Government of Karnataka vs NGEF

Dr. Vineet Kothari, J.—Perused C.A. No. 278 of 2016 and the memo dated July 11, 2016, filed by the State Government.

The workmen dues have been recalculated by the State at Rs. 22,46,71,526 with 8 per cent, simple interest payable from December 20, 2002 (effective date of the scheme) to July 15, 2016, vide annexure A1 of the memo dated July 11, 2016. In the alternative, vide annexure A2, the amounts so calculated with 8 per cent, interest per annum from December 20, 2002 to August 3, 2004 (the date of winding up order) and interest at the rate of 4 per cent, from August 4, 2004 to July 15, 2016, i.e., today, the said amount of workmen dues has been calculated at Rs. 17,31,51,308. The chart of these calculations have been produced with the said memo before this court.

Mr. K.G. Raghavan, learned senior counsel for the State has relied upon the decision of the Kerala High Court in the case of Official Liquidator v. Federal Bank Ltd., Aluva and others (AIR 1997 Kerala 352) and [1997] 88 Company Cases 178 (Kerala), in which, the learned single judge of the Kerala High Court dealing with almost similar circumstances, held that rule 179 of the Companies (Court) Rules, 1959, providing a rate of interest at 4 per cent, per annum is not a straight-jacket formula and depending upon the facts and circumstances of the case, the court has discretion to approve payment on higher rate of interest in such circumstance to the workmen at par with the one paid to the secured creditors. The Kerala High Court in the aforesaid case, found a via media to approve the payment of interest to the workmen at 6 per cent. The relevant portion of the judgment in the said case of the Kerala High Court is quoted below for ready reference.

"But the real bone of contention is with regard to the rate of interest to be paid to the secured creditors. When learned counsel for the official liquidator as well as learned counsel for the contributors take the stand that rule 179 of the Companies (Courts) Rules, stands in the way of granting interest more than 4 per cent, per annum to the secured creditor when a surplus is available, the answer to the above argument by the secured creditor is that when he is standing outside the winding up proceedings, he is not bound by the provisions contained in rule 179. The further submission is that when the decree provides for the payment of 10 per cent, interest, that must be respected and followed. In such contingencies, according to the secured creditors, rule 179 does not operate. Learned counsel appearing for the bank also brought to my notice an observation of this court on an earlier occasion in C. A. Nos. 552 of 1989 and 553 of 1988 wherein it was held that the value of the secured creditor, the Federal Bank, will be the value of the decree in O. S. No. 3 of 1986.

Therefore, this court has to exercise its power after taking into consideration all the aspects of the matter while allowing the prayer of the secured creditor or accepting the request of the official liquidator. As held by the Supreme Court there is no hard and fast rule in the matter of tackling such a situation by this court. The discretionary power to be exercised by this court will depend upon the facts and circumstances of each case. The only condition is that the approach must be reasonable and abased on sound principles.

It also must advance the interest of justice and equity. The interest of other secured creditors also must be protected. The sole secured creditor should not be allowed to walk away with the plum of the surplus. In this connection it is advantageous to notice the plea of the official liquidator that if the Federal Bank is allowed payment at the rate of 10 per cent, per annum as decreed in the suit, almost the entire surplus amount wall have to be paid to the secured creditor. If that be so, the workers who also stand in a similar situation also must be paid at the same rate. For the above purpose, no amount will be available. Moreover, the question of payment of capital gains tax also has to be decided by this court. Ultimately, the contributors will be left without any payment. These are the circumstances which have to be weighed by this court in exercising the power to decide Whether 4 per cent, interest or 10 per cent, has to be paid to the secured creditor. I feel that the interests of justice will be sufficiently met if this court adopts a via media in the matter of payment of interest. Reducing the claim of the secured creditor from 10 per cent, to 6 per cent, will be advantageous to all the parties. I am fortified to adopt such a course by the observations of the Supreme Court in Industrial Credit and Investment Corporation of India Ltd. v. Srinivas Agencies, [1996] 4 SCC 165 wherein it was held that it is for the court to decide the matter depending upon the facts and circumstances of each case. Under these circumstances, the Federal Bank and the workers are entitled, to 6 per cent, interest on the amount paid to them for the period during which the interest is payable. It is made clear that this is subject to the liability, if any, to be cleared by way of the capital gains tax."

The Learned senior counsel for the State, however, submitted that in the present case, of the company under winding up namely, NGEF Ltd., (in liquidation), which was a Government of Karnataka undertaking, the proceeds of the sale of movable and part of immovable assets has fetched enough amount and after paying all the secured creditors and unsecured creditors, the official liquidator is still left with a surplus amount of Rs. 150 crores approximately. He, however, submitted that since the workmen dues under section 529A of the Companies Act, 1956, rank at par with the claim of the secured creditors and in view of large surplus available with the official liquidator, the workmen dues can be permitted to be settled as per the scheme of extending the benefit of the voluntary retirement, which was accepted by the similarly situated workmen earlier, to the now remaining 120 workmen also, who at that time, could not join and avail the benefit of voluntary retirement scheme when the winding up order was passed by this court in the present case. They, however, submitted before this court that even after payment of the workmen dues with interest at the rate of 8 per cent, per annum calculated at Rs. 22,46,71,526 still there will be sufficient surplus for payment to the shareholders by way of dividend.

They also brought to the notice of the court that the State Government is making an effort for revival of the company and have filed an application for recalling of the winding up order vide C. A. No. 184 of 2015, which, however, may be deferred for consideration for the time being, because, they are trying to settle the dispute with the minority shareholders, namely, M/s. EHG, a German Company and for them, they have appointed a committee for valuation of the remaining immovable assets of the said company, which is about 120 acres of the prime land in Bangalore and the State Government is making efforts to buy-back the shares of the said minority shareholders, namely, M/s. EHG, the German Company at appropriate fair value.

Learned senior counsel has also brought to the notice of the court that there is a subsidiary company namely NGEF Ltd., Hubli, which is presently a going concern and is running the activity of manufacturing of transformers and the State is making efforts to revive the said company and at appropriate stage, shall move this court for recalling of the winding up order, so that the scheme of revival of the said company can be brought about.

Learned counsel for the official liquidator also fairly does not object to the payment of dues of the workmen at the aforesaid figure of Rs. 22,46,71,526 as per the chart produced before this court and duly scrutinised by the authorised chartered accountant.

The representative of the workmen Mr. M. Siddaramaiah present in the court, however, submitted that out of 120 workmen, 90 workmen have duly authorised him and have attended the meeting under the chairmanship of the managing director of KSIIDC on March 27, 2015 and for remaining 30 workmen, who had approached this court by separate writ petitions and which are pending, the State Government has already issued a Government order on May 5, 2016, as recorded in the proceedings of the Government of Karnataka produced before this court at Annexure-C of C.A. No. 278 of 2016.

Paragraphs 7 and 8 of the said proceedings to the said effect is quoted below� for ready reference :

"7. In the Government order read at SI. No. (6), KSIIDC has been appointed as Nodal Agency of the Government to handle all court/ other matters pertaining to NGEF, Bangalore on behalf of Government. In the Government letter read at SI. No. (7), KSIIDC has been informed to proceed with follow up actions on behalf of the Government in W.P. Nos. 5790-5814 of 2011 and other WPs pending before the High Court. In this background, MD-KSIIDC has taken meeting with NGEF ex-employees who had not opted for VRS-2002. These employees also included representatives of employees who are the petitioners in the above mentioned WPs/other WPs. In this meeting, majority of employees have requested for settlement of dues as per VRS Scheme-1999 along with 8 per cent, interest per annum. In this background, in order to give an amicable final solution to this long pending issue/request of employees, MD-KSIIDC in his Note read at SI. No.(8) has submitted a scheme to extend compensation as per 1999-VRS Scheme called ''Final Settlement Scheme-2016 for 120 remaining ex-employees of NGEF (in liquidation)'' for approval of the Government.

After detailed examination of the above scheme, the Government has passed the order as under :

Government Order No. Cl 03 CEL 2012,

Bengaluru, Dated : May 5, 2016

In the circumstances explained in the Preamble, the Government Order No. Cl 48 CEL 2010, dated November 19, 2010, has been cancelled. Approval of the Government is hereby accorded to effect the scheme called ''Final Settlement Scheme-2016 for 120 remaining ex-employees of NGEF (in liquidation)'' which is applicable to 120 NGEF ex-employees out of 122 employees excluding 2 employees who are working on deputation, who had not opted for VRS-2002 of NGEF, Bangalore and were terminated subsequently.

Under the above ''Final Settlement Scheme-2016 for 120 remaining ex-employees of NGEF (in liquidation)'' the following aspects are to be taken into consideration for calculating settlement amount payable to 120 employees and to be paid accordingly :

(1) For the purpose of above Scheme, the extended financial benefits/compensation under 1999-VRS Scheme, Bangalore has to be taken into consideration.

(2) To pay the amount calculated/fixed as above along with simple interest at 8 per cent, per annum on the amount so calculated from the date of termination of these employees, i.e., December 20, 2002, till the date of final payment.

(3) To pay amount as above to all these 120 employees towards full and final settlement of all existing and pending disputes and if necessary, an undertaking has to be obtained in this regard from these 120 employees.

(4) This Scheme shall not be applicable to those employees who have already availed benefits under 1999-VRS Scheme or 2002-VRS Scheme or any other VRS Scheme announced by NGEF and also not applicable to the employees who have gone on deputation or absorbed in employments in other institutions and they will have no right for making this claim.

The above Scheme can be effected subject to decision/order of the Hon''ble High Court in C. P. No. 154 of 2002 and W. P. Nos. 5790-5814 of 2011, 5815 of 2011, 6547 of 2011 and 10494-98 of 2011 or any other court matters related to the disputed employees pending before the High Court.

By Order and in the name of the

Governor of Karnataka

Sd/-

(L.S. Srikantababu)

Under Secretary to Government (C&C)

Commerce and Industries Dept."

Mr. K.V. Narasimhan, learned counsel appearing for some of such 30 workmen, who did not attend the aforesaid meeting also submits that he holds a brief for some of those 30 workmen and he has instructions to say that those workmen will also agree to avail the benefit of this Government order dated May 5, 2016, extending them the benefit of "Final Settlement Scheme,-2016 for 120 remaining ex-employees of NGEF (in liquidation)", thus bringing an end to the dispute from the side of workmen, ex-employees/workmen of this company in liquidation.

In view of the aforesaid submissions, the facts and circumstances of the case, this court is inclined to approve the payment of the workmen dues by the official liquidator to the tune of Rs. 22,46,71,526 as per the chart Annexure-A1 produced before this court with a memo dated July 11, 2016 which has been computed on the basis of 8 per cent, interest payable from the date of December 20, 2002 (effective date of the scheme) to till today, i.e., July 15, 2016.

The said payment in terms of C.A. No. 278 of 2016 read with memo dated July 11, 2016, is accordingly approved. The official liquidator is permitted to transfer the said amount of Rs. 22,46,71,526 to a separate account for payment of the dues as per the said chart to these 120 workmen and appropriate receipts for discharge of the liability of the company in liquidation towards respective workmen will be obtained by him while making such payment. Tire remaining 30 workmen other than 90 workmen who had already signed the agreement in the meeting held on August 13, 2015, under tire chairmanship of managing director, KSIIDC and some of those are represented by Mr. K.V. Narasimhan, have expressed their agreement to abide by the same scheme and they wall also be paid by same terms. If some workmen do not approach the official liquidator, for such payment, and still want to contest the writ petitions which are said to be pending, the official liquidator will be at liberty to contest the writ petitions in accordance with law. Those of the 30 workmen who agree to receive the said payment in terms of this order, shall produce the proof of withdrawal of their writ petitions/cases from the court of law.

With the aforesaid directions, C. A. No. 278 of 2016 is disposed of. The aforesaid exercise of payment may be completed within a period of two months from today and report of the same may be submitted to this court.