whether, in the facts of this case, employees’ dues can take precedence over the claim of the secured creditor in respect of the proceeds from sale of secured assets of the Karkhana under the SARFAESI Act. Under the scheme of the SARFAESI Act, there is nothing to show that a priority is created in favour of banks, financial institutions, and other secured creditors as against a first charge specifically created under any other statute. In view of the foregoing discussion, we summarize our findings as follows: (i) Section 529A of the Companies Act, which gives workers’ dues a priority over all other debts, cannot be applied to the instant case in view of Section 167 of the Societies Act. (ii) Merely by virtue of being recoverable as arrears of land revenue, the employees’ dues, in respect of which a recovery certificate had been issued by the Industrial Court, cannot be treated as a paramount charge in terms of Section 169(1) of the Land Revenue Code. Instead, under 169(2) of the Land Revenue Code, they would take precedence only over unsecured claims. (iii) At the same time, the Appellant-Bank does not enjoy any paramount charge over the sale proceeds either. Instead, as per Section 13(7) of the SARFAESI Act, the sale letter dated 08.03.2010 and the sale certificate dated 14.09.2010 constitute a 22 contract which displaces the order of distribution stipulated under the said provision. (iv) The cumulative effect of these documents is that the Appellant-Bank must pay the employees’ dues out of the sale proceeds from the auctioned property. To this extent, the recovery certificate issued by the Industrial Court on 08.08.2011 may be executed against the Appellant herein. Further, given the significant delay in payment of the salaries to the employees, such recovery shall be made by the Collector within a period of six months from the date of this order. (v) All other dues in respect of the secured property, including any unpaid statutory dues in relation to employees (provident fund, gratuity, bonus, etc.) shall be paid by Respondent No.5 within a period of six months from the date of this order.

1
REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 232 OF 2016
The Maharashtra State Co-operative Bank Ltd. …Appellant
Versus
Babulal Lade & Ors. …Respondents
J U D G M E N T

MOHAN M. SHANTANAGOUDAR, J.

  1. This appeal arises out of judgment dated 01.12.2015 passed
    by the Nagpur Bench of the High Court of Bombay in W.P. No.
    3879/2012. Vide the impugned judgment, the Hon’ble High Court
    has directed the issuance of a recovery certificate against the
    Appellant herein, thereby modifying the order dated 08.08.2011
    passed by the Bhandara Bench, Industrial Court, Maharashtra.
  2. The brief facts giving rise to this appeal are as follows:
    2.1 Registered under the Maharashtra Co-operative Societies
    Act, 1960 (hereinafter ‘Societies Act’), Respondent No. 6 herein,
    2
    Vainganga Sahakari Sakhar Karkhana Ltd. (hereinafter
    ‘Karkhana’) had obtained credit facilities from the Appellant-Bank
    and mortgaged its properties in return. When it defaulted on the
    repayment of the loan, the Appellant-Bank initiated recovery
    proceedings on 10.02.2005, by issuing a notice under Section
    13(2) of the Securitisation and Reconstruction of Financial Assets
    and Enforcement of Security Interest Act, 2002 (hereinafter
    ‘SARFAESI Act’). Later, on 13.06.2005, the Appellant-Bank took
    physical possession of the mortgaged properties of the Karkhana
    as per Section 13(4) of the SARFAESI Act.
    2.2 Owing to its poor financial condition, on 24.01.2006, the
    Karkhana issued a notice to its employees directing them to
    proceed on leave without salary w.e.f. 24.02.2006. This was
    challenged by representatives of the Karkhana employees
    (Respondent Nos. 1 to 3 herein) in ULPA No. 65/2006 filed under
    Section 28 read with items 9 and 10 of Schedule IV of the
    Maharashtra Recognition of Trade Unions & Prevention of Unfair
    Labour Practices Act, 1971 (hereinafter ‘MRTU & PULP Act’). Vide
    order dated 24.08.2006, the Industrial Court quashed the notice
    and held that it amounted to an unfair labour practice. Further,
    noting that Karkhana had not paid salaries to its employees since
    3
    July 2003, the Industrial Court directed the Karkhana to pay the
    unpaid salaries on top priority basis from any funds that may
    become available with it.
    2.3 On the basis of this order, Respondent Nos. 1 to 3 filed a
    miscellaneous application, ULPA No. 5/2007, seeking the issuance
    of a recovery certificate against the Karkhana, its Managing
    Director (Respondent No. 4 herein), and the Appellant-Bank under
    Section 50 of the MRTU & PULP Act. It is to be noted that the
    Appellant was arraigned as a party in this proceeding for the first
    time. Vide order dated 27.04.2007, the Industrial Court held that
    a recovery certificate for unpaid salaries of the Karkhana
    employees could not be issued against the Appellant-Bank. It also
    refused to issue such a certificate against the Karkhana and its
    Managing Director in view of the precarious financial condition of
    the Karkhana. However, the Karkhana was directed to pay the
    unpaid salaries to the employees on top priority basis, as and when
    funds were to become available.
    2.4 In the challenge against this order in W.P. No. 4746/2007,
    the High Court of Bombay, vide order dated 12.07.2010, held that
    recovery could only be made against the Karkhana and not the
    Appellant-Bank, as there was no employer-employee relationship
    4
    between the Bank and the employees. It was further held that the
    Industrial Court had erred in relying upon the non-availability of
    funds with the Karkhana to refuse the grant of a recovery
    certificate, as the relevant consideration for issuance of such a
    certificate is the entitlement of the applicants and not the financial
    condition of the employer. In view of this, the High Court directed
    the issuance of a recovery certificate against the Karkhana and its
    Managing Director. Pursuant to this direction, the Industrial
    Court, vide order dated 08.08.2011, disposed of ULPA No. 5/2007
    by issuing a recovery certificate of Rs.13,89,84,334 against the
    Karkhana and its Managing Director. However, the prayer to issue
    a recovery certificate against the Appellant-Bank was rejected.
    2.5 In the interim period, on 26.08.2010, one of the attached
    properties of the Karkhana was auctioned and sold by the
    Appellant-Bank to one Purti Power and Sugar Ltd. (Respondent
    No. 5 herein). According to the terms and conditions of this sale,
    the purchaser had accepted all encumbrances on the property as
    agreed upon in the sale letter. It is found that the proceeds from
    this sale were appropriated by the Appellant-Bank towards the
    amount due to it from the Karkhana.
    5
    2.6 At the same time, aggrieved by the non-issuance of a
    recovery certificate against the Appellant, Respondent Nos. 1 to 3
    filed W.P. No. 3879/2012. During the pendency of this petition, on
    19.01.2013, an order was passed by the competent authority
    under the Societies Act directing the liquidation of the Karkhana.
    Finally, vide the impugned judgment dated 01.12.2015, the High
    Court disposed of W.P. No. 3879/2012. It was observed that in
    terms of Section 50 of the MRTU & PULP Act, the recovery
    certificate should have been issued to the Collector for recovering
    the amount from the Karkhana and its Managing Director. Thus,
    the order of the Industrial Court dated 08.08.2011 was modified
    to this extent to clarify that the certificate is to be issued to the
    Collector first, who would then proceed to recover the sum as per
    the recovery certificate. On the question of whether the Collector
    could effectuate such recovery from sale proceeds of the attached
    property of the Karkhana, it was held that after the auction sale,
    the Appellant-Bank held the proceeds in trust as per Section 13(7)
    of the SARFAESI Act and did not have a first charge over them.
    Further, it was found that upon the liquidation of the Karkhana
    on 19.01.2013, Section 529A of the Companies Act, 1956
    (hereinafter ‘Companies Act’) came into operation, thereby
    6
    according employees’ dues priority over all other dues in respect of
    the sale proceeds. In light of this, it was held that the Collector
    could recover the said amount of Rs.13,89,84,334 from the sale
    proceeds held in trust by the Appellant-Bank. It is against this
    order that the instant appeal has been filed.
  3. Heard learned Counsel for both the parties.
  4. Learned Senior Counsel for the Appellant argued that the
    High Court erred in applying Section 529A of the Companies Act,
    as Section 167 of the Societies Act specifically bars the application
    of the Companies Act to co-operative societies, as is the case with
    the Karkhana here. In any case, he submitted that Section 529A
    of the Companies Act was misapplied, as the proviso to Section
    13(9) of the SARFAESI Act requires the company to be “in
    liquidation” at the time of the sale of secured assets for Section
    529A to apply. Given that the Karkhana only went into liquidation
    on 19.01.2013, i.e. after the sale of its properties in 2010, he
    argued that the provision was wrongly applied. In light of this, he
    also submitted that there is no other provision that makes
    employees’ dues a paramount charge, and the Appellant-Bank,
    being a secured creditor, should be given precedence over the
    proceeds from the auction sale as per Section 13(7) of the
    7
    SARFAESI Act. It was also his contention that a claim for unpaid
    salaries cannot lie against the Appellant, as there is no employeremployee relationship between the Appellant-Bank and the said
    employees.
  5. On the other hand, learned Senior Counsel for Respondent
    Nos. 1 to 3 drew our attention to Section 50 of the MRTU & PULP
    Act, under which the recovery certificate had been issued by the
    Industrial Court on 08.08.2011. Noting that this provision makes
    employees’ dues recoverable in the same manner as arrears of land
    revenue, learned Senior Counsel referred us to Section 169(1) of
    the Maharashtra Land Revenue Code, 1966 (hereinafter ‘Land
    Revenue Code’), which makes arrears of land revenue a paramount
    charge on the land. Relying on this, he submitted that the
    employees’ dues, recoverable as arrears of land revenue, should be
    given primacy over the claim of the Appellant-Bank while dealing
    with the proceeds from the auction sale.
  6. In addition to this, learned Counsel for Vainganga Sahakari
    Sakhar Karkhana Mazdoor Sangh (Respondent No. 8 herein) relied
    on the sale letter dated 08.03.2010, which was issued by the
    Appellant-Bank prior to the sale of the properties of the Karkhana.
    In this letter, the Appellant-Bank had stated that it would take
    8
    responsibility for employees’ dues. In light of this, it was argued
    that the Appellant cannot be absolved of its liability towards the
    payment of employees’ dues. Learned Counsel for the subsequent
    purchaser of the property (Respondent No. 5 herein) similarly
    relied on this letter to submit that the liability for the payment of
    employees’ dues must be placed on the Appellant.
  7. In view of the arguments raised and the material on record,
    the issue that arises for our consideration in this appeal is
    whether, in the facts of this case, employees’ dues can take
    precedence over the claim of the secured creditor in respect of the
    proceeds from sale of secured assets of the Karkhana under the
    SARFAESI Act.
  8. At the outset, we find merit in the argument raised by learned
    Senior Counsel for the Appellant that the High Court erred in
    applying Section 529A of the Companies Act to this case. It would
    be apposite to refer to Section 167 of the Societies Act in this
    regard:
    “167. Companies Act not to apply – For the removal
    of doubt, it is hereby declared that the provisions of the
    Companies Act, 1956 shall not apply to societies
    registered or deemed to be registered; under this Act.”
    It is clear that Section 167 creates an express bar on the
    applicability of the Companies Act to societies registered under the
    9
    Societies Act. Given that the Karkhana was a co-operative society
    registered under the said Act, we find that Section 167 is squarely
    applicable, and the High Court committed a grave error in relying
    upon Section 529A of the Companies Act. Thus, the employees
    cannot make use of Section 529A of the Companies Act to claim
    priority over all other debts of the Karkhana.
  9. Against this backdrop, the next question to be considered is
    whether the employees’ dues can take priority over other claims by
    virtue of being recoverable as arrears of land revenue. Section 50
    of the MRTU & PULP Act and Section 169 of the Land Revenue
    Code are relevant in this regard. Section 50 of the MRTU & PULP
    Act reads as follows:
    “50. Recovery of money due from employer – Where
    any money is due to an employee from an employer
    under an order passed by the Court under Chapter VI,
    the employee himself or any other person authorized by
    him in writing in this behalf, or in the case of death of
    the employee, his assignee or heirs may, without
    prejudice to any other mode of recovery, make an
    application to the Court for the recovery of money due
    to him, and if the Court is satisfied that money is so
    due, it shall issue a certificate for the amount to the
    Collector, who shall, proceed to recover the same in the
    same manner as an arrear of land revenue…”
    Section 169 of the Land Revenue Code is reproduced hereunder:
    10
    “169. Claims of State Government to have
    precedence over all others– (1) The arrears of land
    revenue due on account of land shall be a paramount
    charge on the land and on every part thereof and shall
    have precedence over any other debt, demand or claim
    whatsoever, whether in respect of mortgage,
    judgement-decree, execution or attachment, or
    otherwise howsoever, against any land or the holder
    thereof.
    (2) The claim of the State Government to any monies
    other than arrears of land revenue, but recoverable as a
    revenue demand under the provisions of this Chapter,
    shall have priority over all unsecured claims against any
    land or holder thereof.”
  10. From a reading of these provisions, it is evident that dues of
    employees in respect of which an order has been made by a Court
    under Chapter VI of the MRTU & PULP Act are recoverable in the
    same manner as arrears of land revenue. It was argued by learned
    Senior Counsel for Respondent Nos. 1 to 3 that such treatment of
    employees’ dues as arrears of land revenue makes it a charge
    paramount to all other claims in view of Section 169(1) of the Land
    Revenue Code. In response, learned Senior Counsel for the
    Appellant contended that the instant case falls under Section
    169(2) of the Land Revenue Code, which deals with monies other
    than arrears of land revenue but which is recoverable as a revenue
    demand. Since Section 169(2) only accords priority over unsecured
    claims, he submitted that the Appellant’s claim, being that of a
    11
    secured creditor, would still have priority over employees’ dues
    recoverable as arrears of land revenue.
    10.1 It is important to appreciate that there is a material
    difference between arrears of land revenue due on account of land,
    and amounts other than arrears of land revenue but recoverable
    in the same manner as arrears of land. On a close reading of subsections (1) and (2) of Section 169 of the Land Revenue Code, it
    becomes clear that Section 169(1) deals with the former category
    of claims and makes them a paramount charge on the land over
    all other claims. On the other hand, Section 169(2) deals with the
    latter category and gives them priority only over unsecured claims.
    10.2 This distinction has also been noted in SICOM Ltd. v.
    State of Maharashtra & Anr., (2010) 6 Bom CR 749, where a
    division Bench of the High Court of Bombay was called upon to
    consider whether sales tax dues of a company in liquidation, which
    were recoverable as arrears of land revenue under Section 38-B of
    the Bombay Sales Tax Act, 1959, created a first charge. While
    discussing the scheme of Section 169 of the Land Revenue Code,
    the division Bench drew upon the reasoning of the Constitution
    Bench of this Court in Builders Supply Corporation v. Union of
    India, AIR 1965 SC 1061 and observed as follows:
    12
    “10. Perusal of the above quoted provisions shows that
    the Maharashtra Land Revenue Code makes a clear
    distinction between the sum which is recoverable as a
    land revenue and sum which is recoverable as arrears
    of land revenue. What creates paramount charge is the
    sum which is the amount of land revenue and not the
    sum which is recoverable as land revenue. The
    Constitution Bench of the Supreme Court in its
    judgment in the case of Builders Supply Corporation,
    referred to above, in our opinion, has made the position
    absolutely clear. Following observations in the case of
    Builders Supply Corporation, in our opinion, are
    relevant. They read as under:-
    “We have referred to this decision, because it
    brings out emphatically the real character of
    the provisions prescribed by s. 46(2). Section
    46(2) does not deal with the doctrine of the
    priority of Crown debts at all; it merely
    provides for the recovery of the arrears of tax
    due from an assessee as if it were an arrear
    of land revenue. This provisions cannot be
    said to convert arrears of tax into arrears of
    land revenue either, all that it purports to do
    is to indicate that after receiving the
    certificate from the Income-tax Officer, the
    Collector has to proceed to recover the
    arrears in question as if the said arrears were
    arrears of land revenue. We have already
    seen that other alternative remedies for the
    recovery of arrears of land revenue are
    prescribed by sub-sections (3) and (5) of s.
  11. In making a provision for the recovery of
    arrears of tax, it cannot be said that s. 46
    deals with or provides for the principle of
    priority of tax dues at all; and so, it is
    impossible to accede to the argument that s.
    46 in terms displaces the application of the
    said doctrine in the present proceedings.”
    (emphasis supplied)
    13
    This difference in the scope of sub-sections (1) and (2) of
    Section 169 of the Land Revenue Code was again noted by the High
    Court of Bombay in City Co-op Credit & Capital Ltd. & Anr. v.
    Official Liquidator of Satwik Electric Controls Pvt Ltd., (2019)
    4 Bom CR 274.
    10.3 When we look to the facts of the instant case, it is seen that
    the recovery certificate issued under Section 50 of the MRTU &
    PULP Act only makes employees’ dues recoverable as arrears of
    land revenue. Thus, in view of the foregoing discussion, it is clear
    that such employees’ dues would fall under the category of claims
    captured by Section 169(2), and can only take priority over
    unsecured claims.
    10.4 Further, as has been held by this Court in Central Bank
    of India v. State of Kerala, (2009) 4 SCC 94, only expressly
    created statutory first charges under Central and State laws can
    take precedence over the claims of secured creditors under the
    SARFAESI Act. It is not enough to merely provide for recovery of
    dues as arrears of land revenue. Given that Section 50 of the MRTU
    & PULP Act falls short of expressly making the employees’ dues a
    ‘first charge’, it cannot be said that such dues have priority over
    the claims of the Appellant-Bank, which is a secured creditor.
    14
    Thus, we find that under the scheme of the Land Revenue Code
    and the MRTU & PULP Act, the employees’ dues cannot claim
    priority over the claim of the Appellant-Bank.
  12. However, this does not mean that the Appellant-Bank
    automatically holds a paramount charge over the proceeds from
    the sale of the secured assets. Under the scheme of the SARFAESI
    Act, there is nothing to show that a priority is created in favour of
    banks, financial institutions, and other secured creditors as
    against a first charge specifically created under any other statute.
    This has been captured succinctly by this Court in Central Bank
    (supra) as follows:
    “126. While enacting the DRT Act and the Securitisation
    Act, Parliament was aware of the law laid down by this
    Court wherein priority of the State dues was recognized.
    If Parliament intended to create first charge in favour of
    banks, financial institutions, or other secured creditors
    on the property of the borrower, then it would have
    incorporated a provision like Section 529-A of the
    Companies Act or Section 11(2) of the EPF act and
    ensured that notwithstanding series of judicial
    pronouncements, dues of banks, financial institutions
    and other secured creditors should have priority over
    the State’s statutory first charge in the matter of
    recovery of the dues of sales tax, etc. However, the fact
    of the matter is that no such provision has been
    incorporated in either of these enactments despite
    conferment of extraordinary power upon the secured
    creditors to take possession and dispose of the secured
    assets without the intervention of the court or Tribunal.
    The reason for this omission appears to be that the new
    15
    legal regime envisages transfer of secured assets to
    private companies.”
    Thus, in the absence of a paramount charge created in favour
    of the employees’ dues under the MRTU & PULP Act, it cannot be
    said that the Appellant-Bank automatically gets a first charge
    under the SARFAESI Act.
  13. In this light, what becomes relevant for the instant case is the
    scheme of the SARFAESI Act in relation to the manner of
    distributing the money received by the secured creditor through
    the sale of secured assets. The following parts of Section 13 of the
    SARFAESI Act are relevant in this regard:
  14. Enforcement of security interest – (4) In case the
    borrower fails to discharge his liability in full within the
    period specified in sub-section (2), the secured creditor
    may take recourse to one or more of the following
    measures to recover his secured debt, namely:— (a) take
    possession of the secured assets of the borrower
    including the right to transfer by way of lease,
    assignment or sale for realising the secured asset…
    xxx
    (7) Where any action has been taken against a borrower
    under the provisions of sub-section (4), all costs,
    charges and expenses which, in the opinion of the
    secured creditor, have been properly incurred by him or
    any expenses incidental thereto, shall be recoverable
    from the borrower and the money which is received by
    the secured creditor shall, in the absence of any
    contract to the contrary, be held by him in trust, to be
    applied, firstly, in payment of such costs, charges and
    expenses and secondly, in discharge of the dues of the
    16
    secured creditor and the residue of the money so
    received shall be paid to the person entitled thereto in
    accordance with his rights and interests.
    Section 13(4) of the SARFAESI Act allows a secured creditor
    to take possession of the secured assets of a borrower-in-default,
    including the right to transfer them by way of sale. What may be
    done with the proceeds from such sale is provided under Section
    13(7). In the absence of a contract to the contrary, such proceeds
    are held by the secured creditor in trust and are to be applied first
    towards payments of costs, charges, and expenses incurred with
    respect to the sale; second, towards dues of the secured creditor;
    and lastly, towards any person entitled to the residue money.
  15. In the facts of the present case, in exercise of its powers under
    Section 13(4)(a) of the SARFAESI Act, the Appellant-Bank had
    taken possession of the property of the Karkhana on 13.06.2005.
    Later, vide sale letter dated 08.03.2010, the Appellant-Bank had
    offered to sell the said property to one M/s Vidarbha Realties Pvt.
    Ltd. for a total consideration of Rs. 14.10 crores. Notably, this
    letter stated that the Appellant-Bank would take responsibility for
    employees’ dues, and all other liabilities including statutory
    liabilities would rest solely on the purchaser. This letter was
    followed by a sale certificate dated 14.09.2010 recording the sale
    17
    of the property by the Appellant-Bank in favour of M/s Wainganga
    Sugar and Power Ltd. for a consideration of Rs. 14.10 crores.
    13.1 Before delving into the applicability of the distribution of
    the sale proceeds as per Section 13(7) of the SARFAESI Act, we
    note that the sale letter dated 08.03.2010 can be relied upon by
    this Court. The contention of the learned Senior Counsel for the
    Appellant that the sale letter dated 08.03.2010 was addressed to
    a different entity than the company mentioned in the sale
    certificate dated 14.09.2010 cannot be accepted. It is found that
    the addressee in the sale letter dated 08.03.2010, M/s Vidarbha
    Realties Private Limited, had been renamed as M/s Wainganga
    Sugar and Power Private Limited as notified on 05.04.2010.
    Subsequently, on 03.06.2010, M/s Wainganga Sugar and Power
    Private Limited was converted to a public limited company and its
    name was changed to M/s Wainganga Sugar and Power Limited,
    which is also the name of the purchaser indicated on the sale
    certificate. These interim developments between March 2010 and
    September 2010 explain why the sale letter dated 08.03.2010 and
    the final sale certificate issued on 14.09.2010 reflect different
    names. However, since it is only a case of change in name of the
    company, we find that the two entities are the same and the
    18
    subsequent purchaser, Respondent No. 5 herein (successor of
    Wainganga Sugar and Power Ltd.) would be bound by the terms of
    the sale letter dated 08.03.2010.
    13.2 Further, it cannot be said that the sale letter dated
    08.03.2010 is an external document and cannot be relied upon to
    interpret the sale certificate. This is because the sale certificate
    specifically references the sale letter by providing that the
    purchaser accepts “all the encumbrances presently there on the
    property and may arise in future and agreed to to pay the same as
    per the sale letter accepted by the purchaser”. In view of such
    wording, we find that the parties intended that the sale letter dated
    08.03.2010 be read harmoniously with the sale certificate
    inasmuch as it appears that the same is a part of the sale
    certificate. When a composite reading of the sale certificate dated
    14.09.2010 and the sale letter dated 08.03.2010 is undertaken, it
    is revealed that though the purchaser had accepted all
    encumbrances on the property, this did not include employees’
    dues in view of the specific undertaking by the Appellant-Bank
    that it would pay them. Given that the certificate directly
    references the prior sale letter, it is essential to give effect to its
    terms. Hence, it can be concluded that the parties had agreed to
    19
    the Bank paying the employees’ dues and the subsequent
    purchaser settling other liabilities, including statutory liabilities.
    When read in this light, it becomes clear that the sale certificate
    and the sale letter constitute a contract.
    13.3 This brings us to the scheme of distribution of sale
    proceeds under Section 13(7) of the SARFAESI Act. As mentioned
    supra, this provision prescribes the manner in which money
    received by the secured creditor pursuant to its action under
    Section 13(4) should be distributed. However, such manner of
    distribution is only applicable in the absence of a contract to the
    contrary. In this case, the sale certificate and sale letter form a
    contract, the cumulative effect of which is an agreement that only
    the employees’ dues would be settled by the Appellant-Bank, and
    all other liabilities would be settled by the subsequent purchaser.
    Thus, it can be said that the contract between the parties diverges
    from the order of distribution stipulated under Section 13(7) and
    constitutes a contract to the contrary, which must necessarily be
    given effect.
    13.4 In this regard, we find that the clarification given by the
    Appellant-Bank in its counter-affidavit before the High Court that
    by the sale letter dated 08.03.2010 it had only accepted liability
    20
    towards the payment of provident fund of the employees, is
    unsustainable. Upon perusing the record, it is clear that this
    clarification is only a subsequent attempt by the Appellant to
    escape its liability. If the Appellant genuinely intended to restrict
    its liability to provident fund, it would have expressly stated so in
    the sale letter, which clearly prescribes the terms and conditions
    of the sale between the Appellant and the purchaser. It is
    important to bear in mind that at the time of entering into this
    sale, the Appellant-Bank was well aware of the unpaid salaries due
    to the employees of the Karkhana in view of the orders of the
    Industrial Court dated 24.08.2006 and 27.04.2007. Hence, it
    cannot be said that the Appellant-Bank agreed to use the term
    “employees’ dues” in the sale letter despite intending to limit it to
    provident fund dues only.
    13.5 Thus, on facts, we find that in terms of Section 13(7) of the
    SARFAESI Act, the distribution of money received by the
    Appellant-Bank should be done as per the sale contract with
    Respondent No. 5. In other words, the Appellant-Bank is liable to
    satisfy the employees’ dues as per its undertaking in the sale letter
    dated 08.03.2010. However, in view of the fact that all other
    liabilities, including statutory liabilities were agreed to be borne by
    21
    the subsequent purchaser, statutory liabilities in respect of
    employees, such as provident fund, gratuity, bonus etc., would
    have to be borne by Respondent No. 5 herein. We reiterate here
    that a subsequent attempt by the Appellant-Bank to interpret the
    sale contract in a manner that reduces the scope of its liability to
    provident fund dues cannot be given effect.
  16. In view of the foregoing discussion, we summarize our
    findings as follows:
    (i) Section 529A of the Companies Act, which gives
    workers’ dues a priority over all other debts, cannot be applied to
    the instant case in view of Section 167 of the Societies Act.
    (ii) Merely by virtue of being recoverable as arrears of land
    revenue, the employees’ dues, in respect of which a recovery
    certificate had been issued by the Industrial Court, cannot be
    treated as a paramount charge in terms of Section 169(1) of the
    Land Revenue Code. Instead, under 169(2) of the Land Revenue
    Code, they would take precedence only over unsecured claims.
    (iii) At the same time, the Appellant-Bank does not enjoy
    any paramount charge over the sale proceeds either. Instead, as
    per Section 13(7) of the SARFAESI Act, the sale letter dated
    08.03.2010 and the sale certificate dated 14.09.2010 constitute a
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    contract which displaces the order of distribution stipulated under
    the said provision.
    (iv) The cumulative effect of these documents is that the
    Appellant-Bank must pay the employees’ dues out of the sale
    proceeds from the auctioned property. To this extent, the recovery
    certificate issued by the Industrial Court on 08.08.2011 may be
    executed against the Appellant herein. Further, given the
    significant delay in payment of the salaries to the employees, such
    recovery shall be made by the Collector within a period of six
    months from the date of this order.
    (v) All other dues in respect of the secured property,
    including any unpaid statutory dues in relation to employees
    (provident fund, gratuity, bonus, etc.) shall be paid by Respondent
    No.5 within a period of six months from the date of this order.
  17. The instant appeal is disposed of accordingly.
    …..……………………………………..J.
    (MOHAN M. SHANTANAGOUDAR)
    ….………………………………………J.
    (KRISHNA MURARI)
    New Delhi;
    December 4, 2019