Liquidation priorities under section 529A control distribution of sale proceeds and limit rejection of creditor claims.

In company liquidation, realised sale proceeds must be distributed under the mandatory priority scheme in section 529A of the Companies Act, with workmen's dues and secured creditors taking precedence. Rule 179 of the Companies (Court) Rules permits subsequent interest only where a surplus remains after full payment of admitted claims. Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act also requires distribution in accordance with section 529A. A claim rejection made without following this statutory sequence is unsustainable and must be reconsidered under the proper liquidation priorities.

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Issues: Whether the Official Liquidator could reject the bank's claim without first distributing the sale proceeds in accordance with section 529A of the Companies Act and the governing rule on payment of subsequent interest.

Analysis: The claim arose after a winding-up order and the Official Liquidator had realised sale proceeds from the assets of the company in liquidation. Rule 179 of the Companies (Court) Rules, 1959 permits subsequent interest only when there is surplus after payment in full of admitted claims. The distribution of assets in liquidation must comply with section 529A of the Companies Act, 1956, which gives priority to workmen's dues and secured creditors. Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 also requires distribution of sale proceeds in accordance with section 529A. The impugned rejection was made without following this mandatory statutory scheme.

Conclusion: The rejection of the bank's claim was unsustainable and liable to be set aside. The matter had to be reconsidered in accordance with section 529A and the applicable rule.

Final Conclusion: The application was allowed and the claim rejection was quashed, with the matter sent back for fresh consideration under the proper liquidation priorities.

Ratio Decidendi: Where a company in liquidation has realised sale proceeds, the Official Liquidator must distribute them in accordance with section 529A of the Companies Act, and claims cannot be rejected without adhering to that mandatory priority scheme.

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