TMI Blog2016 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... . - COMPANY PETITION NO. 277 of 1997 COMPANY APPLICATION NO. 281 of 2014 , 555 of 2011 - - - Dated:- 2-7-2015 - MR.JUSTICE VIPUL M. PANCHOLI JJ. JUDGMENT 1. Official Liquidator has filed this report for the following relief. (A) This Hon'ble Court may be pleased to permit the Official Liquidator to disburse an amount of ₹ 3,22,55,000/or such other amount as may be decided by this Hon'ble Court amongst the Creditors U/s. 530 of the Companies Act, 1956 and thereafter balance amount may be permitted to disburse amongst the Unsecured Creditors as per the ratio worked out by the Chartered Accountant as per the annexure 'P' of this report as stated in para23 para26 subject to filing an undertaking that, if any demand raised by Official Liquidator, the same shall be returned back by the Creditors / Unsecured Creditors to the Official Liquidator at prevailing rate of interest. 2. Whereas, Company Application No.281 of 2014 has been filed by applicantIDBI Bank Limited, taking out judges summons for the following relief: (A) The respondent may be directed to disburse and pay with permission of this Hon'ble Court the amount found due an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely M/s. Jinal Properties Pvt. Lrd. Has paid full payment 2 Factory premises (movable immovable) situated at plot No.47, GIDC, Phase-I, Vatva, Ahmedabad 31.08.2010 Passed in OLR No. 81 of 2010` 6.00 Crores The purchaser namely M/s. Manibhadra Sales Corporation has paid full payment 6. Official Liquidator thereafter invited the claims of the secured creditors and the workers of the company under Section 529 and 529A of the Companies Act of 1956 by issuing advertisement in one English Daily and one Gujarat Daily Newspapers, both in Ahmedabad editions on 03.12.2010. In pursuance to the aforesaid advertisement, Official Liquidator received claims from the secured creditors and workers Union of the company in liquidation. Thereafter, Official Liquidator appointed M/s.J.M.Parikh and Associates, Chartered Accountant for the purpose of verification and examination of the claim submitted by the secured creditors and the workers of the company. The aforesaid Chartered Accountant submitted verification report after considering the claims submitted by the secured creditors as well as workers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vatva unit and IDBI Bank or Indian Bank were having no charge on the said immovable property of Vatva unit of the company in liquidation. 8. In pursuance to the order dated 08.02.2012 passed by this Court in Company Application No.555 of 2011, the Official Liquidator filed Official Liquidator Report No.28 of 2012, wherein, the details with regard to the claims received from the creditors were also given. The Official Liquidator also sought permission to avail services of Chartered Accountant viz. M/s.J.M.Parikh and Associates for verification of claims of the creditors received under Section 530 of the Companies Act. This Court by order dated 28.02.2012 permitted the Official Liquidator to avail services of Chartered Accountant. The claims were sent to the said Chartered Accountant for the purpose of verification under Section 530 of the Companies Act. Said Chartered Accountant filed the verification report on 22.03.2012. The said report was also sent to the creditors for their consent and acceptance of the report of the said Chartered Accountant. IDBI Bank and Indian Bank have accepted the recommendation of the Chartered Accountant. However, the Central Excise Department, Ahme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of workers. As per the report of the Chartered Accountant, following dues shall be paid to the following parties. Sr. No. Name of the Party Amount due u/s. 530 of the Companies act, 1956 (in Rs.) 1 Excise Department 1000 2 Ahmedabad Municipal Corporation 15,00,387 Total 15,01,387 After paying these dues, the unsecured creditors may be distributed their claims as per the following table: Sr No. Name of the Party Outstanding Dues (Rs.) Dues Covered u/s 530 (Rs.) Unsecured Creditors % 1 Excise Department 9,79,97,446 1000 9,79,96,446 59.66 2 Ahmedabad Municipal Corporation 19,93,149 15,00,387 4,92,762 1.33 3 Uttar Gujarat Vij Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court to disburse remaining amount of ₹ 3,22,55,000/or such other amount amongst the creditors under Section 530 of the Companies Act and as per the prayer made in the 12. Learned Senior Counsel Mr.R.J.Oza appearing for the Central Excise Department mainly submitted that M/s.J.M.Parikh and Associates, Chartered Accountant has wrongly given the verification report and supplementary report ignoring the provisions of the Companies Act as well as Central Excise Act, 1944 and Central Excise Rules, 1944. Findings recorded by Chartered Accountant that the Excise Department is unsecured creditor except for claiming amount of ₹ 1000/under Section 530 of Companies Act, 1956 is misconceived and contrary to the provisions of the Central Excise Act. Learned counsel submitted that the department has filed claim for the company in liquidation supported by the affidavits of proof of debt and relevant documents in support of the said affidavit was also given to the Chartered Accountant. Learned counsel referred to the averments / details referred in para 4.1 to 4.7 of the affidavit in reply filed by the respondent No.4 and submitted that finding given by the Chartered Accountant th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the Government and hence the said company became custodia legis of the said amount. Learned senior counsel therefore contended that manufacturing process which has occurred prior to even one year of winding up, remained continuous dues and accordingly it is to be categorized as preferential debt. He further submitted that the concerned Chartered Accountant appears to have wrongly applied concept of 'Assessment Year' for reading Section 530 of the Companies Act. In fact, the said concept is available in case of direct tax and not in case of levy of excise duty which is indirect tax. Learned counsel therefore submitted that the Chartered Accountant ought to have considered entire dues as continuous dues. Learned counsel once again contended that due to nonpayment of tax liability, show cause notices were issued. Thereafter, the same were adjudicated. The adjudication takes place only with a view to give an opportunity to the assessee about its liability as well as for imposition of penalty and interest in case of default. Thus, liability cannot be said to have arisen on the date of adjudication or on the date on which the order in original is passed. Thus, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953, Section 25(2) of the Act Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, 1958 and Section 259A of the Companies Act, under which statutory first charge has been created in respect of the dues of workmen or gift tax etc. 177. The facts of the case have been set out in the earlier part of the judgment. A recapitulation therefore shows that suit filed by the appellant Bank in 1996 for recovery of its dues was, later on, transferred to the Tribunal and decreed on 1122000. Before that the Tahsildar, Mavelikara had attached the properties of the borrower on 222000 and again on 492000 for recovery of the arrears of the arrears of sales tax. The Bank challenged the notice issued by the Tahsildar for recovery of the arrears of sales tax but could not persuade the learned Single Judge who held that in view of Section 26B of the Kerala Act, dues of the State will have priority. The order of the learned Single Judge was approved by the Division Bench. 178. In our opinion, the view taken by the Kerala High Court is in consonance with what we have held in the earlier part of the judgment regarding primacy of the state s first charge ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue which arises for consideration is: whether the Department has a preferential right in matter of payment of dues over the right of the secured creditors (including the workmen) from the proceeds received upon sale of assets. Thereafter this Court observed in para 25.2 as under: 25.2 However, under the same Act, i.e. under the Companies Act order of priority is created, by virtue of section 530. Now, so far as said section 530 is concerned, even a glance at the said section would mark that the order of priority created by section 530(1) of the Companies Act is subject to the provision of section 529A of Companies Act. Thus, under Companies Act, order of priority and above that order and mode of preferential payment is prescribed, therefore in the matter of payment of dues the said procedure shall prevail. Thereafter, after discussing various decisions of this Court as well as the Hon'ble Supreme Court, this Court held in para No.29 to 32 as under: 29. In light of the above discussion and for the foregoing reasons, the claim of the Income Tax Department, except so far as the Department's request relates to the liquidator's obligation to inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions contained under section 529A of the Companies Act. 19. Learned advocate Mr.Bhagat therefore submitted that the Official Liquidator cannot set apart the claim of the Incometax Department in the present case and therefore, entire amount of ₹ 5.50 Crores with interest be disbursed between the unsecured creditors as per the ratio fixed by the concerned Chartered Accountant. 20. Learned advocate Mr.B.H.Bhagat submitted that the Excise Department is also not having any preferential right over the claim of the secured creditors as well as workmen. As per the report given by the concerned Chartered Accountant, IDBI Bank Limited and the Central Excise Department both would fall under Sections 529 and 530 of the Companies Act. Section 11E of the Central Excise Act of 1944 is not helpful to the department and the decision relied upon by the learned counsel appearing for the Central Excise Department are not applicable to the facts of the present case. Learned advocate Mr.Bhagat has relied upon the observations made in para (4) of the decision rendered by the Hon'ble Supreme Court in case of Commissioner of Income Tax v. KTC Tyres (India) Limited and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were sent for reverification to the concerned Chartered Accountant with a request to give supplementary report. H. Supplementary report was forwarded by the said Chartered Accountant which was accepted by Lloyd Finance, whereas, the Excise Department as well as Ahmedabad Municipal Corporation have not accepted even the supplementary report given by the said Chartered Accountant. I. As per the report of the Chartered Accountant, ₹ 1,000/is due and payable to the Excise Department under Section 530 of the Companies Act and ₹ 15,00,387/is required to be paid to Ahmedabad Municipal Corporation and after paying the said dues, the remaining amount is required to be distributed between the unsecured creditors as per their claims in the ratio mentioned by the Chartered Accountant in his report. J. Official Liquidator has requested that ₹ 3,32,00,000/is required to be kept aside for the future liability towards income tax. Thus, from the total fund available in the company s account as on 01.12.2014 i.e. ₹ 6,57,58,637/, ₹ 3,22,55,000/is required to be distributed between the unsecured creditors as per the ratio worked out by the Chartered Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be removed from any place where they are produced, cured or manufactured of any premises appurtenant thereto, which may be specified by the [Commissioner] in this behalf whether for consumption, export, or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these rules or as the [Commissioner] may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form: Provided that such goods may be deposited without payment of duty in a storeroom or other place of a storage approved by the [Commissioner] under Rule 27 or Rule 47 or in a warehouse appointed or [registered] under Rule 140 or may be exported under bond as provided in rule 13. [Provided further that the molasses produced in a khandsari sugar factory may be removed without payment of duty leviable thereon and the duty of excise leviable on such molasses shall be paid by the procurer, as if such molasses has been manufactured by such procurer on the date of receipt of such molasses in his factory.] [Provided further that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Oza that the excise duty was payable by the company in liquidation immediately after manufacturing of the goods and before removal of the said goods from the registered factory premises. If the excise duty is not paid by the manufacturer, the Department issues the showcause notice and thereafter the adjudication takes place only with a view to give an opportunity to the assessee about its liability as well as for imposition of penalty and interest in case of default. Therefore, the liability cannot be said to have arisen on the date of adjudication or on the date on which the order in original is passed. 25. The aforesaid submission of learned counsel is prima facie attractive. However, so far as the provisions of Sections 529, 529A and 530 of the Companies Act are concerned, the said provisions are required to be applied at the time of winding up proceedings. The relevant provisions of Section 530 of the Companies Act, 1956 provides as under: 530.Preferential Payments: (1) In a winding up, subject to the provisions of section 529A, there shall be paid in priority to all other debts (a) all revenues, taxes, cesses and rates due from the company to the Central or a S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountant and thereafter he was of the opinion that one order in original passed by the officer in favour of the department during the relevant period can be considered as the amount due under Section 530 of the Companies Act and therefore ₹ 1,000/is considered under the said head by the Chartered Accountant. The Chartered Accountant has not rejected the other claims of the Excise Department but other claims of the department i.e. total amount of dues of ₹ 9,79,97,446/is not considered under the provisions of Section 530 of the Companies Act and considered the Department as unsecured creditor for the said dues. 30. Another submission of learned Senior Counsel Mr. R.J.Oza is that as per Section 11E of the Central Excise Act, 1944, the department is having first charge on the property of the assessee and is having preference over all dues which might have prescribed in any Central Act or State Act except the sum payable as provided in Section 529A of the Companies Act, Recovery of Debts Due to Banks and the Financial Institutions Act and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2003 and therefore the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the secured creditors including the banks and the workers are having priority over all other debts including the claim of the Excise Department. 35. It is pertinent that Section 530 of the Companies Act prescribes order of priority means various categories of creditors and Section 529A of the Companies Act confers right of priority and preference in matter of payment in favour of secured creditors and workmen. 36. The Hon ble Supreme Court in the case of KTC Tyres (India) Ltd. (Supra) has specifically held in para 4 that: 4. Having regard to the clear language of the section, Mr.Rajeev Dutta, learned senior counsel appearing on behalf of the Union of India, submitted that the capital gains tax which was payable by the company to the Union of India must be treated as liquidation expenses and, therefore, must be paid first, even before the dues of the workmen and secured creditors are discharged. The submission must be rejected in view of the provisions of section 530 of the Companies Act which puts the matter beyond controversy. Section 530 of the Companies Act in clear terms provides that in a winding up, in priority to all other debts all revenues, taxes, cesses, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Excise Department. 39. Now, the submissions of learned Mr. B.S.Bhagat appearing for IDBI Bank Ltd. is required to be considered in Company Application No.281 of 2014. Learned advocate submitted that the Official Liquidator be directed to disburse an amount of ₹ 5.5 crores with interest in appropriate proportion between the secured creditors of the company. Learned advocate for the Official Liquidator has specifically pointed out in the Official Liquidator s Report No.12 of 2015 that Incometax Department has issued the notices as well as letters invoking various provisions of the Income Tax Act to the Official Liquidator and the Official Liquidator was called upon to file the returns and pay Incometax on realization of the sale of the assets of the company. Therefore, request is made by the Official Liquidator to set apart ₹ 3,32,00,000/towards the future expenses and ₹ 3,03,637/towards misc. expenses (contingent) and out of total amount of ₹ 6,57,58,637/, remaining amount of ₹ 3,22,55,000/may be permitted to disburse amongst the creditors under Section 530 of the Companies Act and as per the prayer made in the Official Liquidator's Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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