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The Maharashtra State Cooperative Bank Ltd V/s Babulal Lade & Ors.
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The Maharashtra State Cooperative Bank Ltd V/s Babulal Lade & Ors.
The Maharashtra State Cooperative Bank Ltd V/s Babulal Lade & Ors.

Facts of the Case

The above appeal has arisen out of the judgement passed by the bench of Nagpur High court where the order had been directed through the issuance of a recovery certificate against the appellant in this case.

The above appeal was made due to the below-given facts of the case.

While duly registering under the Maharashtra Co-operative societies act 1960 Respondent no. 6 had obtained some credit facilities from the above-said bank and had mortgaged his property with the bank in return. When the respondent, failed to repay the loan the bank started to initiate recovery proceedings against him, through issuing a notice to the respondent under section 13(2) of the SARFASI ACT 2002 and acquired physical possession of the respondent’s property as per section 13(4).

Thus, taking into account poor financial condition, the employees at the small Kharkhana were issued a notice stating that they can search for another work and they won't be able to pay their salaries as well. This was then further challenged in the industrial court, and the above notice was quashed by the court stating that these rules resulted in unfair labour practice. The court had directed that the employees must be paid their salaries on a priority basis through any funds that are currently available. This funds can be reserves that every company stores for unforeseeable events. On the basis of the order given by the industrial court, the appellant bank could not recover a certificate for recovering the dues through the court.

However, the High Court of Bombay had held that they could be made only against the Kharkhana and not against the employees who were working in the bank. According to this, the court directed the issuance of a recovery certificate against the Kharkhana and its managing directors. However, this issue of recovery was rejected.

In an interim order passed by the court, the bank had auctioned and sold the Kharkhana to some other party. They had proceeded with the sale amount that was to be given by the respondent, and the original amount that was due. After liquidation, it was found that Section 529 A of the Companies Act, 1956 came into operation under this, and it was held that the collector could recover the amount that was due that is Rs. 13,89, 84, 334 through the sale proceeds acquired by the bank. After hearing both the parties of the respondent, the Senior counsel for the appellant submitted that section 529 A of the Companies Act was not applied appropriately, and he also submitted that the provisions of Section 13(9) under the SARFASI ACT require the company to be in a liquidated format and secured assets at the time of sale, and there is a provision that makes the payment of salaries or dues to the employees as on an immediate basis. Thus, the bank must be given preference than any other to take their amount from auction sales. With this, there is no relevance of an employer-employee relationship between the bank and the employees of the Kharkhana.  Thus, after both, the counsels argued that the court had found some merits in the provisions raised by the learned counsel of the appellant and it is duly considered by the said court, then various cases were also laid down such as the Central Bank of India Vs State of Kerala, Builders supply corporation Vs Union of India. The argument was also made with regards to the sale letter via the appellant bank, SICOM Limited Vs State Of Maharashtra & Anr.

Issues of the Case

  1. How was the section 529 A of Companies Act was applied in the above matter?
  2. Whether the dues of the employees can be a priority other than the claim to recover arrears of Land Revenue?

Therefore, it is evident from the provisions mentioned that the dues of the employees made by the industrial court are also recoverable at par with the arrears of the land revenue, and it was argued by the senior counsel that the recovery land revenue is of utmost importance as mentioned in the land revenue code as the provisions from this code were stated by the counsel. The claims of the employees also fall under section 50 of the MRTU and PULP act. According to section 169 (2) - one’s first priority can be for claiming their dues.

Various other rules and regulations of the SARFAESI act were discussed during the proceedings.

Judgment/Court Observation

In light of the discussions that were made by the learned counsel for the above matter, the court has observed the following parameters.

  1. The provisions of the company’s act cannot be applied under this scenario as due priority must be given to the workers for the payment of their dues which becomes the foremost responsibility of any company working according to the Company’s Act.
  2. In light of the order issued by the industrial court, paramount importance has to be given to the workers and not to the arrears of the land revenue for claim as per the code.
  3. Thus, in this case, the appellant bank does not possess any importance with regards to recovering charges under the SARFAESI act.
  4. As per the total result, the appellant bank must give the dues to the employees or the workers from the sale proceeds of the auctioned property, adding that if there is any further delay in the payment of dues and recovery of the same shall be made by the collector within the fixed time period of six months from the date of passing of the order.
  5. All other dues such as PF, gratuity, the bonus shall be paid by the respondent number 5 within six months as stated in the order.
  6. The employees of a company have various legal rights when they are not paid their dues on time. This rights can be revoked by the employees against the company, during their course of employment.
  7. The appeal was disposed of after the order had been passed by the court.

Supreme Court of India

Case number- 232/ 2016

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