D.K Deshmukh, J.—These Appeals can be conveniently disposed of by a common order, because the challenge in these Appeals is to the same order. In these Appeals the order dated 7-2-2004 passed by the learned single Judge in following Company Applications is challenged.
C.A No. 312 OF 2001 IN C.P NO. 712 OF 1997
C.A NO. 421 OF 2001 IN C.P NO. 438 OF 1990
C.A NO. 447 OF 2001 IN C.P NO. 448 OF 1990
C.A No. 600 OF 2002 IN C.P NO. 253 OF 1993
C.A NO. 540 OF 2002 IN C.P NO. 476 OF 1993
C.A NO. 278 OF 2002 IN C.P NO. 492 OF 1992
C.A No. 101 OF 2002 IN C.P NO. 976 OF 1998
C.A NO. 492 OF 2002 IN C.P NO. 1145 OF 2000
C.A NO. 135 OF 2002 IN C.P NO. 348 OF 1993
C.A NO. 347 OF 2001 IN C.P NO. 669 OF 1998
C.A NO. 264 OF 2003 IN C.P NO. 521 OF 1992
2. Though, it is a common order, the order which is challenged in these two Appeals was made in Company Application No. 540 of 2002 and Company Application No. 101 of 2002. Both these Applications were filed by the State of Maharashtra for recovery of the amounts which were due to it from the company under liquidation under the Sales Tax Act. The claim of the State Government was that the State Government is entitled to recover the amount in question in preference to the claim of any other creditor including the secured creditors and workers. It appears that, thereafter, at the hearing the relief sought was modified and it was claimed that the Court should direct that the State Government is entitled to recover its dues as secured creditors pari-pasu with the secured creditors and workers. The learned single Judge has granted that application of the State Government. The Appellant in Appeal No. 658 of 2004 is SICOM, which is admittedly a secured creditor governed by the provisions of Section 529-A of the Companies Act in relation to the company under liquidation and the Appellant in Appeal No. 5 of 2008 is a Co.operative Bank which is also secured creditor governed by the provisions of section 529-a in relation to the company under liquidation.
3. There is no dispute before us that the provisions of section 529-a are applicable in relation to the dues of both the Appellants. It was claimed, however, on behalf of the State Government that because of the provisions of Section 38(c) of the Bombay Sales-tax Act statutorily the State Government becomes a secured creditor and therefore, it is entitled to payment of its dues alongwith the secured creditors and the workers. This contention of the State Government has been upheld by the learned single Judge.
4. The learned Counsel appearing for the Appellants relying on the judgment of the Supreme Court in the case of Central Bank of India v. State of Kerala & ors., (2009) 4 SCC 94 submits that the Supreme Court in this judgment has considered the entire law on the subject and has held that to a property in relation to which provisions of Section 529-A of the Companies Act operates, Section 38(c) of the Bombay Sales-tax Act does not operate. The learned counsel relying on the judgment of the Constitution Bench of the Supreme Court in the case of Builders Supply Corporation v. Union of India, (1965) 2 SCR 289 submits that the provisions of the Land Revenue Code which provide for recovery of the dues of the State Government as arrears of land revenue does not elevate the dues to the level of dues of land revenue. The learned Counsel therefore submitted that the learned single Judge has misread the provisions of the companies act and the Bombay Sales-tax Act.
5. The learned Counsel appearing for the Respondent-State Government, on the other hand, relied on the observations in the Judgment of the Division Bench of this Court in the case of The Thane Janata Sahakari Bank Ltd. v. The Commissioner of Sales Tax & anr. Dated 18th April, 2006 to contend that by operation of Section 38(c) charge in favour of State Government is created and therefore under the provisions of the Land Revenue Code, the dues of the State Government under the Sales-tax becomes dues of the Land Revenue and therefore, are paramount charge on a property. The learned Counsel pointed out that the judgment of the Division Bench in Thane Janata Sahakari Bank Ltd., has been considered and approved by the Supreme Court in its judgment in the case of Central Bank of India, referred to above.
6. It is common ground before us, as observed above, that both the Appellants are covered by the provisions of section 529-a & Section 530 of the Companies Act. section 529-a & Section 530 of the Companies Act reads as under:-
529-A 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 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 1[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 State Government or to a local authority at the relevant date as defined in clause (c) of subsection (8), and having become due and payable within the twelve months next before that date;
(b) 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 employee, in respect of services rendered to the company and due for a period not exceeding four months within the twelve months next before the relevant date 2[***] 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 amalgamation with another company, all amounts due, in respect of contributions payable during the twelve months next before the relevant date, by the company as the employer of any persons, under the Employees State Insurance Act, 1948 (34 of 1948), or any other law for the time being in force;
(e) 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 (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 by the company; and
(g) the expenses of any investigation held in pursuance of section 235 or 237, in so far as they are payable by the company.
(2) The sum to which priority is to be given under clause (b) of subsection (1), shall not, in the case of any one claimant, 3[exceed such sum as may be notified by the Central Government in the Official Gazette].
4[***]
(3) Where any compensation under the Workmen'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 advanced 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 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 be discharged forthwith so far as the assets are sufficient to meet them, and in the case of the debts to which priority is given by clause (d) of sub-section (1), formal proof thereof shall not be required except in so far as may be otherwise prescribed.
(7) In the event of a landlord or other person distraining or having distrained on any goods or effects of the company within three months next before the date of a winding up order, the debts to which priority is given by this section shall be a first charge on the goods or effect 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 if company during that period;
(b) the expression “accrued holiday remuneration” includes, in relation to any person, all sums which, by virtue either of his contract of employment or of any enactment (including any order made or direction given under any enactment), are payable on account of the remuneration which would, in the ordinary course, have become payable to him in respect of a period of holiday, had his employment with the company continued until he became entitled to be allowed the holiday;
5[***)
6[(bb) the expression “employees” 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 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.
7. Perusal of the above quoted provisions of the companies act shows that a debt due to the secured creditors is entitled to be paid on priority basis. Perusal of Section 530 of the Companies Act shows that so far as payment on account of revenue and taxes is concerned, it is subject to the provisions of section 529-a of the Act and therefore, combined reading of Section 529-A and Section 530 will make it clear that the Companies Act contains provisions which give priority to the dues of the secured creditors to whom the provisions of section 529a are applicable over the revenue demand. In this behalf we have to see the provisions of Section 38C of the Sales-tax Act on which reliance is placed on behalf of the State Government. Section 38C of the Sales-tax Act reads as under:
38C. Liability under this Act to be first charge.- Notwithstanding anything contained in any contract to the contrary but subject to any provision regarding first charge in any Central Act for the time being in force, any amount of tax, penalty, interest or any other sum, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or, as the case may be, person.”]
8. Perusal of the provisions of Section 38C of the Sales-tax Act shows that it operates to create first charge on the property of the dealer. Creation of the first charge on the property of the dealer for the dues of the State Government towards sales-tax is subject to there being no contrary provision in any Central Enactment. Therefore, if there is a Central Enactment containing a provisions for creation of first charge, then Section 38C will not operate. If Section 38C does not operate, then there is no question of Section 38C creating any right whatsoever in favour of the State Government in relation to the property concerned. Section 38C by no stretch of imagination can operate to create a right in favour of the State Government, which will be equal to any right created by Central enactment. Because operation of Central enactment creating any right of priority totally displaces Section 38C. In other words, Section 38C and Central enactment containing contrary provisions do not exist and operate side by side. If the Central Enactment operates, then Section 38C is totally displaced. In our opinion, the learned single Judge clearly erred in holding that though Section 529A of the Companies Act operates, Section 38C of the Sales-tax Act also operates. If Section 529A which is the Central Enactment giving priority to the secured creditors and workers operates in relation to a property of the company, then provisions of Section 38C giving priority to the State Government will not operate in relation to that property.
9. It is further to be seen here that if Section 38C does not operate in relation to a property of the Company because of operation of Section 529A, then by operation of the provisions of the Maharashtra Land Revenue Code, there is no change brought about in the situation. In our opinion, the provisions of Section 169 of the Maharashtra Land Revenue Code makes the position absolutely clear. Section 169 of the Maharashtra Land Revenue Code reads as under:
169. Claims of State Government to have precedence over all others:-
(1) The arrears of land revenue due on account of land shall be a paramount charge on the land and on every part thereof and shall have precedence over any other debt, demand or claim whatsoever, whether in respect of mortgage judgment-decree, execution or attachment, or otherwise howsoever, against any land or the holder thereof.
(2) the claim of the State Government to any monies other than arrears of land revenue, but recoverable as a revenue demand under the provisions of this Chapter, shall have priority over all unsecured claims against any land or holder thereof.$$$
10. Perusal of the above quoted provisions shows that the Maharashtra Land Revenue Code makes a clear distinction between the sum which is recoverable as a land revenue and sum which is recoverable as arrears of land revenue. What creates paramount charge is the sum which is the amount of land revenue and not the sum which is recoverable as land revenue. The Constitution Bench of the Supreme Court in its judgment in the case of Builders Supply Corporation, referred to above, in our opinion, has made the position absolutely clear. Following observations in the case of Builders Supply Corporation, in our opinion, are relevant. They read as under:-
$$$We have referred to this decision, because it brings out emphatically the real character of the provisions prescribed by s. 46(2). Section 46(2) does not deal with the doctrine of the priority of Crown debts at all; it merely provides for the recovery of the arrears of tax due from an assessee as if it were an arrear of land revenue. This provisions cannot be said to convert arrears of tax into arrears of land revenue either, all that it purports to do is to indicate that after receiving the certificate from the Income-tax Officer, the Collector has to proceed to recover the arrears in question as if the said arrears were arrears of land revenue. We have already seen that other alternative remedies for the recovery of arrears of land revenue are prescribed by sub-sections (3) and (5) of s. 46. In making a provision for the recovery of arrears of tax, it cannot be said that s. 46 deals with or provides for the principle of priority of tax dues at all; and so, it is impossible to accede to the argument that s. 46 in terms displaces the application of the said doctrine in the present proceedings.
11. The learned Counsel appearing for the State Government relied on observations made in the judgment of the Division Bench in The Thane Janata Sahakari Bank Ltd.$$$s case, in that case the Court was not considering the situation whether the provisions of Section 529-A of the Companies Act operate. The Division Bench in that case was considering the question whether in view of the provisions of the Securitisation Act and D.R.T Act, the provisions of Section 38C apply. The Court held that the provisions of the securitisation act do not create any first charge in favour of the Banks and financial institutions. In other words, the Securitisation Act does not have any provisions which will displace operation of the provisions of Section 38C of the Bombay Sales Tax Act. The Division Bench, thereafter, held that because Section 38C operates, the amount of sales-tax is elevated to the level of dues of land revenue and therefore under the Maharashtra Revenue Code it becomes paramount charge. The Division Bench in this case was not considering the case, where Section 38C does not operate. So far as the judgment of the Supreme Court in Central Bank of India is concerned, there also the Supreme Court was considering the provisions of the Securitisation Act vis-avis the provisions of Section 38C of the Bombay Sales Tax Act and other paramateria provisions. In our opinion, paragraph 148 of that judgment makes the position clear.
$$$148. After decree of the suit, the appellant along with IFCI and IDBI filed an application before the Company Judge for consideration of their claim on pro rata basis and also for exclusion of the claim of Punjab National Bank. The learned Company Judge allowed the first prayer of the appellant but declined the second one by relying upon the judgment in Allahabad Bank's case (supra). The intra-court appeal was dismissed by the Division Bench by relying upon the provisions of section 529a. On further appeal, this Court referred to the judgment in Allahabad Bank's case (supra) as also Rajasthan State Financial Corporation v. Official Liquidator [(2005) 8 SCC 190] and held:
“32. Allahabad Bank therefore, is not an authority for the proposition that in terms of Section 529-A of the Companies Act the distinction between two classes of secured creditors does no longer survive. The High Court, thus, in our considered opinion, was not correct in that behalf.
33. In fact in Allahabad Bank it was categorically held that the adjudication officer would have such powers to distribute the sale proceeds to the banks and financial institutions, being secured creditors, in accordance with inter se agreement/arrangement between them and to the other persons entitled thereto in accordance with the priority in law.
34. Section 529-A of the Companies Act no doubt contains a non obstante clause but in construing the provisions thereof, it is necessary to determine the purport and object for which the same was enacted.
35. In terms of Section 529 of the Companies Act, as it stood prior to its amendment, the dues of the workmen were not treated pari passu with the secured creditors as a result whereof innumerable instances came to the notice of the Court that the workers may not get anything after discharging the debts of the secured creditors. It is only with a view to bring the workmen's dues pari passu with the secured creditors, that Section 529-A was enacted.
36. The non obstante nature of a provision although may be of wide amplitude, the interpretative process thereof must be kept confined to the legislative policy. Only because the dues of the workmen and the debts due to the secured creditors are treated pari passu with each other, the same by itself, in our considered view, would not lead to the conclusion that the concept of inter se priorities amongst the secured creditors had thereby been intended to be given a total go-by.
37. A non obstante clause must be given effect to, to the extent Parliament intended and not beyond the same.
38. Section 529-A of the Companies Act does not ex facie contain a provision (on the aspect of priority) amongst the secured creditors and, hence, it would not be proper to read there into things, which Parliament did not comprehend.”
12. The above observations make it clear that by operation of Section 529-A, priority is given to the dues of the secured creditors and workers over State first statutory charge. In this view of the matter, therefore, in our opinion, the learned single Judge was not justified in holding that dues of the State Government are recoverable pari pasu with the dues of the Appellant.
13. In the result, therefore, both the Appeals succeed and are allowed. The order of the learned single Judge in Company Application No. 540 of 2002 and Company Application No. 101 of 2002 is set aside. No order as to costs.
14. At the request of the learned Counsel appearing for the State Government, it is however, directed that the parties shall maintain status quo for a period of six weeks from today.
D.K DESHMUKH, J.
V.R KINGAONKAR, J.