AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2016 (4) TMI 1058
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ordered to be wound-up. In the course of winding-up proceedings, the State pressed its claims, contending that Sales Tax dues were outstanding for the period 1980 to 31.03.1994. Concededly, the Official Liquidator [hereafter "OL"] held that the amounts as claimed were due and that the assessment orders remained outstanding. She, however, rejected the State's claim as overriding preferential creditor and said that its demand could be recovered in terms of Section 530 of the Companies Act, 1956 (hereafter "the 1956 Act"). The State appealed, relying upon Section 33-C of the M.P. General Sales Tax Act, 1958 (hereafter "the 1958 Act") and Section 53 of the M.P. Commercial Tax Act, 1994 (hereafter "the 1994 Act"). 3. The learned Single Judge rejected the appeal inter alia observing as follows: "9. Judgments relied upon by the learned counsel for the appellant on this count are of no assistance to him. The judgment of the Apex Court reported as Central Bank of India Vs. State of Kerala & Others JT 2009 (3) SC 216 does not come to his aid as Section 529-A of the Companies Act was not the scope of discussion in terms of question which has been answered by the Apex Court and as is e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asthra Sales Tax Act, introduced in 1999 over Section 529A of the Companies Act, 1956. The Bombay High Court rejected the State's revenue claim for primacy over debts and that it had to rank as secured creditor along with such other secured creditors. 6. Learned counsel for some of the secured creditors, who had been arrayed as respondents, urged that this Court should not entertain the appeal. They pointed out that in the earlier proceedings, the question as to the overriding nature of Section 529A of the 1956 Act and the impact of the State law had been noticed. It was urged, that by virtue of the decision of the Constitution Bench in Kaiser-i-Hind Pvt. Ltd. and Anr. v. National Textile Corporation (Maharashtra North) Ltd. and Ors. 2002 (8) SCC 182, a mere declaration in a State legislation that the assent of the President was obtained before its enactment (or the enactment of an amendment to the existing State law) is conclusive. In context of this case, it was urged that since Section 529A of the 1956 Act is imperative inasmuch as it overrides all other claims and places secured creditors and workmen inasmuch as their outstanding dues, at par, the question of State dues - ei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e for a period not exceeding four months within the twelve months next before the relevant date, subject to the limit specified in sub-section (2); (c) all accrued holiday remuneration becoming payable to any employee, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution; (d) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, all amounts due, in respect of contributions payable during the twelve months next before the relevant date, by the company as the employer of any persons, under the Employees' State Insurance Act, 1948 (34 of 1948), or any other law for the time being in force; (e) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in the case of the debts to which priority is given by clause (d) of sub-section (1), formal proof thereof shall not be required except insofar as may be otherwise prescribed. (7) In the event of a landlord or other person distraining or having distrained on any goods or effects of the company within three months next before the date of a winding up order, the debts to which priority is given by this section shall be a first charge on the goods or effects so distrained on, or the proceeds of the sale thereof : Provided that, in respect of any money paid under any such charge, the landlord or other person shall have the same rights of priority as the person to whom the payment is made. (8) For the purposes of this section - (a) any remuneration in respect of a period of holiday or of absence from work through sickness or other good cause shall be deemed to be wages in respect of services rendered to the company during that period ;(b) the expression "accrued holiday remuneration" includes, in relation to any person, all sums which, by virtue either of his contract of employment or of any enactment (including any order made or direction given under any enactment), are payable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be first charge on the property of the dealer or such person." 11. There is no doubt that the previous ruling of the Supreme Court in State Bank of Indore (supra) does facially suggest that the provisions of Section 33-C enacts the first charge prioritising debts of the State over and above that of the secured creditors. Both these judgments did not deal with a situation where the dues of the State (of M.P.) were asserted in the course of winding-up proceedings. Consequently, the considerations which weighed with the Court in those judgments were entirely different. The introduction - by an amendment (in 1985) of Section 529A, in the opinion of the Court, is prima facie conclusive inasmuch as the Parliament intended that all secured creditors and workmen (inasmuch as their dues are concerned) are to be treated alike. The question of primacy of State's dues can be validly distributed only if the State law specifically so provides and the State law is specifically reserved for President's assent on this aspect. The latter aspect has been highlighted or rather brought home by the Constitution Bench decision in Kaiser (supra) in the following terms: "14. In view of aforesaid requ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... XXXXXX XXXXXX 18. Further, in Gram Panchayat of Village Jamalpur v. Malwinder Singh and Ors. 1985 (3) SCC 661, this Court has also held that the assent of the President under Article 254(2) of the Constitution is not a matter of idle formality and the President has at least to be apprised of the reason as to why his assent is sought and the special reason for doing so. XXXXXX XXXXXX XXXXXX 20. It is true that President's assent as notified in the Act nowhere mentions that assent was obtained qua repugnancy between the State legislation and specified certain law or laws of the Parliament. But from this, it also cannot be inferred that as the President has given assent, all earlier law/ laws on the subject would not prevail in the State. As discussed above before grant of the assent, consideration of the reasons for having such law is necessary and the consideration would mean consideration of the proposal made by the State for the law enacted despite it being repugnant to the earlier law made by the Parliament on the same subject. If the proposal made by the State is limited qua the repugnancy of the State law or laws specified in the said proposal, then it cannot be s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e totally unjustified to hold that once the assent is granted by the President, the State law would prevail qua earlier other law enacted by the Parliament for which no assent was sought for nor which was reserved for the consideration of the President." 12. In the present case, the State of M.P. has not been able to show that the assent received from the President either in 1958-59 or in 1995 or before the introduction of Section 33-C in 1976 had received such a particular assent. In other words, Presidential assent to this law which seeks to override or recreate first charge or charge which alone can rank the State's dues along with those of secured creditors do not seem to have been established. To be fair to the Appellant, this question does not appear to have engaged the attention of the learned Single Judge who went by the plain language of the Section 529A of the 1956 Act and the provisions contained therein. 13. For these reasons, this Court is of the opinion that the matter should be enquired into by the learned Single Judge which the State may establish, according to law, by producing all relevant materials which it may possess as to whether assent was sought in res....