TaxTMI 
TaxTMI 
1999 (2) TMI 473
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....er cent of the amount due and payable by the company in liquidation to the applicants be paid to them. Similarly, in Company Application No. 117 of 1998, the applicants have prayed that the 1st respondent be ordered and directed to pay a sum of Rs. 6,65,00,000 being approximately 75 per cent of the amount due and payable by the company in liquidation to the applicants. 3. On behalf of the Official Liquidator it is pointed out that the sum of Rs. 22,24,38,315/excluding an amount of Rs. 50,57,080 towards TDS has been deposited with the Official Liquidator on 3-11-1997. An affidavit in reply has been filed by Shri Ujjwal Roy. Official Liquidator to meet the contentions as raised in the application. It is therein set out that an amount of Rs. 22,24,00,000 has been invested in Fixed Deposits with various banks, out of the sum of Rs. 22,24,38,318 along with interest to his credit as on 10-12-1998. It is thereafter set out that the claims received by his office are Rs. 73,33,10,668.34 which includes claims by workers and employees amounting to Rs. 41,89,68,067.38. The claims of Syndicate Bank and Oriental Bank of Commerce work out to Rs. 21 lakhs and odd. There is also a claim in an amo....
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....tended that the property was mortgaged to the applicants and all that was left to the mortgagor was the right of redemption. It is, therefore, contended that considering the above aspect the objections as raised must be rejected. 5. On behalf of the Official Liquidator, the Deputy Official Liquidator contends that section 529A of the Companies Act does not have an over-riding effect over section 178 of the Act but is only restricted to inter se claims in respect of the secured creditors and workers. It is further contended that under section 178, the income-tax dues have a preferential right. If an order is made under section 178 as has been held by the Apex Court in the case of Imperial Chit Funds (P.) Ltd. v. ITO [1996] 219 ITR 498/ 85 Taxman 513 and which has been considered by this Court in the matter of Strait (India) Ltd. (In Liquidation), In re [Company Petition No. 910 of 1987, dated 28-8-1998], it has preference over the claims of secured creditors. Considering the above, the following questions need to be formulated for decision: (1)Whether under the General Law, claims of the State have preferen- tial rights over the claims of secured creditors ? (2)If not, whether se....
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.... the ground that the bank has preferential claim in view of sections 104 and 119 of the Hyderabad Land Revenue Act. In appeal preferred before a Division Bench of this Court, the Division Bench held that section 119 of the Hyderabad Land Revenue Act applied only to property which was in the custody and possession of the judgment debtor and not in the custody or possession of the Court. It was further observed that the priority was only in respect of land revenue and not in respect of the other taxes and that the bank as a decree-holder had a prior charge as the quality of debt was not the same as that of the debt due to the Government and, therefore, in respect of the sales tax, the State had no priority. That is how the matter went to the Apex Court. We are not concerned with other aspects of the matter except the issue. Whether the debt of the State has preference over the debts of secured creditors. In para 7 the Apex Court considered the Common Law doctrine of 'Priority of Crown debts' as set out in Halsbury Law of England, 3rd Edition, Vol. 7, p. 221. The Apex Court quoted the following observations:- "The royal prerogative may be defined as being that pre-eminence which the ....
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....ved is that the claims of the Crown prevail over the claims of unsecured creditors and not over secured creditors. Imperial Chit Funds (P.) Ltd.'s case (supra) is, therefore, an authority for the proposition that between unsecured creditors, the claim of tax dues under section 178, would have preference over all other claims of unsecured creditors. 7. That brings us to the second and third questions viz, whether section 178 has made any difference and/or it prevails over the provision of section 529A of the Companies Act. It was sought to be contended on behalf of the Deputy Official Liquidator that considering the judgment in Imperial Chit Funds (P.) Ltd.'s case (supra), the income-tax dues under section 178 will prevail over the rights of the secured creditors. A careful analysis of the said judgment would show that the issue whether an order passed under section 178 would have preference over the rights of secured creditors was not in issue before the Apex Court. In the case of Imperial Chit Funds (P.) Ltd. (supra) as already observed what was in issue before the Apex Court was qua section 530(1)( a), i.e., over unsecured creditors. It is in that context, considering the provis....
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....f workers. The question whether the claims of income-tax dues, have preference over claims of secured creditors was not at all in issue. If section 529A is considered it is clear that it has an overriding effect. Section 529A was brought in by an amendment and was inserted in the Companies Act by Act of 1985. The section makes it clear that notwithstanding anything contained in other provisions of the Act or any other law for the time being in force, dues of workers and debts due to the secured creditors to the extent such debt rank under clause (c) of the provisions of sub-section (1) of section 529 pari passu with such dues shall be paid in priority over all other debts. To that extent it can be said that the question as posed in Strait India Ltd.'s case (supra) was no t really required to be answered as workers dues under section 529A have preference over tax dues under section 178 as they are considered pari passu with the claims of secured creditors. The amend-ment to the Income-tax Act was brought in 1961. Both are central legislations. Therefore looking at the literal language of the two sections it would be clear that the rights of the secured creditors would prevail over t....