State debt priority prevails over later private claims where a subsisting income-tax attachment protects the Government's rights.

The security bond executed in the insolvency proceedings was construed as covering all creditors other than those in the A and B schedules, so the Government was not excluded from its benefit. The Court applied the common law priority of State debts and held that this priority is not inconsistent with Article 14; because the income-tax authorities had already attached the properties, the later private claim could not defeat the State's right to the sale proceeds. Board Standing Order 48 was held inapplicable because income-tax arrears did not create a charge on the land. The Government therefore had priority over the sale proceeds.

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Issues: (i) Whether the security bond executed in the insolvency proceedings enured only for the named C-schedule creditors or for all creditors other than those in A and B schedules, including the Government; (ii) whether the Government had priority over the sale proceeds in view of the subsisting income-tax attachment and the principle of State debt priority; (iii) whether Board Standing Order 48 barred the Government from proceeding against the sale proceeds.

Issue (i): Whether the security bond executed in the insolvency proceedings enured only for the named C-schedule creditors or for all creditors other than those in A and B schedules, including the Government.

Analysis: The order sanctioning withdrawal of the insolvency petitions was read in its full context, including the antecedent proposals and the absence of any enquiry identifying an exhaustive C-schedule class. The arrangement was intended to exclude only the creditors in A and B schedules, while securing the remaining creditors generally. The later conduct of the parties and the court proceedings also supported this wider construction.

Conclusion: The security bond enured for all creditors other than those in A and B schedules, and the Government was not excluded from its benefit.

Issue (ii): Whether the Government had priority over the sale proceeds in view of the subsisting income-tax attachment and the principle of State debt priority.

Analysis: The common law principle giving priority to State debts was applied, and it was held that such priority is not inconsistent with Article 14 of the Constitution of India. Since the income-tax authorities had already attached the properties under section 46(2) of the Income-tax Act, the later security interest could not defeat the Government's rights. The subsisting attachment meant that the Government's claim attached to the sale proceeds in priority to private claimants of the same rank.

Conclusion: The Government had priority over the sale proceeds, and the applicant could not claim payment out ahead of the State.

Issue (iii): Whether Board Standing Order 48 barred the Government from proceeding against the sale proceeds.

Analysis: The prohibition in Board Standing Order 48 was confined to cases where arrears of land revenue constituted a charge on the land itself. Income-tax arrears did not create such a charge, and therefore the premise for applying the standing order was absent. The purchaser's position under a court sale did not displace the Government's right in the present situation.

Conclusion: Board Standing Order 48 did not apply to the sale proceeds of the properties in question.

Final Conclusion: The applicant was not entitled to any part of the sale proceeds because the Government's right to priority prevailed over the competing claim.

Ratio Decidendi: Where the State has a subsisting attachment for recovery of public dues, later-created private claims to the same property or its sale proceeds cannot defeat the State's priority, and the common law priority of State debts is not inconsistent with Article 14 of the Constitution of India.

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