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Issues Involved:
1. Whether the claims of the respondents for preferential payment as secured creditors are justified under Section 530 of the Companies Act, 1956. 2. Whether the respondents qualify as "State Government" or "local authority" under Section 530(1)(a) of the Companies Act, 1956. Issue-wise Detailed Analysis: 1. Justification of Preferential Payment Claims: The official liquidator filed an application to expunge the claims of the respondents for preferential payment and treat them as unsecured debts. Initially, the respondents' claims were accepted as secured creditors in the liquidator's report. However, upon further examination, the liquidator concluded that this classification was a mistake. The liquidator's application was made under Rule 176 of the Companies (Court) Rules, 1959, which allows for expunging or reducing the amount of improperly admitted proofs. Since no dividend had yet been declared and there was no delay in filing the application, the court found the application maintainable. 2. Qualification as "State Government" or "Local Authority": a. Director of Sericulture in Mysore, Bangalore (Respondent No. 3): The respondent claimed preferential payment for debts due to the supply of silk worm eggs, seed cocoons, and silk worm seeds. The court determined that these claims did not fall under "revenues, taxes, cesses, and rates" due to the State Government as per Section 530(1)(a) of the Companies Act. The court referenced the Federal Court's decision in Governor-General in Council v. Shiromani Sugar Mills Ltd., which held that the Crown does not have prerogative priority in liquidation proceedings. The court concluded that the Director of Sericulture's claims were based on trading activities and should be treated like any other customer's claims, thus not qualifying for preferential treatment. b. Mysore Housing Board and Mysore State Electricity Board (Respondents Nos. 1 and 2): The respondents claimed preferential payment based on their status as a "local authority." The court analyzed whether these entities could be considered as "State Government" or "local authority" under Section 530(1)(a) of the Companies Act. - Mysore State Electricity Board: The court examined the Electricity (Supply) Act, which established the Mysore State Electricity Board as a body corporate with perpetual succession, capable of suing and being sued independently. The court referred to the Madras High Court's decision in Madras State Electricity Board v. Commissioner of Labour, which held that the Electricity Board is not a department of the State Government. The court concluded that the Mysore State Electricity Board is an autonomous entity and not entitled to preferential payments as a State Government. - Mysore Housing Board: The court considered the Mysore Housing Board Act, 1955, which deems the Board as a local authority for specific purposes under the Mysore Housing Board Act and the Mysore Land Acquisition Act. The court noted that if the Board were a local authority as defined in the General Clauses Act, there would be no need for such a legal fiction. Thus, the Mysore Housing Board does not qualify as a local authority for the purposes of Section 530(1)(a) of the Companies Act. The court also referenced the Privy Council's decision in Metropolitan Meat Industry Board v. Sheedy and Denning L.J.'s judgment in Tamlin v. Hannaford, which supported the conclusion that statutory corporations like the Mysore State Electricity Board and Mysore Housing Board are not local authorities entitled to preferential treatment. Conclusion: The court held that the claims of the respondents for preferential payments could not be sustained. The official liquidator was permitted to rectify the mistake in his report, expunge the names of the respondents from the list of secured creditors, and add them to the list of unsecured creditors. There was no order as to costs.
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