TMI Blog1999 (2) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... further direction which is sought is that a sum of Rs. 7,76,75,000 being approximately 75 per 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 first 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. 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 November 3, 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 December 10,1998. 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 Synd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that section 529A of the Companies Act overrides the provisions of other Acts in respect of the claim of other creditors. Even otherwise, it is contended 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. On behalf of the official liquidator, the deputy official liquidator contends that section 529A does not have an overriding effect over section 178 of the Income-tax 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 of the Income-tax Act, 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] 86 Comp Cas 555 (SC) and which has been considered by this court in Strait India Ltd. ( In liquidation ) , In re (C.P. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 119 of the Hyderabad Land Revenue Act. The bank moved an application challenging the order of the Collector. The same was rejected on the ground that the civil court would have no jurisdiction. In an appeal preferred to this court, a learned single judge dismissed the appeal on 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of New York [1920] 65 Law Ed. 315, which lays down a similar doctrine, namely, that the State of New York has the common law prerogative right of priority over unsecured creditors. Therefore, it is clear that the priority of the State is qua unsecured creditors and not qua secured creditors. Having said so the first contention of the applicants must be accepted that the common law doctrine which has been recognised in India and saved is that the claims of the Crown prevail over the claims of unsecured creditors and not over secured creditors. Imperial Chit Funds ( P. ) Ltd. v. ITO [1996] 86 Comp Cas 555 (SC) is, therefore, an authority for the proposition that between unsecured creditors, the claim of tax dues under section 178 of the Income-tax Act, would have preference over all other claims of unsecured creditors. That brings us to the second and third questions, viz ., whether section 178 of the Income-tax Act has made any difference and/or it prevails over the provisions 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. v. ITO [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as framed by me in Strait India Ltd. ( In liquidation ) , In re (C.P. No. 910 of 1987, dated 28-8-1998) was whether the capital gains tax payable under section 45 of the Income-tax Act has precedence over the claim of other secured creditors covered by section 530 read with section 529A of the Companies Act. I had negatived the contention of the tax department after considering the judgment in Imperial Chit Funds ( P. ) Ltd. v. ITO [1996] 86 Comp Cas 555 (SC) on the ground that section 178 is restricted to an order in respect of dues passed after notice was issued to the Assessing Officer under section 178 of the Income-tax Act and within the time as set out therein and will not apply to subsequent tax dues. In the said judgment what really was in issue, was whether the tax dues of the State under the Income-tax Act have preference over the dues of 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 make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 178 of the Income-tax Act. Having said so, the objections raised on behalf of the official liquidator must be rejected. I may mention here that my attention was invited to the judgment of the Division Bench of the Andhra Pradesh High Court in ITO v. Official Liquidator [1976] 46 Comp Cas 46 . The Division Bench of the Andhra Pradesh High Court has not taken any different view. There also what was under consideration was the claim of the unsecured creditors and claims under section 530(1)( a ) read with the demand under section 178 of the Income-tax Act. The question is what relief is to be granted in so far as Company Application No. 116 of 1998 and Company Application No. 117 of 1998 are concerned. It has been brought to my notice that the claim by the applicants in both the cases is beyond time and there is no application for condonation of delay. In the light of that, prayer ( b ) in Company Application No. 116 of 1998 cannot be considered as also prayer ( a ) in Company Application No. 117 of 1998. Considering the above at this stage, I do not propose to consider prayer clause ( b ) in Company Application No. 116 of 1998 and prayer clause ( a ) in Company Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
