Priority in winding up: municipal tax dues cannot outrank secured creditors or workmen, and balance goes to admitted unsecured creditors.

In company winding up, the priority of distribution is governed by sections 529, 529A and 530 of the Companies Act, 1956. Municipal property tax dues do not rank ahead of secured creditors or workmen's dues because the non obstante clause in section 529A prevails over section 141 of the Bombay Provincial and Municipal Corporations Act; such dues are considered only within the framework of section 530. After payment of the statutory priority claims, the remaining liquidation funds are to be distributed among admitted unsecured creditors in proportion to their verified claims, excluding creditors who did not lodge claims despite notice.

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Issues: (i) Whether the Ahmedabad Municipal Corporation's property tax dues were entitled to priority over secured creditors and workmen's dues in the winding up of the company. (ii) Whether, after satisfying the statutory priority claims, the remaining funds were to be distributed among the unsecured creditors, including the applicant, in proportion to their admitted claims.

Issue (i): Whether the Ahmedabad Municipal Corporation's property tax dues were entitled to priority over secured creditors and workmen's dues in the winding up of the company.

Analysis: The claims of the secured creditor and the workmen had already been fully dealt with, and the remaining question concerned the municipal dues. The Court held that in a winding up, the priority structure is governed by sections 529, 529A and 530 of the Companies Act, 1956. The non obstante clause in section 529A excluded the operation of section 141 of the Bombay Provincial and Municipal Corporations Act for the purpose of claiming priority ahead of secured creditors. The municipal dues, therefore, were not to be treated as ranking ahead of secured creditors or workmen's dues and had to be examined as preferential payments under section 530.

Conclusion: The Corporation's claim did not prevail over secured creditors or workmen's dues and was payable only within the framework of section 530 of the Companies Act, 1956.

Issue (ii): Whether, after satisfying the statutory priority claims, the remaining funds were to be distributed among the unsecured creditors, including the applicant, in proportion to their admitted claims.

Analysis: After determining the amount payable to the municipal corporation under section 530, the Court directed that the balance remaining in the liquidation account be distributed among the unsecured creditors whose claims had been lodged, verified and supported by proof of debt. Creditors who had not lodged claims despite notice were not to be included in the distribution. The applicant, being one of the admitted unsecured creditors, was entitled to participate in the distribution according to the proportion fixed by the Official Liquidator.

Conclusion: The remaining funds were to be distributed proportionately among the admitted unsecured creditors, including the applicant.

Final Conclusion: The application succeeded in part, with priority given to the municipal dues only to the extent permitted by the Companies Act and the balance ordered to be shared among the admitted unsecured creditors.

Ratio Decidendi: In a company winding up, the priority of distribution is controlled by sections 529A and 530 of the Companies Act, 1956, and a local authority's statutory charge does not override the non obstante priority given to workmen's dues and secured creditors.

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