325. 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 debts,
opts to realise his security,—
(i) the liquidator shall be entitled to represent the workmen and enforce such
charge;
(ii) 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
(iii) so much of the debts due to such secured creditor as could not be realised
by him 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 326.
(2) All persons under sub-section (1) shall be entitled to prove and receive dividends
out of the assets of the company under 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
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 realisation by the secured creditor.
Explanation.—For the purposes of this sub-section, 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 workmen’s portion in relation to the security bears to the value of the
security.
(3) For the purposes of this section, section 326 and section 327,—
(a) “workmen’’, in relation to a company, means the employees of the company,
being workmen within the meaning of clause (s) of section 2 of the Industrial Disputes
Act, 1947;
(b) “workmen’s 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;
(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 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 Workmen’s Compensation Act,
1923, rights capable of being transferred to and vested in the workmen, all amount
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 the provident fund, the pension
fund, the gratuity fund or any other fund for the welfare of the workmen,
maintained by the company;
(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 the amount of workmen’s
dues and the amount 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 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
the amount 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.