TMI Blog2013 (12) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... dues payable to the Govern ment. It is true, under section 537(2), when the company is being wound up the embargo in sub-section (1) of section 537 is not made applicable for proceedings for recovery of tax payable to the Government. In the facts of this case, we must notice that there is no case for the appellants that recovery proceedings commenced by the State proceeded beyond the stage of attachment. The sale held by the company court is for the benefit of all the creditors. The manner in which sale proceeds is to be shared among the various creditors is indicated in the provisions contained in the Companies Act. They include sections 529A and 530 of the Act. The priority itself is to be decided by the company court under section 446(2)(d). If the State is allowed to proceed against the property, despite the sale held as free of encumbrances, the result would be that the sale would become vulnerable and it would also be against what had been held out to the auction purchaser under the aegis of the company court that the sale is being held free of encumbrances. Having regard to the provisions contained in sections 529A and 530, the intention is clear that the law of the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 3. We have heard Sri Dr. Sebastian Champappily learned Special Govern ment Pleader for Taxes on behalf of the appellants, Sri Anil Narendran, learned counsel on behalf of the nominee and Sri K. Moni on behalf of the official liquidator. 4. The learned single judge allowed the application taking note of the position that as per section 530 of the Companies Act, 1956 (hereinafter refer red to as the Act ), payment of taxes, inter alia, is subject to the provisions of section 529A and that distribution of assets is to be made in accordance with the provisions contained in the said section. The learned single judge also relied on the unreported judgment of the apex court in Civil Appeals Nos. 6257-6259 of 2004 (CIT v. KTC Tyres (India) Ltd. [2014] 185 Comp Cas 17 (SC); [2014] 2 ITR-OL 550 (SC)). It is also held that once the com pany is ordered to be wound up, the State will have to realise its assets, debts in terms of the aforesaid provisions. Provisions of section 26A or 26B of the Sales Tax Act could not be enforced. It is on this reasoning, the com pany court struck off the recovery proceedings from the thandaper account. 5. The learned Special Government Pleader w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 530 of the Act clearly provides that amounts due as taxes, inter alia, is to be distributed subject to the provisions of section 529A. The argument of the learned Government Pleader is that the principle laid down by the apex court in Central Bank of India v. State of Kerala [2009] 4 SCC 94; [2010] 153 Comp Cas 497 (SC) will not apply to resolve the dispute in this case. In the first place he would point out that section 26B was actually incorporated with effect from April 1, 1999, while section 529A was incorporated in the year 1985. In other words, it is after being aware of the provisions contained in section 529A that the State Legislature has enacted section 26B, by which the State Legislature intended that notwithstanding anything to the contrary contained in any other law for the time being in force, any amount of tax, penalty, interest and any other amount, if any, payable by a dealer or any other person under this Act shall be the first charge on the property of the dealer or such person. Also in Central Bank of India v. State of Kerala [2009] 4 SCC 94; [2010] 153 Comp Cas 497 (SC) was not between the claims of the State in regard to amounts due as taxes versus a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o enactments do not contain provision similar to Workmen's Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read any conflict or inconsistency or overlapping between the provisions of the DRT Act and the Securitisation Act on the one hand and section 38C of the Bombay Act and section 26B of the Kerala Act on the other and the non obstante clauses contained in section 34(1) of the DRT Act and section 35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions and other secured creditors for recovery of their dues or enforcement of security interest, as the case may be. 8. The learned Special Government Pleader for taxes Dr. Sebastian would contend that this is a case where section 26B of the KGST Act was incurporated after the enactment of section 529A of the Act. Section 26B was inserted with effect from April 1, 1999, whereas section 529A was in the statute book since 1985. He would contend that as far as the State Legislature is concerned, it is exclusively entitled to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening words of article 246(3) are to the effect that the power of the State Legislature to make laws in respect of matters enumerated in List II is subject to clauses (1) and (2) of article 246. The result of the aforesaid constitutional devices is no longer res integra. We need only refer to two decisions of the apex court in this regard. The decision in Sudhir Chandra Nawn v. WTO [1968] 69 ITR 897 (SC); AIR 1969 SC 59, dealt with a case under the Wealth Tax Act, 1957. The court therein, inter alia, held as follows: Secondly in view of article 246, exclusive power of the State Legislature has to be exercised subject to clause (1), i.e., the exclusive power which Parliament has in respect of the matter enumerated in List I. Assuming that there is a conflict between Entry 86, List I and Entry 49, List II, which is not capable of reconciliation, the power of Parliament to legislate in respect of a matter which is exclusively entrusted to it must supersede pro tanto the exercise of power of the State Legislature. Still further we may refer to the judgment of the apex court in Govern ment of Andhra Pradesh v. J.B. Educational Society, AIR 2005 SC 2014. Therein the apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e upshot of the aforesaid discussion would appear to be as follows: 11. When a law is made by Parliament with reference to the field of legislation carved out exclusively to it under List I and a law is made by the State in exercise of its legislative power under article 246(3) with regard to the legislative entry in List II of the Seventh Schedule, a question of repugnancy may arise. The first task entrusted to the court is to ascertain whether there is any repugnancy. The court must employ the principle of pith and substance. If there is only an incidental encroachment and subs tantially the law falls within the exclusive domain of the Legislature, the mere incidental encroachment would be ignored. But when the legislations are irreconcilable, the Constitution has accorded supremacy to the Parliamentary legislation and Parliamentary legislation will reign supreme. When the law is one made with reference to entries in the concurrent list, where both Parliament and the State Legislature are sovereign powers in the matter of making laws, again in view of article 254 of the Constitution unless it be a law made by the State, which is reserved for the assent of the President and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solved in favour of Parliamentary legislation. The resultant position is that, as Parliament has declared that in the case of a company which is being wound up, proceeds of its assets must enure firstly to the secured creditors and workers and it is to be distributed pari passu among them and then, if any proceeds remain, it is to be distributed among others including the State which may be creditors with unsatisfied demands following assessments which have been made under the sales tax law as in this case. Giving effect to section 26B will thwart Parliamentary law. 13. It is in this regard we must see the judgment of the apex court in Central Bank of India v. State of Kerala [2009] 4 SCC 94 ; [2010] 153 Comp Cas 497 (SC). It is true that in Central Bank of India v. State of Kerala [2009] 4 SCC 94 ; [2010] 153 Comp Cas 497 (SC), the apex court was dealing with the question as to whether section 26B of the Sales Tax Act will prevail over the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It is in that context the apex court held that there is no provision akin to section 529A of the Act in the DRT Act. In paragraph 129, it is held that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) of section 537. No doubt, the nominee relied on the judgment the Full Bench of the Delhi High Court reported in Life Insurance Corporation of India v. Asia Udyog P. Ltd. [1984] 55 Comp Cas 187 (Delhi) [FB], in which it is held as follows (page 201): The only effect of sub-section (2) of section 537, therefore, is that the completed transaction whether by way of sale or in execution proceedings do not become void. But if any further proceedings are to be continued after the winding up order has been passed, section 446 will have to be complied with. 21 Next decision cited by the learned Government Pleader is the decision of the apex court in Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Ltd. [2011] 168 Comp Cas 206 (SC); AIR 2012 SC 11. Therein the apex court was dealing with the question as to whether priority is to be given to the dues payable by the employer under section 11 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (in short the EPF Act ) and whether it is subject to section 529A. Both the EPF Act and the Companies Act have been enacted by Parliament and it is not a case where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority to be observed in the matter of payment of debts in the case of winding up. In this case the order that is passed by the learned company judge is not an order relating to the priority as such. In fact section 446(2)(d) provides that it is a company court which is to decide the question of priority. Section 446(2)(d) of the Act reads as follows: 446. Suits stayed on winding up order.-. . . (2)(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the com pany; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. 17. In fact learned counsel for the official liquidator would submit that the appellants have not even submitted claim. But the learned Special Govern ment Pleader would point out that the claims have not been called for. This is rebutted by learned counsel for the official liquidator. The order passed by the learned company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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