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Commissioner, Commercial Tax, Govt of Madhya Pradesh Versus The Official Liquidator & Others

2016 (4) TMI 1058 - DELHI HIGH COURT

Claim of secured creditor denied - Held that:- 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 b .....

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express repugnancy, i.e. with respect to Section 33-C of the 1958 Act and Section 53 of the 1994 Act.

In the hands of a transferee for consideration without notice, such charge would not prevail over the dues of secured creditors who are subsequent transferees without notice. Since this question was not urged, the Court is of the opinion that the parties’ right to raise the contentions in this regard should also be kept open.

In the light of the foregoing discussion, the .....

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6 - S. Ravindra Bhat And Deepa Sharma, JJ. For the Petitioner : Sh. R.D. Makheeja, Advocate, Sh. Buddy. A. Ranganadhan and Sh. D.V. Raghuvanshi, Advocate, Sh. Jaswinder Singh, Advocate, Sh. Rajiv Bahl, Advocate For the Respondent : Ms. Sunita Arora, Advocate ORDER Mr. Justice S. Ravindra Bhat ( Open Court ) 1. The State of M.P. [hereafter the State ] appeals against a judgment and order of the Company Judge whereby its claim to be a secured creditor (of the revenue) was declined. In other words, .....

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utstanding 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 Ac .....

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stion which has been answered by the Apex Court and as is evident from para 2 of the judgment. The judgment of the Bombay High Court in State of Maharashtra Vs. Official Liquidator of Reliance Heat Transfer Pvt. Ltd. (In liquidation) (2004) 12 Comp Cas 648 which deals with the provisions of Section 38-C of the Bombay Sales Tax Act, 1959 is inapplicable; it is even otherwise not binding on this Court. 10. Provisions of Section 529-A of Companies Act (a Central legislation) have to be override the .....

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art, even if there is a conflict between a State legislation and a Central legislation, the Central legislation must prevail. See:- (2012) 7 SCC 106 State of Kerala and Others Vs. Mar Appraem Kuri Company Ltd. 4. Sh. R.D. Makheeja, learned counsel for the State relies upon Section 33-C of the 1958 Act and Section 53 of the 1994 Act. Besides, reliance is also placed upon a judgment of the Supreme Court in State of Madhya Pradesh and Ors. v. State Bank of Indore and Ors. 2002 (126) STC 1 (SC) whic .....

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2, which inter alia observed that Section 53 enacted a statutory first charge which gave priority of charge over all other charges on the properties of the company in liquidation, including the charge of the mortgagee. Learned counsel also relied upon a judgment of the Bombay High Court in State of Maharashtra v. OL. of Reliance 2004 (2) Comp. LJ 317 (Bom). The Court had, in that case, gone to consider the impact of Section 38C of the Maharasthra Sales Tax Act, introduced in 1999 over Section 52 .....

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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 ov .....

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or a new law, had to, necessarily seek the specific assent of the President, pointing out the need and the possible impact of the amendment to the existing Central enactment. It was submitted that since this principle condition was not followed, the question of State s dues acquiring primacy and being ranked with those secured creditors did not arise in this case. Analysis and conclusion: 7. As is evident from the above discussion, the questions which arises for decision is narrow. The State s S .....

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e to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 530. PREFERENTIAL PAYMENTS (1) In a winding up, subject to the provisions of section 529A, there shall be paid .....

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and due 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 amalgamati .....

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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 due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any employee of the company; (f) all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees, maintained .....

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shall, for the purposes of clause (e) of sub-section (1), be taken to be the amount of the lump sum for which the weekly payment could, if redeemable, be redeemed if the employer made an application for that purpose under the said Act. (4) Where any payment has been made to any employee of a company, - (i) on account of wages or salary ; or (ii) to him, or in the case of his death, to any other person in his right, on account of accrued holiday remuneration, out of money advanced by some person .....

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them, in which case they shall abate in equal proportions; and (b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (6) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the foregoing debts shall .....

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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 compan .....

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holiday ; (bb) the expression "employee" does not include a workman ; and (c) the expression "the relevant date" means - (i) in the case of a company ordered to be wound up compulsorily, the date of the appointment (or first appointment) of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless in either case the company had commenced to be wound up voluntarily before that date ; and (ii) in any case where sub-clause (i) does no .....

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imarily upon two provisions. Section 33-C of the 1958 Act (introduced with effect from 19.01.1976) reads as follows: 33-C. Tax to be first charge - Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and/or penalty, if any, payable by a dealer or other person under this Act shall be a first charge on the property of the dealer or such person. 10. It is not in dispute that the original enactment, i.e. 1958 Act as it stood when it was brough .....

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provisions of Section 530 of the Companies Act, 1956 (No.1 of 1956), any amount of tax and/or penalty or interest, if any, payable by a dealer or other person under this Act shall 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 creditor .....

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d 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 requirements, before obtaining the assent of the President, the State Government has to point out that the law made by the State le .....

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ity of having such a law, in facts and circumstances of the matter, which is repugnant to a law enacted by the Parliament prevailing in a State. The word 'consideration' would manifest that after careful thinking over and due application of mind regarding the necessity of having State law which is repugnant to the law made by the Parliament, the President may grant assent. This aspect is further reaffirmed by use of word "assent" in Clause (2) which implies knowledge of the Pre .....

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supremacy, after considering the situation prevailing in the State and after considering the repugnancy between the State legislation and earlier law made by the Parliament, the President may give his assent to the law made by the State legislature. This would require application of mind to both the laws and the repugnancy as well as the peculiar requirement of the State to have such a law, which is repugnant to the law made by the Parliament. The word assent is used purposefully indicating aff .....

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tion 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 .....

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sent was granted qua the repugnancy between the State law and other laws for which no assent was sought for. Take for illustration - that a particular provision, namely, Section 3 of the State law is repugnant to enactment A made by Parliament; other provision, namely, Section 4 is repugnant to some provisions of enactment B made by Parliament and Sections 5 and 6 are repugnant to some provisions of enactment C and the State submits proposal seeking assent mentioning repugnancy between State law .....

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liament is sine qua non for 'consideration and assent'. If there is no proposal no question of 'consideration' or 'assent' arises. For finding out whether 'assent' given by the President is restricted or unrestricted, the letter or the proposal made by the State Government for obtaining 'assent' is required to be looked into. XXXXXX XXXXXX XXXXXX 25. In our view, for finding out whether the assent was given qua the repugnancy between the State legislation .....

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n the State or it has sought general assent. In such case, the Court is not required to decide the validity of the 'assent' granted by the President. In the present case, the assent was given after considering extent and nature of repugnancy between the Bombay Rent Act and Transfer of Property Act as well as the Presidency Small Cause Courts Act. Therefore, it would be totally unjustified to hold that once the assent is granted by the President, the State law would prevail qua earlier ot .....

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e 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 relevan .....

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a charge. Learned counsel relied upon the judgment of the SC in Ahmedabad Municipality v. Haji Abdul AIR 1971 SC 1201, where it was held that provision for merely a charge would mean the enacting a charge without further providing its enforcement against the property charged. In the hands of a transferee for consideration without notice, such charge would not prevail over the dues of secured creditors who are subsequent transferees without notice. Since this question was not urged, the Court is .....

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