1963 (2) TMI 31 - HC - Companies Law

Court partially reverses liquidator's order, allows State Govt's claim as unsecured debt, rejects excess claim.

The court partially reversed the liquidator's order, admitting the State Government's claim for a guarantee commission to the extent of Rs. 17,048.25 as ... Winding up - Preferential payments Issues Involved:1. Whether the State Government's claim for guarantee commission is enforceable against the company.2. Whether the State Government's claim qualifies for preferential payment under section 530(1)(a) of the Companies Act.Detailed Analysis:Issue 1: Enforceability of the State Government's Claim for Guarantee CommissionThe applicant, the State Government of Mysore, appealed against the official liquidator's order rejecting its claim for Rs. 62,817.01 as a preferential claim. The claim was for a guarantee commission payable to the State Government for guaranteeing a loan of Rs. 10,00,000 advanced by the Bank of Mysore to the company.The facts are undisputed that the company approached the State Government in 1948 for a loan, which the Government agreed to guarantee under certain conditions. These conditions included the payment of a half per cent interest to the Government on the outstanding loan as service charges. The company's board of directors adopted a resolution on July 19, 1949, accepting all terms stipulated by the Government, including the payment of the guarantee commission.However, no document was executed by the company in favor of the Government regarding this payment, nor was there any proof of the resolution being formally communicated to the Government. The liquidator rejected the claim, reasoning that the guarantee period had expired and that the Government had not taken steps to enforce payment.The court found these reasons weak or irrelevant, noting that the Government had acknowledged its liability to the bank and kept the guarantee alive. The court examined whether there was a binding contract for the payment of the guarantee commission. It was found that there was no proof of a completed agreement or contract between the company and the Government. The only basis for the claim was the company's conduct, specifically the payment of the guarantee commission up to January 1957.The court noted that the company's general ledgers showed arrears of Rs. 19,572.05 as of June 30, 1956. This amount was included in the balance sheet adopted by the company, thereby ratifying the directors' actions and accepting the liability. For the period after June 30, 1956, there were no entries in the company's books acknowledging further liability.The court held that the Government's claim could be admitted only to the extent of Rs. 17,048.25, the amount acknowledged in the company's balance sheet and reduced by subsequent payments.Issue 2: Preferential Payment under Section 530(1)(a) of the Companies ActThe Government claimed preferential payment under section 530(1)(a) of the Companies Act, arguing that the amount due was in the nature of revenue due to the Government. This argument was based on a notification under section 22 of the Mysore State Aid to Industries Act, 1951, which treated the guarantee as aid given under the Act. Section 19(1) of the Act allowed the recovery of such amounts as if they were arrears of land revenue.The liquidator had rejected this view, considering the notification ineffective. The court disagreed, stating that the notification was valid under section 22 of the Act. However, the court clarified that section 19(1) only allowed the recovery of the amount using the procedure for land revenue and did not convert the aid into land revenue itself.The court concluded that the guarantee commission was not land revenue or a tax due to the Government and therefore did not qualify for preferential payment under section 530(1)(a) of the Companies Act.ConclusionThe court partially reversed the liquidator's order, admitting the Government's claim to the extent of Rs. 17,048.25 as an ordinary unsecured debt, ranking for payment pro rata with other unsecured debts. The claim in excess of this amount was rejected. The parties were directed to bear their own costs.