2016 (3) TMI 1 - HC - Companies Law

Disbursement of an amount as directed to Official Liquidator - Held that - The submission canvassed by learned advocate Mr. Yadav for the Official Liquidator seems to be genuine. When the dispute is pending before the Hon ble Supreme Court with regard to incometax liability at this stage amount of 3, 32, 00, 000/towards the future expenses and 3, 03, 637/towards misc. expenses (contingent) is required to be kept aside and the remaining amount of 3, 22, 55, 000/is required to be disbursed amongst the creditors under Section 530 of the Companies Act as per the report of the Chartered Accountant and as per the table given in para 6 on internal page 16 of the report. The Official Liquidator is therefore permitted to disburse an amount of 3, 22, 55, 000/as per the ratio fixed by the Chartered Accountant subject to filing an undertaking by the concerned creditors (secured/unsecured) to the effect that if any demand raised by the Official Liquidator the same shall be returned back by them to the Official Liquidator at prevailing rate of interest.

Issues Involved:
1. Disbursement of funds by the Official Liquidator.
2. Claims of secured creditors under Section 530 of the Companies Act, 1956.
3. Objections raised by the Central Excise Department.
4. Priority of tax dues under Section 530 of the Companies Act.
5. Section 11E of the Central Excise Act and its implications.
6. Pending Income Tax liability and its impact on fund disbursement.

Issue-wise Analysis:

1. Disbursement of Funds by the Official Liquidator:
The Official Liquidator sought the Court's permission to disburse Rs. 3,22,55,000 among creditors under Section 530 of the Companies Act, 1956, and to distribute the balance amount among unsecured creditors as per the Chartered Accountant's ratio. The Court considered the Official Liquidator's report and the claims verification process conducted by M/s. J.M. Parikh and Associates.

2. Claims of Secured Creditors under Section 530 of the Companies Act, 1956:
IDBI Bank Limited filed Company Application No. 281 of 2014, seeking the Court's direction to disburse amounts due to secured creditors from the sale proceeds of the company's assets. The Court noted that the Official Liquidator had already disbursed amounts under Sections 529 and 529A of the Companies Act, and the remaining amount of Rs. 5.5 crores with interest was to be disbursed under Section 530.

3. Objections Raised by the Central Excise Department:
The Central Excise Department objected to the Chartered Accountant's verification report, which categorized most of their claims as unsecured, except for Rs. 1,000 under Section 530. The Department argued that excise duty becomes due on the date of manufacturing, not on the adjudication date. However, the Chartered Accountant and the Court held that the debt becomes due and payable only on the adjudication date.

4. Priority of Tax Dues under Section 530 of the Companies Act:
The Court emphasized that under Section 530, only debts that become due and payable within twelve months before the winding-up order date are prioritized. The Chartered Accountant's report, which considered only Rs. 1,000 as preferential debt for the Excise Department, was upheld. The remaining claims were treated as unsecured debts.

5. Section 11E of the Central Excise Act and Its Implications:
The Central Excise Department argued that Section 11E of the Central Excise Act gives their claims priority over other debts. However, the Court held that Section 529A of the Companies Act, which prioritizes workmen's dues and secured creditors, overrides Section 11E. The Court cited the Supreme Court's decision in KTC Tyres (India) Ltd., which supports this interpretation.

6. Pending Income Tax Liability and Its Impact on Fund Disbursement:
The Official Liquidator set aside Rs. 3,32,00,000 for future income tax liabilities, as the Income Tax Department had issued notices for tax dues on the sale proceeds. The Court agreed to keep this amount aside until the Supreme Court decides on the pending SLP filed by the Income Tax Department. The remaining Rs. 3,22,55,000 was to be disbursed among creditors as per the Chartered Accountant's ratio, subject to an undertaking from creditors to return the amount if demanded by the Official Liquidator.

Conclusion:
The Court permitted the Official Liquidator to disburse Rs. 3,22,55,000 among creditors under Section 530 of the Companies Act, as per the Chartered Accountant's report. The Central Excise Department's objections were overruled, and their claims were categorized as unsecured, except for Rs. 1,000. The Court upheld the priority of workmen's dues and secured creditors under Section 529A over other debts, including tax dues. The pending income tax liability amount was set aside until the Supreme Court's decision.

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