Statutory tax charges can make the State a secured creditor, ranking pari passu with workmen and other secured creditors.

Statutory sales tax and entry tax dues backed by charge provisions were treated as secured debts because the relevant tax statutes created a charge, or paramount charge, on company property by operation of law. That security brought the State within the concept of a secured creditor under the insolvency framework applied through section 529 of the Companies Act, 1956, and section 529A did not displace that status. The secured portion of those dues was therefore entitled to rank pari passu with workmen's dues and other secured creditors. The contrary contention that the State was only an unsecured creditor, or that assets outside the taxing State defeated the claim, was rejected.

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Issues: Whether the State Government's sales tax and entry tax dues, backed by statutory charge provisions, could be treated as secured debts payable in pari passu with workmen and other secured creditors under section 529A of the Companies Act, 1956.

Analysis: The statutory scheme of the Bombay Sales Tax Act, the Maharashtra Land Revenue Code, the Maharashtra Sales Tax on Works Contract Act, the Central Sales Tax Act, the Karnataka Tax on Entry of Goods Act, the Karnataka Sales Tax Act, and the Karnataka Land Revenue Act created a charge or paramount charge on the company's property for recovery of the dues. Such charge was held to amount to security by operation of law, bringing the State within the concept of a secured creditor under the insolvency framework applied by section 529 of the Companies Act, 1956. Section 529A did not extinguish that status, but required the secured portion of such dues to rank with workmen's dues and other secured creditors on a pari passu basis. The contention that the State could claim only as an unsecured creditor, or that the territorial location of assets outside the taxing State defeated the claim, was rejected.

Conclusion: The State of Maharashtra and the State of Karnataka were held to be secured creditors in respect of the relevant statutory dues, and their claims were entitled to be reckoned along with those of the other secured creditors and workmen on a pari passu basis under section 529A.

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