TMI Blog2022 (5) TMI 970X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2003 vis- vis the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short the RDB Act ) and whether Section 31B of the RDB Act give priority to the secured creditor to realize its dues over the Government debts. The Gujarat High Court held that the secured creditor will have priority over the dues of the State Government. This Court finds that Article 246 of the Constitution of India opens with a non-obstante clause and the Parliament has been given exclusive power to make laws in respect of matters enumerated in List-I of the 7th Schedule, known as Union List - This Court finds that both the Parliament and the State legislature are supreme in their respective assigned fields and it becomes duty of the Court to interpret the legislations made by both the Parliament and the State legislature in such a manner as to avoid any conflict. This Court in no way finds that the State had no competence to insert Section 47 in the Act of 2003 and the same law is in no way useless or redundant, however, if the Central Act, as enacted by the Parliament, provides for proceeds of the assets of a Company being wound up, to be given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... narrating the facts. 5. The applicant-department has pleaded that the Company M/s.Punsumi India Ltd. is under liquidation and the Officer Liquidator (in short the OL ) had invited claims with regard to outstanding dues against the said Company. The applicantdepartment had sent its claim vide communication dated 11.08.2004 and the OL communicated that claim was not in the prescribed format and the same was time barred and delay was to be condoned from the High Court. 6. The applicant-department has pleaded that an application was filed as Company Application No.17/2014 before this Court and this Court vide order dated 07.05.2015 condoned the delay in filing the claim. 7. The applicant-department submitted its claim before the OL with the documentary evidence and affidavit and the OL called upon certain information from the applicant-department and the same was responded by them. 8. The OL on 11.02.2016 sent a communication in Form-70, whereby the applicant-department was allowed a sum of Rs.3,19,351/- as preferential claim under Section 530(1) of the Companies Act, 1956 (in short Act of 1956 ) and Rs.32,32,337/- as ordinary claim under Section 529/530 of the Act of 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by their CA and the Court directed the IFCI to deposit Rs.24,12,410/- towards claim of Employees Provident Fund and Rs.60,67,612/- towards claim of workmen for distribution of dividend amongst workmen on a pro-rata basis for their admitted amount of claims and the Court vide order dated 07.10.2016 permitted the OL to make payment of Rs.60,67,612/- to the Employees of the Company-in-liquidation and Rs.24,12,410/- towards EPF being full and final 100% dividend. 15. The OL has further pleaded that the claim of the applicant-department of Rs.8,48,285/- was rejected for the reasons that penalty levied and interest charged amounting to Rs.8,48,285/- after the winding up date was not admissible in the winding up of an insolvent Company under the provisions of Company Act and Law of Insolvency Act. 16. The OL has pleaded that name of the applicant-department was also included in the list of Government Authorities but payment was not made for the reason that priority claim under Section 529 A was only paid to workers and EPF and other amount was distributed amongst secured creditors on pari-passu basis and the claim of the applicant-department fell under Section 530 of the Act of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as per Article 246(3) of the Constitution of India, as they have exclusive power to make law for imposing Value Added Tax and the said power is conferred in the State by virtue of Entry-54 of List-II of the 7th Schedule of the Constitution of India, which is commonly known as the State List . 18G. Section 47 of the Act of 2003 is a special law with non-obstante clause and as such, even if there is a general law like the Companies Act, 1956, enacted by the Union of India (Entry-43 of List-I [Union List] of the 7th Schedule of the Constitution of India), the law of State being a special law will prevail over the general law the Companies Act, 1956. 19. Mr. M.S. Singhvi, learned Advocate General, in support of his contentions has placed reliance on following judgments:- (i) AIR 1963 SC 1019 Mahendra Lal Jaini Vs. State of UP Ors. (para 20) (ii) 2011 (10) SCC 727 Employees Provident Fund Commissioner Vs. Official Liquidator of Esskay Pharmaceuticals Limited (para 18 to 21) (iii) 2018 (4) SCC 743 Jayant Verma Ors. Vs. UOI Ors. (para 40, 41 and 44) (iv) 2009 (4) SCC 94 Central Bank of India Vs. State of Kerala Ors. (para 111 to 116) (v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. 26. Counsel appearing for the OL has placed reliance on the following judgments:- (i) 2013 SCC Online (Ker.) 23815 The Ass.Comm. (Assessment) Special Circle, Kollam Ors. Vs. OL High Court of Kerala Anr. (ii) 2008 SCC Online (Guj.) 309 State of Gujarat vs. OL of Kengold (India) Ltd. (iii) Judgment dt.17.09.2014 passed by the Patna High Court in Co.Petition No.11/1996 M/s.Misrilall Jain (P) Ltd. Vs. M/s.Nacro Chemicals Ltd. (iv) (1991) 3 SCC 283 Rajratha Naranbhai Mills Co. Ltd. Vs. Sales Tax Officer, Petland. (v) (2005) 8 SCC 190 Rajasthan State Financial Corp. Anr. Vs. Official Liquidator Anr. 27. I have heard learned counsel for the parties and with their assistance perused the material available on record. 28. It would be appropriate to quote the relevant provisions of the Rajasthan Value Added Tax Act, 2003 and relevant provisions of the Companies Act, 1956:- Rajasthan Value Added Tax Act, 2003 47. Liability under this Act to be the first charge. Notwithstanding anything to the contrary contained in any law for the time being in force, any amount of tax and any other sum payable by a dealer or any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo relevant provisions i.e. Section 529A and 530 of the Act of 1956 make it very clear that priority has to be given to the workmen s dues in winding up of a Company and further debts due to the secured creditor to the extent of debts under clause (c) of the proviso to sub-section (1) of Section 529 of the Act of 1956 are to be treated as pari passu with such dues. 33. This Court further finds that Section 530 of the Act of 1956 comes into play after priority is given to the dues of the workmen and debts due to the secured creditor and later on preferential payments are to be made in favour of the Central/State Government/local authority in respect of their dues, taxes, etc. 34. This Court finds that the Act of 2003 provides for creating of first charge on the property of a dealer or a person against whom any amount of tax or other sum payable, is due. The said provision of the Act of 2003 also starts with a non-obstante clause and as such it has provided right to the State Government that the amount of tax or any other sum payable, is required to be recovered and such authority will have first charge on the property of such dealer or person. 35. The core issue raised be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or after the legislation made by the State. 12. In this Constitutional perspective let us examine the effect of Section 26B and whether, in view of the provisions contained in Sections 529A and 530 of the Act, the State can contend that the priority to be observed under Section 529A will not prevail. Section 529A reads as follows: 529A. Overriding preferential payment.- 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). debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to subsection (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. Section 529A talks about the overriding according priority to the debts due to the secured creditors and the workers. Section 530 in no uncertain terms makes the payment of taxes inter alia only subject to the priority embod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 529A and Section 26B, it is the claim under Section 529A which would prevail in view of the provisions of Section 530 of the Act as in no uncertain terms the claim of the State for payment towards taxes is made subject to Section 529A. This view of ours also finds support from the judgment of the Bombay High Court in State of Kerala v. Official Liquidator of Poysha Industrial Col Ltd. (2010 158 Comp. Case 582). The aforesaid judgment passed by the Kerala High Court has been upheld by the Apex Court and the SLP (Civil) [CC No.6368/2014] has been dismissed vide order dated 25.04.2014. 36-II. The Gujarat High Court considered the issue of priority of sales tax dues over all creditors including secured and unsecured creditors under the Act of 1956 in the case of State of Gujarat Vs. OL of Kengold (India) Ltd. Ors. reported in [2009] 149 CompCase 625 (Guj) . The relevant portion of the judgment para 28, is reproduced hereunder:- 28. In the case of Regional Director, E.S.I. Corporation v. Official Liquidator of Prasad Mills Limited 2005 (3)] 46 (3) GLR 2019, the Division Bench of this Court has held that Section 529-A has been introduced in the year 1985. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient to discharge the liability of the creditors described under Section 529-A of the Companies Act, the question of payment under Section 530 of the Act would not arise. Section 530 of the Companies Act would come into operation only after the liability under Section 529-A is discharged and some money is still left. 36-III. The High Court of Gujarat considered the issue of priority of Gujarat Value Added Tax, 2003 over SARFAESI Act, 2002 in the case of Bank of Baroda Vs. State of Gujarat Ors. reported in (2020) 4 GLR 2498 . The extract of the judgment, relevant for the present purpose, is reproduced hereunder:- 11. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for my consideration is, whether the Central Legislation would prevail over Section 48 of the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as, 'the VAT Act'). To put it in other words, whether the Bank will have the first priority to recover its dues being a secured creditor in view of Section 26E of the SARFAESI Act or the State will have the first priority by virtue of Section 48 of the VAT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Lexicon words 'notwithstanding anything in this Act to the contrary']. Use of such expression is another way of saying that the provision in which the non-obstante clause occurs usually would prevail over the other provisions in the Act. Thus, the non-obstante clauses are not always to be regarded as repealing clauses nor as clauses which expressly or completely supersede any other provision of the law, but merely as clauses which remove all obstructions which might arise out of the provisions of any other law in the way of the operation of the principle enacting provision to which the non-obstante clause is attached. [See Bipathumma Ors. v. Mariam Bibi; 1966(1) Mysore Law Journal page 162, at page 165] 24. Having regard to the nature of the controversy which I am called upon to resolve, I would like to look into two decisions of the Supreme Court; one, in the case of Kumaon Motor Owners' Union Ltd. and another v. State of U.P., reported in AIR 1966 SC 785, and another, in the case of Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. and others, reported in (2001)3 SCC 71. Although the ratio of the two decisions referred to above may not be directly appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Parliament could not be said to nullify the State enactment providing the first charge on the property. The legislations have been made by the Central Government and the State respectively under Entries I and II of the Schedule and not of the Concurrent List. The amendment made by the Parliament is to give priority to the secured creditors vis-a-vis the State dues without speaking about the first charge. This aspect was duly considered by the Supreme Court in the case of Central Bank of India (supra). The amended provision, i.e. Section 26E of the SARFAESI Act and Section 31B of the RDB Act, would have been different as indicated by the Apex Court in the case of Central Bank of India (supra). 35 to 44. XX XX XX 45. Thus, the dictum of law as laid by the Supreme Court in the aforesaid decision is that the State's preferential right to the recovery of debts over other creditors is confined to ordinary or unsecured creditors. The Supreme Court took the view that the Common Law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for the recovery of its debts over a mortgagee or pledgee of the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act demonstrates that these provisions are almost pari materia. This Court concurs with the reasoning of the Hon ble High Court of Kerala that after coming into force of Section 31B of the RDB Act read with Section 26E of the SARFAESI Act, the first charge is created by way of priority in favour of the Banks/Financial Institutions to recover and satisfy their debts, notwithstanding any local statutory first charge in favour of the Revenue. 26 to 28. XX XX XX 29. Section 48 of the Gujarat Value Added Tax Act, 2003 reads as under: 48. Tax to be first charge on property:-- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person or account of tax, interest or penalty for which he is liable to pay to the Government shall be a first change on the property of such dealer, or as the case may be, such person. This provision is also pari materia to the provisions of Section 26 of the Himachal Pradesh Value Added Tax Act, 2005. The Hon ble High Court of Gujarat in Bank of Baroda through its Assistant General Manager Vs. State of Gujarat 3 others, R/Special Civil Application No. 12995 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SARFAESI Act and the RDB Act 34. Thus, from what has been discussed above, now there is no ambiguity that in view of the provisions of Section 26E of the SARFAESI Act 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, a secured creditor has priority over the rights claimed by the Revenue. 37. The submission of the learned Advocate General that the State has first charge as crown s debt against other creditors by virtue of overriding effect of Section 47 of the Act of 2003 which starts with non-obstante clause and the State having full legislative competence to enact law the Act of 2003 and as such, the OL has refused to give priority to the State dues, this Court finds that the Act of 1956 has been enacted by the Parliament on the basis of Entry 43 of the List-I (Union List) of 7th Schedule appended to the Constitution of India. 38. This Court finds that Article 246 of the Constitution of India opens with a non-obstante clause and the Parliament has been given exclusive power to make laws in respect of matters enumerated in List-I of the 7th Schedule, known as Union List. 39. This Court further finds that the State legislature can also make laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors like State Government cannot be deprived to claim their due amount, this Court finds that if the Parliament has made amendment in the Act of 1956 and only priority has been given to the claim of the workmen, no further inference can be drawn by the Court of depriving any other creditor to get its dues. 46. This Court finds that even the preferential payments to the revenues, taxes, cesses, etc. due from the Company in winding up to the Central or the State Government or the local authority, will be subject to the provisions of Section 529A of the Act of 1956. This Court, if accepts the plea of the learned Advocate General, in a way, would be re-writing Section 530 of the Act of 1956 and the same cannot be done by this Court. The legislature-Parliament, if has brought any change in respect of the preferential payment and only the dues of workmen have been given priority, no grievance can be allowed to be raised by any other person including the State. The legislature, if in its wisdom has thought that dues of workmen and other secured creditors are required to be protected, no inference can be drawn that the legislature has caused any discrimination for the States to cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the secured creditors, are required to be paid in priority to all other debts. 53. The Apex Court on interpretation of the Section 11 of the Employee s Provident Funds and Miscellaneous Provisions Act, 1952 and Sections 529, 529A and 530 of the Act of 1956 found that the amendment in the Companies Act, 1985 was only to expand the scope of the dues of workmen and place them at par with the debts due to the secured creditors and there was no reason to interpret the amendment as giving priority to the debts due to the secured creditors over the dues of provident fund payable by the employer. This Court finds that the said judgment is of little assistance to the learned Advocate General. 54. Reliance is placed by the learned Advocate General on the judgment passed by the Apex Court in the case of Jayant Verma Ors. Vs. UOI Ors. (supra), this Court finds that the question before the Apex Court was in respect of Entry 45 of List-I and Entry 30 of List-II of the 7th Schedule of the Constitution of India and how those were to be harmonized, as per Article 246 of the Constitution of India and how the federal supremacy principle was to be taken care of. This Court finds that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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