ANDHRA BANK versus OFFICIAL LIQUIDATOR AND ANR.

Citation: [2005] 2 S.C.R. 776 · Decided: 14-03-2005 · Supreme Court of India · Bench: N. SANTOSH HEGDE · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
ANDHRA BANK 
v. 
OFFICIAL LIQUIDATOR AND ANR. 
MARCH 14, 2005 
B 
[N. SANTOSH HEGDE, B.P. SINGH AND S.B. SINHA, J.T.] 
Companies Act, 1956: 
Sections 529-A and 529-0verriding preferential payment-Bank-secured 
C creditor's claim against Company-Winding up of company-Assets sold, as 
an ongoing concern, purchaser entered into settlement with workmen regarding 
past salaries of workmen and workmen were paid substantial amount-Bank-
secured creditor standing outside winding up proceedings-High Court 
directing the bank to pay past dues to workmen on ad hoc basis over claim 
D of secured creditors-Sustainability of-Held: Claims of the secured creditors 
are pari passu with the workmen-Debts due to secured creditor is considered 
for ascertainment of workmen's portion of security-Hence, cannot be said 
that workmen's dues have complete priority over~all other creditor, as such 
order of High Court unsustainable-Further, correctness of an equitable order 
is judged in' light of subsequent events and High Court did not consider the 
E subsequent events-Also gave ·no reasons for such direction-Furthermore, 
rights and obligations of the parties are determined after the /is is adjudicated 
upon, as such issuance of any certificate under section 19 would arise upon 
the conclusion of the froceeding before it-Since order of High Court was 
passed after RDB Act came into force but before establishment of Debt Recovery 
Tribunal in State, dispute is to be resolved with reference to the Act-Recovery 
F of Debts Due to Banks and Financial Institutions Act, 1993, Section 19. 
Sections 529-A and 529-Interpretation of-Discussed. 
Section 446-Power of Company Judge-Held : Section confers wide 
power upon Company Judge, but can be exercised only upon consideration of 
G contentions of parties raised in a suit or proceeding or any claim made-
Priorities would also be determined if the parties claim the same before the 
Court-However, section 446 ipso facto confers no power upon the Court to 
pass interlocutory orders. 
H 
776 
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ANDHRA BANK v.OFFICIAL LIQUIDATOR 
777 
A Company was obtaining and enjoying diverse credit facilities A 
from the appellant-Bank upon hypothecation of goods, raw materials, 
stocks of tobacco including movable properties. Company went in 
liquidation. Appellant filed recovery suit against the Company. Joint-
receivers sold the hypothecated goods lying in the factories and sale 
proceeds of Rs. 135 lakhs was deposited in a fixed deposit with the . B 
appellant. Thereafter, winding up order of the Company was passed. 
Assets and the properties of the Company were directed to be sold, as an 
ongoing concern and purchaser entered into a settlement as regard past 
salaries of the workmen. Single Judge of High Court directed the appellant 
to pay Rs 38 lakhs to the Liquidator on an ad hoc basis for disbursing the 
salaries to Officers, staff and workers of the Company. Appellant C 
challenged the order of disbursal. The.said order was later upheld by the 
Division Bench of High Court. Meanwhile, the suit filed by the appellant 
was transferred to DRT. Hence the present appeal. 
Appellant-B~nk contended that High Court erred in passing the 
order since the assets of the Company had been sold as a going concern D 
and the purchaser entered into a settlement as regards past salaries of 
the workmen, and a sum of Rs 6.8 crores had already been paid; that the 
workmen could approach only if such ainount was not sufficient to pay 
the entire dues of the workmen; that the appellant was outside the purview 
of the winding up proceeding as it filed the suit upon obtaining leave of E 
the Company Judge under section 446 of the Companies, 1956; that the 
ad hoc order passed was without jurisdiction; and that the workers' dues 
could not be held to have any precedence over all secured and unsecured 
creditors as has been held by this Court in Allahabad Bank's case and 
reliance thereupon by the High Court was unsustainable. 
Respondents contended that the High Court has extensive 
jurisdiction to decide any question arising between the parties or any 
claim made under the Companies Act in terms of Section 446 thereof; 
F 
that when the Single Judge passed the order as far back as 1993, the 
judgment of this Court in Allahabad Bank's case was not pronounced and 
even the Debts Recovery Tribunal was not constituted and as such the G 
judgment should be upheld without reference to the provisions of the 
Recovery

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