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, shallrank 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 (14 of 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 (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 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 (8 of 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.
