UCO BANK versus THE OFFICIAL LIQUIDATOR HIGH COURT, BOMBAY AND ANR.

Citation: [1994] SUPP. 1 S.C.R. 294 · Decided: 11-07-1994 · Supreme Court of India · Bench: J.S. VERMA

Judgment (excerpt)

A 
B 
c 
1• 
UCO BANK 
v. 
THE OFFICIAL LIQUIDATOR HIGH COURT, 
BOMBAY AND ANR. 
JULY 11, 1994 
,; 
[J.S. VERMA AND S.P. BHARUCHA, JJ.) 
Companies Act, 1956: Sections 529, 529-A and 530 (As amended by 
Companies (Amendment) Act, 1985}-Scope and object of 
Proviso to Section 529-He/d applicable to a secured Creditor's claim 
based on a decree obtained prior to its insenion. 
The appellant-Bank, a secured creditor of a Company against which 
a winding up order was passed, obtained a decree to recover its debt 
D against the Company. In the meantime, by the Companies (Amendment) 
Act, 1985, Sections 529 and 530 of the Companies Act, 1956 were amended 
and Section 529-A was inserted. The Proviso added lo Section 529(1) 
provided that the security of every secured creditor shall be deemed to be 
subject to a pari passu charge in favour of the workmen. The appellant's 
E claim, that the amendment including the newly added proviso was inap-
plicable to its case since it had obtained the decree prior to the amend· 
ment, was allowed by the Company Court but on appeal the High Court 
rejected it. 
F 
G 
In appeal to this Court, ii was contended on behalf of the appellant· 
Bank that the said proviso does not apply lo a decree obtained for 
realisation of the security available to the s_ecured creditor if the decree 
was obtained prior to the amendment even though realisation of the 
security by execution of the decree is subsequent to the amendment. 
Dismissing the appeal, this Court 
HELD : 1. The proviso to sub-section (i) of Section 529 inserted by 
the Amending Act clearly provides that the security of every creditor shall 
be deemed to be subject to a pari passu charge in favour of the workmen. 
The effect of the proviso is to create, by statute, a charge pari passu in 
H favour of the workmen on every security available to the secured creditor 
294 
UCO BANKv. OFFICIAL LIQUIDATOR, H.C. 
295 
or the employer company for recovery or their debts at the time when the A 
amendment came into force. This expression is wide enough to apply to 
the security or every secured creditor which remained unrealised on the 
date or the amendment. The clear object or the amendment is that the 
legitimate dues or workers must rank pari passu with those or secured 
creditors and above even the dues or the Government. This literal con-
struction or the proviso is in consonance with, and promotes the avowed 
object or the amendment made. [298-G, H 29~A) 
B 
2. The existence or the security on the date the amendment came into 
effect creates a pari passu charge in favour or the workmen upon that 
security. It is only if the security has been realised, pursuant to a decree, C 
prior to the date or the amendment that the pari passu charge is not 
created, for there is no security upon which it can operate. There is, 
therefore, no retrospectlvity in the operation or the provision as inter-
preted by this Court. [299-C] 
3. A debt due to a secured creditor, when recovered by realisation or 
the security after commencement or the winding up proceedings, results in 
depletion or the assets in the hands or the Official Liquidator. In view or 
the nHture of workmen's dues being similar to those of secured creditors, 
D 
the purpose or the provision is to place the workmen at par with the 
secured creditors and create a statutory charge in their favour on all 
E 
available securities forming part or the assets or the company in liquida-
tion so that the workmen also share the securities pari passu with the 
secured creditors. The workmen contribute to the growth or the capital and 
must get their legitimate share in the assets or the company when the 
situation arises for its closure and distribution or its assets first among 
the secured creditors due to winding up or the company. The amendment 
made in the Act is a statutory recognition or this principle. To achieve this 
purpose, it is necessary that the amended provisions mnst apply to all 
available securities which form part or the assets of the company in 
liquidation on the date of the amendment. [299-D, E, ~') 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 816 of 
1992. 
From the Judgment and Order dated 16.10.91 of the Bombay High 
F 
G 
Court in A.No. 920 of 1991. 
H 
296 
SUPREME COURT REPORTS [1994) SUPP.1 S.C.R. 
A 
Dr. Shankar Ghosh, A.K. Sil, G. Joshi and G. Kandpal for the 
Appellant. 
Arvind Kumar, Ms. Lamli Arvind for the Respondent No. 1. 
Ms. Suruchi AggarwaUor Ms. Manik Karanj

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