In Re: Kapri Intl. Pvt. Ltd.

Indermeet Kaur, J.

Co. Application No. 477/2011

This is an application filed by the Liquidator seeking direction qua the Central Excise, Ghaziabad (hereinafter referred to as the ''Department'') to

recall the order of interest of Rs. 267.73 lacs; submission being that the company (M/s. Kapri International Pvt. Ltd.-now in liquidation) is not

liable to pay any interest; the principal amount of Rs. 1,68,82,344/- be accepted by the Department in full and final settlement of his claim.

Pleadings are complete.

Record has been perused.

There were seven adjudication orders which have been passed by the Department.

After some arguments and the inter-se clarifications which have been made before this Court, the total amount quantified is Rs. 1,85,04,400.76.

(i) Order No. 34/1988

This is the first adjudication order. It is dated 28.10.1988. Vide this order, a penalty of Rs. 5 lacs had been imposed upon the company (in

liquidation) which amount has since been deposited by the company on 03.10.1989 vide Challan of even date and as such no amount is payable

under this head.

(ii) Order No. 40/1996

This is the second adjudication order. It is dated 14.08.1996. The duty payable was adjudicated upon by the Commissioner at Rs. 45 lacs;

penalty of Rs. 25 lacs was also imposed upon the company. In appeal, the appellate tribunal had reduced the penalty to Rs. 10 lacs. Civil Appeal

was filed against this order which was dismissed on 30.04.2002 confirming the order of the Commissioner. Admittedly Rs. 6 lacs has been paid by

the company under this head. Out of a totally amount of Rs. 71,75,411/-, a sum of Rs. 65,75.411/- is thus due and payable under this head. The

judgment reported as Commissioner of Central Excise, Delhi Vs. Pearl Drinks Ltd., would not be applicable as the order of the Apex Court dated

30.04.2002 dismissing the Civil Appeal is clear; the order of the Tribunal had been set aside and the order of the Commissioner had been

restored; the averments made in the body of the Civil Appeal shows that the entire order of the Commissioner had been assailed and as such the

submission made on behalf of the company that this order of the Supreme Court did not cover the penalty amount is an argument without any

merit.

(iii) Order No. 40/1990

This is the third adjudication order. It is dated 04.01.1991. A sum of Rs. 44,60,859.76 is the amount due as duly and Rs. 10 lacs has been

imposed as a penalty; a further sum of Rs. One lac has been imposed as a redemption fine as well. There is no dispute to this figure. Thus a total

sum of Rs. 55,60,859.76 is the amount payable under this head.

(iv) Order No. 17/1991

This is the fourth adjudication order. It is dated 27.02.1991. The amount payable under this head is Rs. 42,37,274/- which was the duty levied

upon the company.

(v) Order No. 18/1991

This is the fifth adjudication order. It is dated 28.02.1991. The amount payable under this head is Rs. 16,27,685/- which was the duty levied

upon the company.

(vi) Order No. 69/1983

This is the sixth adjudication order. It is dated 27.05.1993. The amount payable under this head is Rs. 4,83,171/- which was the duty levied

upon the company.

(vii) Order No. 50/1993

This is the seventh adjudication order. It is dated 25.10.1993. Attention has been drawn to the said order. The amount has admittedly not

been quantified; as such the penalty of Rs. 20,000/- imposed by the aforenoted order is alone payable by the company. This has been conceded

to by the learned counsel for the respondent.

Thus under all the aforenoted seven adjudication orders, an amount of Rs. 1,85,04,400.76 is payable by the company. This figure has been

arrived at after agreement and inter-see clarifications made by the parties i.e. representations made by the Liquidator and Mr. Rajesh Jain, amicus

curiae has rendered valuable assistance to the Court.

The question which has to be answered is on the quantum of interest.

Learned counsel for the respondent has drawn attention of this Court to the provisions of Section 11AA of the Central Excise Act, 1944

(hereinafter referred to as the said ''Act''); submission being that this provision relating to interest was notified under the Act w.e.f. 26.05.1995; the

liability to pay interest on the aforenoted amount becomes automatic; this would be even if there is no show cause notice issued by the company.

To support this submission, reliance has been placed upon Prahlad Rai and others Vs. Sales Tax Officer, Meerut and others, as also The

Commissioner of Sales Tax Vs. Qureshi Cruchible center, ; submission being that the levy of interest is by operation of law; it does not require any

separate order. Reliance has also been placed upon 2002 (144) ELT 347 ; submission being that u/s 11AA, the ''relevant date'' is the date on

which the duty was determined and if the assessee fails to pay the duty within three months from the date of such determination, interest has to be

paid. Further submission being that in all the aforenoted adjudication orders, except for Order No. 40/1996 (which order was passed on

14.08.1996) all other adjudications had been made prior to the incorporation of Section 11AA; the ''relevant date'' would be the date on which

the duty was determined and the liability of the company to pay the interest would arise from that date. Further submission being that the order

passed by the CEGAT, Northern Bench (in the case of Prabhat Zarda Factory Ltd.) has been upheld by the Apex Court which had dismissed the

Civil Appeal on 19.12.2003.

Submissions have been countered. Learned counsel for the Liquidator points out that the factual scenario in the instant case is different; the

company is in liquidation and Chapter VII of the Companies Act dealing with the winding up of a company would be applicable; submission being

that in this case, the company had been wound up on 01.05.1995 and provisions of Section 529A of the Companies Act would be applicable.

The Central Excise Department is only a preferential creditor and his debt has to rank after the payment has been made to the secured creditors

and to the workmen; in view of the judgment of the Supreme Court reported in Employees Provident Fund Commissioner Vs. O.L. of Esskay

Pharmaceuticals Limited, , the Provident Fund Commissioner is to rank in a still higher priority; further submission being that as on date in view of

the financial status of the company, no interest is payable by the company. Reliance has been placed upon Income Tax Officer Vs. Official

Liquidator, ; submission being that in this case, the claim of interest demanded by the Income Tax Department had been considered and the Court

had returned a finding that the claim for interest would be valid when the company was a going concern but the question of its applicability to a

company in liquidation was negatived which necessarily has to be governed by the provisions of the Companies Act.

In the present case, admittedly, the company had gone into liquidation on 01.05.1995; Chapter VII of the Companies Act would be

applicable. The Central Excise Department is only a preferential creditor; he has to be paid only after the claim of the Employees Provident Fund

Commissioner (if any) and the secured creditor as also the workmen have been met with. The Liquidator R.K. Arora is present in Court today.

The fund position of the company has been detailed by him as Rs. 2,20,00,000/-. It is pointed out that there was only one secured creditor who

has since been paid; the claims of the workmen have already been adjudicated upon which are approximately to the tune of Rs. 35 lacs.

Rule 156 of the Company (Court) Rules 1959 deals with the quotient of interest. It reads herein as under:-

Interest-On any debt or certain sum, payable at a certain time or otherwise whereon interest is not reserved or agreed for, and which is

overdue at the date of the winding-up order, or the resolution as the case may be, the creditor may prove for interest at a rate not exceeding four

per cent per annum up to the date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument

as a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed

form the date of demand until the time of payment.

Rule 179 of the Company (Court) Rules 1959 is also relevant. It reads herein as under:-

Payment of subsequent interest.-In the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose

proofs have been admitted shall be paid interest from the date of the winding-up order or of the resolution as the case may be, up to the date of

declaration of the final dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount of the claim, after adjusting against the said

amount the dividends declared as on the date of the declaration of each dividend.

In the present case admittedly no interest was agreed upon between the parties; argument of the respondent is to the effect that Section 11AA

of the Act is operative by law and interest becomes payable in view of this statutory provision. Rule 156 envisages a situation where no rate of

interest has been agreed upon between the parties. It postulates that interest can be paid up to a maximum of 4%. Rule 179 applies to a situation

where the Official Liquidator has a surplus after payment in full of all the claims which are admitted to proof. It is only where an excess amount is

available that the question of payment of interest will be considered. As on date as is the submission by the Official Liquidator, Rs. 2,20,00,000/-

is lying with him out of which Rs. 35 lacs has to paid to the workmen. The claim of the Central Excise has been admitted to Rs. 1,85,04,400.76;

the liability of the company today would thus be almost Rs. 2,20,00,000/-. Keeping in view of the fund position, no fund is available with the

Official Liquidator to consider the payment of interest to the Department. Accordingly, the claim of interest of the Department is dis-allowed.

Co. Application No. 1191/2006

This application has become infructuous in view of the earlier order passed by this Court on 31.10.2012. Application disposed of.