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Priority in distribution of assets of a company in compulsory liquidation, Interpretation of Section 230 of the Indian Companies Act regarding priority of debts, Claim of priority by a creditor over a debenture holder, Application of Section 230 to a floating charge, Distinction between fixed charge and floating charge in asset distribution. Analysis: The judgment concerns the priority in the distribution of assets of a company in compulsory liquidation, specifically focusing on the interpretation of Section 230 of the Indian Companies Act regarding the priority of debts. The case involved a company that went into compulsory liquidation, with its assets mortgaged to a third respondent under a registered deed. The third respondent held a floating charge over the book debts of the company, which were later sold to him. The appellant, the company's Secretary, claimed priority under Section 230 for his due salary of Rs. 2,400. Section 230 of the Indian Companies Act establishes the priority of certain debts in a winding-up scenario. It stipulates that wages or salary of employees are to be paid in priority to other debts, not exceeding a specified amount. Additionally, debts with priority under this section take precedence over claims of debenture holders under a floating charge created by the company. In this case, the appellant argued that the third respondent, holding only a floating charge over the book debts, should not receive any proceeds until the appellant's claim of Rs. 1,000 is satisfied, as per Section 230. The court analyzed the nature of a debenture and the distinction between fixed and floating charges in asset distribution. Referring to a previous case, it was established that the priority granted by the Companies Act applies to assets subject to a floating charge but not those under a fixed charge. As the book debts were under a floating charge at the time of liquidation, Section 230 was deemed applicable, preventing the sale of the debts to the third respondent without regard to the statutory priorities. The judgment concluded by remanding the case for the determination of the appellant's claim and potential entitlement to payment from the book debts. It highlighted that the appellant's rights, if established, would be subject to the liquidator's rights under Section 230(3). The appellant succeeded in the case, but costs were not awarded due to the failure to raise the pertinent issue earlier. The costs allowed in the lower court were upheld, emphasizing the importance of addressing relevant legal arguments promptly to avoid unnecessary appeals.
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