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The Companies Act, 1956

Title : The Companies Act, 1956

Year : 1956

Sec529    -     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 workmens portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debts 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 suchcharge shall be applied rateably for the discharge of workmens dues ; and

        (c) so much of the debts 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 workmens portion in his security, whichever is less, shall rank pari passu with the workmens 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 :

      Provided that if a secured creditor instead of relinquishing his security and proving for his debts proceeds to realise his security, he shall be liable to pay his portion of the expenses incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.

        Explanation.:- For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmens portion in relation to the security bears to the value of the security ;

    (3) For the purposes of this section, sections 529A and section 530,

      (a) " workmen ", in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947) ;

      (b) " workmens dues ", in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely :-

        (i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947) ;

        (ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution ;

        (iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmens Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company ;

        (iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company ;

      (c) " workmens 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 workmens dues bears to the aggregate of

        (i) the amount of workmens 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. The total amount of the workmens 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 workmens dues and of the amounts of debts due to secured creditors is Rs. 4,00,000. The workmens portion of the security is, therefore, one-fourth of the value of the security, that is Rs. 25,000.


Last updated on May, 2015

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