RAJEEV SHENOY K R Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) Are the wages for the period after a company suspends the operations of its establishment before an order for winding up, part, of workmen's dues entitled to overriding preference in payments in terms of S.529A of the Companies Act, 1956, hereinafter, the 'Act'

(2.) The applicant was an employee in the officer cadre in the service of the company under liquidation and is the trustee of the Provident Fund, hereinafter, the 'PF Trust', duly constituted and approved to cover the officer cadre employees of that company, in terms of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, for short, the 'PF Act'. He states that the company had to suspend its operations on 26/01/1991 due to labour unrest and the Board for Industrial and Financial Reconstruction, hereinafter, the 'BIFR', declared it a sick unit on 30/09/1991 under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 for short the 'SIC Act'. Following the order for its winding up, issued by this Court on 18/06/1998 in CP No. 2 of 1996, the assets of the company in liquidation were taken over by the Official Liquidator, the 'OL', for short. The claim of the PF Trust for preferential payment of Rupees Three Hundred and Twenty Five lakhs under S.529A of the Act is stated to be pending before the Division Bench in Company Appeal No. 10 of 2008.

(3.) According to the applicant, in adjudicating the claims, the OL has illegally allowed wages to the workers for the period from 26/01/1991, the date on which the company suspended the operations of its establishment to 18/06/1998, the date of the order for winding up, treating such wages as a secured debt of the company, though no worker had rendered any service to the company during that period. It is contended that S.529A of the Act stipulates that only wages due for service rendered by the workers is to be treated as secured and that therefore, the OL has exceeded authority in treating the wages to the workers from the date of closure to the date of the order for winding up, that is from 26/01/1991 to 18/06/1998 as a secured debt. It is hence sought that the OL may be directed to stop any further payment of amounts towards wages to workers for the period of closure before the order for winding up, and to recover such payments already paid by way of first dividend.