Summary
The Court required the secured bank to satisfy unpaid salaries from auction proceeds because its sale contract expressly allocated employees’ dues to it. Neither the Companies Act priority nor recovery as land-revenue arrears created the claimed paramount charge for employees of this co-operative society. Nevertheless, the sale letter and certificate constituted a contrary contract under Section 13(7) SARFAESI and displaced its default distribution order. Other liabilities, including statutory employee dues, remained with the purchaser.
Issues
- Whether employees’ recovery claims had statutory priority over the secured bank.
- Whether the sale documents independently obligated the bank to pay employees’ dues from the proceeds.
Provisions considered
- Section 167, Maharashtra Co-operative Societies Act, 1960The express exclusion of the Companies Act prevented reliance on Section 529A for this registered society. (¶¶ 8, 14(i))
- Section 169(1) and (2), Maharashtra Land Revenue Code, 1966Amounts merely recoverable as land-revenue arrears did not acquire the paramount charge applicable to land revenue itself. (¶¶ 9, 10.1, 10.2, 10.3, 10.4, 14(ii))
- Section 13(7), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The sale letter and certificate formed a contrary contract allocating employees’ dues to the bank and other liabilities to the purchaser. (¶¶ 12, 13.1, 13.2, 13.3, 13.4, 13.5, 14(iii), 14(iv), 14(v))
Held
- The Companies Act priority did not apply to the co-operative society. Recovery of salaries as arrears of land revenue did not itself make them a paramount charge or give priority over secured claims. (¶¶ 8, 9, 10.1, 10.2, 10.3, 10.4)
- Absence of an employees’ paramount charge did not automatically give the bank a statutory first charge. The governing distribution under Section 13(7) remained subject to a contract to the contrary. (¶¶ 11, 12)
- The sale documents had to be read together, and the purchaser’s intervening changes of name did not alter its identity. They allocated employees’ dues to the bank; the bank’s later attempt to confine its undertaking to provident fund was rejected. (¶¶ 13.1, 13.2, 13.3, 13.4)
- The recovery certificate could be executed against the bank for salaries from sale proceeds. Other liabilities, including statutory employee dues such as provident fund, gratuity and bonus, were payable by Respondent No. 5 under the allocation. (¶¶ 13.5, 14)
Result
Appeal disposed of. Bank required to pay employees’ dues from sale proceeds; Collector directed to effect recovery under the certificate to that extent within six months. Respondent No. 5 required to pay other dues, including statutory employee liabilities, within six months.