What is Application of insolvency rules in winding up of insolvent companies What is Overriding preferential payments Section 325 and 326 of Indian Companies Act 2013

Application of insolvency rules in winding up of insolvent companies and Overriding preferential payments are defined under Section 325  and 326 of Indian Companies Act 2013. Provisions under this Section is:

Section 325 of Indian Companies Act 2013 "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,-

(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 workmens 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 workmens portion in his security, whichever is less, shall rank pari passu with the workmens 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 workmens 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) 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;

(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 Workmens 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) 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 the amount of workmens 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 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 the amount 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.

Section 326 of Indian Companies Act 2013 "Overriding preferential payments"

(1) Notwithstanding anything contained in this Act or any other law for the time being in force, in the winding up of a company, -

(a) workmens dues; and

(b) debts due to secured creditors to the extent such debts rank under clause

(iii) of the proviso to sub-section (1) of section 325 pari passu with such dues, shall be paid in priority to all other debts:

Provided that in case of the winding up of a company, the sums towards wages or salary referred to in sub-clause (i) of clause (b) of sub-section (3) of section 325, which are payable for a period of two years preceding the winding up order or such other period as may be prescribed, shall be paid in priority to all other debts (including debts due to secured creditors), within a period of thirty days of sale of assets and shall be subject to such charge over the security of secured creditors as may be prescribed.

(2) The debts payable under the proviso to sub-section (1) shall be paid in full before any payment is made to secured creditors and thereafter debts payable under that sub-section shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.

 

What is Arrangement when binding on company and creditors What is Power to apply to Tribunal to have questions determined, etc Section 321 and 322 of Indian Companies Act 2013

What is Costs of voluntary winding up Is Debts of all descriptions to be admitted to proof Section 323 and 324 of Indian Companies Act 2013

What is Application of insolvency rules in winding up of insolvent companies What is Overriding preferential payments Section 325 and 326 of Indian Companies Act 2013

What is Preferential payments What is Fraudulent preference Section 327 and 328 of Indian Companies Act 2013

What is Transfers not in good faith to be void Certain transfers to be void. Section 329 and 330 of Indian Companies Act 2013

What is Liabilities and rights of certain persons fraudulently preferred What is effect of floating charge Section 331 and 332 of Indian Companies Act 2013

What is Disclaimer of onerous property Is Transfers, etc., after commencement of winding up to be void Section 333 and 334 of Indian Companies Act 2013

What is certain attachments, executions, etc., in winding up by Tribunal to be void What are Offences by officers of companies in liquidation Section 335 and 336 of Indian Companies Act 2013

What is Penalty for frauds by officers What is Liability where proper accounts not kept Section 337 and 338 of Indian Companies Act 2013

What is Liability for fraudulent conduct of business What is Power of Tribunal to assess damages against delinquent directors, etc Section 339 and 340 of Indian Companies Act 2013

 

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