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TMI Blog2013 (12) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... The sale was con firmed on January 4, 2005. The sale was free of all encumbrances. The sale deed was executed on November 16, 2006 and the nominee of the auction purchaser (hereinafter called "the nominee") was put in possession on the same day. 2. It appears that assessment proceedings under the Kerala General Sales 2 Tax Act, 1963 (hereinafter referred to as "the Sales Tax Act") was taken against the company in liquidation for the assessment year 1994-95. An order of attachment was passed under the Kerala Revenue Recovery Act on December 12, 1997. The company application was filed by the nominee to direct deletion of the entry regarding the revenue recovery proceedings. The learned judge allowed the said application. Against the same, the appeal has been filed. 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 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Bank of India v. State of Kerala [2009] 4 SCC 94; [2010] 153 Comp Cas 497 (SC) squarely covers the issue. He would draw support from that judgment. He draws our attention to the judgment of the Bombay High Court in State of Kerala v. Official Liquidator of Poysha Industrial Co. Ltd. [2010] 158 Comp Cas 582 (Bom). 7. Section 26B of the Sales Tax Act reads as follows: "26B. Tax payable to be first charge on the property.-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." Section 26B was inserted on April 1, 1999. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opted by the banks, financial institutions and other secured creditors, but the provisions contained therein cannot be read as creating first charge in favour of banks, etc. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in section 14A of the Workmen's Compensation Act, 1923, section 11(2) of the EPF Act, section 74(1) of the Estate Duty Act, 1953, section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, section 30 of the Gift-tax Act, and section 529A of the Companies Act, 1956, would have been incorporated in the DRT Act and the Securitisation Act. Undisputedly, the two 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the 'Concurrent List'). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the 'State List'). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included (in a State) notwithstanding that such matter is a matter enumerated in the State List." 9. Article 246 opens with a non obstante clause and provides that notwithstanding anything contained in clauses (2) and (3), Parliament is clothed with exclusive power to make laws in respect of matters enumerated in List I. Still further the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State legislation can arise in two ways. First, where the legislations, though enacted with respect to matters in their allotted sphere, overlap and conflict. Second, where the two legislations are with respect to matters in Concurrent List and there is a conflict In both the situations, Parliamentary legislation will predominate, in the first, by virtue of the non obstante clause in article 246(1), in the second, by reason of article 245(1), clause (2) of article 245 deals with a situation where the State legislation having been reserved and having obtained President's assent prevails in that State; this again is subject to the proviso that Parliament can again bring a legislation to override even such State legislation." 10. The 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 ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we would have to ignore sections 529A and 530 of the Act. We are of the view that while it was indeed open to the State Legislature to enact section 26B giving first charge to the amounts due under the State Sales Tax Act, it cannot prevail when it comes into collision with the mandate of section 529A. It is section 529A which must prevail. In other words, it is not as if section 26B is any way void or of no use. Indeed it will have full force otherwise. But pit it against the mandate of section 529A read with section 530 and section 26B must indeed pale into inefficacy and insignificance. They cannot stand together. If they are allowed to stand together, then necessarily there is irreconcilable conflict and that conflict can only be resolved 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the appellants that recovery proceedings commenced by the State proceeded beyond the stage of attachment. When the company is ordered to be wound up, it will take effect from the date of the petition. Pursuant to the order of winding up, the matter is further proceeded with and the property which is attached is brought to sale before the company court. The sale was free from all encumbrances. The sale is made for the benefit of all the creditors. There is no challenge to the sale as such. The appellant before us did not impugn the sale either before the company judge or in appeal. The sale deed was executed. The nominee was put in possession. We are of the view that the appellant cannot seek to draw any support from the provisions contained in 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e banks, financial institutions, etc., the mere ranking of the dues of workers at par with debts due to secured creditors cannot lead to an interference that Parliament intended to create first charge in priority to the debts due to secured creditors over the amount due from the employee under the EPF Act." We would further notice that the company judge has placed reliance on unreported judgment of the apex court on Civil Appeals Nos. 6257-6259 of 2004, which related to claim under the Income-tax Act, 1961, wherein also the apex court took the view that claim of the revenue is subject to section 529A in view of section 530 of the Act. 16. In this connection there is another aspect of the matter. Actually section 529A provides for priority 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 qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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