Guarantee commission liability and liquidation ranking depend on company acceptance and statutory fiction, not mere recovery language.

A government guarantee commission claim against a company was enforceable only to the extent supported by company-level acceptance and accounting evidence up to 30 June 1956; later amounts lacked proof of formal acceptance, communication, or accounting acknowledgment and were not recoverable. A liability recoverable under a State aid statute as if it were arrears of land revenue does not, by that fiction alone, become land revenue or revenue due to Government for preferential ranking in liquidation. The admitted debt therefore ranked only as an ordinary unsecured claim, and preferential payment under the Companies Act was unavailable.

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Issues: (i) Whether the State Government had an enforceable contract against the company for payment of guarantee commission; (ii) whether the admitted amount was entitled to preferential payment as revenue due to Government under section 530(1)(a) of the Companies Act.

Issue (i): Whether the State Government had an enforceable contract against the company for payment of guarantee commission.

Analysis: The Government order offering to guarantee the bank loan on specified conditions was only an offer and not itself a completed contract with the company. No separate document was executed by the company undertaking liability to pay guarantee commission, and there was no proof that the directors' resolution was formally communicated to the Government. Although payments had been made from time to time, the relevant conduct had to be attributable to the company as a legal entity, and the only material showing company-level acceptance was the balance-sheet and allied acknowledgments up to June 30, 1956. Those materials supported ratification and acknowledgment only to that extent. For the later period, there was no proof of any further acknowledgment or debit in the company's accounts.

Conclusion: The Government established an enforceable claim only to the extent of the amount reflected as due up to June 30, 1956, and not for the entire sum claimed.

Issue (ii): Whether the admitted amount was entitled to preferential payment as revenue due to Government under section 530(1)(a) of the Companies Act.

Analysis: The notification under section 22 of the Mysore State Aid to Industries Act, 1951 validly brought the earlier guarantee within the statutory aid scheme. However, the recovery provision in section 19(1) merely permitted recovery as if the amount were arrears of land revenue; it did not convert the underlying liability into land revenue itself. The character of the debt therefore remained unchanged, and it could not be treated as revenue due to Government for purposes of preferential ranking.

Conclusion: The claim was not entitled to preferential payment and ranked only as an ordinary unsecured debt.

Final Conclusion: The claim was allowed only in part, the admitted liability being confined to the unsecured amount proved against the company, while preferential status was rejected.

Ratio Decidendi: A liability recoverable as if it were arrears of land revenue does not, by that legal fiction alone, become land revenue or revenue due to Government for preferential distribution in liquidation.

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