Allowed

M/s Uniloids Limited (In Liqn.) v. M/s A.P.S.F.C.

Telangana HC17 Apr 2012COMPA/1858/2011

Case brief

AI extract

What is this about?

The Court directed the State Financial Corporation to deposit Rs.2 lakhs for publishing notices inviting creditor claims. It held workmen's dues take priority and reimbursement precedes distribution. It dismissed the Central Government funding question.

What did the court decide?

Ordered APSFC to deposit Rs.2.00 Lakhs; permitted advertisement in Business Standard and Andhra Bhoomi; dispensed with individual notices.

M/s Uniloids Limited (In Liqn.) Vs M/s A.P.S.F.C. — Company and Corporate | Telangana HC (2012)

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THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN COMPANY APPLICATION No.1858 of 2011 In

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R.C.C.No.2 of 1992

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ORDER:

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This Company Application is filed by the company under liquidation represented by the Official Liquidator for the following reliefs:

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(i) to invite the claims against the company in liquidation from the creditors under Sections 528, 529, 529A & 530 of the Companies Act, 1956 (the Act);

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(ii) to advertise the notice to invite the claims in the daily newspapers of “Andhra Jyothi” and “Indian Express” circulating in Hyderabad;

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(iii) to direct the respondent herein to deposit a sum of Rs.2.00 lakhs towards advertisement expenses for inviting claims from the creditors of the company in liquidation; and

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(iv) to dispense with issuance of individual notices pursuant to Rule 148(2) of the Companies (Court) Rules, 1959 (the Rules), since the address details are not fully available.

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In the affidavit filed in support thereof, the Official Liquidator would state that this Court, in C.A.No.60 of 2001 in C.A.No.26 of 1995 dated 09.02.2001, had confirmed the sale of the assets of the company under liquidation in favour of M/s.R.O.R. Laboratories for Rs.160.00 lakhs; the said sale was effected by the A.P.State Financial Corporation (APSFC) in the exercise of its powers under Section 29 of the State Financial Corporation Act; the sale proceeds of Rs.160.00 lakhs were distributed among various financial institutions retaining Rs.5.00 lakhs towards workmen’s dues; the statement of affairs filed by the Managing Director of the company under liquidation would show that the workmen’s dues

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were approximately Rs.17.39 lakhs; at present only Rs.1,783/- is available to the credit of the company under liquidation; to invite claims from the creditors of the company, a notice is required to be published in the newspapers in terms of Form No.66 of the Rules; and, therefore, APSFC should be directed to deposit Rs.2.00 lakhs. It is necessary to note that APSFC had been permitted to remain outside winding up proceedings and, consequently, the entire proceeds received on the sale of the assets were received by APSFC which, in turn, had distributed the amount received amongst various financial institutions, and had set apart a portion towards workmen’s dues.

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Sri Y.N.Lohita, Learned Standing Counsel for the APSFC, would contend that APSFC had already incurred expenditure for the sale of the assets of the company under liquidation which were mortgaged in their favour; they cannot now be asked to again pay Rs.2.00 lakhs towards advertisement expenses for inviting claims from workmen, and other creditors; a statutory obligation is cast on the Central Government to provide adequate funds and, merely because the Central Government had failed to discharge its statutory obligations under the Act in not providing adequate funds to the Official Liquidator to meet the expenditure required to be incurred for inviting claims from workmen and other creditors, it cannot result in the secured creditor i.e. “APSFC” being mulcted with this huge expenditure. Learned Counsel would place reliance o n Employees Provident Fund Commissioner v. Official Liquidator of Essaky Pharmaceuticals Limite d^[1] .

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On the other hand Sri M.Anil Kumar, Learned Counsel for the Official Liquidator, would place reliance on the earlier orders of this Court wherein similar contentions raised on behalf of the APSFC were rejected. Learned Counsel would submit that any

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amount incurred by the APSFC, in causing publication of notice inviting claims from workmen and other creditors, would be reimbursed even before apportionment of the sale proceeds between the secured creditors and the workmen in accordance with Sections 529 and 529A of the Act.

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The question, whether the Central Government is required to provide funds and, if so, what orders are required to be passed in this regard, is wholly extraneous to the relief sought for in this application. It is necessary to note that a Division Bench of this Court, in O.S.A.Nos.13 and 14 of 2006 dated 03.07.2007, followed the earlier order of the Division Bench in O.S.A.No.6 of 2005 wherein it was held that, since the amount directed to be deposited by the APSFC was not to incur the initial expenditure of publishing the winding up order, but to invite claims from the workmen and other creditors, APSFC should deposit the said amount. Likewise, in C.A.No.12 of 2011 in C.P.No.22 of 1996 dated 03.01.2012, this Court directed the APSFC to deposit Rs.2.00 lakhs towards advertisement expenses for inviting claims.

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While the orders of this Court aforementioned would bind this Court, and require a similar direction to be issued, it is necessary to deal with the contentions urged on behalf of the respondent-APSFC. In Official Liquidator of Essaky Pharmaceuticals Limited¹ , the Supreme Court observed as under:

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“……..It is also important to bear in mind that even before the insertion of proviso to Sections 529(1), 529(3) and Section 529A and amendment of Section 530(1), all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund established for welfare of the employees were payable in priority to all other debts in a winding up proceedings [Section 530(1)(f)]. Even the wages, salary and other dues payable to the workers and employees were payable in priority to all other debts. What Parliament has done by these amendments is to define the term “workmen's dues” and to place them at par with debts due to secured creditors to the extent such debts rank under clause (c)

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of the proviso to Section 529(1). However, these amendments, though subsequent in point of time, cannot be interpreted in a manner which would result in diluting the mandate of Section 11 of the EPF Act, subsection (2) whereof declares that the amount due from an employer shall be the first charge on the assets of the establishment and shall be paid in priority to all other debts. The words “all other debts” used in Section 11(2) would necessarily include the debts due to secured creditors like banks, financial institutions etc. The mere ranking of the dues of workers at par with debts due to secured creditors cannot lead to an inference that Parliament intended to create first charge in favour of the secured creditors and give priority to the debts due to secured creditors over the amount due from the employer under the EPF Act……..”

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(emphasis supplied)

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The afore-extracted portion of the judgment of the Supreme Court would, in fact, go against the contentions urged, before this Court, on behalf of the APSFC as the Supreme Court held that the amounts due from the employer under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (the EPF Act) shall be paid in priority to all other dues. Likewise, the amount now required to be deposited is to enable claims to be invited from workmen and others and, only after adjudication of such claims, do the Rules empower the Official Liquidator to file an application requiring this Court to approve the list of creditors, including workmen’s dues, under Form-71. The submission that the entire expenditure towards advertisement should be borne from out of the workmen’s dues does not, therefore, merit acceptance.

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As has been fairly stated by Sri M.Anil Kumar, Learned Counsel for the Official Liquidator, the amount advanced by APSFC towards advertisement expenses would be repaid first, even before the sale proceeds are apportioned pari passu between the secured creditors and the workmen’s dues. The effect of repayment of this amount to APSFC, before the amount is distributed between the secured creditors and the workmen pari passu, would mean that both the APSFC and the workmen would

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share the expenditure incurred on such advertisement, and it is not as if APSFC alone would bear the burden of the advertisement expenditure from out of its share of dues.

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The contention that it is the statutory obligation of the Central Government to provide requisite funds to the Official Liquidator to meet the expenditure, liable to be incurred under the Act, cannot be easily brushed aside. This question may require a detailed examination. It is only on an appropriate application being filed by the APSFC in this regard, and after the Central Government is given an opportunity of being heard, can this question be adjudicated. Suffice to hold that, since no such application has been made by APSFC nor has the Central Government been arrayed as a respondent in this application, it would not be appropriate for this Court to examine this question at this stage.

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Following the earlier orders of this Court afore-mentioned, APSFC shall deposit Rs.2.00 lakhs with the Official Liquidator within three weeks from today. Though the Official Liquidator has sought permission, in this application, to cause advertisement of the notice in Indian Express (English daily) and Andhra Jyothi (Telugu daily), Sri M.Anil Kumar, Learned Counsel for the Official Liquidator, would state that Business Standard (English daily) and Andhra Bhoomi (Telugu daily) charge the least for advertisement. The Official Liquidator is permitted to cause advertisement in Business Standard (English daily) and Andhra Bhoomi (Telugu daily) Hyderabad editions inviting claims from workmen and other creditors. The requirement of issuing individual notices, pursuant to Rule 148(2) of the Companies (Court) Rules, 1959, is also dispensed with.

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The Company Application is, accordingly, disposed of.

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RAMESH RANGANATHAN,J

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Dt.17.04.2012 Note:CC in one week bo usd

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[1] 2011 (10) SCC 727

M/s Uniloids Limited (In Liqn.) v. M/s A.P.S.F.C.

Case brief

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M/s Uniloids Limited (In Liqn.) v. M/s A.P.S.F.C.

Case brief

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