State of Maharashtra vs Registrar of Companies Bombay and another

B.C. Gadgil, J.—The Company known as Thakur and Company Ltd. Araravati (hereinafter referred to as the Company) has gone in voluntary liquidation. The shareholders passed a resolution dated 18-10-73 for such voluntary winding up. In pursuance thereof, the Company Petition No. 5 of 1974 was filed and the winding up proceedings are going on in that petition. Mr. D. S. Paradkar is the Liquidator in connection with such winding up. The applicant in Company Application No. 47 of 1977 is the State of Maharashtra. The Company was to pay certain Sales Tax dues to the Government. Total amount of Rs. 38,730 is still outstanding. The State of Maharashtra submitted its claim before the Liquidator with respect to this amount. It was further alleged that the State is entitled to have preferential payment as contemplated by section 530 of the Indian Companies Act. The relevant part of that section reads as follows:

"530 (1)�In a winding up, there shall be paid to 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 sub-section (8), and having become due and payable within the twelve months next before that date...."

There is no dispute that in the present case, the relevant date is the date of the passing of the resolution for the voluntary winding up i. e., 18-12--1973. The Government submitted before the Liquidator that the entire amount of Rs. 38730 should be treated as a preferential claim. The liquidator found that a claim of Rs. 9419.13 would be a preferential claim as the assessment orders in respect of this much amount have been passed within 12 months from 18-10-1973. Thus the claim of Rs. 29,310.87 is treated as claim without any priority.

An aggrieved creditor is entitled to prefer an appeal to the Court within 21 days from the intimation of the decision of the Liquidator. Such an appeal is permissible under rule 164 of the Companies (Court) Rules, 1959. The Government has received an intimation about this decision on 13-6-1977. However, the appeal could not be filed within time. There was a delay of 13 days. Company Application No. 47 of 1977 is an application for condonation of delay. Along with the application the Government also preferred an appeal memo. By consent of parties, it was agreed between them that I should hear and decide the application for condonation of delay, as also the main appeal at one and the same time. Accordingly, the learned Advocates appearing in the case have made their submissions both with respect to condonation of delay as also about the merits.

It is true that there is a delay of 13 days. The Government has explained the delay by saying that after the receipt of the said notice-cum-intimation, the matter was referred to the concerned authorities and the Department took sometime and thereafter instructions were issued. I think that in the peculiar facts and circumstances, the delay deserves to be condoned. Accordingly the appeal filed by the State is directed to be registered and numbered as Appeal No. 1 of 1977.

I would now consider merits of the appeal. But before doing so, it will be necessary to make a mention of the submission made by Mr. Kalele on behalf of some other creditors. According to him, the Liquidator has committed an error in treating the claim of Rs. 9419.13 as preferential claim. I would give the details of this submission in due course, but at this stage, it is necessary to find out as to whether such a contention can be enquired into. Rule 165 (2) of the Companies (Court) Rules says that it shall be open to any creditor to apply to the Court to intervene in the appeal and the Court may, if it thinks fit, grant leave subject to such terms and conditions as may be just. Mr. Kalele submitted at the time of arguments that he is making an oral application for leave and it should be granted. He also urged that, apart from this leave, he has a right to make his submissions so far as the settlement of the list of creditors is concerned. I may say that the liquidator has filed the settled list. It is marked as Company Application No. 42 of 1977. In that list, he has included the claim of the Government to the tune of Rs. 38,000 and has also stated that out of this amount Rs. 9419 13 stands on a priority basis. Mr. Kalele argued that it would be within his rights if he submits that while settling the list, the said priority claim should be treated as an ordinary claim. I think that this submission has force and it would be in the fitness of things if the nature of the entire claim of the Government is considered for the purposes of deciding as to whether it should be treated as a preferential claim in its entirety or in part.

There is no dispute that the amount of Rs. 38,730.00 is due and payable by the Company to the Government as the Sales Tax dues. The question as to whether any claim is to be treated as a priority claim would necessarily depend upon a finding that the said claim has become due and payable within 12 months from 1810-1973. In the present case, the Sales Tax authorities have passed various orders against the company for the arrears of sales tax and the total liability under all these orders comes to Rs. 30,000. It is not in dispute that the orders with respect to the total claim of Rs. 29,310.87 have been passed prior to 12 months from 18-10-1973, The liquidator has held that after the passing of the order, the amount became payable and, as such, the claim of Rs. 29,310.87 cannot be allowed as a priority claim as the amounts became payable before 12 months from the appointed date. Mr. Badar urged that though the assessment orders have been passed 12 months before the appointed date, still the liability to pay taxes under those orders continues to exist and, as such, the amounts covered by these assessment orders are payable even today. It is in this manner he wants to say that the claim of Rs. 29,310.87 should be treated as due and payable within one year from the appointed day. I do not think that the Government will be able to succeed on the basis of this argument. The most that can be said in favour of Government is that though the Sales Tax dues became due when the sales took place, they became payable for the first time when, the assessment order was passed. Obviously, with respect to the claim of Rs. 29310.87 that would be treated as became payable more than 12 months before 18 10-1973. In this view of the matter, it will not be possible for the Government to say that this claim of Rs. 29310.87 should be treated as a priority claim.

I will now consider the contention of Mr. Kalele when he urged that even the claim of Rs. 9419 13 should not be treated as a priority claim. He relied upon a decision of the Gujarat High Court in Sales Tax Officer v. Rajratna Naranbhai Mills (1974) 44 CC 65. It was also a case with respect to the claim under the Sales Tax Act and the Government contended that the said claim should be treated as a priority claim. There the sales had taken place long before one year from the appointed date. However, the assessment orders under the Sales Tax Act had been passed within one year from that date. The Liquidator rejected the claim for priority on the ground that the amount in question did not become a ''due and payable'' 12 months next before the appointed date. The Government preferred an appeal under Rule 164 and the Gujarat High Court confirmed the order of the Liquidator. In substance, it was held by that Court that the Sales Tax became due as soon as there was a sale. Under the Sales Tax Act, a trader is required to submit periodical returns of his turn over. Alongwith that return, he is bound to attach a proof (by way of treasury challan etc.) that he has paid the tax as per the return. If this return is correct, there is no question of any additional payment after the assessment is made but many a time it so happens that when returns are assessed, the Sales Tax Officers find that the returns do not disclose the correct picture. The Sales Tax Officer would, therefore, make a re-assessment of the return of the trader and on that basis calculate the total amount of sales tax that would be payable by the trader. After deducting the tax already paid, there will be an assessment order with respect to the deficit payment. The Gujarat High Court has held that even with respect to the additional liability under the assessment order, the payment had already become due in the period covered by the concerned return and that all that has been done by the Sales Tax Officer is to make a proper assessment and, therefore, the assessment only makes the additional amount payable on the date of the assessment order. It was, therefore, held that even in a case where the assessment order is passed within one year from the appointed date, the Government will not be able to say that the tax amount became ''due and payable'' within one year from the appointed date. It was held that the amount was already due long before the assessment order and for this reason the Government cannot say that the amount became ''due and payable" within 12 months from the appointed date.

It is true that the Gujarat High Court has held that for getting priority, two conditions must exist separately, viz., (i) that the amount must become due 12 months next before the appointed date and (ii) that the amount became payable 12 months before the appointed date. A similar view is also taken by the Allahabad High Court in Sales Tax Officer, Kanpur v. Official Liquidator (1968) 38 CC 430.

Clause "having become due and payable" has been interpreted by the Patna High Court in a different manner in In Re: Bihar Bolts and Rivets and Engineering Works (in liquidation), . It was again a case of Sales Tax dues. The dues were with respect to period more than one year from the appointed date but the assessment orders have been passed within the period of 12 months. The question arose as to whether the Government is entitled to have a priority. This is what the Patna High Court has held :

"Mr. Shreenath Singh has contended that the amount of Rs. 7934. J .0 due to Sales-Tax Department is not entitled to priority because it did not become due during the period of twelve months next before the relevant date. I am of opinion that this contention is without substance. Section 530(t)(a) of the new Act does not require that a claim must become due as well as payable within the period of twelve months. In my judgment its requirements are satisfied if the co-existence of both occurs for the first time within the period. Even if the amounts of sales tax for three years in question were due from before the period of twelve months, they were not payable previously. As they first became payable within the period having already been due from before I hold that the amount of Rs. 7934.1.0 ought to be treated as preferential claim and to be paid in priority to ordinary debts."

I think that the view expressed by the Patna High Court is more in consonance with justice and equity. Obviously the claim for being a preferential claim must be payable. Otherwise, the claimant will not be able to put forth that claim before the Liquidator. Thus, this necessity of the claim being payable cannot be lost sight of while interpreting section 530 of the Companies Act. The claim cannot be treated as ordinary claim (i. e. without any priority) simply because the amount had become due more than 12 months before the appointed date; what is necessary is that the two conditions must co-exist within the period of one year from the appointed date. I would, therefore, hold that the Liquidator has correctly allowed the claim to the tune of Rs. 9419.13 as a priority claim. In view of this position, the appeal filed by the State (Company A. No. 1 of 1977) stands dismissed. There would, however, be no order as to costs.