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Punjab National Bank v. Khandelwal Tube Mills Kamgar Sangh And Others
Factual and Procedural Background
The fourth-respondent company became non-functional in July 2000, leaving its workmen unpaid. An Industrial Court award dated 2-4-2002 directed that wages be paid on the 7th and 22nd of every month. While the workers’ representation for governmental intervention was pending, the petitioner bank issued a notice under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). On 11-10-2002, the State Government convened a tripartite meeting and issued a resolution providing for sale of the company’s assets, with 50 % of the proceeds earmarked for workers’ wages and the remaining 50 % for the bank.
The workers’ union (first respondent) thereafter filed Writ Petition No. 2243 of 2003 before the Nagpur Bench of the Bombay High Court seeking a writ of mandamus to implement the government resolution and to compel the State to frame an expeditious recovery scheme. The High Court held that the resolution lacked legal sanctity and could not be enforced through mandamus, but directed the Labour Court to dispose of the workers’ applications under Section 33-C(2) of the Industrial Disputes Act, 1947 and, crucially, declared that “the workers’ dues have priority over the claims of the secured creditors.”
Aggrieved by this declaration on priority, the petitioner bank filed the present special leave petition before the Supreme Court of India.
Legal Issues Presented
- Whether, in the recovery of wages determined by the Labour Court under Section 33-C of the Industrial Disputes Act, workers’ dues enjoy priority over the claims of secured creditors proceeding under the SARFAESI Act.
- Whether the High Court could declare such priority without a reasoned discussion or hearing full arguments from the affected parties.
Arguments of the Parties
Petitioner Bank
- Relied heavily on the statutory scheme of the SARFAESI Act, 2002, asserting that the Act grants secured creditors priority over other claims when enforcing security interests.
Workers’ Union
- Contended that wages determined under Section 33-C(2) are recoverable as arrears of land revenue pursuant to Section 33-C(4), and therefore attain priority over secured creditors’ claims.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court observed that the High Court had announced the priority of workers’ dues “without entering into any discussion and without giving any reasons,” notwithstanding that the matter was “certainly a contentious issue.” Acknowledging that complete arguments on this point had not been heard, the Court deemed it “desirable that the High Court considers this issue afresh and passes a reasoned order.” Consequently, the apex court remitted the question of inter se priority between workers and secured creditors to the High Court for fresh consideration. It expressly refrained from expressing any view on the merits and preserved its interim order dated 9-2-2004 for three months to maintain the status quo.
Holding and Implications
Holding: The special leave petition is disposed of; the issue of priority between workers’ dues and secured creditors is remitted to the Bombay High Court for fresh, reasoned adjudication. The Supreme Court’s interim order remains operative for three months.
Implications: The High Court must now conduct a detailed examination of statutory provisions governing priority of claims, affording both parties a full hearing. The decision does not create new precedent on the priority question; it merely reopens the matter for proper determination while temporarily preserving the existing interim relief.
Order
1. This special leave petition arises out of an order dated 5-8-2003 passed by the Nagpur Bench of the Bombay High Court in Writ Petition No. 2243 of 2003. That writ petition was filed by the first respondent Union, praying for issuance of a writ of mandamus to implement the government resolution dated 11-10-2002. The writ petitioner also sought further direction to the State Government to frame a scheme in order to expedite the recovery of the dues of the workers. It appears that the 4th respondent Company has become non-functional since July 2000. A representation was made by the workers' Union to the State Government seeking intervention of the Government for securing the wages due to them. By that time, the award of the Industrial Court, Nagpur, was given in favour of the workmen to the effect that the workers were entitled to receive their wages on 7th and 22nd of each month. While the representation was pending, it appears that the petitioner Bank had issued a notice under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. While so, the Government passed an order dated 11-10-2002 after calling a meeting of the representatives of the Bank, the Company and the workers. The order contemplated inter alia the sale of movable and immovable properties of the Company and payment out of the sale proceeds to the extent of 50% towards wages to the employees and the remaining 50% to the petitioner Bank. After this Government's order, the respondent Union also filed an application before the Labour Court under Section 33-C of the Industrial Disputes Act for the computation of the wages in terms of the earlier award dated 2-4-2002. The management of the Bank was not willing to abide by the government resolution. At that stage, the writ petition was filed in the High Court praying for reliefs stated supra.
2. The High Court by the impugned judgment has rightly held that the order of the Government has no legal sanctity and therefore, no mandamus can be issued directing implementation of the resolution. The High Court then took note of the proceedings initiated by the workmen under Section 33-C(2) in the Industrial Court, Nagpur and gave certain directions for the expeditious disposal of the applications. We are informed that the said applications have since been disposed of by the Industrial Court determining the wages payable to the workmen at Rs 2.41 crores.
3. The petitioner Bank is, however, aggrieved by the following directions, especially the underlined portion of the High Court's judgment:
“If the Labour Court determines and computes the legal dues payable to the workers, it shall issue appropriate certificate under Section 33-C(4) of the Industrial Disputes Act, 1947 to the Collector directing the Collector to recover the said amounts in accordance with law. The Collector shall thereafter recover the amounts under the said certificate, as expeditiously as possible, within a period of three months from the receipt of the certificate from the Labour Court. The Collector shall bear in mind that the workers' dues have priority over the claims of the secured creditors.”
4. It is seen that the High Court reached the conclusion that the workers' dues should have priority over the claim of the secured creditors (such as the Bank) without entering into any discussion and without giving any reasons. This issue which has evidently cropped up in the course of hearing of the writ petition is certainly a contentious issue. While the petitioner heavily relies on the provisions of the Securitisation Act, 2002, the learned counsel for the Workers' Union submits that the workers' dues payable under the Labour Court's order have priority in view of the fact that they are deemed to be arrears of land revenue recoverable by the Collector. Apparently, the High Court made the observation as above, without hearing full-fledged arguments in this behalf. It is, therefore, desirable that the High Court considers this issue afresh and passes a reasoned order. We, therefore, remit the matter to the High Court for fresh consideration insofar as the question of inter se priority is concerned.
5. We make it clear that the decision on this aspect is left open for determination afresh by the High Court and this order shall not be construed as expression of any view on the merits. We further leave it open to the respondent Union to move the High Court for appropriate interim orders if necessary, in regard to the recovery/payment of the dues. However, for a period of three months from today, the interim order passed by this Court on 9-2-2004 will remain in force. We hope that the writ petition will be disposed of expeditiously in view of the nature of problem involved in the case.
6. The special leave petition is disposed of accordingly.
7. In view of the above order, no orders are necessary in regard to the intervention application.
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