2010 (8) TMI 170 - HC - Companies Law

Winding up - Overriding preferential payments - order directing the Official Liquidator to release the further adjudicated/readjudicated amount of 68, 55, 885 payable by the company-in-liquidation. Held that - The debtor in the present case is a company-in-liquidation and the provisions of sections 529 529A and 530 of the Companies Act 1956 are applicable and these provisions contain such a charge as held by the Supreme Court itself. In view thereof and in view of the observations of the Supreme Court it must be held that the applicant s dues do not have priority over the dues which fall within the ambit of section 529A of the Companies Act 1956.

Summary

Issues:
1. Priority of dues in a company-in-liquidation under section 26B of the Kerala General Sales Tax Act, 1963 versus sections 529, 529A, and 530 of the Companies Act, 1956.

Analysis:

Issue 1: Priority of Dues
The judgment concerns an application by the State of Kerala seeking the release of an adjudicated amount from a company-in-liquidation. The applicant claimed priority over other creditors based on section 26B of the Kerala General Sales Tax Act, 1963, creating a first charge on the property for tax dues. On the other hand, the Official Liquidator argued that under sections 529, 529A, and 530 of the Companies Act, 1956, the dues of the applicant do not take precedence over those of secured creditors and workmen. The court referred to the Supreme Court's ruling in a similar case and held that the provisions of the Companies Act, 1956, indeed establish a statutory first charge, thereby denying priority to the applicant's dues over those falling under section 529A of the Companies Act, 1956.

The Supreme Court's decision emphasized that the absence of provisions in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, creating a first charge for secured creditors distinguished them from the statutory first charge under the Companies Act, 1956. The court highlighted that the Companies Act provisions, including section 529A, clearly established a priority for certain dues, unlike the Acts governing banks and financial institutions. Consequently, the court dismissed the Company Application, affirming the statutory precedence of dues under the Companies Act, 1956 over claims based on the Kerala General Sales Tax Act, 1963.

In conclusion, the judgment clarifies the priority of dues in a company-in-liquidation, emphasizing the statutory first charge established by the Companies Act, 1956, and the lack of similar provisions in Acts governing banks and financial institutions. The decision underscores the legal precedence set by the Companies Act, 1956, in determining the hierarchy of dues in insolvency proceedings, ultimately denying priority to the applicant's claim based on the Kerala General Sales Tax Act, 1963.