2008 (1) TMI 610 - HC - Companies Law

Preferential payments - Held that - Even otherwise provisions of section 529A of the Companies Act 1956 were not brought on the statute book. After the insertion of these provisions in the Act the whole order of settlement of priority claim of the creditors of the company in liquidation has undergone a change. The official liquidator therefore cannot act contrary to the terms and conditions of the sale nor he can act contrary to the provisions of the Act. He has therefore rightly conveyed to the applicants vide his letter dated November 23 2007 that the dues pertaining to the pre-winding up period are to be settled by him as per the provisions of sections 529 529A and 530 of the Companies Act 1956 and that too with the prior sanction of this court. The official liquidator shall therefore hand over the possession of the property in question without any charge or encumbrance of the sales tax liabilities and execute the sale deed accordingly.

Issues Involved:
1. Ownership and encumbrance status of the land purchased by the applicant.
2. Liability for statutory dues, including sales tax and land revenue, for pre-winding up and post-winding up periods.
3. Applicability of Sections 529, 529A, and 530 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Ownership and Encumbrance Status of the Land Purchased by the Applicant:
The applicant, Keventer Agro Ltd., sought a declaration from the court to be the absolute owner of the land in question, free from encumbrances, upon payment of all dues from the date of the winding-up order and the balance consideration money. The court confirmed the sale in favor of the applicant for the land described as lot Nos. I and III-C, with the applicant having deposited 25% of the purchase consideration. However, the applicant faced issues with financial assistance from Allahabad Bank due to existing charges by the Sales Tax Department and land revenue on the subject land. The court held that the applicant, upon payment of the full consideration, is entitled to a clear title free from all charges and encumbrances, even if there is an attachment by the sales tax authority. The official liquidator is directed to hand over possession without any charge or encumbrance of the sales tax liabilities and execute the sale deed accordingly.

2. Liability for Statutory Dues, Including Sales Tax and Land Revenue, for Pre-Winding Up and Post-Winding Up Periods:
Clause 15 of the tender document stipulated that the purchaser is liable to pay statutory dues for the period after the winding-up order, while dues for the pre-liquidation period are to be settled as per the Companies Act, 1956. The court noted that the sales tax dues pertained to the pre-liquidation period and must be settled according to the provisions of the Companies Act. The applicant is not liable for pre-winding up dues, and such liabilities should be addressed by the official liquidator. The court referenced several precedents, including the Bombay High Court's decision in Anchor Health and Beauty Care Ltd. v. Municipal Corporation of Greater Bombay, which supported the notion that the purchaser of a property from a liquidator is not liable for taxes accrued before the purchase.

3. Applicability of Sections 529, 529A, and 530 of the Companies Act, 1956:
The court emphasized that Sections 529 and 529A of the Companies Act provide that secured creditors and workmen have pari passu charges over the assets of the company in liquidation and are to be paid first. Section 530 deals with preferential payments, including taxes due within 12 months before the winding-up order. The court held that the official liquidator must settle pre-winding up dues in accordance with these provisions and cannot demand payment from the purchaser for such liabilities. The court distinguished the present case from other cited cases, such as Dena Bank v. Bhikhabhai Prabhudas Parekh and Co., by noting that the Companies Act provisions specifically govern the liquidation process and the priority of claims.

Conclusion:
The court granted the applicant's request, declaring that upon payment of the balance consideration and statutory dues from the date of the winding-up order, the land would be free from all encumbrances. The official liquidator was instructed to hand over possession without any charges or encumbrances related to sales tax liabilities. The applications were disposed of without any order as to costs.

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