1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO.658 OF 2004
IN
COMPANY APPLICATION NO.540 OF 2002
IN
COMPANY PETITION NO.476 OF 1993
...
SICOM Limited …Appellants
v/s.ig
1.State of Maharashtra
through the Asst.Commissioner
of Sales Tax
2.OL of Konkan Steel Ltd. …Respondents
…
Mr.V.R.Dhond with Mr.R.S.Kelkar i/b
M/s.Prakash Panjabi & Co. for the Appellants.
Mr.A.A.Kumbhakoni with Ms.Geeta Shastri,AGP
for Respondent No.1.
WITH
APPEAL NO.5 OF 2008
IN
COMPANY APPLICATION NO.101 OF 2002
IN
COMPANY PETITION NO.976 OF 1998
…
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2
The Thane Janata Sahakari Bank
Ltd. …Appellants
v/s.
1.State of Maharashtra
through the Asst.Commissioner
of Sales Tax
2.OL of M/s.United Airtech
Pvt.Ltd. …Respondents
ig …
Mr.R.S.Apte, Sr.Advocate i/b Mandar Limaye
for Apellants.
Mr.A.A.Kumbhakoni with Ms.Geeta Shastri, AGP
for State.
…
CORAM: D.K.DESHMUKH &
V.R.KINGAONKAR,JJ
DATED: 18th March, 2010
P.C.:(PER D.K.DESHMUKH,J.)
1. These Appeals can be conveniently
disposed of by a common order, because the
challenge in these Appeals is to the same
order. In these Appeals the order dated
7-2-2004 passed by the learned single Judge
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in following Company Applications is
challenged.
C.A.No.312 OF 2001 IN C.P.NO.712 OF 1997
WITH
C.A.NO.421 OF 2001 IN C.P.NO.438 OF 1990
WITH
C.A.NO.447 OF 2001 IN C.P.NO.448 OF 1990
WITH
C.A.No.600 OF 2002 IN C.P.NO.253 OF 1993
WITH
C.A.NO.540 OF 2002 IN C.P.NO.476 OF 1993
WITH
C.A.NO.278 OF 2002 IN C.P.NO.492 OF 1992
WITH
C.A.No.101 OF 2002 IN C.P.NO.976 OF 1998
ig WITH
C.A.NO.492 OF 2002 IN C.P.NO.1145 OF 2000
WITH
C.A.NO.135 OF 2002 IN C.P.NO.348 OF 1993
WITH
C.A.NO.347 OF 2001 IN C.P.NO.669 OF 1998
AND
C.A.NO.264 OF 2003 IN C.P.NO.521 OF 1992
2. Though, it is a common order, the
order which is challenged in these two
Appeals was made in Company Application No.
540 of 2002 and Company Application No.101 of
2002. Both these Applications were filed by
the State of Maharashtra for recovery of the
amounts which were due to it from the company
under liquidation under the Sales Tax Act.
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The claim of the State Government was that
the State Government is entitled to recover
the amount in question in preference to the
claim of any other creditor including the
secured creditors and workers. It appears
that, thereafter, at the hearing the relief
sought was modified and it was claimed that
the Court should direct that the State
Government is entitled to recover its dues as
secured creditors pari-pasu with the
secured creditors and workers. The learned
single Judge has granted that application of
the State Government. The Appellant in Appeal
No.658 of 2004 is SICOM, which is admittedly
a secured creditor governed by the provisions
of Section 529-A of the Companies Act in
relation to the company under liquidation and
the Appellant in Appeal No.5 of 2008 is a
Co.operative Bank which is also secured
creditor governed by the provisions of
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Section 529-A in relation to the company
under liquidation.
3. There is no dispute before us that
the provisions of Section 529-A are
applicable in relation to the dues of both
the Appellants. It was claimed, however, on
behalf of the State Government that because
of the
provisions of Section 38(C) of the
Bombay Sales-tax Act statutorily the State
Government becomes a secured creditor and
therefore, it is entitled to payment of its
dues alongwith the secured creditors and the
workers. This contention of the State
Government has been upheld by the learned
single Judge.
4. The learned Counsel appearing for the
Appellants relying on the judgment of the
Supreme Court in the case of Central Bank of
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India v/s. State of Kerala & ors., (2009) 4
SCC 94 submits that the Supreme Court in this
judgment has considered the entire law on the
subject and has held that to a property in
relation to which provisions of Section 529-A
of the Companies Act operates, Section 38(c)
of the Bombay Sales-tax Act does not operate.
The learned counsel relying on the judgment
of the
Constitution Bench of the Supreme
Court in the case of Builders Supply
Corporation v/s. Union of India, (1965) 2 SCR
289 submits that the provisions of the Land
Revenue Code which provide for recovery of
the dues of the State Government as arrears
of land revenue does not elevate the dues to
the level of dues of land revenue. The
learned Counsel therefore submitted that the
learned single Judge has misread the
provisions of the Companies Act and the
Bombay Sales-tax Act.
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5. The learned Counsel appearing for the
Respondent-State Government, on the other
hand, relied on the observations in the
Judgment of the Division Bench of this Court
in the case of The Thane Janata Sahakari Bank
Ltd. v/s. The Commissioner of Sales Tax &
anr. Dated 18th April, 2006 to contend that by
operation of Section 38(c) charge in favour
of State Government is created and therefore
under the provisions of the Land Revenue
Code, the dues of the State Government under
the Sales-tax becomes dues of the Land
Revenue and therefore, are paramount charge
on a property. The learned Counsel pointed
out that the judgment of the Division Bench
in Thane Janata Sahakari Bank Ltd., has been
considered and approved by the Supreme Court
in its judgment in the case of Central Bank
of India, referred to above.
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6. It is common ground before us, as
observed above, that both the Appellants are
covered by the provisions of Section 529-A &
Section 530 of the Companies Act. Section
529-A & Section 530 of the Companies Act
reads as under:-
529-A
payment.-
Overriding preferential
Notwithstanding anything
contained in any other provision ofthis Act or any other law for the
time being in force, in the winding
up of a company-
(a) workmen s dues; and
(b) debts due to secured
creditors to the extent such debts
rank under clause (c) of the proviso
to sub-section (1) of section 529
pari passu with such dues,shall be paid in priority to all
other debts.
(2) The debts payable under clause
(a) and clause (b) of sub-section (1)
shall be paid in full, unless the
assets are insufficient to meet them,
in which case they shall abate in
equal proportions.
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530. Preferential payments.-
(1) In a winding up 1[subject to the
provisions of section 529A, there
shall be paid] in priority to all
other debts-
(a) all revenues taxes, cesses and
rates due from the company to the
Central or a State Government or to a
local authority at the relevant date
as defined in clause (c) of sub-
section (8), and having become due
and payable within the twelve months
next before that date;
(b) 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
employee, in respect of services
rendered to the company and due for a
period not exceeding four months
within the twelve months next before
the relevant date 2[***] subject to
the limit specified in sub-section
(2);
(c) all accrued holiday remuneration
becoming payable to any employee, 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;
(d) unless the company is being wound
up voluntarily merely for the
purposes of reconstruction or of
amalgamation with another company,
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all amounts due, in respect of
contributions payable during the
twelve months next before the
relevant date, by the company as the
employer of any persons, under the
Employees State Insurance Act, 1948
(34 of 1948), or any other law for
the time being in force;
(e) 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
Workmen’s 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 employee of the company;
(f) all sums due to any employee from
a provident fund, a pension fund, a
gratuity fund or any other fund for
the welfare of the employees
maintained by the company; and
(g) the expenses of any investigation
held in pursuance of section 235 or
237, in so far as they are payable by
the company.
(2) The sum to which priority is to
be given under clause (b) of
subsection (1), shall not, in the
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case of any one claimant, 3[exceed
such sum as may be notified by the
Central Government in the Official
Gazette].
4[***]
(3) Where any compensation under the
Workmen’s Compensation Act, 1923 (8
of 1923), is a weekly payment, the
amount due in respect thereof shall,
for the purposes of clause (e) of
sub-section (1), be taken to be the
amount of the lump sum for which the
weekly payment could, if redeemable,
the
be redeemed if the employer made an
application for that purpose under
said Act.
(4) Where any payment has been made
to any employee of a company-
(i) on account of wages or salary; or
(ii) to him, or in the case of his
death, to any other person in his
right, on account of accrued holiday
remuneration,
out of money advanced by some person
for that purpose, the person by whom
the money was advanced shall, in a
winding up, have a right of priority
in respect of the money so advanced
and paid, up to the amount by which
the sum in respect of which the
employee or other person in his right
would have been entitled to priority
in the winding up has been diminished
by reason of the payment having been
made.
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(5) The foregoing debts shall-
(a) rank equally among themselves and
be paid in full, unless the assets
are insufficient to meet them, in
which case they shall abate in equal
proportions;and
(b) so far as the assets of the
company available for payment of
general creditors are insufficient to
meet them, have priority over the
claims of holders of debentures under
any floating charge created by the
company, and be paid accordingly out
of any property comprised in or
subject to that charge.
(6) Subject to the retention of such
sums as may be necessary for the
costs and expenses of the winding up,
the foregoing debts shall be
discharged forthwith so far as the
assets are sufficient to meet them,
and in the case of the debts to which
priority is given by clause (d) of
sub-section (1), formal proof thereof
shall not be required except in so
far as may be otherwise prescribed.
(7) In the event of a landlord or
other person distraining or having
distrained on any goods or effects of
the company within three months next
before the date of a winding up
order, the debts to which priority is
given by this section shall be a
first charge on the goods or effect
so distrained on, or the proceeds of
the sale thereof:
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Provided that, in respect of any
money paid under any such charge, the
landlord or other person shall have
the same rights of priority as the
person to whom the payment is made.
(8) For the purposes of this section-
(a) any remuneration in respect of a
period of holiday or of absence from
work through sickness or other good
cause shall be deemed to be wages in
respect of services rendered to the
if company during that period;
(b) the expression “accrued holiday
remuneration” includes, in relation
to any person, all sums which, by
virtue either of his contract of
employment or of any enactment
(including any order made or
direction given under any enactment),
are payable on account of the
remuneration which would, in the
ordinary course, have become payable
to him in respect of a period of
holiday, had his employment with the
company continued until he became
entitled to be allowed the holiday;
5[***)
6[(bb) the expression “employees”
does not include a workman; and]
(c) the expression “the relevant
date” means-
(i) in the case of a company ordered
to be wound up compulsorily, the date
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of the appointment (or first
appointment) of a provisional
liquidator, or if no such appointment
was made, the date of the winding up
order, unless in either case the
company had commenced to be wound up
voluntarily before that date; and
(ii) in any case where sub-clause (i)
does not apply, the date of the
passing of the resolution for the
voluntary winding up of the company.
(9) This section shall not apply in
the case of a winding up where the
date referred to in sub-section (5)
of section 230 of the Indian
Companies Act, 1913 (7 of 1913),
occurred before the commencement of
this Act, and in such a case, the
provisions relating to preferential
payments which would have applied if
this Act had not been passed, shall
be deemed to remain in full force.
7. Perusal of the above quoted
provisions of the Companies Act shows that a
debt due to the secured creditors is entitled
to be paid on priority basis. Perusal of
Section 530 of the Companies Act shows that
so far as payment on account of revenue and
taxes is concerned, it is subject to the
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provisions of Section 529-A of the Act and
therefore, combined reading of Section 529-A
and Section 530 will make it clear that the
Companies Act contains provisions which give
priority to the dues of the secured creditors
to whom the provisions of Section 529A are
applicable over the revenue demand. In this
behalf we have to see the provisions of
Section 38C
ig of the Sales-tax Act on which
reliance is placed on behalf of the State
Government. Section 38C of the Sales-tax Act
reads as under:
38C. Liability under this Act to be
first charge.- Notwithstanding
anything contained in any contract to
the contrary but subject to any
provision regarding first charge in
any Central Act for the time being in
force, any amount of tax, penalty,
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16interest or any other sum, payable by
a dealer or any other person under
this Act, shall be the first charge
on the property of the dealer, or, as
the case may be, person.”]
8. Perusal of the provisions of Section
38C of the Sales-tax Act shows that it
operates to
ig create first charge on the
property of the dealer. Creation of the first
charge on the property of the dealer for the
dues of the State Government towards sales-
tax is subject to there being no contrary
provision in any Central Enactment.
Therefore, if there is a Central Enactment
containing a provisions for creation of
first charge, then Section 38C will not
operate. If Section 38C does not operate,
then there is no question of Section 38C
creating any right whatsoever in favour of
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the State Government in relation to the
property concerned. Section 38C by no stretch
of imagination can operate to create a right
in favour of the State Government, which will
be equal to any right created by Central
enactment. Because operation of Central
enactment creating any right of priority
totally displaces Section 38C. In other
words,
Section 38C and Central enactment
containing contrary provisions do not exist
and operate side by side. If the Central
Enactment operates, then Section 38C is
totally displaced. In our opinion, the
learned single Judge clearly erred in
holding that though Section 529A of the
Companies Act operates, Section 38C of the
Sales-tax Act also operates. If Section 529A
which is the Central Enactment giving
priority to the secured creditors and workers
operates in relation to a property of the
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company, then provisions of Section 38C
giving priority to the State Government will
not operate in relation to that property.
9. It is further to be seen here that if
Section 38C does not operate in relation to a
property of the Company because of operation
of Section 529A, then by operation of the
provisions
of the Maharashtra Land Revenue
Code, there is no change brought about in the
situation. In our opinion, the provisions of
Section 169 of the Maharashtra Land Revenue
Code makes the position absolutely clear.
Section 169 of the Maharashtra Land Revenue
Code reads as under:
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,::: Downloaded on – 09/06/2013 15:43:50 :::
19demand or claim whatsoever, whether
in respect of mortgage judgment-
decree, execution or attachment, orotherwise howsoever, against any land
or the holder thereof.
(2) the claim of the State
Government to any monies other than
arrears of land revenue, butrecoverable as a revenue demand under
the provisions of this Chapter, shall
have priority over all unsecured
claims against any land or holder
thereof.
10. Perusal
ig 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
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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.46. 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.
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11. The learned Counsel appearing for the
State Government relied on observations made
in the judgment of the Division Bench in The
Thane Janata Sahakari Bank Ltd. s case, in
that case the Court was not considering the
situation whether the provisions of Section
529-A of the
ig Companies Act operate. The
Division Bench in that case was considering
the question whether in view of the
provisions of the Securitisation Act and
D.R.T.Act, the provisions of Section 38C
apply. The Court held that the provisions of
the Securitisation Act do not create any
first charge in favour of the Banks and
financial institutions. In other words, the
Securitisation Act does not have any
provisions which will displace operation of
the provisions of Section 38C of the Bombay
Sales Tax Act. The Division Bench,
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thereafter, held that because Section 38C
operates, the amount of sales-tax is elevated
to the level of dues of land revenue and
therefore under the Maharashtra Revenue Code
it becomes paramount charge. The Division
Bench in this case was not considering the
case, where Section 38C does not operate. So
far as the judgment of the Supreme Court in
Central
Bank of India is concerned, there
also the Supreme Court was considering the
provisions of the Securitisation Act vis-a-
vis the provisions of Section 38C of the
Bombay Sales Tax Act and other paramateria
provisions. In our opinion, paragraph 148 of
that judgment makes the position clear.
148. After decree of the suit,
the appellant along with IFCI and
IDBI filed an application before the
Company Judge for consideration of
their claim on pro rata basis and
also for exclusion of the claim of
Punjab National Bank. The learned
Company Judge allowed the first
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prayer of the appellant but declined
the second one by relying upon the
judgment in Allahabad Bank’s case
(supra). The intra-court appeal was
dismissed by the Division Bench by
relying upon the provisions of
Section 529A. On further appeal, this
Court referred to the judgment in
Allahabad Bank’s case (supra) as also
Rajasthan State Financial Corporation
v.
Official Liquidator [(2005) 8 SCC
190] and held:
“32. Allahabad Bank therefore, is not
an authority for the proposition that
in terms of Section 529-A of the
Companies Act the distinction between
two classes of secured creditors does
no longer survive. The High Court,
thus, in our considered opinion, was
not correct in that behalf.
33. In fact in Allahabad Bank it was
categorically held that the
adjudication officer would have such
powers to distribute the sale
proceeds to the banks and financial
institutions, being secured
creditors, in accordance with inter
se agreement/arrangement between them
and to the other persons entitled
thereto in accordance with the
priority in law.
34. Section 529-A of the Companies
Act no doubt contains a non obstante
clause but in construing the
provisions thereof, it is necessary
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to determine the purport and object
for which the same was enacted.
35. In terms of Section 529 of the
Companies Act, as it stood prior to
its amendment, the dues of the
workmen were not treated pari passu
with the secured creditors as a
result whereof innumerable instances
came to the notice of the Court that
the workers may not get anything
after discharging the debts of the
secured creditors. It is only with a
view to bring the workmen’s dues pari
passu with the secured creditors,
that Section 529-A was enacted.
36. The non obstante nature of a
provision although may be of wide
amplitude, the interpretative process
thereof must be kept confined to the
legislative policy. Only because the
dues of the workmen and the debts due
to the secured creditors are treated
pari passu with each other, the same
by itself, in our considered view,
would not lead to the conclusion that
the concept of inter se priorities
amongst the secured creditors had
thereby been intended to be given a
total go-by.
37. A non obstante clause must be
given effect to, to the extent
Parliament intended and not beyond
the same.
38. Section 529-A of the Companies
Act does not ex facie contain a
provision (on the aspect of priority)
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25
amongst the secured creditors and,
hence, it would not be proper to read
there into things, which Parliament
did not comprehend.”
12. The above observations make it clear
that by operation of Section 529-A, priority
is given to the dues of the secured creditors
and workers over State first statutory
charge. In this view of the matter,
therefore, in our opinion, the learned single
Judge was not justified in holding that dues
of the State Government are recoverable pari
pasu with the dues of the Appellant.
13. In the result, therefore, both the
Appeals succeed and are allowed. The order of
the learned single Judge in Company
Application No.540 of 2002 and Company
Application No.101 of 2002 is set aside. No
order as to costs.
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14. At the request of the learned Counsel
appearing for the State Government, it is
however, directed that the parties shall
maintain status quo for a period of six weeks
from today.
(D.K.DESHMUKH, J.)
ig (V.R.KINGAONKAR,J.)
upk/-
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