Priority of wage claims under section 230(1)(b) overrides floating charge on book debts; sale without preserving priority invalid.

Wage and salary claims under section 230(1)(b) are legally superior to the interests of a holder of a floating charge over book debts; a floating charge does not defeat the statutory priority attaching at the date of winding up. A sale of book debts to a mortgagee that failed to preserve the section 230 priority was therefore improper. The appellant's monetary entitlement requires factual and evidential determination by the Original Side, and any proved sum must be satisfied in accordance with the statutory priority and the liquidator's rights, including possible re-sale consistent with that priority.

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Issues: (i) Whether debts in respect of wages or salary under section 230(1)(b) of the Indian Companies Act have priority over the claims of a holder of a floating charge in respect of book debts, and whether the Court could sell the book debts to a mortgagee holding a registered deed that created a floating charge without providing for the priority under section 230; (ii) Whether the appellant is entitled to be paid, out of the proceeds of the book debts, up to Rs. 1,000 in priority, and the appropriate procedure for determination of that claim.

Analysis: The Court examined the character of the security created by the deed and distinguished fixed charges on specific assets from a floating charge over book debts. Applying the priority rule in section 230, the Court held that claims for wages or salary falling within subsection (1) override the claims of a debenture holder in respect of assets subject only to a floating charge. The Court relied on the separability of fixed and floating charges and concluded that the floating charge over book debts remained subject to the statutory priority at the date of winding up. The sale of book debts to the mortgagee without providing for the statutory priority under section 230 was therefore not lawful. The appellant's substantive entitlement to the claimed sum remained unadmitted and required factual and evidentiary determination by the Original Side; accordingly the matter was remanded for that determination and, if necessary, re-sale of the assets consistent with the statutory priority and the liquidator's rights under subsection (3) of section 230.

Conclusion: The appeal is allowed insofar as the Court finds that wages or salary claims within section 230(1)(b) have priority over the holder of a floating charge in respect of book debts and that the sale of the book debts to the mortgagee without providing for that priority was improper; the matter is remanded to the Original Side to determine the appellant's monetary claim and the mode of satisfaction of any proved sum (the appellant's claim, if established, to rank up to Rs. 1,000 in priority).

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