Worker rights and rent recovery

Written by Indu Bhan | Indu Bhan | Updated: Dec 12 2012, 08:26am hrs
Sale of firm allowed after worker rights secured

Partly allowing the appeal in the case of Central Bank of India and others vs Pravin Gada, the Supreme Court has given a green signal to the official liquidator to sell Jay Electric Wire Corporation Ltd's factory subject to certain conditions, including the interest of the workers and their rights.

It asked the Bombay High Court to deal with the rights of the workmen in an apposite manner and, if required, monitor the same.

After Jay Electrics factory in Mysore was closed down in February 1995, the dispute between the workmen and the management because of termination was referred to the Industrial Tribunal, which in January 2001 directed the firm to pay back-wages to the workmen.

A recovery certificate was also issued by the Deputy Labour Commissioner in December 2006 for the recovery of a sum of Rs 4.44 crore towards the dues of the workmen. On a reference made by the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, the high court held it fit to wind up the firm.

Simultaneously, ICICI Bank had also moved the high court in 1999 for the recovery of its dues, pursuant to which the high court had appointed a receiver to sell the assets and divide the net sale proceeds between ICICI Bank and the Central Bank of India.

The suit eventually stood transferred to the Debt Recovery Tribunal, which in August 2003 allowed ICICI Bank's plea to recover R1.12 crore together with interest.

Two offers were received after a public notice for sale was issued in June 2004. Sale was confirmed in 2006. However, the high court, on the Central Bank of Indias plea, set aside the confirmation of the sale and directed fresh auctions in the presence of secured creditors, the receiver and the official liquidator.

During the second round of auctions, one real estate firm had offered a higher value. The recovery officer had declared it as a successful bidder.

This was challenged by the 2006 bidders before the Debt Recovery Tribunal, which set aside the sale and directed fresh auctions. On appeal, the Debt Recovery Appellate Tribunal (DRAT) quashed the DRTs order and restored the confirmation of sale conducted by way of public auction in favour of the appellants in the apex court. The DRAT had also opined that the power of the official liquidator was restricted to participate at the stage of disbursement of the dues of the workmen but not in conducting of the sale.

The DRAT order was assailed by the workers union and the secured creditors in the high court, which in September last year quashed the order of DRAT.

The Central Bank of India had submitted before the apex court that the property was likely to fetch much more than what has been deposited by the petitioners. On the other hand, the petitioners contended that the sale had been given effect in 2006 on acceptance of R2.5 crore and with the passage of time if there has been a price rise solely on the said base, a public auction should not be directed.

Lenders cant hike the interest rate on defaulters

Upholding the Kerala High Courts ruling that a lender cannot demand a higher rate of interest from defaulting borrowers in the case of Kerala Finance Corporation vs CG Narayanan, the Supreme Court has dismissed the corporations appeal claiming the right to hike its interest rate from 5.5% to 11.75% on the borrower, who had defaulted in payment of a loan worth R2.65 lakh.

KFC argued that, according to its loan agreement of 1975 with Narayanan, it had a right to enhance the interest rate on the loan from time to time. Following an increase in the interest rate, the borrower had challenged the decision in the civil court, which ruled in favour of the defaulter.

This was challenged by the corporation in the high court, which rejected the lenders plea by relying on its other ruling in the case of PJ Mathew vs Kerala Financial Corporation, where the latter had claimed the enhanced rate of interest over and above the 5.5% per annum earlier stipulated. The apex court had dismissed KFCs appeal in 1989. It also rejected KFCs plea in the present case.

Rent arrears cant be paid without knowing the sum

Endorsing the Calcutta High Courts view in the case of Raju Jhurani vs M/s Germindia Ltd, the Supreme Court has held that a winding-up petition against a company would not be maintainable in a tenancy dispute in the absence of any specific finding as to the rate of rent and the period of default committed by the tenant.

In this case, Jhurani had filed an eviction suit against the company under the Companies Act 1956 on the ground of default in making payment of the rents and reasonable requirement in the civil court. The suit was decreed only on the ground of default.

After getting vacant possession of the premises, the landlord had then demanded arrears of rent, corporation taxes, etc, but without yielding any result. Consequently, the landlord filed a winding-up petition for the payment of arrears of rent with interest. The high court in August 2006 dismissed his winding-up petition on the grounds that the winding-up petition was not maintainable as there was no admitted arrears of rent for any particular period and there was no ascertained amount due in respect of which a winding-up order could be passed.

The Supreme Court upheld this view and dismissed the landlords appeal observing that there are various stages involved in deciding the amount of rents and the periods of default and also the amount to be ultimately calculated on account of such default and the same cannot be tried in a summary way, without adducing proper evidence. It is, therefore, necessary that such issues be heard and tried in a properly constituted suit for recovery of such dues.

However, it accepted the landlord's stand that he, as the petitioning creditor, would be entitled to claim the amount of arrears claimed by him in an appropriate proceeding before the appropriate forum, though not by means of a winding-up petition.

On the other hand, counsel Gaurav Mitra, appearing for the company, argued that landlord should have included all the reliefs in the eviction suit and having omitted to sue for the arrear rents, he was no longer entitled to claim the same on account of the bar imposed under Order 2 Rule 2 of the CPC.