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TMI Blog2022 (5) TMI 970X X X X Extracts X X X X X X X X Extracts X X X X ..... This Court finds that issue involved in the present two applications is identical, as such by this common order, both the applications are decided. 3. This Court also finds that the prayer made in both the applications by the applicant-Commercial Taxes Department (in short 'the applicant-department') is to seek priority and preference over other creditors and to release the amount said to be due in favour of the applicant-department. 4. This Court takes the Company Application No.24/2018 as a lead case for the purpose of narrating the facts. 5. The applicant-department has pleaded that the Company M/s.Punsumi India Ltd. is under liquidation and the Officer Liquidator (in short 'the OL') had invited claims with regard to outstanding dues against the said Company. The applicantdepartment had sent its claim vide communication dated 11.08.2004 and the OL communicated that claim was not in the prescribed format and the same was time barred and delay was to be condoned from the High Court. 6. The applicant-department has pleaded that an application was filed as Company Application No.17/2014 before this Court and this Court vide order dated 07.05.2015 condoned the delay in filing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale was confirmed by the High Court vide order dated 01.12.2011 and the entire sale proceeds amounting to Rs.962 lakhs were lying with IFCI. The OL has further pleaded that the High Court vide order dated 10.05.2013 directed the OL to invite claim of the workers and creditors of the company-in- liquidation and in response to the aforesaid, the OL received 106 claims from the employees and other creditors including the applicant-department. 14. The OL has further pleaded that the claims were adjudicated by their CA and the Court directed the IFCI to deposit Rs.24,12,410/- towards claim of Employees Provident Fund and Rs.60,67,612/- towards claim of workmen for distribution of dividend amongst workmen on a pro-rata basis for their admitted amount of claims and the Court vide order dated 07.10.2016 permitted the OL to make payment of Rs.60,67,612/- to the Employees of the Company-in-liquidation and Rs.24,12,410/- towards EPF being full and final 100% dividend. 15. The OL has further pleaded that the claim of the applicant-department of Rs.8,48,285/- was rejected for the reasons that penalty levied and interest charged amounting to Rs.8,48,285/- after the winding up date was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State's claim after satisfying workmen's dues. The claim of the State will be over and above the claim of other secured creditors. 18E. Section 529A of the Act of 1956 was inserted w.e.f 24.05.1985 and the object of the amendment of the Act was only to give preferential payment to the workmen's dues but other creditors were not deprived to claim their amount only on account of protecting rights of the workmen. 18F. The Act of 2003 has been enacted by the Legislature of the Rajasthan State, as per Article 246(3) of the Constitution of India, as they have exclusive power to make law for imposing Value Added Tax and the said power is conferred in the State by virtue of Entry-54 of List-II of the 7th Schedule of the Constitution of India, which is commonly known as 'the State List'. 18G. Section 47 of the Act of 2003 is a special law with non-obstante clause and as such, even if there is a general law like the Companies Act, 1956, enacted by the Union of India (Entry-43 of List-I [Union List] of the 7th Schedule of the Constitution of India), the law of State being a special law will prevail over the general law - the Companies Act, 1956. 19. Mr. M.S. Singhvi, learned Advocate G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priority given under Section 530 of the Act of 1956. 25. Counsel submitted that if the interpretation of the learned Advocate General appearing for the applicant-Department is accepted, then the provisions contained in sub-section (1) (a) of Section 530 of the Act of 1956 will have no meaning and this Court has been asked to add or read certain provisions which are not enacted by the Legislature for the purpose of giving preferential payment to different creditors. 26. Counsel appearing for the OL has placed reliance on the following judgments:- (i) 2013 SCC Online (Ker.) 23815 - The Ass.Comm. (Assessment) Special Circle, Kollam & Ors. Vs. OL High Court of Kerala & Anr. (ii) 2008 SCC Online (Guj.) 309 - State of Gujarat vs. OL of Kengold (India) Ltd. (iii) Judgment dt.17.09.2014 passed by the Patna High Court in Co.Petition No.11/1996 - M/s.Misrilall Jain (P) Ltd. Vs. M/s.Nacro Chemicals Ltd. (iv) (1991) 3 SCC 283 - Rajratha Naranbhai Mills Co. Ltd. Vs. Sales Tax Officer, Petland. (v) (2005) 8 SCC 190 - Rajasthan State Financial Corp. & Anr. Vs. Official Liquidator & Anr. 27. I have heard learned counsel for the parties and with their assistance perused the material av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings and the different preferential payments are to be made subject to the provisions of Section 529A of the Act of 1956 and as per clause (a) of sub-section (1) of Section 530 of the Act of 1956, all revenues, taxes, cesses and rates due from the Company to the Central or State Government or local authority, the same will be payable within the stipulated time. 32. The bare reading of the aforesaid two relevant provisions i.e. Section 529A and 530 of the Act of 1956 make it very clear that priority has to be given to the workmen's dues in winding up of a Company and further debts due to the secured creditor to the extent of debts under clause (c) of the proviso to sub-section (1) of Section 529 of the Act of 1956 are to be treated as pari passu with such dues. 33. This Court further finds that Section 530 of the Act of 1956 comes into play after priority is given to the dues of the workmen and debts due to the secured creditor and later on preferential payments are to be made in favour of the Central/State Government/local authority in respect of their dues, taxes, etc. 34. This Court finds that the Act of 2003 provides for creating of first charge on the property of a dealer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the State Legislature are sovereign powers in the matter of making laws, again in view of Article 254 of the Constitution unless it be a law made by the State, which is reserved for the assent of the President and the assent is received, the state law, would otherwise if it is repugnant to the law made by the Parliament, must make way whether the parliamentary legislation is before or after the legislation made by the State. 12. In this Constitutional perspective let us examine the effect of Section 26B and whether, in view of the provisions contained in Sections 529A and 530 of the Act, the State can contend that the priority to be observed under Section 529A will not prevail. Section 529A reads as follows: "529A. Overriding preferential payment.- Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company- (a). workmen's dues; and (b). debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to subsection (1) of Section 529 pari passu with such dues, shall be paid in priority to all other debts. (2). The debts payable under clause (a) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision akin to Section 529A of the Act in the DRT Act. In paragraph 129, it is held that if parliament intended to give priority to the amounts sought to be realised under the Debt Recovery Tribunal Act, it would have enacted provisions on the lines of Section 529A among other provisions. This is a case of clear indication that when the matter is to be decided between the claim under Section 529A and Section 26B, it is the claim under Section 529A which would prevail in view of the provisions of Section 530 of the Act as in no uncertain terms the claim of the State for payment towards taxes is made subject to Section 529A. This view of ours also finds support from the judgment of the Bombay High Court in State of Kerala v. Official Liquidator of Poysha Industrial Col Ltd. (2010 158 Comp. Case 582). The aforesaid judgment passed by the Kerala High Court has been upheld by the Apex Court and the SLP (Civil) [CC No.6368/2014] has been dismissed vide order dated 25.04.2014. 36-II. The Gujarat High Court considered the issue of priority of sales tax dues over all creditors including secured and unsecured creditors under the Act of 1956 in the case of State of Gujarat Vs. OL of Kengo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the legal position is changed. When the Official Liquidator acquires or possesses the securities mortgaged with the Secured Creditors, then the Official Liquidator would be obliged to serve the provisions of Section 529-A and Section 530 of the Companies Act. The question of equity would not arise because in a case where the securities / properties / assets are not sufficient to discharge the liability of the creditors described under Section 529-A of the Companies Act, the question of payment under Section 530 of the Act would not arise. Section 530 of the Companies Act would come into operation only after the liability under Section 529-A is discharged and some money is still left." 36-III. The High Court of Gujarat considered the issue of priority of Gujarat Value Added Tax, 2003 over SARFAESI Act, 2002 in the case of Bank of Baroda Vs. State of Gujarat & Ors. reported in (2020) 4 GLR 2498. The extract of the judgment, relevant for the present purpose, is reproduced hereunder:- "11. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for my consideration is, whether the Central Legislatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in each. [See for relevant discussion in para 20 in Shri Swaran Singh & Anr. v. Shri Kasturi Lal; (1977) 1 SCC 750] 23. Normally the use of the phrase by the Legislature in a statutory provision like 'notwithstanding anything to the contrary contained in this Act' is equivalent to saying that the Act shall be no impediment to the measure [See Law Lexicon words 'notwithstanding anything in this Act to the contrary']. Use of such expression is another way of saying that the provision in which the non-obstante clause occurs usually would prevail over the other provisions in the Act. Thus, the non-obstante clauses are not always to be regarded as repealing clauses nor as clauses which expressly or completely supersede any other provision of the law, but merely as clauses which remove all obstructions which might arise out of the provisions of any other law in the way of the operation of the principle enacting provision to which the non-obstante clause is attached. [See Bipathumma & Ors. v. Mariam Bibi; 1966(1) Mysore Law Journal page 162, at page 165] 24. Having regard to the nature of the controversy which I am called upon to resolve, I would like to look into two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to understand the true purport and effect of Section 26E of the SARFAESI Act which came to be enacted later in point of time and also the effect of Section 31B of the RDB Act which came to be enacted later in point of time. 31 to 33. XX XX XX 34. I am sure of one thing that there exists no repugnancy in the two legislations. The intention of the Parliament could not be said to nullify the State enactment providing the first charge on the property. The legislations have been made by the Central Government and the State respectively under Entries I and II of the Schedule and not of the Concurrent List. The amendment made by the Parliament is to give priority to the secured creditors vis-a-vis the State dues without speaking about the first charge. This aspect was duly considered by the Supreme Court in the case of Central Bank of India (supra). The amended provision, i.e. Section 26E of the SARFAESI Act and Section 31B of the RDB Act, would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). 35 to 44. XX XX XX 45. Thus, the dictum of law as laid by the Supreme Court in the aforesaid decision is that the State's preferential r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in any other law for the time being in force, any amount of tax, penalty, interest and any other amount, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or such person." A perusal of the provisions of Section 38 of the KVAT Act and Section 26 of the HP VAT Act demonstrates that these provisions are almost pari materia. This Court concurs with the reasoning of the Hon'ble High Court of Kerala that after coming into force of Section 31B of the RDB Act read with Section 26E of the SARFAESI Act, the first charge is created by way of priority in favour of the Banks/Financial Institutions to recover and satisfy their debts, notwithstanding any local statutory "first charge" in favour of the Revenue. 26 to 28. XX XX XX 29. Section 48 of the Gujarat Value Added Tax Act, 2003 reads as under: "48. Tax to be first charge on property:-- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person or account of tax, interest or penalty for which he is liable to pay to the Government shall be a first change on the property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Hon'ble High Court of Bombay demonstrates that it has taken into consideration the pronouncements of all other Hon'ble Courts with regard to their respective VAT Acts, which contained a non obstante Clause in favour of the State akin to Section 26 of the H.P. VAT Act, 2005 vis-a-vis the amendments contained in the SARFAESI Act and the RDB Act 34. Thus, from what has been discussed above, now there is no ambiguity that in view of the provisions of Section 26E of the SARFAESI Act 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, a secured creditor has priority over the rights claimed by the Revenue." 37. The submission of the learned Advocate General that the State has first charge as crown's debt against other creditors by virtue of overriding effect of Section 47 of the Act of 2003 which starts with non-obstante clause and the State having full legislative competence to enact law - the Act of 2003 and as such, the OL has refused to give priority to the State dues, this Court finds that the Act of 1956 has been enacted by the Parliament on the basis of Entry 43 of the List-I (Union List) of 7th Schedule appended to the Constitution of India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, then the same has to be distributed pari passu among others, as per the priority given in Section 529A of the Act of 1956. 45. The submission of learned Advocate General that the Parliament by inserting Section 529A in the Act of 1956 has only given preferential treatment to the workmen's dues but other creditors like State Government cannot be deprived to claim their due amount, this Court finds that if the Parliament has made amendment in the Act of 1956 and only priority has been given to the claim of the workmen, no further inference can be drawn by the Court of depriving any other creditor to get its dues. 46. This Court finds that even the preferential payments to the revenues, taxes, cesses, etc. due from the Company in winding up to the Central or the State Government or the local authority, will be subject to the provisions of Section 529A of the Act of 1956. This Court, if accepts the plea of the learned Advocate General, in a way, would be re-writing Section 530 of the Act of 1956 and the same cannot be done by this Court. The legislature-Parliament, if has brought any change in respect of the preferential payment and only the dues of workmen have been given prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue before the Apex Court was with regard to priority to the dues payable by employer under Section 11 of Employee's Provident Funds and Miscellaneous Provisions Act, 1952 and whether the same would be subject to Section 529A of the Act of 1956 and in terms of which the workmen's dues and debts due to the secured creditors, are required to be paid in priority to all other debts. 53. The Apex Court on interpretation of the Section 11 of the Employee's Provident Funds and Miscellaneous Provisions Act, 1952 and Sections 529, 529A and 530 of the Act of 1956 found that the amendment in the Companies Act, 1985 was only to expand the scope of the dues of workmen and place them at par with the debts due to the secured creditors and there was no reason to interpret the amendment as giving priority to the debts due to the secured creditors over the dues of provident fund payable by the employer. This Court finds that the said judgment is of little assistance to the learned Advocate General. 54. Reliance is placed by the learned Advocate General on the judgment passed by the Apex Court in the case of Jayant Verma & Ors. Vs. UOI & Ors. (supra), this Court finds that the question before the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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