TMI Blog2006 (6) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... tax have preference over the rights of the secured creditors and workers in so far as the sale proceeds of the company in liquidation or not? In other words, considering section 178 of the Act, for the tax liabilities, can the ques of income-tax have priority and/or whether section 178 of the Act makes a claim of the Income-tax Department for income-tax dues a preferential right over the rights of the other creditors under section 529A of the Companies Act? Shri Minal Oil and Agro Industries Pvt. Ltd. (now in liquidation) was ordered to be wound up, vide order dated January 15, 2003, in Company Petition No. 207 of 2001 passed by this court (Coram: A. R. Dave J.). Thereafter, this court (Coram: M. S. Shah J.) vide order dated December 2, 2003, in O. L. R. No. 46 of 2002 was pleased to direct, inter alia, that a sale committee be constituted and upon realisation of the sale proceeds, the same would be paid to respondent No.2 herein, i.e., Export Import Bank of India after deducting expenses. That thereafter, the sale in favour of one Kanak for Rs. 23.80 crore came to be confirmed by this court (Coram: D. A. Mehta J.) dated February 20, 2004, specifying the schedule of payment of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Department as per the provisions of the Companies Act, 1956, will be settled in case surplus fund is available. The official liquidator has also informed the applicant that as per the provisions of the Companies Act, the secured creditors, i.e., all secured banks/institutions and workers will have first pari passu charge over the said amount assets and their claim will be settled in full in the first order. Therefore, the applicant has preferred the present company application for the aforesaid relief relying upon the decision of the hon'ble Supreme Court in the case of Imperial Chit Funds (P.) Ltd. v. ITO [1996] 219 ITR 498; [1996] 86 Comp Cas 555; AIR 1996 SC 1887. Shri M. R. Bhatt, learned counsel appearing on behalf of the Income-tax Department has submitted that in view of the decision of the hon'ble Supreme Court in the case of Imperial Chit Funds (P.) Ltd. [1996] 219 ITR 498; [1996] 86 Comp Cas 555; AIR 1996 SC 1887, the Income-tax Department is a secured creditor and considering the provisions of section 178(2) of the Act, on notifying the official liquidator of the claim of the Department, the official liquidator is required to set aside the amount notified at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and under section 178 of the Act, the official liquidator of a company under liquidation is under an obligation to set apart the entire income-tax liabilities of the company, as notified by the Income-tax Officer, before distributing the assets of the company to the other unsecured creditors. Therefore, it is requested to grant relief as prayed for. The present application is opposed by respondent No.2 and an affidavit-in-reply is also filed on behalf of respondent No.2. It is submitted that the application itself is misconceived and not maintainable in view of the fact that the proviso to section 178(3) of the Act itself provides that the liquidator is not debarred from making any payment to secured creditors, whose debts are entitled under the law to priority of payment over debts due to the Government on the date of liquidation and section 529A of the Companies Act read with section 529 of the Companies Act provide priority to the secured creditors and workmen only while, inter alia, all revenue, taxes, cesses and rates, etc., are to be paid under section 530 of the Companies Act. It is also submitted that for the purpose of a company in liquidation and payment, of sale proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment against the secured creditors as envisaged under section 529A of the Companies Act was not under consideration. Shri Joshi, learned senior counsel appearing for respondent No.2 has relied upon the judgment of the Bombay High Court in the case of Syndicate Bank v. Official Liquidator, Wester Works Engineers Ltd. [1999] 98 Comp Cas 487; AIR 1999 Bom 243 as well as the judgment of the Kerala High Court in the case of Venad Pharmaceuticals and Chemicals Ltd. (in liquidation), In re [2003] 114 Comp Cas 185 and relying upon the aforesaid two decisions, it is submitted that the Bombay High Court as well as the Kerala High Court after considering the decision of the hon'ble Supreme Court in the case of Imperial Chit Funds (P.) Ltd. [1996] 219 IIR 498; [1996] 86 Comp Cas 555; AIR 1996 SC 1887, have held that the dispute before the hon'ble Supreme Court was not under section 529A of the Companies Act, i.e., over the secured creditors and it is further held that rights of the secured creditors and workers as set out under section 529A of the Companies Act, would override the claims of the tax authorities in respect of an order made under section 178 of the Act. Meeting the contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s heavily relied upon section 178(2) of the Act as well as the decision of the hon'ble Supreme Court in the case of Imperial Chit Funds (PJ Ltd. [1996] 219 ITR 498; [1996] 86 Comp Cas 555; AIR 1996 SC 1887. Relying upon the decision of the hon'ble Supreme Court, it is submitted that the Income-tax Department is a secured creditor and on notifying the claim by the Assessing Officer, the official liquidator is required to set aside the said amount first and the dues of the Income-tax Department would have preference/priority over other secured creditors. It is required to be noted and on going through the decision of the hon'ble Supreme Court in the case of Imperial Chit Funds (P.) Ltd. [1996] 219 ITR 498; [1996] 86 Camp Cas 555; AIR 1996 SC 1887, it appears that the issue, whether an order passed under section 178 of the Act would have preference over the rights of the secured creditors as envisaged under section 529A of the Act, was not the issue before the hon'ble Supreme Court and what was the issue before the hon'ble Supreme Court was qua section 530(1)(a), i.e., other unsecured creditors and it is in that context, considering the provisions of section 178 of the Act, the hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion of the Chief Commissioner or Commissioner reasonable. (4) If the liquidator fails to give the notice in accordance with subsection (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay: Provided that if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount. (5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally. (6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force." Companies Act, 1956 "529A. (1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company (a) workmen's dues; and (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stage that so far as the dues of the company towards the tax liabilities are concerned, the same would come within section 530(1)(a) of the Companies Act and as per section 530(1) of the Companies Act, the said dues as envisaged under section 530(1)(a), would be subject to the provisions of section 529A and the said dues are to be paid in priority to all other debts subject to the provisions of section 529A of the Companies Act. Therefore, first, the amount realised is to be disbursed to the creditors, as mentioned under section 529A of the Companies Act and they would have a preferential payment. Therefore, also considering sections 529A and 530(1)(a) of the Companies Act read with the proviso to section 178(3) of the Act, the workmen's dues and the debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 will have a pari passu and shall be paid in priority to all other debts. Therefore, the contention on behalf of the applicant that the dues of the Income-tax Department would have a priority over the secured creditors cannot be accepted and has no substance and the same is required to be rejected. So far as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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