Statutory priority in liquidation limits tax recovery, and non-priority assets must be shared rateably among creditors.

A debt owed to the Income Tax Department, arising more than twelve months before a company entered voluntary liquidation, was held not to qualify as a priority debt under the statutory liquidation scheme. The same treatment applied to the local committee's claim, while no other creditor established priority. As a result, the attached company property could not be retained to defeat pari passu distribution and had to be released for rateable sharing among all creditors. The liquidator was therefore entitled to restrain further execution against the assets so the estate could be administered in accordance with the Companies Act.

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Issues: Whether a debt due to the Income Tax Department, arising more than twelve months before the company went into voluntary liquidation, could claim priority over other creditors and justify attachment of the company's property.

Analysis: The petition was brought by the liquidator under the Companies Act to prevent attached assets of the company from being unfairly taken by certain creditors. The income-tax claim arose more than twelve months before liquidation and, under section 230 of the Act, did not rank as a priority debt. The same position applied to the debt of the local committee, while the remaining creditor made no claim to priority. In these circumstances, the attached property had to be made available for distribution rateably among all creditors.

Conclusion: The income-tax department had no priority, and the attached property was directed to be released for distribution among all creditors.

Final Conclusion: The liquidator succeeded in securing release of the attached property and restraint of further execution so that the estate could be administered rateably among the creditors.

Ratio Decidendi: A debt which does not fall within the statutory priority scheme in liquidation cannot be enforced against the company's assets to the prejudice of other creditors, and the assets must be distributed rateably.

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