2016 (4) TMI 1058 - HC - Companies Law

Claim of secured creditor denied - Held that - In the present case the State of M.P. has not been able to show that the assent received from the President either in 1958-59 or in 1995 or before the introduction of Section 33-C in 1976 had received such a particular assent. In other words Presidential assent to this law which seeks to override or recreate first charge or charge which alone can rank the State s dues along with those of secured creditors do not seem to have been established. To be fair to the Appellant this question does not appear to have engaged the attention of the learned Single Judge who went by the plain language of the Section 529A of the 1956 Act and the provisions contained therein. For these reasons this Court is of the opinion that the matter should be enquired into by the learned Single Judge which the State may establish according to law by producing all relevant materials which it may possess as to whether assent was sought in respect of the express repugnancy i.e. with respect to Section 33-C of the 1958 Act and Section 53 of the 1994 Act. In the hands of a transferee for consideration without notice such charge would not prevail over the dues of secured creditors who are subsequent transferees without notice. Since this question was not urged the Court is of the opinion that the parties right to raise the contentions in this regard should also be kept open. In the light of the foregoing discussion the impugned decision is hereby set aside and the matter remitted on the above question i.e. whether the statute reserved for the assent of the President specifically drew to the notice of the President (i.e. the Central Government) the issue of repugnancy between the provisions i.e. Section 33-C of the 1958 Act and Section 53 of the 1994 Act on the one hand and Section 529A and Section 530 of the 1956 Act on the other.

Issues Involved:
1. Whether the State's claim to be a secured creditor in the winding-up proceedings is valid.
2. The applicability of Section 529A and Section 530 of the Companies Act, 1956, vis-à-vis Section 33-C of the M.P. General Sales Tax Act, 1958, and Section 53 of the M.P. Commercial Tax Act, 1994.
3. The requirement of Presidential assent for State laws that create a first charge over debts.
4. The enforcement of charges declared by State laws.

Issue-wise Detailed Analysis:

1. Validity of the State's Claim as a Secured Creditor:
The State of M.P. appealed against a judgment that declined its claim to be a secured creditor in the winding-up proceedings of two companies. The State argued that it had an overriding first charge over other secured creditors based on outstanding Sales Tax dues. The Official Liquidator acknowledged the dues but rejected the State's claim as an overriding preferential creditor, stating that the demand could be recovered under Section 530 of the Companies Act, 1956.

2. Applicability of Section 529A and Section 530 of the Companies Act, 1956:
The learned Single Judge observed that Section 529A of the Companies Act, a Central legislation, overrides the provisions of Section 53 of the M.P. Commercial Tax Act, 1994, a State legislation. The Judge emphasized that even if there is a conflict between State and Central legislation, the Central legislation must prevail. The Court noted that Section 529A of the Companies Act mandates that workmen's dues and secured creditors' debts be paid in priority to all other debts, including State dues.

3. Requirement of Presidential Assent for State Laws Creating First Charge:
The Court highlighted the necessity of Presidential assent for State laws that seek to override or create a first charge over debts, as per the Constitution Bench decision in Kaiser-i-Hind Pvt. Ltd. v. National Textile Corporation. The Court noted that the State of M.P. failed to show that the assent received from the President in 1958-59, 1995, or before the introduction of Section 33-C in 1976, specifically addressed the issue of repugnancy with the provisions of the Companies Act, 1956.

4. Enforcement of Charges Declared by State Laws:
The Court acknowledged arguments that the language of Section 33-C of the 1958 Act and Section 53 of the 1994 Act merely declared the existence of a charge without providing for its enforcement. The Court referred to the Supreme Court's judgment in Ahmedabad Municipality v. Haji Abdul, which held that a mere declaration of a charge does not prevail over the dues of secured creditors who are subsequent transferees without notice.

Conclusion:
The Court set aside the impugned decision and remitted the matter to the learned Single Judge to determine whether the statute reserved for Presidential assent specifically addressed the repugnancy between State and Central laws. The Court also kept open the question of the applicability of the rules enunciated in Ahmedabad Municipality regarding the enforcement of charges. The interim order suspending further disbursement to secured creditors was to continue until the Single Judge decided the remitted issues. The appeals were allowed on these terms.

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