in approaching this Court and, therefore, B
this Court should recall its order condoning the delay in filing the review
petitions. In this context, it is contended that the review petitioners were
aware of the proceedings pending before this Court in the company proceedings
in which they sought for their participation and the High Court had directed
them to take appropriate steps in this Court and they did not do so till C
October, 1999 and they filed review application only in August 2001; that,
therefore, these review petitions are not tiled with due diligence.

It is clear from the records that the order made by the High Court of
Gujarat in Company Application No. 193/95 had been filed by Vatva Industries
Mazdoor Sabha. The Textile Association were not made a party in these D
) proceedings. No notice was given to them. The Textile Association is a
separate union of workmen and had no knowledge of the proceedings with
the High Court of Gujarat in relation to Shri Ambica Mills filed by Vatva
Industries Mazdoor Sabha. The participation of the Vatva Industries Mazdoor
Sabha in the High Court of Gujarat was only for the purpose of disbursement
of amounts realised from the sale of the finished products and for payment E
of wages since September 1994 and bonus for 1994-95. It is in these
circumstances, it is stated that a direction had been issued by the High Court
of Gujarat to the Official Liquidator to make an application for impleading
necessary parties and to furnishing copies to them and the Official Liquidator
did not im plead any of these parties. Therefore, no negligence can be attributed p
to the writ petitioners in these cases and, therefore, the order made condoning
the delay does not require any reconsideration.

It is next contended that inasmuch as mandamus had been issued by
this Court as to priority of claims in the matter of payment that mandamus
will prevail over any law. This Court examined the plenary powers of this G
Court arising under Article 142 of the Constitution of India in Supreme Court
Bar Association v. Union of India and Anr., [1998] 4 SCC 409 and held that
'this Court in exercise of its power under Article 142 cannot ignore any
substantive statutory provision dealing with the subject and it is only a residury
power, supplementary and complementary to the powers specifically conferred H
1166 SUPREME COURT REPORTS [2004] 3 S.C.R.

A on this Court by statutes exercisable to do complete justice between the -
parties wherever it is just and equitable to do so. It is intended to prevent
any obstruction to the stream of justice'. Though the order of this Court in
respect of which review is sought for may be read as having been made
pursuant to exercise of powers under Article 142 of the Constitution, still the
B same will have to be read in the light of the decision of this Court in Supreme
Court Bar Association v. Union of India and Anr. (supra).

The effect of Sections 529 and 529A is that the workmen of.the company
become secured creditors by operation of law to the extent of the workmen's
dues provided there exists secured creditor by contract. If there is no
C secured creditor then the workmen of the company become unsecured
preferential creditors under Section 529A to the extent of the workmen dues.
The purpose of Section 529A is to ensure that the workmen should not be
deprived of their legitimate claims in the event of the liquidation of the
company and the assets of the company would remain charged for the payment
of the workers' dues and such charge will be pari passu with the charge of
D the secured creditors. There is no other statutory provision overriding the
claim of the secured creditors except Section 529A. This Section overrides
preferential claims under Section 530 also. Under Section 529A the dues
of the workers and debts due to the secured <:reditors are to be treated pari
passu and have to be treated as prior to all other dues.

E Therefore, the law is clear on the matter as held in UCO Bank's case
that Section 529A will override all other claims of other creditors even where
a decree has been passed by a court.

Therefore, claims, if any, of ONGC will have to be worked out in
F accordance with Sections 529 and 529A of the Companies Act as well. The
contention advanced on behalf of ONGC by Shri Raju Ramachandran that if
a mandamus had been issued, it will prevail over any law is not tenable and
is rejected.

In the result, we make it clear that order made by this Court on
G 17.10.1997 in I.A.No. 168-178/1997 in Civil Appeal No. 8530-40/1983 will
have to be read subject to provisions of Sections 529 and 529A of the
Companies Act.

The review petitions stand allowed in the manner stated above.

H R.P. Petitions allowed.