TMI Blog2023 (8) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... then existed, and have opined that clause (b) to Section 15(1) of the Customs Act will cease to apply when the requirements under Section 68 of the Customs Act stand fulfilled and the imported goods are cleared for home consumption. In the context of the present case, we must hold that the debt had become due in terms of the two adjudication orders dated 15th September 2000 and 10th October 2000 and payable immediately. Thus, the customs duty became due and payable prior to twelve months next to the relevant date ; the relevant date' being the date of winding up of the Company on 1st December 2003. The amount due and payable in terms of the two adjudication orders dated 15th September 2000 and 10th October 2000 would, therefore, not fall in the category of preferential payments under clause (a) to Section 530(1) of the Companies Act. The provisions of the land revenue enactment applicable in the present case have not been relied upon by the respondents, in which event, a legal issue relating to conflict of laws would have arisen and required an answer. The provisions in the Customs Act do not, in any manner, negate or override the statutory preference in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act. The sale proceeds deposited in this Court and converted into fixed deposit receipts, along with the interest accrued thereon, will be paid to the Official Liquidator to be distributed in accordance with the provisions of Sections 529A and 530 of the Companies Act - Appeal allowed. - SANJIV KHANNA And SUDHANSHU DHULIA JJ. JUDGMENT SANJIV KHANNA, J. This appeal by Industrial Development Bank of India For short, IDBI takes exception to the judgment dated 26th August 2008 passed by the full bench of the Andhra Pradesh High Court in Original Side Appeal No. 1 of 2005 The Superintendent of Central Excise and Customs v. M/s. Sri Vishnupriya Industries Ltd. (in liqn.) and Others , whereby it has been held that notwithstanding the winding up order dated 1st December 2003 in the case of M/s. Sri Vishnupriya Industries Limited For short, the Company , and the provisions of Section 529A and 530 of the Companies Act, 1956 For short, Companies Act , the customs authorities have the first right to sell the imported goods under the Customs Act, 1962 For short, Customs Act and adjust the sale proceeds towards payment of customs duty. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies (Court) Rules, 1959 For short, Company Court Rules for directing the customs authorities to handover possession of the imported goods, which had been put up for auction for payment of the customs duty. This application was allowed by a single judge of the High Court vide the order dated 3rd September 2004 observing, inter alia, that the customs authorities had not followed the procedure contemplated under the Customs Act before passing the order under Section 72 of the Customs Act, in the absence of which the detention orders were void ab initio and non-est in the eyes of law. Secondly, on an order of winding up being passed, in terms of Section 456 of the Companies Act, the assets of the company in liquidation, by operation of law, vest in the Official Liquidator, who alone was entitled to deal with the effects and actionable claims. Reference was also made to Section 447 of the Companies Act We shall subsequently refer to Sections 456 and 447 of the Companies Act, as these provisions are of relevance. . Consequently, as the winding up order had been passed against the Company but sale was yet to be effected, the Official Liquidator was duty bound to take into his custod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The sale proceeds vide two demand drafts of Rs. 1,39,34,208/- and Rs. 33,343/- dated 20th January 2023 have been deposited in this Court and converted into a fixed deposit receipt. The auction proceeds are to be paid as per the outcome of the present appeal. 7. In the context of the present appeal, we would like to reproduce Sections 529A and 530 of the Companies Act, which read as under: 529A. Overriding preferential payments. (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) 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. 530. Preferential payments. (1) In a winding up, subject to the provisions of Section 529-A, there shall be paid in priority to all other debts ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en's Compensation Act, 1923 (8 of 1923), is a weekly payment, the amount due in respect thereof 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 advance by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which the sum in respect of which the employee or other person in his right, would have been entitled to priority in the winding up has been diminished by reason of the payment having been made. (5) The foregoing debts shall (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b) so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) in any case where sub-clause (i) does not apply, the date of the passing of the resolution for the voluntary winding up of the company. (9) This section shall not apply in the case of a winding up where the date referred to in sub-section (5) of Section 230 of the Indian Companies Act, 1913 (7 of 1913), occurred before the commencement of this Act, and in such a case, the provisions relating to preferential payments which would have applied if this Act had not been passed, shall be deemed to remain in full force. 8. Section 529A of the Companies Act, a non-obstante provision, is to be given primacy in case of conflict, and consequently, in case of disharmony, this section will override the discordant provisions of the Companies Act and all other enactments in force. Section 529A of the Companies Act was enforced by Act No. 35 of 1985 with effect from 24th May 1985. Therefore, when there is a clash and disagreement between section 529A of the Companies Act and another provision of the Companies Act or any other enactment in force on 24th May 1985, Section 529A prevails and the debts are to be paid in terms of Section 529A of the Companies Act. 9. As per claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act. It is, therefore, beyond debate that the provisions of Section 529A of the Companies Act prevail over Section 530 of the Companies Act. 12. We shall subsequently interpret the expression debts due in the first portion of clause (a) to Section 530(1) of the Companies Act and the words become due and payable within the twelve months next before that date in the latter portion of clause (a) to Section 530(1) of the Companies Act, but at this stage, it is relevant to take on record the relevant date as defined in clause (c) to sub- Section (8) to Section 530 of the Companies Act. As per subclause (i) to clause (c) to sub-Section (8) to Section 530 of the Companies Act, the relevant date in case where a company has been ordered to be wound up compulsorily, shall be the date of appointment or first appointment of a provisional liquidator, or if no such appointment is made, the date of the winding up order, unless the company had commenced to be wound up voluntarily before that date. The present case is one of compulsory winding up and, therefore, the relevant date , in the absence of appointment of a provisional liquidator, would be the date on which the winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a winding up order, require any contributory for the time being on the list of contributories, and any trustee, receiver, banker, agent, officer or other employee of the company, to pay, deliver, surrender or transfer forthwith, or within such time as the Tribunal directs, to the liquidator, any money, property or books and papers in his custody or under his control to which the company is prima facie entitled. 528. Debts of all descriptions to be admitted to proof. In every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act of the law of insolvency), all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible, to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency, or may sound only in damages, or for some other reason may not bear a certain value. 529. Application of insolvency rules in winding up of insolvent companies. (1) In the winding up of an insolvent company, the same rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the Industrial Disputes Act, 1947; (b) workmen's dues , in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely: (i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947; (ii) all accrued holiday remuneration becoming payable to any workman, 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; (iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in Section 14 of the Workmen's Compensation Act, 1923, rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranking of claims . Section 528 of the Companies Act states that debts of all descriptions, including the debts payable on contingency, and claims against the company, present or future, ascertained or sounding only in damages, shall be admissible to proof against the company, on a just estimate being made of such debts as far as possible. Section 456 of the Companies Act, inter alia, provides that all the property and effects of the Company shall be deemed to be in the custody of the tribunal/court as from the date of the order for the winding up of the Company. 16. The objective of giving jurisdiction to the Company Court/tribunal during the process of liquidation of the Company is two-fold: First, to ensure that the assets of a company in liquidation are amassed and constellated to prevent a scramble and dissipation of the assets of an insolvent company. Secondly, the Company Court/tribunal is entrusted with paying off debts from the sale proceeds of the assets so assimilated, according to the waterfall mechanism provided for and specified under Sections 529, 529A and 530 of the Companies Act. Accordingly, and with this objective, Section 529A of the Companies Act refers to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd debt due and payable in Section 530(1)(a) of the Companies Act. The interpretation is no longer debatable in view of the judgment of this Court in Rajratha Naranbhai Mills Co. Ltd. v. Sales Tax Officer, Petlad (1991) 3 SCC 283 , which has approved the view taken by D.A. Desai, J., in his judgment in Sales Tax Officer, Petlad v. Rajratna Naranbhai Mills Co. Ltd. and Another (1974) 44 Comp Cas 65 (Guj) , a judgment, which, we respectfully submit, forms the foundation of our reasoning and ratio in the present case. This Court in Rajratha Naranbhai Mills Co. Ltd. (supra), agreeing with the views expressed by D.A. Desai, J. in Sales Tax Officer, Petlad (supra), overruled the judgment of the division bench under challenge, for several reasons, to hold that the words debt due occurring in the first part and the words debt due and payable in the latter part of Section 530(1)(a) of the Companies Act are different expressions meant to convey different and not the same meaning. Therefore, for a government debt to be covered under clause (a) to Section 530(1) of the Companies Act, it must not only be a debt due , but it must also be a debt due and payable within twelve months nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y may have lent money to a company at the time of the loan, the unforeseeable demands of the income tax authorities on the company without any time limit would rank over the claims of such creditors. In these circumstances, it may be extremely difficult for the company to raise capital for its working... We are aware of the large arrears of income and other taxes which are due by many companies, which are in liquidation, but we would venture to think that the remedy for this unsatisfactory situation is not the conferment of preferential rights without limit to the income tax authorities under Section 230 of the Indian Companies Act, but the energetic completion of assessment proceedings and vigorous measures for the collection of the assessed taxes. xx xx xx 13. Both benches of the High Court, with due respect, gave to the provision a very wide and varied interpretation and that too on literality and grammaticals seemingly overlooking the legal philosophy which permeates the provision, the same Civil Appeal No. 2568 of 2013 Page 24 of 38 being that the debts due and payable, so as to claim priority, must be appropriated to the period within 12 months next before the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere filed. Determination or quantification of the tax at the time of passing of the assessment order in terms of the Sales Tax Act, Sales Tax Officer, Petlad (supra) holds, was not relevant. We need not refer to the Sales Tax Act relevant in Sales Tax Officer, Petlad (supra) for the purpose of the present case. On the other hand, we would have to refer to the provisions of the Customs Act to ascertain the date on which the customs duty in respect of the goods in question became due and payable . We are answering this question, though not necessary, as the appellant IDBI is an overriding preferential creditor under Section 529A of the Companies Act and at best, if the requirements of clause (a) to Section 530(1) of the Companies Act are satisfied, the customs dues would fall under Section 530 of the Companies Act and will be categorized as preferential payment. To decide this question, we shall also be examining the question of whether the Customs Act creates a first charge overriding the charge in favour of the secured creditor, namely, the appellant IDBI. 20. This Court in Dena Bank (supra), while examining the issue of priority of government dues or Crown debts over the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from a warehouse under Section 68, on the date on which a bill of entry for home consumption in respect of such goods is presented under that section; (c) in the case of any other goods, on the date of payment of duty: Provided that if a bill of entry has been presented before the date of entry inwards of the vessel or the arrival of the aircraft or the vehicle by which the goods are imported, the bill of entry shall be deemed to have been presented on the date of such entry inwards or the arrival, as the case may be. (2) The provisions of this section shall not apply to baggage and goods imported by post. In the present case, upon import of the goods, the Company had entered the goods for home consumption under Section 46 of the Customs Act, which reads as under: 46. Entry of goods on importation. (1) The importer of any goods, other than goods intended for transit or transhipment, shall make entry thereof by presenting electronically on the customs automated system to the proper officer a bill of entry for home consumption or warehousing in such form and manner as may be prescribed: Provided that the Principal Commissioner of Customs or Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information given therein; (b) the authenticity and validity of any document supporting it; and (c) compliance with the restriction or prohibition, if any, relating to the goods under this Act or under any other law for the time being in force. (5) If the proper officer is satisfied that the interests of revenue are not prejudicially affected and that there was no fraudulent intention, he may permit substitution of a bill of entry for home consumption for a bill of entry for warehousing or vice versa. However, the goods were stored in a private bonded warehouse, in the terms of Section 68 of the Customs Act, which reads as follows: 68. Clearance of warehoused goods for home consumption. Any warehoused goods may be cleared from the warehouse for home consumption, if (a) a bill of entry for home consumption in respect of such goods has been presented in the prescribed form; (b) the import duty, interest, fine and penalties payable in respect of such goods have been paid; and (c) an order for clearance of such goods for home consumption has been made by the proper officer: Provided that the order referred to in clause (c) may als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate a statutory first charge to override the general law, as per the dictum in Dena Bank (supra). The provisions of the land revenue enactment applicable in the present case have not been relied upon by the respondents, in which event, a legal issue relating to conflict of laws would have arisen and required an answer. The provisions in the Customs Act do not, in any manner, negate or override the statutory preference in terms of Section 529A of the Companies Act, which treats the secured creditors and the workmen s dues As defined and payable in terms of Section 529(3)(b) of the Companies Act as overriding preferential creditors; and the government dues limited to debts due and payable in the twelve months next before the relevant date, which are to be treated as preferential payments under Section 530 of the Companies Act, but are ranked below overriding preferential payments and have to be paid after the payment has been made in terms of Section 529 and 529A of the Companies Act. Therefore, the prior secured creditors are entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act. 25. The view and the ratio we have expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as far as the present case is concerned. However, the enactment of section 142A of the Customs Act does confer or create a first charge on the dues payable under the Customs Act, notwithstanding provisions under any Central Act, but not in cases covered under Section 529A of the Companies Act, RDDBFI Act, SARFAESI Act and the IBC. Section 142A of the Customs Act, post its enactment, would dilute the impact of Section 530 of the Companies Act, which had restricted preferential treatment to government taxes due and payable limited to twelve months prior to the relevant date , without preferential right for taxes that had become due and payable in the earlier period. 26. In view of our reasoning, we must hold that the decision of the division bench of the Calcutta High Court in Dytron (India) Ltd. (supra) does not lay down the correct law and is, accordingly, overruled. The decision in Dytron (India) Ltd. (supra) was referred to in Sundaresh Bhatt, Liquidator of ABG Shipyard (supra), wherein this Court observed that reliance of the National Company Law Appellate Tribunal on Dytron (India) Ltd. (supra) was not appropriate as such interpretation has been legislatively overrule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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