Workmen's priority and post-winding-up mortgage security under company liquidation law were confined to statutory limits and categories.

A mortgage executed by the liquidator during winding up did not confer on the State Government the status of a secured creditor standing outside the winding up, so it could not claim full payment from the sale proceeds on that basis. Workmen's claims for wages, leave allowance and notice pay attracted priority under section 230 of the Indian Companies Act, 1913 only to the extent those amounts fell within the statutory two-month period before the winding-up order, while gratuity and other amounts within the relevant clause were not subject to that temporal limit. The matter therefore required item-wise reconsideration of the claims under the statutory priority scheme.

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Issues: (i) Whether the State Government could claim the status of a secured creditor standing outside the winding up in respect of the mortgage executed during liquidation; (ii) Whether the workmen's claims for wages, leave allowance, notice pay and gratuity were entitled to priority under section 230 of the Indian Companies Act, 1913, and to what extent.

Issue (i): Whether the State Government could claim the status of a secured creditor standing outside the winding up in respect of the mortgage executed during liquidation.

Analysis: The mortgage relied on by the State Government had been executed by the liquidator during the winding-up proceedings. A creditor whose security arises from such a post-winding-up transaction cannot be treated as a secured creditor standing outside the winding up for the purpose of claiming full payment out of the sale proceeds.

Conclusion: The claim of the State Government to be treated as a secured creditor standing outside the winding up was rejected.

Issue (ii): Whether the workmen's claims for wages, leave allowance, notice pay and gratuity were entitled to priority under section 230 of the Indian Companies Act, 1913, and to what extent.

Analysis: Priority under section 230 was available only within the limits prescribed by the relevant clauses. Wages for clerks, servants, labourers and workmen were protected only if they had accrued due within two months before the winding-up order. Leave allowance and notice pay were held to fall within the expression "wages" for clauses (b) and (c), but their priority was likewise confined to that two-month period. Gratuity, together with other amounts covered by clause (e), was not subject to that temporal restriction.

Conclusion: The workmen were entitled to priority only to the extent permitted by section 230, and the claims had to be examined item-wise to apply the correct temporal limit and category-wise treatment.

Final Conclusion: The appeal succeeded only to the limited extent of requiring a fresh examination of the workmen's claims under the statutory priority provisions, and the matter was sent back for reconsideration.

Ratio Decidendi: Security created in favour of a creditor through a mortgage executed during winding-up does not confer the status of a creditor standing outside the winding up, and workmen's priority under section 230 must be confined strictly to the statutory categories and time limits, while gratuity-type dues within the relevant clause are not subject to the two-month restriction.

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