2014 (8) TMI 1041 - HC - Companies Law

Winding-up of the company - workmen s dues and debts due to the secured creditors shall be paid pari passu in priority to other debts - Payment of taxes subject to the provisions in section 529A and section 529A of the Companies Act- Held that - Section 26B of the Kerala General Sales Tax Act creates a charge, for the sales tax dues, on the properties of the dealer, whereas section 26A of the said Act makes the transactions in respect of the properties of the dealer during the pendency of the proceedings for determination of the dues and after its culmination, void, as against the claim in respect of the dues payable under the said Act. While section 26B of the Kerala General Sales Tax Act enables the State to ignore the transactions in respect of the properties of the dealer after the dues under the said Act became due, section 26A of the said Act enables the State to ignore the transactions in respect of the properties of the dealer from the date of commencement of the proceedings for determination of the dues under the said Act. As such, like section 26B of the Kerala General Sales Tax Act, section 26A of the said Act also cannot prevail, when it comes into collision with the mandates of section 529A of the Companies Act. The petitioner, in the circumstances, is entitled to succeed. Exhibit P10 communication of the third respondent is quashed. Respondents 1 to 3 are directed to issue the certificates sought for by the petitioner as per exhibit P7 request, within a period of six weeks from the date of the receipt of a copy of this judgment

Summary

Issues:
1. Validity of transaction in favor of the petitioner challenged due to pending revenue recovery proceedings.
2. Third respondent not issuing possession certificate, location certificate, and location sketch.
3. Contention regarding the applicability of section 26A of the Kerala General Sales Tax Act.
4. Interpretation of section 529A of the Companies Act in relation to recovery of sales tax dues.

Analysis:

1. The petitioner, a public limited company, purchased a property from a company in liquidation as per the Companies Act, 1956. The sale was confirmed by the Court, and the official liquidator executed the sale deed in favor of the petitioner. However, challenges arose when the petitioner sought certificates for establishing an industrial unit, as the third respondent raised concerns about pending revenue recovery proceedings against the company in liquidation, questioning the validity of the transaction.

2. The third respondent refused to issue the required certificates and instead issued a communication citing the pending revenue recovery proceedings against the company in liquidation for sales tax dues. The petitioner challenged this communication, seeking directions for the issuance of the certificates. Respondents 2 and 3 contended that the sale deed obtained by the petitioner was affected by section 26A of the Kerala General Sales Tax Act, making it not binding on the State due to the pending dues.

3. The petitioner argued that sales tax dues are to be recovered from the sale proceeds as per section 529A of the Companies Act, prioritizing workmen's dues and debts due to secured creditors. The petitioner relied on a previous Division Bench decision where a similar situation was addressed, emphasizing that section 26A of the Kerala General Sales Tax Act cannot supersede the mandates of section 529A of the Companies Act.

4. The Court examined the previous decision's relevance to the current case, noting that while section 26B of the Kerala General Sales Tax Act was addressed in the previous case, the present case involved section 26A. The Court reiterated that section 26A, like section 26B, cannot prevail when conflicting with section 529A of the Companies Act, which dictates the priority of debt payments in a company's winding-up process. Consequently, the Court held in favor of the petitioner, quashing the communication from the third respondent and directing the issuance of the certificates requested by the petitioner within a specified timeframe.