2008 (5) TMI 743 - HC - Companies Law

Summary

Issues Involved:
1. Review of the order dated 18.01.2008 regarding priority of tax dues.
2. Removal of attachment by the Commercial Tax Department from the auctioned property.
3. Incorporation of specific clauses in the Sale Deed regarding statutory dues.
4. Direction for the purchaser to take possession of assets and bear security expenses.
5. Priority of sales tax dues over other creditors.

Issue-wise Analysis:

1. Review of the Order Dated 18.01.2008 Regarding Priority of Tax Dues:
The State of Gujarat, through the Commissioner of Commercial Tax, filed Company Application No. 266 of 2008, seeking a review of the order dated 18.01.2008. The State argued that tax dues payable to the Commissioner of Commercial Tax should have priority over all other dues, including those of secured and unsecured creditors, under the Companies Act, 1956. The State emphasized that tax dues are "crown dues" and should be prioritized due to their sovereign nature. The State also referenced the Supreme Court's decision in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Ors., asserting that the Sales Tax Department's dues should be paid out of the sale proceeds realized from the sale of the company's assets in liquidation.

The counterargument by the respondents, including the auction purchaser and the Official Liquidator, was that the State's application was not maintainable and that the order dated 18.01.2008 was in accordance with the settled legal principles and the provisions of Sections 529, 529A, and 530 of the Companies Act, 1956. The respondents argued that the dues of the Sales Tax Department fall under "Preferential Creditors" and should be settled after the dues of workmen and secured creditors.

2. Removal of Attachment by the Commercial Tax Department from the Auctioned Property:
Triveni Builders, the auction purchaser, filed Company Application No. 83 of 2008, seeking a direction for the Commercial Tax Department to remove their attachment from the property card of the auctioned land. The Official Liquidator supported this application, stating that the sale of the land was confirmed, and the possession was handed over to the purchaser. The Liquidator emphasized that the Sales Tax Department's claim should be settled as per the priorities prescribed by the Companies Act, 1956, and that the attachment should not block the sale of assets.

3. Incorporation of Specific Clauses in the Sale Deed Regarding Statutory Dues:
M ONE Infrastructure Limited filed Company Application No. 199 of 2008, requesting the incorporation of specific clauses in the Sale Deed to clarify the liability for statutory dues. The proposed clauses stated that the purchaser would be liable for dues payable after the winding-up order and that pre-liquidation dues would be settled according to the Companies Act, 1956. The applicant also sought a direction for the Official Liquidator to execute the Sale Deed incorporating these clauses and to remove any encumbrances on the property.

4. Direction for the Purchaser to Take Possession of Assets and Bear Security Expenses:
In OLR No. 48 of 2008, the Official Liquidator requested a direction for the purchaser, M/s. Keventer Agro Limited, to take possession of the company's assets and bear the security expenses from 15.02.2008 onwards. The Liquidator also sought a direction for the Sales Tax Department to remove attachments from the property card and to lodge its claim with the Liquidator for settlement according to the Companies Act, 1956.

5. Priority of Sales Tax Dues Over Other Creditors:
The court considered the arguments regarding the priority of sales tax dues over other creditors. The State argued that sales tax dues should be considered trust money and have precedence over other debts. However, the court referred to various judgments, including the Division Bench's decision in Regional Director, E.S.I. Corporation v. Official Liquidator of Prasad Mills Limited, which held that the dues of workmen and secured creditors have priority over other debts, including tax dues, under Sections 529A and 530 of the Companies Act, 1956.

Conclusion:
The court concluded that the auction purchasers are not liable for pre-liquidation liabilities of the company in liquidation. The attachments made on the company's assets for pre-liquidation dues must be removed, and the auction purchasers are entitled to clear and marketable titles free from encumbrances. The court directed the concerned revenue and sales tax authorities to remove the attachments related to pre-liquidation dues. All the applications and the Official Liquidator's report were disposed of accordingly.