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PETITIONER:

ALLAHABAD BANK

Vs.

RESPONDENT:

CANARA BANK & ANOTHER

DATE OF JUDGMENT: 04/04/2000

BENCH:

M.J.Rao, N.S.Hegde

JUDGMENT:

M.JAGANNADHA RAO,J.

Leave granted.

The case raises issues relating to the impact of the

provisions of the Recovery of Debts due to Banks and

Financial Institutions Act, 1993 (hereinafter called the RDB

Act ) on the provisions of the Companies Act, 1956. The

immediate dispute before us is between two nationalised

Banks, the Allahabad Bank (appellant) on the one hand which

has obtained a simple money decree against the

debtor-company (M/s M.S.Shoes (East) Co. Ltd. from the

Debt Recovery Tribunal at Delhi under the RDB Act and the

Canara Bank on the other, whose claim as a secured creditor

is still pending before the same Tribunal at Delhi against

the same company. The Allahabad Bank has appealed before us

against an order passed by the learned Company Judge under

sections 442 and 537 of the Companies Act, (in a winding up

petition by Ranbaxy Ltd.) staying the sale proceedings taken

out by the Allahabad Bank before the Recovery Officer under

the RDB Act. Applications for winding up the defendant

company are pending in the Delhi High Court. As yet no

winding up order has been passed nor a provisional

liquidator appointed as contemplated by section 446(1).

Point has been raised by the respondent - Canara Bank that

the appellant Allahabad Bank is obliged to seek leave of the

Company Court under the Companies Act, 1956 and the Company

Court can stay these proceedings as aforesaid under Sections

442 and 537 for the ultimate purpose of deciding the

priorities, in the event of a winding up order or other

order appointing a provisional liquidator being passed under

section 446(1) of the Companies Act, 1956. After the

appellant obtained decree from the Debt Recovery Tribunal,

some properties of the company have been sold by the

Recovery Officer. Appellant contends that the Tribunal

under the RDB Act can itself deal with the question of

appropriation of sale proceeds in respect of sales of the

company properties held at the instance of the appellant and

the priorities and that the appellant alone is entitled to

all the sums so realised. The matter was argued and

judgment was reserved. Thereafter, our attention was

invited by the learned counsel for the respondent - Canara

Bank to the Amending Ordinance(Ordinance 1 of 2000) which

came into force with effect from 17.1.2000. The effect of

the Ordinance and in particular section 19(19) then fell for

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consideration. Question of distribution of the sale

proceeds by Company Court/Tribunal and method of working out

priorities among creditors was argued. The facts of the

case are as follows: The appellant Bank filed O.A.No.109 of

1995 before the Debt Recovery Tribunal, Delhi under section

19 of the RDB Act, 1993 for recovery of Rs.21,49,29,520 and

a simple money decree was passed on 13.1.1998 with interest

at 18% and interest tax levy at 0.75% p.a. Recovery Case

(R.C.No.9 of 98) was filed by the Allahabad Bank for

recovery before the Recovery Officer. The debtor Company

filed appeal No.270 of 1998 before the appellate Tribunal

and there was no stay inasmuch as there was default in

deposit of the money directed to be deposited. O.A. No.784

of 1996 was filed by the Canara Bank also under the RDB Act

in the Debt Recovery Tribunal, Delhi for a decree for

Rs.14,40,05,982.98 plus interest and it was said that a sum

of about Rs.25 crores was due from the same company. The

said O.A. of Canara Bank is pending in the Delhi Tribunal

under the RDB Act. The Canara Bank filed interlocutory

application before the Recovery Officer for impleadment in

the said recovery case of the appellant, viz., R.C.9/98

seeking pro-rata distribution of sale proceeds from auctions

of the debtor company's properties. The appellant Bank

resisted the same contending that inasmuch as no orders have

been passed in favour of the Canara Bank in its claim filed

before the Delhi Tribunal against the same company, there

was no question of impleading the Canara Bank. As regards

proportionate disbursement of sale proceeds, it was observed

that that question was premature and that the said issue

could be considered after sale proceeds were received by the

Tribunal. These applications were dismissed on 28.9.98.

The property of the debtor company situated at Village

Kherki Daula, admeasuring Ac 32.64 was sold on 8.1.99 for

Rs.2,30,11,200. The sale was confirmed on 16.2.99 by the

Recovery Officer. Property of the Company at village

Dundahera admeasuring Ac 4.23 was also sold on 15.1.99 for

Rs.3,17,34,375, but the Recovery Officer declined to confirm

that sale and directed fresh auction and the appellant Bank

filed W.P. under Articles 226, 227. Canara Bank then filed

applications in the Debt Recovery Tribunal under section 22

of the RDB Act in January,1999 seeking stay of recovery

proceedings in RC No.9/98. They were heard on 25.2.99,

adjourned to 3.3.99 then to 5.3.99. On 5.3.99, the counsel

for Canara Bank informed the Recovery Officer that it had

filed Company application No.296 of 1999 in Company Petition

No.141/95 (being a winding up petition filed by Ranbaxy Ltd.

against M.S.Shoes Co.) under sections 442, 537 of the

Companies Act for stay of the appellant's Recovery Case, RC

No.9/98. The said CA 296/99 was filed by Canara Bank in CP

141/95 under section 442 and section 537 of the Companies

Act seeking stay of RC 9/98 and for staying sales of assets

of company by the appellant Bank. Later on Canara Bank

filed CA 323/99 again under section 442 and section 537 for

similar reliefs as in CA 296/99. On 9.3.99, the learned

Company Judge passed the impugned order in CA 323/99 under

section 442 read with section 537 of the Companies Act

staying the further sale of assets of the Company in RC 9/98

in OA 109/95 and also restraining disbursement of monies

already realised in other sales. It is against the above

order dated 9.3.99 that this appeal has been preferred.

(While narrating the facts, we have not referred to a number

of other proceedings taken out by the debtor- company before

various Courts to stall the sales. In fact allegations have

been made that the action of the Canara Bank in trying to

stall sales - which are being held at the instance of the

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Allahabad Bank - was intended to benefit the

debtor-company.These allegations were, of course, denied by

the Canara Bank. We shall refer to some subsequent events

which took place during the pendency of this appeal. On

14.5.99 this Court passed an order in favour of the

Allahabad Bank directing that the sale of the debtor

company's property in shed No.15 to go on but that the sale

proceeds be not distributed. Unfortunately, the sale was

not held for quite some time due to an omnibus stay order

dated 29.6.99 passed by the Tribunal at Delhi. That order

was stayed by the Appellate Tribunal, Bombay on 29.6.99.

The sale did not take place even by 7.1.2000. This Court

then issued further orders on 7.1.2000 for sale of the

company's property in Shed No.15. Thereafter, sale of

Industrial Shed No.15/Category-II under SFS at Rohtak Road,

Industrial Complex, New Delhi-110005 was held on 28.1.2000.

(The raw material and machinery in the shed which were said

to have been mortgaged to Canara Bank were removed and

segregated. An order was passed that an inventory be

prepared and to remove the pledged property). It appears

the sale proceeds of about Rs. 20 lakhs are in deposit in

this Court. Now, the position is that some sale proceeds

are in deposit in the Tribunal and some in this Court, all

such sales having been held at the instance of the appellant

Bank alone. Questions have been raised by the respondent as

to whether the Tribunal can entertain proceedings for

recovery, execution proceedings, and also for distribution

of monies realised by sales of properties of a company

against which winding up proceedings are pending, whether

leave is necessary and as to which Court is to distribute

the sale proceeds and according to what priorities among

various creditors? In this appeal, Sri Soli Sorabjee, the

learned Attorney General for India appearing for the

appellant, Allahabad Bank has submitted that the RDB Act of

1993 is a special statute intended for expeditious

adjudication and recovery of debts due to banks and

financial institutions and it contains two crucial

provisions. One of them is section 18 which ousts the

jurisdiction of all Courts or other authorities (except the

Supreme Court and the High Court exercising powers under

Articles 226, 227) in relation to matters covered by section

17 and that section 17 covers the entire procedure from the

filing of an application under section 19, to the

`adjudication' and `recovery'. These matters are taken out

from the purview of the Companies Act, including sections

442, 537 and section 446 of the said Act. The proceedings

under the RDB Act cannot be stayed by the Company Court nor

can they be transferred to the Company Court. No leave of

the Company Court is necessary either for the filing of the

OA for adjudication of the debt nor for executing the decree

passed by the Tribunal. Section 34(1) gives overriding

effect to the provisions of the Act save as provided in

section 34(2). Section 34(2) as amended by Ordinance 1/2000

proceedings saves only six statutes from the purview of

section 34(1). The Companies Act, 1956 is not one of them.

Hence, the RDB Act, 1993 overrides sections 442, 537 and

also section 446 of the Companies Act. It is contended that

even otherwise section 446 cannot be invoked in this case

because there is no winding up order nor an order appointing

a provisional liquidator so far. So far as principles

underlying section 73 CPC are concerned, even if

applicable,- on facts, they are not attracted before the

Tribunal since no decrees have been obtained from any Civil

Court or Debt Recovery Tribunal by the Canara Bank

(respondent) nor any steps as visualised by section 73 have

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been taken by the Canara Bank. It is urged that Courts must

interpret the RDB Act of 1993 so as to subserve the purpose

of realisation of thousands of crores of Bank funds which

are due. The legislature intended to avoid the long drawn

proceedings in the Civil Court as well as under section 442

and 446 and 537 of the Companies Act and this is now clear

from section 19(19) as re-enacted by Ordinance 1/2000 which

permits even the working out of priorities by the Tribunal.

Several rulings of this Court and of High Courts under

various other statutes have been cited before us and we

shall refer to them at the appropriate stage. It is

submitted that the appellant Bank having got a decree and

having got the properties sold is solely entitled to the

entirety of these proceeds and there is no question of the

appellant sharing the sale proceeds with others nor is it

necessary to wait till the Canara Bank gets a decree in its

O.A. pending before the Delhi Tribunal. Important

submissions have been made by the learned Attorney General

as to the effect of section 19(19) introduced by Ordinance

1/2000, it is contended by the learned Attorney General that

only section 529A of the Companies Act is attracted and that

too for a limited purpose if a question of "workman's

portion" is involved. No such question has arisen so far.

Hence no other provision of the Companies Act, much less

section 529(1) or (2) are attracted. In the Company Court,

any secured creditor who has not stood out of winding up but

wants to come before the Company Court has to give up his

security and prove his debt before the liquidator to seek

dividends as per the insolvency rules mentioned in section

529(1), read with sections 45 to 50 of the Provincial

Insolvency Act and stand in the queue along with all

unsecured creditors under section 529(2). Even that

procedure is applicable only in respect of any monies

realised by the Company Court and not by the Tribunal. The

limited extent to which secured creditors can claim priority

under the RDB Act is as limited by section 19(19) of the RDB

Act and this is covered by section 529A alone read with

sub-clause (c) to the proviso to section 529(1). The effect

of these provisions is that if any monies are realised by

Canara Bank by standing outside winding up and if any part

of such realisations of the Canara Bank are taken away by

the liquidator for payment to workmen, only to the extent of

such "workmen's portion", can the Canara Bank have priority

over other creditors. Otherwise, Canara Bank cannot invoke

Section 529(1), (2) and that too before the Tribunal. On

the other hand, learned counsel for the Canara Bank Sri

Y.P.Narula has submitted that when a winding up petition is

pending in the Company Court, it is necessary that the leave

of the Company Court is obtained for obtaining a decree

before the Tribunal or for execution before the Recovery

Officer. Sections 442, 446, 537 applied even to proceedings

under the RDB Act. Leave is necessary under section 537

even if no winding up order is passed. It is therefore

necessary to stay the sale proceedings before the Recovery

Officer or the distribution of sale proceeds. The Company

Court alone can sell the properties of the Company in the

winding up proceedings. The recovery proceedings must be

stayed and then the proceedings must be transferred to the

Company Court and thereafter, once the proceeds of sale come

before the Company Court, the said Court alone will have to

distribute the monies according to priorities as mentioned

in sections 446(2)(d), 529, 529A and 530 etc. The Canara

Bank is also a nationalised bank and merely because the

Allahabad Bank has been able to get a decree from the Debt

Recovery Tribunal earlier than the Canara Bank, under the

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RDB Act, the Allahabad Bank can not be allowed to

appropriate the entire sale proceeds recovered by it. Even

if the Canara Bank has only a `claim' and not a decree - in

view of section 2(g), its security has preference. Unlike

section 73 CPC, section 446 does not require a decree and it

is sufficient to prove a debt before the liquidator.

Alternatively, it is submitted that even before the Tribunal

section 73 CPC and also section 529(1) and (2) of the

Companies Act read with sections 529A, 530 etc. are

attracted for purposes of distribution of the sale proceeds

and working out priorities, assuming that jurisdiction of

the Company Court is excluded in so far as recovery of debts

due to Banks and financial institutions are concerned. From

the aforesaid contentions, the following points arise for

consideration: (1) Whether in respect of proceedings under

the RDB Act at the stage of adjudication for the money due

to the Banks or financial institutions and at the stage of

execution for recovery of monies under the RDB Act, the

Tribunal and the Recovery Officers are conferred exclusive

jurisdiction in their respective spheres? (2) Whether for

initiation of various proceedings by the Banks and financial

institutions under the RDB Act, leave of the Company Court

is necessary under Sections 537 before a winding up order is

passed against the Company or before provisional liquidator

is appointed under section 446(1) and whether the Company

Court can pass orders of stay of proceedings before the

Tribunal, in exercise of powers under section 442? (3)

Whether after a winding up order is passed under Section 446

(1) of the Company Act or a provisional liquidator is

appointed, whether the Company Court can stay proceedings

under the RDB Act, transfer them to itself and also decide

questions of liability, execution, and priority under

section 446 (2) and (3) read with sections 529, 529A and 530

etc. of the Companies Act or whether these questions are

all within the exclusive jurisdiction of the Tribunal? (4)

Whether, in case it is decided that the distribution of

monies is to be done only by the Tribunal, the provisions of

section 73 CPC and sub- clause (1) and (2) of section 529,

section 530 of the Companies Court also apply - apart from

section 529A - to the proceedings before the Tribunal under

the RDB Act? (5) Whether in view of provisions in section

19(2) and 19(19) as introduced by Ordinance 1/2000, the

Tribunal can permit the appellant Bank alone to appropriate

the entire sale proceeds realised by the appellant except to

the limited extent restricted by section 529A? Can the

secured creditors like the Canara Bank claim under section

19(19) any part of the realisations made by the Recovery

Officer and is there any difference between cases where the

secured creditor opts to stand outside the winding up and

where he goes before the Company Court? (6) What is the

relief to be granted on the facts of the case since the

Recovery Officer has now sold some properties of the company

and the monies are lying partly in the Tribunal or partly in

this Court? Points 1: This point concerns the question as

to the exclusive jurisdiction of the Tribunal and the

Recovery Officer in their respective spheres. The RDB Act

is, as disclosed by its preamble, an Act to provide for the

establishment of Tribunals for expeditious adjudication and

recovery of debts due to banks and financial institutions.

The said Act is the result of two Reports, one of 1981 of a

Committee headed by Sri T. Tiwari and the other by a

Committee headed by Sri M. Narasimham in 1991. As on

30.9.90, more than 15 lakh cases filed by public sector

Banks and about 304 cases filed by financial institutions

were pending in various civil courts, and recovery of debts

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to Banks in a sum of Rs.5622 crores and to financial

institutions in a sum of Rs. 391 crores, was held up. That

was the immediate cause for the passing of the Act. Under

sub-clause (4) of Section 1 of the RDB Act, it is stated

that the Act will not apply if the debt due is less than Rs.

10 lakhs or such other amount as may be notified. Section

2(d) defines 'Banks' as including (i) Bank Companies, (ii)

corresponding new banks, (iii) State Bank of India, (iv)

subsidiary Banks and (v) Regional Rural Banks. 'Banking

Company' is defined in Section 2(e) and 'Corresponding New

Bank is defined in Section 2(f) and it refers to Section

5(da) of the Banking Regulation Act, 1949. Clause (da) of

Section 5 of the Banking Regulation Act, 1949, defines

'corresponding new banks' as Banks constituted under the

Banking Companies ( Acquisition and Transfer of

Undertakings) Act, 1970 and Section 3 of the Banking

Companies ( Acquisition and Transfer of Undertakings) Act,

1980. About 20 nationalised banks have come under the

purview of RDB Act. Section 2(h) defines 'financial

institutions' and refers to public financial institutions

falling within Section 4A of the Companies Act, 1956 -

namely (i) the Industrial Credit and Investment Corporation

of India Ltd; (ii) the Industrial Finance Corporation of

India; (iii) the Industrial Development Bank of India;

(iv) the Life Insurance Corporation of India and (v) the

Unit Trust of India. Other financial institutions since

notified are large in number. Section 2(g) as amended by

Ordinance 1/2000 defines 'debt' as meaning any liability

which is "claimed" as due from any person to a Bank or

financial institutions. It includes the liability and

interest in cash or otherwise, whether secured or unsecured

or whether payable under a decree or order of any civil

Court or otherwise and subsisting, and legally recoverable

on, the date of the application filed to the Tribunal.

Exclusive Jurisdiction of the Tribunal under Sections 17 18

and 25 of the RDB Act: (i) adjudication, (ii) execution The

initial question is as to the jurisdiction of the Tribunal

under Sections 17 and 18 of the RDB Act in the matter

passing the order of adjudication and to what extent it is

exclusive. The next question will be whether the

jurisdiction of the Recovery Officer is also exclusive for

purposes of execution of the adjudication order passed by

the Tribunal. (i)adjudication by Tribunal: Does the

Tribunal have exclusive jurisdiction? We shall refer to

Sections 17 and 18 in Chapter III of the RDB Act which deal

with adjudication of the debt. "Section 17: Jurisdiction,

powers and authority of Tribunals - (1) A Tribunal shall

exercise, on and from the appointed day, the jurisdiction,

powers and authority to entertain and decide applications

from the banks and financial institutions for recovery of

debts due to such banks and financial institutions. (2) An

Appellate Tribunal shall exercise, on and from the appointed

day, the jurisdiction, powers and authority to entertain

appeals against any order made, or deemed to have been made,

by a Tribunal under this Act. Section 18: Bar of

Jurisdiction- On and from the appointed day, no court or

other authority shall have, or be entitled to exercise, any

jurisdiction, powers or authority ( except the Supreme

Court, and a High Court exercising jurisdiction under

Article 226 and 227 of the Constitution) in relation to the

matters specified in Section 17." It is clear from Section

17 of the Act that the Tribunal is to decide the

applications of the Banks and Financial Institutions for

recovery of debts due to them. We have already referred to

the definition of 'debt' in Section 2(g) as amended by

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Ordinance 1/2000. It includes "claims" by Banks and

financial institutions and includes the liability incurred

and also liability under a decree or otherwise. In this

context Section 31 of the Act is also relevant. That

section deals with transfer of pending suits or proceedings

to the Tribunal. In our view, the word 'proceedings' in

Section 31 includes an 'execution proceedings' pending

before a Civil Court before the commencement of the Act.

The suits and proceedings so pending on the date of the Act

stand transferred to the Tribunal and have to be disposed of

"in the same manner" as applications under Section 19. In

our opinion, the jurisdiction of the Tribunal in regard to

adjudication is exclusive. The RDB Act requires the

Tribunal alone to decide applications for recovery of debts

due to Banks or financial institutions. Once the Tribunal

passes an order that the debt is due, the Tribunal has to

issue a certificate under Section 19(22)(formerly under

section 19(7)) to the Recovery Officer for recovery of the

debt specified in the certificate. The question arises as

to the meaning of the word 'recovery' in Section 17 of the

Act. It appears to us that basically the Tribunal is to

adjudicate the liability of the defendant and then it has to

issue a certificate under Section 19(22). Under Section 18,

the jurisdiction of any other court or authority which would

otherwise have had jurisdiction but for the provisions of

the Act, is ousted and the power to adjudicate upon the

liability is exclusively vested in the Tribunal. (This

exclusion does not however apply to the jurisdiction of the

Supreme Court or of a High Court exercising power under

Articles 226 or 227 of the Constitution). This is the

effect of Sections 17 and 18 of the Act. We hold that the

provisions of Sections 17 and 18 of the RDB Act are

exclusive so far as the question of adjudication of the

liability of the defendant to the appellant Bank is

concerned. (ii) execution of Certificate by Recovery

Officer: Is his jurisdiction exclusive Even in regard to

`execution', the jurisdiction of the Recovery Officer is

exclusive. Now a procedure has been laid down in the Act

for recovery of the debt as per the certificate issued by

the Tribunal and this procedure is contained in Chapter V of

the Act and is covered by Sections 25 to 30. It is not the

intendment of the Act that while the basic liability of the

defendant is to be decided by the Tribunal under Section 17,

the Banks/Financial institutions should go to the Civil

Court or the Company court or some other authority outside

the Act for the actual realisation of the amount. The

certificate granted under Section 19(22) has, in our

opinion, to be executed only by the Recovery Officer. No

dual jurisdictions at different stages are contemplated.

Further, section 34 of the Act gives overriding effect to

the provisions of the RDB Act. That section reads as

follows: "Section 34 (1): Act to have over-riding effect-

(1) Save as otherwise provided in sub- section (2), the

provisions of this Act shall effect notwithstanding anything

inconsistent therewith contained in any other law for the

time being in force or in any instrument having effect by

virtue of any law other than this Act. (2) The provisions

of this Act or the rules made thereunder shall be in

addition to, and not in derogation of, the Industrial

Finance Corporation Act, 1948 ( 15 of 1948), the State

Financial Corporations Act, 1951 ( 63 of 1951), the Unit

Trust of India Act, 1963 ( 52 of 1963), the Industrial

Reconstruction Bank of India Act, 1984 ( 62 of 1984) and the

Sick Industrial Companies ( Special Provisions ) Act, 1985 (

1 of 1986)." The provisions of section 34(1) clearly state

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that the RDB Act overrides other laws to the extent of

'inconsistency'. In our opinion, the prescription of an

exclusive Tribunal both for adjudication and execution is a

procedure clearly inconsistent with realisation of these

debts in any other manner. There is one more reason as to

why it must be held that the jurisdiction of the Recovery

Officer is exclusive. The Tiwari Committee which

recommended the constitution of a Special Tribunal in 1981

for recovery of debts due to Banks and financial

institutions stated in its Report that the exclusive

jurisdiction of the Tribunal must relate not only in regard

to the adjudication of the liability but also in regard to

the execution proceedings. It stated in Annexure XI of its

Report that all "execution proceedings" must be taken up

only by the Special Tribunal under the Act. In our opinion,

in view of the special procedure for recovery prescribed in

Chapter V of the Act, and section 34, execution of the

certificate is also within the exclusive jurisdiction of the

Recovery Officer. Thus, the adjudication of liability and

the recovery of the amount by execution of the certificate

are respectively within the exclusive jurisdiction of the

Tribunal and the Recovery Officer and no other Court or

authority much less the Civil Court or the Company Court can

go into the said questions relating to the liability and the

recovery except as provided in the Act. Point 1 is decided

accordingly. Points 2 and 3: Does the Act override the

provisions of Sections 442 and 537 and Section 446 of the

Company Act? These points deal with the question whether

the Company Court can stay proceedings before the Tribunal

or the Recovery Officer under section 442 and whether the

said court can stall proceedings under section 537 unless

leave is obtained. Question also arises in regard to

`priorities' under section 446(2)(d), read with sections

529, 529A, 530 of the Companies Act and whether the Company

Court alone can distribute and decide priorities among

creditors or whether the Tribunal can do this in view of

section 19(19) of the RDB Act, as introduced by Ordinance 1

of 2000. It is necessary first to refer to Sections 442,

537 and then to 446(1)(2) and 446(3). of the Companies Act.

Sections 442 and 537 deal with situations before the passing

of a winding up order. Under section 442, at any time after

the filing of a winding up petition and before the passing

of a winding up order, the Company, or any creditor or

contributors may apply for stay of suits or proceedings

before the High court/supreme Court and for this purpose

file an application in those Courts. If, they are pending

in other courts, applications may be filed in the Company

court to stay those proceedings and the said Courts where

applications are filed can stay the suits or proceedings.

Under section 537, where any Company is being wound-up by or

subject to the supervision of the Court, any attachment,

distress or execution put in force, without leave of the

Company Court, against the estate or effects of the Company,

after the commencement of the winding up, or any sale held -

without the leave of the Court, if any of the properties or

effects of the Company, after such commencement, shall be

void. Nothing in this section applies to any proceedings

for the recovery of any tax or import or any dues payable to

the government. After a winding up order is passed,

provisions of section 446 become applicable. Under

sub-clause (1) of section 446, when a winding up order is

passed or the official liquidator is appointed as a

provisional liquidator, no suit or other legal proceeding

shall be commenced, or if pending at the date of winding up

order, shall be proceeded with against the company,except by

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leave of the Court and subject to such terms as the Court

may impose. Under sub-clause (2), the Company court shall,

notwithstanding anything contained in any other law for the

time being inforce, have jurisdiction to entertain, or

dispose of (a) any suit or proceeding by or against the

Company (b) any claim made by or against the Company

(including claims by or against any of its branches in

India); (c) any application made under section 391 by or in

respect of the Company; (d) any question of priorities or

any other question whatsoever, whether of law or fact, which

may relate to or arise in course of the winding up of the

Company. This provision applies whether such suit or

proceeding has been institutes, or is instituted, or such

claims or question has arisen or arises or such application

has been made or is made before or after the order for the

winding up of the Company, or before or after the

commencement of the Companies (Amendment) Act, 1960.

Sub-clause (3) of section 446 is important. It states that

any suit or proceeding by or against the Company which is

pending in any Court other than that in which the winding up

of the Company if proceeding, may, notwithstanding anything

contained in any other law for the time being in force, be

transferred to and disposed of by that Court. Question of

leave and control by the Company Court: Learned Attorney

General has, in this connection, relied upon Damji Valji

Shah & Another vs. Life Insurance Corporation of India &

Others [1965 (3) SCR 665 = AIR 1966 SC 135] to contend that

for initiating and continuing proceedings under the RDB Act,

no leave of the Company court is necessary under section

446. In that case, a Tribunal was constituted under the

Life Insurance Corporation Act, 1956. Question was whether

under section 446 of the Companies Act, 1956, the said

proceedings could be stayed and later be transferred to the

Company court and adjudicated in that Court. It was held

that the said proceedings could not be transferred. Section

15 of the Life Insurance Corporation Act, 1956 - which we

may say, roughly corresponds to section 17 of the RDB Act -

enabled the Life Insurance Corporation of India to file a

case before a special Tribunal and recover various amounts

from the erstwhile life insurance companies in certain

respects. Section 41 of the LIC Act conferred exclusive

jurisdiction on the said Tribunal just like section 18 of

the RDB Act, 1993. There the Company was ordered to be

wound up by an order of the Company court passed under

section 446(1) on 9.1.1959. The claim was filed by the LIC

against the Company before the Tribunal and its Directors in

1962. The respondents before the Tribunal contended that

the claim could not have been filed in the Tribunal without

the leave of the company court under section 446(1). This

Court rejected the said contention and held that though the

purpose of section 446 was to enable the company court to

transfer proceedings to itself and to dispose of the suit or

proceedings so transferred, unless the Company Court had

jurisdiction to decide the questions which were raised

before the LIC tribunal, there was no purpose of requiring

leave of the Company Court or permitting transfer. It was

held by this Court: "In view of section 41 of the LIC Act,

the Company Court has no jurisdiction to entertain and

adjudicate upon any matter which the Tribunal is empowered

to decide or determine under that Act. It is not disputed

that the Tribunal has jurisdiction under the Act to

entertain and decide matters raised in the petition filed by

the corporation under section 15 of the LIC Act. It must

follow that the consequential provisions of sub-section (1)

of section 446 of the Companies Act will not operate on the

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proceedings which be pending before the Tribunal or which

may be sought to be commenced before or." Just as the

Company Court was held incompetent to stay or transfer and

decide the claims made before the LIC Tribunal because the

Company Court could not decide the claims before the LIC

Tribunal, the said Court cannot, in our view, decide the

claims of Banks and financial institutions. On the same

parity of reasoning as in Damji Valji Shah's case, there is

no need for the appellant to seek leave of the Company Court

to proceed with its claim before the Debt Recovery Tribunal

or in respect of the execution proceedings before the

Recovery Officer. Nor can they be transferred to the

Company Court. It may also be noticed that in the LIC Act

of 1956, there was no provision like section 34 of the RDB

Act giving overriding effect to the provisions of the LIC

Act. Still this Court upheld the exclusive jurisdiction of

the LIC Tribunal observing as follows: "the provisions of

the special Act i.e. the LIC Act will override the

provisions of the general Act, the Companies Act which is an

Act relating to Companies in general." We are of the view

that the appellant's case under the RDB Act - with an

additional section like section 34 - is on a stronger

footing for holding that leave of the Company Court is not

necessary under section 537 or under section 446 for the

same reasons. If the jurisdiction of the Tribunal is

exclusive, the Company Court cannot also use its powers

under section 442 against the Tribunal/Recovery Officer.

Thus, sections 442, 446 and 537 cannot be applied against

the Tribunal. Purposive interpretation adjudication,

execution and working out priorities : As there is some

difference between various High Courts as to the

applicability of the principle of purposive interpretation

to the RDB Act, we shall deal with the said question. It is

true that it has been held in several judgments of this

Court that there is a special purpose behind the provisions

in sections 442, 446 and 537 of the Companies Act, 1956. It

has been, in fact, so stated by the Federal Court in

Governor General in Council Vs. Shirmani Sugar Mills Ltd;

( AIR (33) 1946 SC 16) under the Old Companies Act, 1913.

Similarly, this Court in Sudarshan Chits (India) Ltd. Vs.

O. Sukukmaran Pillai and Ors. (1984(4) SCC 657) observed

that -not satisfied with sections 442 and 537 and also with

Section 446(1) (which was similar to Section 171 of the Old

Companies Act, 1913),- Parliament enacted the Companies (

Amendment) Act, 1960 and brought in the present sub-sections

(2) and (3) into section 446. This Court pointed out that

instead of allowing claims to be proceeded with against

these companies in various Civil courts, Parliament declared

that wherever winding up proceedings were pending or when an

order of winding up was passed, it was necessary to save the

company "from this prolix and expensive litigation and to

accelerate the disposal of winding up proceedings", and "a

cheap and summary remedy" was devised by conferring

jurisdiction on the Company Court to entertain suits and

proceedings in respect of claims for and against the

company. That being the object behind enacting Section

446(2), it was held that the Companies Act "must receive

such construction at the hands of the court as would advance

the object and at any rate not thwart it". In other words,

the principle of purposive interpretation was, as contended

by respondent's counsel, applied while construing these

provisions of the Companies Act. This principle was applied

by some High Courts to hold that provisions of the Companies

Act can be invoked against the Tribunal. While it is true

that the principle of purposive interpretation has been

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applied by the Supreme Court in favour of jurisdiction and

powers of the Company Court in Sudarshan Chits (P) Ltd.

case, and other cases the said principle, in our view,

cannot be invoked in the present case against the Debt

Recovery Tribunal in view of the superior purpose of the RDB

Act and the special provisions contained therein. In our

opinion, the very same principle mentioned above equally

applies to the Tribunal/Recovery Officer under the RDB Act,

1993 because the purpose of the said Act is something more

important than the purpose of sections 442, 446 and 537 of

the Companies Act. It was intended that there should be a

speedy and summary remedy for recovery of thousands of

crores which were due to the Banks and to financial

institutions, so that the delays occurring in winding up

proceedings could be avoided. Tiwari Committee Report:

adjudication, execution & priorities: In the Tiwari

Committee Report of 1981, it was stated in Chapter VIII,

para 8.2 that in respect of suits by Banks and financial

institutions there have been abnormal delays at the stage of

trial as well as the stage of execution in various courts

and hence it stated: "the principle that the State should

have a special procedure to enforce its own demands should

equally be extended to the recovery of dues of banks and

financial institutions as well". In fact, it was

recommended that a Tribunal under Articles 323A and 323B

should be constituted. The Tribunal should not be bogged

down by the Civil Procedure Code but should have a simple

procedure guided only by principles of natural justice. It

was stated by the tribunals: "should follow simple and

summary procedure in accordance with the principles of

natural justice". The Tiwari Committee also prepared a

draft of the proposed legislation, in Annexure XI to its

Report. It recommended disposal of cases in three months.

It stated in Annexure XI to the Report that all "execution

proceedings" were to be initiated only before the

Adjudication Officer so that such execution proceedings

could be completed speedily. The above Report of 1981 was

followed ten years later by the M. Narasimham Committee

Report which in Chapter V stated that the 'special

legislation' recommended by the Tiwari Committee in 1981

should be immediately enacted. The latter Committee too

observed: "We regard setting up the Special Tribunals as

critical to the successful implementation of the financial

sector reforms", to ensure speedy remedy of adjudication and

execution against defaulters. Even in regard to

`priorities' among creditors, the said Committee stated in

Annexure I as follows: "The Adjudication Officer will have

such power to distribute the sale proceeds to the Banks and

Financial Institutions being secured creditors, in

accordance with inter-se agreement/arrangement between them

and to the other persons entitled thereto in accordance with

the priorities in the law." The above recommendations as to

working out `priorities' have now been brought into the Act

with greater clarity under section 19(19) of Ordinance

1/2000. Priorities, so far as the amounts realised under

the RDB Act are concerned, are to be worked out only by the

Tribunal under the RDB Act. Section 19(19) of the RDB Act

reads as follows: "Where a certificate of recovery is

issued against a company registered under the Companies Act,

1956, the Tribunal may order the sale proceeds of such

company to be distributed among its secured creditors in

accordance with the provisions of section 529A of the

Companies Act, 1956 and to pay the surplus, if any, to the

Company." Section 19(19) is clearly inconsistent with

section 446 and other provisions of the Companies Act. Only

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section 529A is attracted to proceedings before the

Tribunal. Thus, on questions of adjudication, execution and

working out priorities, the special provisions made in the

RDB Act have to be applied. Special law vs. general law:

At the same time, some High Courts have rightly held that

the Companies Act is a general Act and does not prevail

under the RDB Act. They have relied upon Union of India vs.

India Fisheries ( 1965(3) SCR 679) There can be a situation

in law where the same statute is treated as a special

statute vis-a-vis one legislation and again as a general

statute vis-a-vis yet another legislation. Such situations

do arise as held in Life Insurance Corporation of India vs.

D.J.Bahadur [AIR 1980 SC 2181]. It was there observed:

"for certain cases, an Act may be general and for certain

other purposes, it may be special and the Court cannot blur

a distinction when dealing with finer points of law". For

example, a Rent Control Act may be a special statute as

compared to the Code of Civil Procedure. But vis-a-vis an

Act permitting eviction from public premises or some special

class of buildings, the Rent Control Act may be a general

statute. In fact in Damji Valji Shah and Anr. Vs. Life

Insurance Corporation of India and Ors. ( 1965(3) SCR

665=AIR 1965 SC 135 already referred to), this Court has

observed that vis-a-vis the LIC Act, 1956, the Companies

Act, 1956 can be treated as a general statute. This is

clear from para 19 of that judgment. It was observed:

"Further, the provisions of the Special Act, i.e. LIC Act,

will override the provisions of the general Act, viz; the

Companies Act which is an Act relating to companies in

general". Thus, some High Courts rightly treated the

Companies Act as a general statute, and the RDB Act as a

special statute overriding the general statute. Special law

versus special law: Alternatively, the Companies Act, 1956

and the RDB Act can both be treated as special laws, and the

principle that when there are two special laws, the latter

will normally prevail over the former if there is a

provision in the latter special Act giving it overriding

effect, can also be applied. Such a provision is there in

the RDB Act, namely, section 34. A similar situation arose

in Maharashtra Tubes Ltd. Vs. State Industrial and

Investment Corporation of India (1993(2) SCC 144) where

there was inconsistency between two special laws, the

Finance Corporation Act, 1951 and the Sick Industries

Companies (Special Provisions) Act, 1985. The latter

contained Section 32 which gave overriding effect to its

provisions and was held to prevail over the former. It was

pointed out by Ahmadi, J. that both special statutes

contained non-obstante clauses but that the "1985 Act being

a subsequent enactment, the non-obstante clause therein

would ordinarily prevail over the non-obstante clause in

Section 46-B of the 1951 Act unless it is found that the

1985 Act is a general statute and the 1951 statute is a

special one". Therefore, in view of section 34 of the RDB

Act, the said Act overrides the Companies Act, to the extent

there is anything inconsistent between the Acts. other

rulings of Supreme Court and High Courts cited by counsel:

It was then argued for the respondents that the proceedings

before the Tribunal/Recovery Officer under the RDB Act, 1993

are `legal proceedings' and could be stayed under section

537 read with section 442 and reliance was placed on the

decision of the Federal Court in Governor General in Council

Vs. Shirmani Sugar Mills Ltd. ( AIR (33) 1946 FC 16). In

our view, this judgment cannot help the respondents. In the

above case the Income Tax Officer tried to demand income tax

from the Company through a certificate got issued by the

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Collector and the demand was sent to the official

liquidator. The official liquidator filed an application

under Section 171 of the Old Act (corresponding to Section

446(1) of the 1956 Act) and obtained stay and required a

direction from the Company Court that the Income Tax Officer

should seek leave under Section 232(1)(a) ( corresponding to

section 537 of the 1956 Act). It was held that the limited

priority extended to Crown debts was not sufficient to

enable the Income Tax Officer to avoid the provisions of the

Companies Act and that the Crown was bound by the provisions

of the Companies Act. The cases in Re Webb and Co. 1922(2)

Ch.369 (A) and Food Controller Vs. Cork ( 1923 AC 647) were

followed. It was also held that the proceedings taken by

the Income Tax Officer though they were not akin to

proceedings in a court, they were still 'legal proceedings'

as they were initiated under a statute. In our opinion,

this decision cannot help the respondents inasmuch as, as

pointed out above, the jurisdiction of the Tribunal/Recovery

Officer under the RDB Act is exclusive and Section 34 gives

overriding effect to the provisions of the RDB Act. No

provision similar to section 34 was available in the above

case before the Federal Court. The decision of this Court

in M.K. Ranganathan Vs. Govt. of Madras ( AIR 1955 SC

604) cannot also help the respondent. That was a case in

which a secured creditor standing outside the winding up

sold the property of the company, pending a winding up

petition, by private sale. It was pointed out by this Court

(see para 15) that such a sale by a secured creditor, who

opted to stand outside the winding up proceedings, would be

permissible without leave of the Company Court. It might be

different if the secured creditor tried to sell the property

through a Court by filing a suit or other proceeding. It

was argued there that the 1936 Amendment to the Companies

Act in section 232(1) (corresponding to Section 537 of the

new Act) introduced the words "or any sale held without

leave of the court of any of the properties", and those

words were introduced for the purpose of staying even

private sales by the secured creditor unless leave was

obtained for such sales. This contention was rejected and

it was held that, even after the 1936 Amendment, the private

sale by the secured creditor standing outside the winding up

proceedings was valid without leave of the Company Court.

Learned counsel for respondent relied upon para 24 of the

judgment which stated that Section 171 (corresponding to

section 446(1)) was supplementary to Section 232 and 229 (

corresponding to Section 529 of the new Act). But the said

observations, in our view, cannot help the respondents, in

view of the reasons given above. When the matter was listed

for fresh arguments, learned counsel for the respondent

relied upon Ram Narain vs. The Simla Banking & Industrial

Co. Ltd. [AIR 1956 SC 614]] to contend that in that case

the Court ( the High Court of Punjab) which was winding up

the Banking company was held entitled to transfer the

execution case pending before a Tribunal to the High Court

and to dispose of the same. That case is, in our view,

distinguishable. The facts there were that the Tribunal was

one constituted under the Displaced Persons (Debt

Adjustment) Act, 1951, while the High Court of Punjab was

exercising special powers under sections 45A, 45B & 45C of

the Banking Companies Act, 1949 (as amended in 1953) for

winding up a Banking Company. Earlier, under the 1913 Act,

the District Court was dealing with winding up proceedings

but so far as Banking Companies were concerned, the Banking

Companies Act, 1949 was amended in 1953 giving powers to the

High Court to wind up Banking companies. It was held that

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the latter Act of 1953 prevailed over the former Act of 1951

in view of section 45A, and that the legislative intention

was to prescribe a speedy procedure for the winding up of

the Banking companies outside the provisions of the

Companies Act, 1913. Section 45B conferred exclusive

jurisdiction on the High Court (there the Punjab High Court)

in this behalf. The more important distinguishing feature

between that case and the present one is that section 2 of

the Banking Companies Act, 1949 specifically provided that

its provisions would be in addition to those in the

Companies Act and it was held that sections 171 and 232 of

the Companies Act, 1913 were available to the High Court as

a winding up Court to stay the execution proceedings taken

pursuant to the decree of the Tribunal under the 1951 Act

and to transfer them to the High Court. But the position

under the RDB Act is different. Sections 442, 446 and 537

are not saved by the RDB Act. Even section 34(2) of the RDB

Act does not save the provisions of the Companies Act.

Learned counsel for the respondent then relied upon certain

observations in a recent case in Industrial Credit and

Investment Corporation Vs. Srinivas Agencies ( 1996(4) SCC

165) made in relation to RDB Act, 1993 and to sections 529

and 529A of the Companies Act. That judgment related to a

batch of appeals against the judgment of the Andhra Pradesh

High Court dated 23.8.89 and certain SLPs. (C) 10101/91 and

11055/91 (from Kerala)(the Kerala SLPs were registered as

C.As.of 1996). ( see here facts in ICICI Vs. Vanjinad

Leathers Ltd. (AIR 1997 Ker.273). It has to be noticed

that when the A.P. High Court decided the matter and when

the special leave petitions from Kerala were filed in 1991,

the RDB Act, 1993 had not yet been enacted. But much later

by the time the Civil appeals came up for disposal on

22.2.96, the RDB Act of 1993 had been passed. The above

ruling of this Court did not concern itself with the RDB Act

directly on facts. The only issues which arose in that

case, as stated in para 5 of the judgment, were viz. (1)

when should leave of the winding up court be granted to a

secured creditor to proceed with the suit after an order of

winding up has been made (2) when should a winding up court

transfer to itself any suit or proceedings by or against the

Company during the period of the winding up? It was in that

connection that in para 9, a reference was made to an

argument by one of the counsel that in the case of suits

which were pending before the date of liquidation, the court

could grant leave imposing "reasonable conditions" even

against secured creditors so that genuine claims of other

secured creditors were not affected. As appears from para

10 of the judgment, the learned counsel appearing for one of

the parties in that case, appears to have incidentally

referred to the provisions of the RDB Act, 1993 which had by

then come to be enacted, for contending that while staying

suits, the Company Court could impose reasonable conditions,

keeping the rationale of the provisions of the RDB Act in

mind. In para 12, this Court accepted the submission of

counsel and in para 13, it was observed that while granting

leave to such secured creditors i.e in suits, the company

court "would also bear in mind the rationale behind the RDB

Act". In that connection sections 529 and 529A were also

referred to. The said observations do not, in our opinion,

have any bearing on the questions before us relating to the

exclusive jurisdiction of the Tribunal/Recovery Officer

under the RDB Act. Further, as we shall explain under

Points 4 and 5, section 19(19) of the Ordinance 1 of 2000,

refers only to section 529A and not to sections 529 (1) or

(2) and this is one other clear indication that the other

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provisions of the Companies Act are completely excluded.

The decision of the Delhi High Court in M/s Major Syntex

Ltd. Vs. Punjab and Sind Bank [(67)1977 Delhi Law Times

836] no doubt supports the contention of the respondents

that the Company Court's jurisdiction prevails over that of

the Tribunal/Recovery Officer under the RDB Act, 1993. The

learned Company Judge in that case does, in fact, accept

that a statute which is a general one vis-a-vis another

statute can also be a special one, vis-a-vis yet another

statute. But the Court, in our view, was not correct in its

conclusion that, in this context, the Companies Act, 1956

was not a general statute. Further in the said judgment it

was stated that the "non-obstante clause in section 34 of

the RDB Act cannot apply because the Acts did not overlap".

According to the High Court, there was no provision like

Section 446 in the RDB Act laying down the procedure as to

what should be done in case of the passing of a winding up

order by the Company Court nor a provision for recovery of

amounts due from a company against which a winding up

petition was pending or was ordered or for distribution from

a common pool. But, now section 19(19) introduced by the

Ordinance 1/2000 clarifies and removes any such doubts in as

much as it refers to execution and distribution of sale

proceeds by the Tribunal/Recovery Officer. The observation

that the RDB Act does not operate in the same field and

hence, leave of the Company Court is necessary under Section

446(1), cannot therefore be accepted. We hold that the

Delhi High Court's decision is not correctly decided. We

are also unable to agree with the decision of the Calcutta

High Court in UCO Bank Vs. Concast Products Ltd. (in

liquidation)[1996 (2) Com.L.J. 449]. In that case a suit

which was filed in the High Court by the Bank against the

company stood transferred to the Tribunal under the RDB Act

by virtue of section 31. Later on, the Company went into

liquidation. The High Court held that in view of section

446 of the Companies Act, 1956, the suit had to be

transferred back to the Company Court. This was done on the

basis that the Companies Act applied even to proceedings

before the Tribunal. This is not correct. In our view, the

decision of the Kerala High Court in ICICI Vs. Vanjinad

Leathers Ltd. ( AIR 1997 Ker.273) relied upon for the

appellant, is correctly decided. It was pointed out in that

case that the records leading to the decision in Srinivas

Agencies and batch ( 1996(4) SCC 165) show that suits filed

by Banks and financial institutions were pending in civil

Courts and a winding up petition was filed later on in the

High Court. The Kerala High Court held that the suits would

stand transferred to the Debt Recovery Tribunal under

section 31 of the RDB Act automatically and that section 446

of the Companies Act, 1956 could not be invoked in view of

section 34 of the RDB Act. The RDB Act was a special law

overriding another special law, the Companies Act. Leave of

the Company Court under Section 446(1) was not necessary nor

could the suit be transferred to the Company Court under

Section 446(2). Similarly, we are of the view that the

Patna High Court's decision in Bihar Sales Pvt. Ltd. In re

[( Vol.96) Comp. Cases. 40] is also correctly decided.

There the decision of this Court in Srinivas Agencies was

not accepted as laying down anything specific about the RDB

Act and as to its interpretation. The decision of the

Kerala High Court in Vanjinad Leathers Ltd. was followed.

The decision of the Rajasthan High Court in Rajasthan

Finance Corporation Vs. Official Liquidator (1963(2)

Comp.LJ 309) relied upon for the respondent cannot be of any

help. That was a case which concerned itself with the State

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Finance Corporation Act, 1951. Section 537 of the Companies

Act was applied and it was held that the Companies Act did

not yield to the provisions of the State Finance Corporation

Act, 1951. There was no provision in the State Finance

Corporation Act, 1951 like section 34 which gave overriding

effect to its provisions. For the aforesaid reasons, we

hold that at the stage of adjudication under section 17 and

execution of the certificate under section 25 etc. the

provisions of the RDB Act, 1993 confer exclusive

jurisdiction in the Tribunal and the Recovery Officer in

respect of debts payable to Banks and financial institutions

and there can be no interference by the Company Court under

section 442 read with section 537 or under Section 446 of

the Companies Act, 1956. In respect of the monies realised

under the RDB Act, the question of priorities among the

Banks and financial institutions and other creditors can be

decided only by the Tribunal under the RDB Act and in

accordance with section 19(19) read with section 529A of the

Companies Act and in no other manner. The provisions of the

RDB Act,1993 are to the above extent inconsistent with the

provisions of the Companies act, 1956 and the latter Act has

to yield to the provisions of the former. This position

holds good during the pendency of the winding up petition

against the debtor-company and also after a winding up order

is passed. No leave of the Company Court is necessary for

initiating or continuing the proceedings under the RDB Act,

1993. Points 2 and 3 are decided accordingly in favour of

the appellant and against the respondents. Point 4 and 5:

We have already held that the adjudication, execution and

distribution of the sale-proceeds and working out priorities

as between Banking and financial institutions and other

creditors of the defendant company - so far as the monies

realised under the RDB Act are concerned - has to be done

only by the Tribunal and not by the Company Court. The next

question is as to the manner of distribution of these monies

between the Banks or financial institutions on the one hand

and the other creditors, secured or unsecured of the company

under winding up. This question depends upon the effect of

section 19(19) of the RDB Act as introduced by Ordinance

1/2000. Before we go to section 19(19), we would like to

dispose of another minor point raised by the respondent on

the basis of section 19(2). That sub-section permits other

banks or financial institutions to be impleaded in the main

application filed under section 19(1) by a Bank or a

financial institution. Question is whether Canara Bank can

be impleaded in the main application under section 19 at

this stage. We may point out that section 19(2) permits

such impleadment "at any stage of the proceedings before a

final order is passed". The final order here is the order

of adjudication under section 19(1) as to whether the debt

is due or not. In the present case, the adjudication order

in respect of the debt has already been made long back and

therefore section 19(2) does not permit any impleadment in

the main application under section 19(1) at this stage.

Hence, this relief for impleadment cannot be granted. We

shall now go into the effect of section 19(19) of the

Ordinance 1/2000. (a)Case where defendant company is not

ordered to be wound up: Where the defendant company is a

company against which no winding up order is passed, the

Company, in our view, is like any other defendant and if in

such a situation a question of priority arises before the

Tribunal, in respect of any monies realised under the RDB

Act, as between the Bank or financial institutions on the

one hand and the other creditors on the other, it will, in

our opinion, be necessary for the Tribunal to decide such

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questions of priority bearing in mind principles underlying

section 73 of the Code of Civil Procedure. Section 22 of

the RDB Act, in our view, gives sufficiently wide powers to

the Tribunal and the Appellate Tribunal to decide such

questions of priorities, subject only to the principles of

natural justice. This Court has explained that the powers

under section 22 are wider than those of Civil Courts and

the only restriction on its powers is that principles of

natural justice have to be followed. See Industrial Credit

and Investment Corporation of India Ltd. vs. Grapco

Industries Ltd. & Others [1999 (4) SCC 710] and Allahabad

Bank, Calcutta vs. Radha Krishna Maity & Others [1999 (6)

SCC 755]. But under section 73 CPC, sharing in the sale

proceeds ( here, sale proceeds realised under the RDB Act)

is permissible only if a person seeking such share has

obtained a decree or an order of adjudication from the

Tribunal and has also complied with other conditions laid

down under section 73. In the present case, the Canara Bank

is not in a position to invoke the principles underlying

section 73 CPC because it has not yet obtained any decree or

adjudication of its debt from the Tribunal. Nor has it

complied with other provisions underlying section 73 CPC.

Hence no relief can be granted on the basis of the said

principles. (b) Position of secured creditors standing

outside winding up and also not so standing out: The

discussion here is confined to sharing the realisations made

by the Recovery Officer under the RDB Act where winding up

proceedings are pending in the Company Court against the

defendant company. This is the crucial aspect of the case

upon which detailed arguments have been advanced by both

sides. Learned counsel for the respondent contended that

other secured creditors of the defendant company could seek

or share in the realisations made by the Recovery Officer.

Counsel relied upon the following words in section 19(19)

"to be distributed among its secured creditors" and

contended that though the said words are followed by the

words "in accordance with the provisions of section 529A of

the Companies Act, 1956", it is implicit that out of the

sale proceeds secured creditors are paid first. Counsel

submitted that, in any event, even if section 529A is

attracted, the provisions of section 529(1) and (2) are also

attracted by implication. The sale proceeds realised by the

appellant Bank will be subject to "claims" of the Canara

Bank as a secured creditor, even if it has not obtained a

decree or adjudication from the Tribunal. The mere

existence of the security is sufficient. And as a secured

creditor the Canara Bank will have priority over the

appellant Bank which has no security in its favour. On the

other hand, learned Attorney General has contended that in

respect of the monies realised under the RDB Act, the only

restriction on the distribution of dividends is the one

specified in section 529A, so far as secured creditors are

concerned. The secured creditor has no other general right

of preference. Sections 529(1) and (2) are also not

attracted. Workmen's dues are entitled to highest priority

even as against other secured creditors. Any other secured

creditor like the respondent Bank has only a limited claim

of priority to the extent stated in section 529A and that

too in case the said secured creditor has opted to stand

outside the winding up proceedings and realised his dues on

the security as per the terms of contract or by private sale

as might have been permissible in law. It is argued that in

that event, the secured creditor has only the benefit given

by sub-clause (b) of section 529A(1), namely, to the extent

permitted by clause (c) of the proviso to section 529(1).

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Reading the definition of 'workmen's portion' in section

529(3)(c) read with the illustration given in that clause, a

secured creditor who stands outside the winding up, in case

he loses any part of that security towards 'workmen's dues'

at the instance of the liquidator under clause (a), (b) of

the proviso to section 529(1), then to that extent only he

has priority over all other creditors under section

529A(1)(b). His priority is confined again to amounts not

realised by him or the 'workmens portion' above referred to,

whichever is less. In reply to this submission, learned

counsel for the respondent has submitted that the words in

the first part of the clause (c) to proviso to section

529(1) "so much of the debt due to such secured creditor as

could not be realised by him" meant the entire unrealised

amounts of the secured creditor and not merely the

"workmen's portion". To understand the submission, it is

necessary to refer to section 529A as well as section 529,

to the extent relevant for this discussion. They read as

follows: "Section 529-A: Overriding preferential payments

- (1) Notwithstanding anything contained in any other

provision of this Act or any other law for the time being

force, in the winding up of a company - (a) workmen's dues;

and (b) debts due to secured creditors to the extent such

debts rank under clause (c) of the proviso to sub-section

(1) of section 529 pari passu with such dues shall be paid

in priority to all other debts. (2) The debts payable under

clause (a) and clause (b) of sub-section (1) shall be paid

in full, unless the assets are insufficient to meet them, in

which case they shall abate in equal proportions." "S.529.

Application of insolvency rules in winding up of insolvent

companies--(1) In the winding up of an insolvent company,

the same rules shall prevail and be observed with regard

to-- (a) debts provable; (b) the valuation of annuities and

future and contingent liabilities; and (c) the respective

rights of secured and unsecured creditors; as are in force

for the time being under the law of insolvency with respect

to the estates of persons adjudged insolvent: provided that

the security of every secured creditor shall be deemed to be

subject to a pari passu charge in favour of the workmen to

the extent of the workmen's portion therein, and, where a

secured creditor, instead of relinquishing his security and

proving his debt, opts to realise his security,-- (a) the

liquidator shall be entitled to represent the workmen and

enforce such charge; (b) any amount realised by the

liquidator by way of enforcement of such charge shall be

applied rateably for the discharge of workmen's dues; and

(c) so much of the debt due to such secured creditor as

could not be realised by him by virtue of the foregoing

provisions of this proviso or the amount of the workmen's

portion in his security, whichever is less, shall rank pari

passu with the workmen's dues for the purposes of section

529A. (2) All persons who in any such case would be

entitled to prove for and receive dividends out of the

assets of the company, may come in under the winding up, and

make such claims against the company as they respectively

are entitled to make by virtue of this section.

(3)(a)...................................

(b)...................................... (c) "workmen's

portion", in relation to the security of any secured

creditor of a company, means the amount which bears to the

value of the security the same proportion as the amount of

the workmen's dues bears to the aggregate of- (i) the amount

of workmen's dues; and (ii) the amounts of the debts due to

the secured creditors. Illustration-- The value of the

security of a secured creditor of a company is Rs.1,00,000.

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The total amount of the workmen's dues is Rs.1,00,000. The

amount of the debts due from the company to its secured

creditors is Rs.3,00,000. The aggregate of the amount of

workmen's dues and of the amounts of debts due to secured

creditors is Rs.4,00,000. the workmen's portion of the

security is, therefore, one-fourth of the value of the

security, that is Rs.25,000." The respondent's contention

that section 19(19) gives priority to all "secured

creditors" to share in the sale proceeds before the

Tribunal/Recovery Officer cannot, in our opinion, be

accepted. The said words are qualified by the words "in

accordance with the provision of section 529A". Hence, it

is necessary to identify the above limited class of secured

creditors who have priority over all others in accordance

with section 529A. Secured creditors fall under two

categories. Those who desire to go before the Company Court

and those who like to stand outside the winding up. The

first category of secured creditors mentioned above are

those who go before the Company Court for dividend by

relinquishing their security in accordance with the

insolvency rules mentioned in section 529. The insolvency

rules are those contained in sections 45 to 50 of the

Provincial Insolvency Act. Section 47(2) of that Act states

that a secured creditor who wishes to come before the

official liquidator has to prove his debt and he can prove

his debt only if he relinquishes his security for the

benefit of the general body of creditors. In that event, he

will rank with the unsecured creditors and has to take his

dividend as provided in section 529(2). Till today, the

Canara Bank has not made it clear whether it wants to come

under this category. The second class of secured creditors

referred to above are those who come under section

529A(1)(b) read with proviso (c) to section 529(1). These

are those who opt to stand outside the winding up to realise

their security. Inasmuch as section 19(19) permits

distribution to secured creditors only in accordance with

section 529A, the said category is the one consisting of

creditors who stand outside the winding up. These secured

creditors in certain circumstances can come before the

Company Court (here the Tribunal)and claim priority over all

other creditors for release of amounts out of the other

monies lying in the Company Court (here, the Tribunal).

This limited priority is declared in section 529A(1) but it

is restricted only to the extent specified in clause (b) of

section 529A(1). The said provision refers to sub-clause

(c) of the proviso to section 529(1) and it is necessary to

understand the scope of the said provision. Under

sub-clause (c) of the proviso to section 529(1), the

priority of the secured creditor who stands outside the

winding up is confined to the "workmen's portion" as defined

in section 529(3)(c). 'Workmen's portion' means the amount

which bears to the value of the security, the same

proportion which the amount of the workmen's dues bears to

the aggregate of (a) workmens dues and (b) the amounts of

the debts due to all the creditors. This is explained in

the illustration under the said provision. If the workmen's

dues in all are (say) Rs.1 lakh and the debt due to all

secured creditors is Rs.3 lakhs, the total amount due to all

of them comes to Rs.4 lakhs. Therefore, the workmen's share

come to 25%(Rs.1 lakh out of Rs. 4 lakhs). Now if the

value of the security of a secured creditor ( like Canara

Bank) is Rs.1 lakh, the 'workmen's portion' will be

Rs.25,000 which is the pro-rata amount to be shared by the

said secured creditor. By virtue of section 529A(1)(b) his

priority over all others out of other monies available in

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the Tribunal is restricted to Rs.25,000 only. Reliance is

placed by the learned counsel for the respondent on the

words "so much of the debt due to such secured creditor as

could not be realised by him by virtue of the foregoing

provisions of this proviso" occurring in the first part of

the said proviso(c) to section 529(1). Learned Attorney

General on the other hand submitted that the first part of

clause (c) of the proviso to section 529(1) is to be read

along with the words "or the amount of the workmen's portion

in his security, whichever is less". In other words, the

priority of the secured creditor is only to the extent that

any part of the said security is lost in favour of the

workmen consequent to demands made by the liquidator under

clause (a), (b) or the said proviso to section 529(1). No

such situation has arisen so far. It is contended that

where a secured creditor keeps himself outside as stated in

the proviso to section 529(1) and seeks to recover his dues

outside the Company Court, if he loses part of his security

towards workmen's dues, he gets reimbursed to that extent as

a secured creditor, with an overriding priority under

section 529A (1)(b). He gets priority over all other

creditors before the Tribunal, to be compensated for this

loss out of the monies that may have been realised at the

instance of other creditors before the Tribunal. It is

pointed out that Canara Bank has neither realised any amount

outside winding up nor has it lost any part of its security

towards workmen's dues. In our view, this contention of the

learned Attorney General is well founded and is entitled to

be accepted. In our opinion, the words "so much of the debt

due to such secured creditor as could not be realised by him

by virtue of the foregoing provisions of the proviso"

obviously mean the amount taken away from the private

realisation of the secured creditor by the liquidator by way

of enforcing the charge for workmen's dues under clause (c)

of the proviso to section 529(1) "rateably" against each

secured creditor. To that extent, the secured creditor -

who has stood outside the winding up and who has lost a part

of the monies otherwise covered by security - can come

before the Tribunal to reimburse himself from out of other

monies available in the Tribunal, claiming priority over all

creditors, by virtue of section 529A(1)(b). This can be

exemplified by three more examples. (i) Let us assume that

the total amount due to a secured creditor is Rs.90,000 and

he has a security valued at Rs.1 lakh. This security is

sufficient to cover his entire dues. Let us assume that the

total amount due to all secured creditors is Rs.3 lakhs and

workmen's dues are Rs.1 lakh, as in the illustration given

under section 529A(3). This creditor can be made to part

pro- rata upto with Rs.25,000 out of his security of one

lakh towards the workmen's dues. This is the "workmen's

portion". That still leaves with him Rs.75,000 of his

security but that is not sufficient to meet his total dues

of Rs.90,000. Still Rs.15,000 of his dues have to be

cleared. By virtue of section 529A (1)(b), he can claim

this sum of Rs.15000 from monies realised by other creditors

in the Tribunal on the basis of section 529A (1)(b) claiming

overriding priority as against all other creditors. This is

because the above amount is less than the `workmen's dues of

Rs.25,000 taken away from the realisation out of his

security, as prescribed in clause (c) of the proviso to

section 529(1). That is what is meant by the words

"whichever is less". (ii) Take a case where the total dues

of a secured creditor are only Rs.65,000 and his security is

Rs. 1 lakh in value. The other facts being the same as in

the illustration to section 529(3), the secured creditor

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loses his security rateably in a sum of Rs.25,000. The

balance of the available security is Rs.75,000 and that is

sufficient to meet his entire debt of Rs.65,000. He has no

occasion to claim any extra amount as a secured creditor

under section 529A(1)(b). This situation presents no

difficulty. (iii) Take yet another case where the secured

creditor has a security valued at Rs.1 lakh, but his total

dues are Rs.1.10 lakhs. In other words, Rs. 10,000 are not

secured. Other facts are as in illustration to section

529(3). He is made to part with Rs.25,000 towards workmen's

dues rateably. He has Rs.75,000 available from his security

but he has to meet Rs.1,10,000 and that leaves a balance of

Rs.35,000 (Rs.1,10,000 - Rs.75,000) to be recovered. He can

claim overriding priority only upto Rs.25,000 as a secured

creditor, under clause (c) to proviso to section 529(1).

The priority is restricted to Rs.35,000 only because as

between Rs.25,000 and Rs.35,000, the amount of Rs.25,000

answers the description whichever is less.. It will be

noticed that, after claiming Rs. 25,000 as a secured

creditor out of the realisation of other creditors before

the Tribunal, he has still dues upto Rs.10,000 which remain

unsecured. That was also the unsecured amount to start with

initially. The above examples show that the secured

creditor who stands outside the winding up and whose claims

are restricted to section 529A read with the clause (c) of

proviso to section 529(1), does not in the ultimate analysis

stand to lose any part of his security merely because the

"workmen's portion" is taken away from his security.

Whatever he loses towards "workmen's portion' out of his

security, can be claimed by him as a secured amount with

priority over such creditors out of other realisations made

by other creditors whose monies are lying in the Tribunal.

At the same time, his position would not improve from what

it was originally and his priority would not extend to his

entire unrealised sums which might be in excess of his

security. But the point here is that the occasion for such

a claim by a secured creditor ( here the Canara Bank )

against realisations by other creditors (like the Allahabad

Bank) under section 529A read with proviso (c) to section

529(1) can arise before the Tribunal only if the Canara Bank

has stood outside winding up and realised amounts and if it

shows that out of the amounts privately realised by it, some

portion has been rateably taken away by the liquidator under

sub-clauses (a) and (b) of the proviso to section 529(1).

It is only then that it can claim that it is to be

re-imbursed at the same level as a secured creditor with

priority over the realisations of other creditors lying in

the Tribunal. None of these conditions is satisfied by

Canara Bank. Thus, Canara Bank does not belong to the class

of secured creditors covered by section 529A(1)(b).

Therefore, the result is that the Canara Bank cannot rely on

the words in section 19(19) vis, "to be distributed among

its secured creditors" for claiming any amount lying in the

Tribunal towards its security nor can it claim priority as

against the Allahabad Bank. If none of the conditions

required for applying section 19(19) and section 529A is,

therefore, satisfied, then the claim of Canara Bank before

the Tribunal can only be on the basis of principles

underlying section 73 CPC. There being no decree in its

favour from any court or from any Tribunal, and the other

conditions of section 73 not having been satisfied, no

dividend can be claimed out of monies realised at the

instance of the Allahabad Bank, even if the Allahabad Bank

is an unsecured creditor. We hold accordingly on points 4

and 5. Point 6: By the sale of shed NO.15, a sum of Rs.20

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lakhs has been realised and is lying in this Court. Other

sale proceeds in respect of previous sales are lying with

the Recovery Officer. In view of our findings on points 1

to 5, no part of the said amounts is payable to the Canara

Bank. The next question is whether the amounts realised

under the RDB Act at the instance of the appellant can be

straightway released in its favour. Now, even if section

19(19) read with section 529A of the Companies Act does not

help the respondent-Canara Bank, the said provisions can

still have an impact on the appellant- Allahabad Bank which

has no doubt a decree in its favour passed by the Tribunal.

Its dues are unsecured. The 'workmen's dues' have priority

over all other creditors, secured and unsecured because of

section 529A(1)(a). There is no material before us to hold

that workmen's dues of the defendant company have all been

paid. In view of the general principles laid down in

National Textile Workers' Union etc. vs. P.R.Ramakrishnan

& Others [AIR 1983 SC 75] there is an obligation resting on

this Court to see that no secured or unsecured creditors

including Banks or financial institutions, are paid before

the workmen's dues are paid. we are, therefore, unable to

release any amounts in favour of the appellant Bank

straightway. We, therefore, direct the Registry of the

Supreme Court to make over the monies deposited in this

Court pursuant to sale of shed No.15, to the Debt Recovery

Tribunal, Delhi and it will be for the said Tribunal to find

out if there are any workmen's dues by issuing notice to the

workmen or other persons/bodies which can furnish

information in this behalf. The above monies to be sent

from this Court as well as the monies realised by earlier

sales,- in case they are not subject to any pending

litigation - have to be first released towards the workmen's

dues. The balance remaining will then be released in favour

of the appellant Bank in accordance with law and subject to

the various principles stated in this judgment. In case any

machinery or goods pledged to the Canara Bank are lying in

the two other sheds already sold, it will be open to the

Canara Bank to move the Tribunal/Recovery Officer for their

removal and for an inventory. The impugned order of the

High Court is set aside, the appeal is allowed and disposed

of as stated above. There will be no order as to costs.