1964 (8) TMI 36 - HC - Companies Law

Winding up - Power to apply to court to have questions determined or powers exercised, Winding up - Preferential payments and Avoidance of certain attachments, executions, etc.

Issues Involved:
1. Government's preferential rights regarding rent payable by the company.
2. Court's authority to stay proceedings initiated by the Government for dues recovery.

Detailed Analysis:

Issue 1: Government's Preferential Rights Regarding Rent Payable by the Company

The key question was whether the Government could claim preferential rights for the rent owed by the company. This was examined under section 530 of the Companies Act, 1956. The relevant portion of section 530 states:
"In a winding up there shall be paid in priority to all other debts:
(a) all revenues, taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable within the twelve months next before that date."

The court noted that the Government has priority concerning revenues, taxes, cesses, and rates due from the company. However, this preferential treatment does not extend to debts like rent. Consequently, for claims other than those specified, the Government ranks as an ordinary creditor. This interpretation aligns with the Federal Court's judgment in Governor-General in Council v. Shiromani Sugar Mills Ltd., which established that rent due to the Government by a company does not fall within the ambit of section 530.

Issue 2: Court's Authority to Stay Proceedings Initiated by the Government for Dues Recovery

The court then examined whether section 537 of the Companies Act could enable the Government to recover the amount as laid down in the order under appeal. Section 537 states:
"(1) Where any company is being wound up by or subject to the supervision of the court-
(a) any attachment, distress or execution put in force, without leave of the court, against the estate or effects of the company, after the commencement of the winding up; or
(b) any sale held, without leave of the court, of any of the properties or effects of the company after such commencement; shall be void.
(2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government."

It was noted that the last clause in sub-section (2), "or any dues payable to the Government," was added by an amendment to nullify the Federal Court's judgment in Governor-General in Council v. Shiromani Sugar Mills Ltd. However, the court clarified that section 537 applies only to companies being wound up by or under the court's supervision, excluding voluntary winding up. Consequently, section 537 does not protect the Government in this case.

The Government had recourse to section 52 of the Madras Revenue Recovery Act, which states:
"All arrears of revenue other than land revenue due to the State Government, all advances made by the State Government for cultivation or other purposes connected with the revenue, and all fees or other dues payable by any person to or on behalf of the village servants employed in revenue or police duties, and all cesses lawfully imposed upon land and all sums due to the State Government, including compensation for any loss or damage sustained by them in consequence of a breach of contract, may be recovered in the same manner as arrears of land revenue under the provisions of this Act, unless the recovery thereof shall have been or may hereafter be otherwise specially provided for."

The court acknowledged that the rent due to the Government falls within the scope of this section, allowing recovery as arrears of land revenue.

Invoking Section 518 of the Companies Act

The appellant sought to invoke section 518 of the Companies Act to restrain the Government from recovering the dues. Section 518(2) allows the liquidator or any creditor or contributory to apply to the court for an order setting aside any attachment, distress, or execution put into force against the estate or effects of the company after the commencement of the winding up. However, section 518(3) specifies that such applications should be made to the court levying the attachment, distress, or execution.

The court rejected the appellant's argument that sub-section (2) is independent of sub-section (3), clarifying that sub-section (2) is subservient to sub-section (3). The court also dismissed the contention that the term "court" in sub-section (3) includes administrative authorities like a District Collector. The term "court" refers to a civil court, not an administrative authority.

The court cited various precedents, including Engineering Mazdoor Sabha v. Hind Cycles Ltd. and Jagannath Prasad v. State of U.P., to support its interpretation that a District Collector cannot be regarded as a court within the meaning of section 518(3).

Conclusion

The court concluded that section 518 does not apply to the appellant's case, as the District Collector acting under section 52 of the Revenue Recovery Act does not qualify as a court. Consequently, the appeal was dismissed, though for different reasons than those stated in the original order. The court upheld the order under appeal, denying the appellant the relief sought. The appeal was dismissed without costs, with an advocate's fee of Rs. 500.

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