RADHESHYAM AJITSARLA AND ANR. versus BENGAL CHATKAL MAZDOOR UNION AND ORS.

Citation: [2006] SUPP. 2 S.C.R. 918 · Decided: 24-05-2006 · Supreme Court of India · Bench: AR. LAKSHMANAN · Disposal: Disposed off

Judgment (excerpt)

A 
RADHESHY AM AJITSARlA AND ANR. 
v. 
BENGAL CHA TKAL MAZDOOR UNION AND ORS. 
MAY 24, 2006 
B 
[DR. AR. LAKSHMANAN AND R.V. RA VEENDRAN, JJ.] 
Company Law: 
Payment to unsecured creditors-In the course of winding up of a 
C 
company/factory-Order for winding up of factory-Stayed subsequent to 
proposal by a group of creditors (Managing group} of the factory to run the 
factory by propounding a scheme-The managing group was also one of the 
pre-scheme creditors-Scheme approved by Supreme Court-Direction of 
Supreme Court to deposit a sum for disbursement of the same amongst 
D 
E 
F 
unsecured creditors-Deposit of certain amount by subsequent management-
The deposited amount lymg with Registrar, High Court-The managing 
group and another group of creditors were denied payment by the Court-
High Court allowed payment to another group and to the managing group 
to the extent of 25% and/or one fourth of their settled claim-In appeal filed 
by the Labour union of the factory, High Court directed rea<{judication of 
the claims-In appeal, held: the managing as well as another group of 
unsecured creditors are entitled for payment as pre-scheme unsecured 
creditors-Funds are meant for disbursement only to unsecured creditors-
Workers do not have a right to oppose the payment to unsecured creditors-
They do not have priority over creditors as the factory is not wound up and 
is still a going concern-Companies Act, 1956-Section 529 A-Employees 
State Insurance Act, 1948-Employees Provident Fund Act, 1952. 
Companies Act, 1956-Section 529 A-Applicability of the provision-
Winding up-stayed pursuant to a scheme for running the company-Claim 
G 
of preferential right of workers over unsecured creditors under the provision-
Held: Protection under the provision is available only when the company 
has been wound up---1t is not applicable when the compa1.y is a going 
concern as a result of stay of winding up. 
H 
Words and Phrases: 
918 
RADHESHY AM AJITSARIA v. BENGAL CHA TKAL MAZDOOR UNION 
919 
'In winding up'--Meaning of in the context of Sections 441 and 529A 
A 
of Companies Act, 19 5 6. 
Respondent-factory was ordered to be wound up. Thereafter a 
scheme was propounded to run the factory by 'N' group (the largest 
group of creditors of the factory). The scheme provided for payments 
to workers, electricity dues, statutory creditors and unsecured creditors. 
'N' group was also included in the list of pre-scheme creditors. The 
winding up was stayed. The scheme was approved by High Court as well 
as by this Court. The scheme was finally passed by High Court with the 
support of secured creditors as well as the workers. Thereafter some 
unsecured creditors approached High Court complaining that they were 
not paid. In view of the complaint, Company Judge cancelled the 
scheme. In appeal against the cancellation of the scheme, rate of 
payment was reduced from 2% to 1 % by the High Court. In Special 
Leave Petition this Court by its Order dated 31.3.1994 directed 'N' 
group to deposit a sum of Rs. 40 lacs by way of interim measure. The 
Court also set aside the order of High Court reducing the rate of 
payment from 2% to 1 % and further directed the Committee to deposit 
Rs. 8 lacs per month. The amount of Rs. 40 lacs was transferred to High 
Court for distribution of the same amongst the creditors. 'N' group was 
replaced by another Committee of Management by Company Judge and 
directed them to deposit Rs. 64 lacs and further directed payments to 
substantial creditors except 'N' group. In appeal, Division Bench of High 
Court allowed the new Committee to continue with the process of the 
scheme, but set aside the direction for preferential payment to the 
named unsecured creditors. Company Judge directed all pre-scheme 
unsecured creditors to lodge their claims. 
Registrar prepared the Report whereby name of 'N' group was 
included while the name of 'A' group was excluded as persons entitled 
to receive payments. Registrar, despite' A' group not being held as part 
of 'N' group, did not make any payments to them. Company Judge by 
order dated 9.9.1998 directed payment to all unsecured creditors except 
'N' group on the ground that the group had made larger payments to 
members of its group in comparison to other unsecured creditors. 
Division Bench, in an appeal against order dated 9.9.1998 filed by 'J' 
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c 
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G 
by order dated 30.11.1998/1.12.1998 set aside the Registrar's report 
insofar as the same exceeded the amo

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