# THE GOVERNMENT OF INDIA) v. SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS

- **Citation:** 2023 INSC 746
- **Court:** Supreme Court of India
- **Decided:** 2023-08-18
- **Case number:** Civil Appeal No. 2568 of 2013
- **Bench:** Sanjiv Khanna, Sudhanshu Dhulia
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-government-of-india-v-superintendent-of-central-excise-and-customs-36401
- **Pages:** 31

## Headnote

Issue for consideration: Whether the Customs Act, 1962 creates a
fi rst charge overriding the charge in favour of the secured creditor.
Customs Act, 1962 - Companies Act, 1956 - ss.529A, 530(1)
- Customs duty 'due and payable' - 'relevant date' - Preferential
payments u/clause (a) to s.530(1) - Customs Act if negates or overrides
the statutory preference in terms of s.529A, Companies Act - Prior
secured creditors if entitled to enforce their charge, notwithstanding
the government dues payable under the Customs Act:
Held: Upon import of the goods, the Company had entered the
goods for home consumption u/s.46, Customs Act - However, the goods
were stored in a private bonded warehouse, in the terms of s.68, Customs
Act - Goods were not released on non-payment of customs duty etc. and,
thereupon, show cause notices were issued and two adjudication orders
dated 15.09.2000 and 10.10.2000 were passed - The debt had become
'due' in terms of the aforesaid two adjudication orders 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 01.12.2003 - The amount 'due and
payable' in terms of the two adjudication orders would, thus, not fall in the
category of preferential payments u/clause(a) to s.530(1), Companies Act
- Provisions in the Customs Act do not, in any manner, negate or override
the statutory preference in terms of s.529A, Companies Act, which treats
1053
the secured creditors and the workmen's dues 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 u/s.530, Companies Act, but are ranked below
overriding preferential payments and have to be paid after the payment has
been made in terms of s.529 and 529A, Companies Act - Therefore, the
prior secured creditors are entitled to enforce their charge, notwithstanding
the government dues payable under the Customs Act - Impugned judgment
set aside - Company Application fi led by the Offi cial Liquidator allowed -
Sale proceeds deposited in Supreme Court and converted into fi xed deposit
receipts, along with the interest accrued thereon, be paid to the Offi cial
Liquidator to be distributed in accordance with the provisions of ss.529A
and 530, Companies Act - Constitution of India - Article 372(1). [Paras
22, 23, 26 and 28]
Customs Act, 1962 - s.142A - Companies Act, 1956 - ss.529A, 530:
Held: Provision of s.142A, insofar as it protects the rights of overriding
preferential creditors governed and covered by s.529A, Companies Act, is
clarifi catory and declaratory in nature, and does not lay down a new dictum
or confer any new right as far as the present case is concerned - However, the
enactment of s.142A of the Customs Act does confer or create a fi rst charge
on the dues 'payable' under the Customs Act, notwithstanding provisions
under any Central Act, but not in cases covered u/s.529A of the Companies
Act, RDDBFI Act, SARFAESI Act and the IBC - s.142A, Customs Act,
post its enactment, would dilute the impact of s.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. [Para 25]
Companies Act, 1956 - ss.529A, 530 - Non-obstante nature of
s.529A:
Held: In view of the non-obstante nature of s.529A of the Companies
Act, notwithstanding anything contained in any other provision of the
Companies Act or any other law for the time being in force on 24.05.1985,
on winding up of a company, the debt due to the workmen and the debt
due to secured creditors as specifi ed, rank pari passu and are to be paid
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS

## Text

_Characters 0–39,995 of 68,227. This is a partial read: ask again with offset=39995 for what follows._

[2023] 12 S.C.R. 1052 : 2023 INSC 746
1052
CASE DETAILS
INDUSTRIAL DEVELOPMENT BANK OF INDIA (THROUGH
STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY
THE GOVERNMENT OF INDIA)
v.
SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS
AND OTHERS
(Civil Appeal No. 2568 of 2013)
AUGUST 18, 2023
[SANJIV KHANNA AND SUDHANSHU DHULIA, JJ.]
HEADNOTES
Issue for consideration: Whether the Customs Act, 1962 creates a
fi rst charge overriding the charge in favour of the secured creditor.
Customs Act, 1962 - Companies Act, 1956 - ss.529A, 530(1)
- Customs duty 'due and payable' - 'relevant date' - Preferential
payments u/clause (a) to s.530(1) - Customs Act if negates or overrides
the statutory preference in terms of s.529A, Companies Act - Prior
secured creditors if entitled to enforce their charge, notwithstanding
the government dues payable under the Customs Act:
Held: Upon import of the goods, the Company had entered the
goods for home consumption u/s.46, Customs Act - However, the goods
were stored in a private bonded warehouse, in the terms of s.68, Customs
Act - Goods were not released on non-payment of customs duty etc. and,
thereupon, show cause notices were issued and two adjudication orders
dated 15.09.2000 and 10.10.2000 were passed - The debt had become
'due' in terms of the aforesaid two adjudication orders 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 01.12.2003 - The amount 'due and
payable' in terms of the two adjudication orders would, thus, not fall in the
category of preferential payments u/clause(a) to s.530(1), Companies Act
- Provisions in the Customs Act do not, in any manner, negate or override
the statutory preference in terms of s.529A, Companies Act, which treats
1053
the secured creditors and the workmen's dues 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 u/s.530, Companies Act, but are ranked below
overriding preferential payments and have to be paid after the payment has
been made in terms of s.529 and 529A, Companies Act - Therefore, the
prior secured creditors are entitled to enforce their charge, notwithstanding
the government dues payable under the Customs Act - Impugned judgment
set aside - Company Application fi led by the Offi cial Liquidator allowed -
Sale proceeds deposited in Supreme Court and converted into fi xed deposit
receipts, along with the interest accrued thereon, be paid to the Offi cial
Liquidator to be distributed in accordance with the provisions of ss.529A
and 530, Companies Act - Constitution of India - Article 372(1). [Paras
22, 23, 26 and 28]
Customs Act, 1962 - s.142A - Companies Act, 1956 - ss.529A, 530:
Held: Provision of s.142A, insofar as it protects the rights of overriding
preferential creditors governed and covered by s.529A, Companies Act, is
clarifi catory and declaratory in nature, and does not lay down a new dictum
or confer any new right as far as the present case is concerned - However, the
enactment of s.142A of the Customs Act does confer or create a fi rst charge
on the dues 'payable' under the Customs Act, notwithstanding provisions
under any Central Act, but not in cases covered u/s.529A of the Companies
Act, RDDBFI Act, SARFAESI Act and the IBC - s.142A, Customs Act,
post its enactment, would dilute the impact of s.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. [Para 25]
Companies Act, 1956 - ss.529A, 530 - Non-obstante nature of
s.529A:
Held: In view of the non-obstante nature of s.529A of the Companies
Act, notwithstanding anything contained in any other provision of the
Companies Act or any other law for the time being in force on 24.05.1985,
on winding up of a company, the debt due to the workmen and the debt
due to secured creditors as specifi ed, rank pari passu and are to be paid
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS
1054
SUPREME COURT REPORTS
[2023] 12 S.C.R.
in the manner prescribed therein in priority to all other debts - Provisions
of s.529A of the Companies Act prevail over s.530 of the Companies Act
- s.529A of the Companies Act, a non-obstante provision, is to be given
primacy in case of confl ict, and consequently, in case of disharmony, this
section will override the discordant provisions of the Companies Act and all
other enactments in force and the debts are to be paid in terms of s.529A.
[Paras 8, 10 and 11]
Companies Act, 1956 - s.530(1)(a) - debts 'due' in the fi rst portion
of clause (a) to s.530(1) and the words 'become due and payable
within the twelve months next before that date' in the latter portion -
Interpretation:
Held: The words debt 'due' occurring in the fi rst part and the words
debt 'due and payable' in the latter part of s.530(1)(a) of the Companies Act
are diff erent expressions meant to convey diff erent and not the same meaning
- Therefore, for a government debt to be covered under clause (a) to s.530(1),
it must not only be a debt 'due', but it must also be a debt 'due and payable'
within twelve months next before the relevant date - The requirements of
the latter portion of clause (a) to s.530(1) are dual and cumulative, which
is debt 'due and payable', and not one that is 'due' - The debt 'due' must
have become payable at any time within twelve months next before the
relevant date - The debt 'due and payable' prior to twelve months next to
the relevant date is not a preferential debt in terms of s.530(1)(a) - Such
debt will rank pari passu with ordinary or unsecured creditors, without any
preferential treatment. [Paras 18]
Companies Act, 1956 - s.530(8)(c) - 'relevant date':
Held: As per sub-clause (i) to clause (c) to sub-Section (8) to s.530,
the 'relevant date' in case where a company has been ordered to be wound
up compulsorily, shall be the date of appointment or fi rst 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 up order
was passed against the Company, 01.12.2003. [Para 12]
1055
Companies Act, 1956 - ss.447, 456, 468, 528, 529 - Eff ect of -
Object and purpose - Objective of giving jurisdiction to the Company
Court/tribunal during the process of liquidation -Discussed - Doctrine
of pari passu.
LIST OF CITATIONS AND OTHER REFERENCES
Collector of Customs v. Dytron (India) Ltd. 1998 SCC OnLine Cal
674 - overruled.
Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Others, (2000)
5 SCC 694:[2000] 3 SCR 509; J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind
Spg. and Wvg. Co. Ltd. (1970) 40 Comp Cas 689; Rajratha Naranbhai Mills
Co. Ltd. v. Sales Tax Offi cer, Petlad (1991) 3 SCC 283:[1991] 1 SCR 527;
Commissioner of Customs, Calcutta and Another v. Biecco Lawrie Ltd.
(2008) 3 SCC 264:[2008] 2 SCR 257; Punjab National Bank v. Union of
India and Others (2022) 7 SCC 260; Sundaresh Bhatt, Liquidator of ABG
Shipyard v. Central Board of Indirect Taxes and Customs (2023) 1 SCC
472 - relied on.
The Superintendent of Central Excise and Customs v. M/s. Sri
Vishnupriya Industries Ltd. (in liqn.) and Others Original Side Appeal
No. 1 of 2005; UTI Bank Ltd. v. Deputy Commissioner of Central Excise
and Another (2007) 135 Company Cases 329 (Mad.); In Re Savin, [1872]
L.R. 7 Ch. App. 760, 764; Sales Tax Offi cer, Petlad v. Rajratna Naranbhai
Mills Co. Ltd. and Another (1974) 44 Comp Cas 65 (Guj); Builders Supply
Corporation v. Union of India and Others (1965) 2 SCR 289; Collector of
Aurangabad and Another v. Central Bank of India and Another (1967) 3
SCR 855; Imperial Chit Funds (P) Ltd. v. Income Tax Offi cer, Ernakulam
(1996) 8 SCC 303:[1996] 3 SCR 640 - referred to.
'Rashbehary Ghose: Law of Mortgage' TLL, 7th Edn., p. 386.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL ORIGINAL JURISDICTION: Civil Appeal No. 2568 of 2013.
From the Judgment and Order dated 26.08.2008 of the High Court of
Andhra Pradesh at Hyderabad in OSA No.1 of 2005.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS
1056
SUPREME COURT REPORTS
[2023] 12 S.C.R.
Appearances:
Anand Varma, Ms. Apoorva Pandey, Advs. for the Appellant.
N. Venkatraman, ASG, Mukesh Kumar Maroria, V. C. Bharathi,
Ms. Nisha Bagchi, B. K. Satija, Anirudh Sharma I, Ms. Bina Madhavan,
Lakshay Saini, B. Krishna Prasad, M/s. Lawyer S Knit & Co., Advs. for
the Respondents.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
SANJIV KHANNA, J.
This appeal by Industrial Development Bank of India1 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 20052,
whereby it has been held that notwithstanding the winding up order dated
1st December 2003 in the case of M/s. Sri Vishnupriya Industries Limited3,
and the provisions of Section 529A and 530 of the Companies Act, 19564,
the customs authorities have the fi rst right to sell the imported goods under
the Customs Act, 19625 and adjust the sale proceeds towards payment of
customs duty.
2. The Company, during the period 1994-2000, was granted and
availed of fi nancial assistance from the appellant - IDBI. As a security,
the Company had hypothecated movable properties and created equitable
mortgage of immovable properties by depositing title deeds. The charge was
duly registered with the Registrar of Companies. In addition, the promoters
and guarantors had furnished personal guarantees.
3. In the present case, we are concerned with the hypothecated movable
property, namely, machinery and its components, imported from Italy during
1
For short, 'IDBI'.
2
The Superintendent of Central Excise and Customs v. M/s. Sri Vishnupriya Industries
Ltd. (in liqn.) and Others.
3
For short, 'the Company'.
4
For short, 'Companies Act'.
5
For short, 'Customs Act'.
1057
the years 1998-1999. The goods, packed in 128 wooden containers, were
warehoused in a private bonded warehouse by executing bond in terms of
Section 59(1) of the Customs Act. The goods were initially warehoused
for one year, which period was extended. However, as the goods were
not cleared for home consumption in terms of Section 47 of the Customs
Act, even after expiry of the extended period of warehousing, show-cause
notices were issued6, and after considering the explanation given by the
Company, orders-in-original dated 15th September 20007 and 10th October
20008 were passed confi rming levy of customs duty of Rs.3,27,22,191/-
and Rs.10,48,29,017/-, respectively. When the Company did not pay the
duty, the authorities had passed an order9 dated 19th December 2000 for
sale of the warehoused goods for recovery of the customs duty, relying
on the powers conferred under Section 72(2) read with Section 142 of
the Customs Act. Thereafter, another order10 under Section 72(2) of the
Customs Act was passed on 27th February 2002 for detention and sale of
the warehoused goods for recovery of Rs.22,20,38,112/-. On failure to pay
the duty, steps were initiated for auctioning the imported goods and the
Company was informed.
4. In the meanwhile, Company Petition No. 168 of 2002 was fi led
before the Andhra Pradesh High Court for winding up of the Company.
This petition was admitted on 1st April 2003. The Company was directed to
be wound up vide the order passed on 1st December 2003. Thereupon, the
Offi cial Liquidator fi led an application11 under Section 468 of the Companies
Act read with Rules 9 and 11(b) of the Companies (Court) Rules, 195912 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
6
Show Cause Notices dated 17th February 2000 and 10th April 2000.
7
Order in Original No. 1/2000 (Customs).
8
Order in Original No. 2/2000 (Customs).
9
C. No.VIII/16/1/2000-Adjn.
10 C. No.VIII/72/1/98-Customs.
11 C.A. No. 906/2004.
12 For short, 'Company Court Rules'.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]
1058
SUPREME COURT REPORTS
[2023] 12 S.C.R.
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 Offi cial Liquidator, who alone was entitled
to deal with the eff ects and actionable claims. Reference was also made to
Section 447 of the Companies Act13. Consequently, as the winding up order
had been passed against the Company but sale was yet to be eff ected, the
Offi cial Liquidator was duty bound to take into his custody and control all
properties, eff ects and actionable claims, including the movable property,
that is, the imported goods. Offi cial Liquidator, as the custodian of all the
properties of the Company, functions under the directions of the Company
Court. Any person making any claim against the Company has to prove his
claim before the Offi cial Liquidator by placing necessary material in support.
Accordingly, the submission regarding the custom authorities' entitlement
and right under the Customs Act to sell the imported goods to realise their
dues was rejected.
5. On the customs authorities preferring an intra-court appeal, the
mater was referred to the full bench of the Andhra Pradesh High Court
on the question of whether the claim of a secured creditor has precedence
over the right of the customs authorities to recover the customs duty. The
full bench, relying on and approving the ratio of the Calcutta High Court
in Collector of Customs v. Dytron (India) Ltd.14, disagreed with the
view expressed by a full bench of the Madras High Court in UTI Bank
Ltd. v. Deputy Commissioner of Central Excise and Another15. The
full bench of the Andhra Pradesh High Court has held that Section 46816
of the Companies Act has no application as it empowers the Company
Court to require the 'contributory' to pay, deliver, surrender or transfer
any money, property or books and papers in his custody or control. The
13 We shall subsequently refer to Sections 456 and 447 of the Companies Act, as these
provisions are of relevance.
14 1998 SCC OnLine Cal 674.
15 (2007) 135 Company Cases 329 (Mad.). On the aspect of the Karnataka Land Revenue
Act, 1964, see judgment of this Court in Dena Bank v. Bhikhabhai Prabhudas Parekh
& Co. and Others, (2000) 5 SCC 694.
16 Section 468 of the Companies Act has been quoted subsequently.
1059
word 'contributory', defi ned in Section 428 of the Companies Act, does
not include the customs department/authorities. Observations relying on
the ratio in Dytron (India) Ltd. (supra) have been made, a decision which
we would advert to later.
6. Aggrieved, the appellant - IBDI, as a secured creditor, has fi led
the present appeal. While issuing notice in the appeal vide order dated 3rd
May 2010, it was directed that status quo shall be maintained. Thereafter,
vide order dated 5th October 2017, the customs authorities, along with the
appellant - IDBI and the Offi cial Liquidator, were permitted to sell the
goods subject to deposit of the auction sale proceeds with the Registry of
this Court. 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 fi xed 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 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 insuffi cient 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-
(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
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]
1060
SUPREME COURT REPORTS
[2023] 12 S.C.R.
date as defi ned in clause (c) of sub-section (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, subject to the limit specifi ed in subsection (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 eff ect 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, 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.
1061
(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, exceed such sum
as may be notifi ed by the Central Government in the Offi cial Gazette:
(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 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 insuffi cient 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 insuffi cient to meet them, have priority over the claims
of holders of debentures under any fl oating 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 suffi cient to meet them,
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]
1062
SUPREME COURT REPORTS
[2023] 12 S.C.R.
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 eff ects 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 fi rst charge on the goods or eff ects
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 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;
(bb) the expression "employee" 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 fi rst 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.
1063
(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 confl ict, 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 eff ect 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 clause (b) of sub-Section (1) to Section 529A of the
Companies Act, the debts due to secured creditors to the extent such debts
under clause (c) of the proviso to sub-Section (1) to Section 52917 rank pari
passu with the workmen's dues18, are to be paid in priority to all other debts.
Sub-section (2) to Section 529A states that the debts payable under clauses
(a) and (b) of sub-Section (1) to Section 529A shall be paid in full, unless
the assets are insuffi cient to meet them, in which case they shall abate in
equal proportions.
10. In the present case, we are not required to examine the inter-play
and principle of proportionality with reference to clauses (a) and (b) to
Section 529A of the Companies Act, albeit we must give full eff ect to and
enforce the non-obstante nature of Section 529A of the Companies Act,
whereby, notwithstanding anything contained in any other provision of the
Companies Act or any other law for the time being in force on 24th May
1985, on winding up of a company, the debt due to the workmen and the
17 Clause (c) to the proviso to Section 529 has been quoted subsequently.
18 The expression 'Workmen's dues' in Sections 529, 529A and 530 of the Companies
Act is defi ned and restricted under sub-section (3)(b) to Section 529 of the Companies
Act.
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]
1064
SUPREME COURT REPORTS
[2023] 12 S.C.R.
debt due to secured creditors as specifi ed, rank pari passu and are to be paid
in the manner prescribed therein in priority to all other debts.
11. Section 530 of the Companies Act, which was amended and
substituted by Act No. 35 of 1985 with eff ect from 24th May 1985, states
that Section 530 is subject to provisions of Section 529A of the Companies
Act. Section 530 of the Companies Act deals with preferential payments
that are a level below the overriding preferential payments under Section
529A of the Companies Act. Clause (a) to Section 530(1) of the Companies
Act confers preferential status to all revenue taxes, cesses, and rates 'due' to
the Central or the State government or to a local authority on the 'relevant
date' as defi ned in clause (c) to sub-section (8) to Section 530 of the
Companies Act, which have become 'due and payable' within the twelve
months next before the relevant date. The taxes, cesses and rates due to the
Central and State governments or local authorities under Section 530 of the
Companies Act cannot be given priority over the payments/debts mentioned
in Section 529A of the Companies 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
fi rst 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
defi ned in clause (c) to sub-Section (8) to Section 530 of the Companies
Act. As per sub-clause (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 fi rst
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 up order
was passed against the Company, which is 1st December 200319.
19 The Offi cial Liquidator was appointed by the High Court vide the order dated 1st
December 2003 in Company Petition No. 168 of 2002.
1065
13. Again, before we proceed to interpret the expressions debt 'due'
and debt 'due and payable' in clause (a) to Section 530(1) of the Companies
Act, it is relevant to take note of the eff ect of Sections 447, 456, 468, 528
and 529 of the Companies Act, as well as the object and purpose behind
these provisions. The relevant sections read as follows:
"447. Eff ect of winding up order.- An order for winding up a
company shall operate in favour of all the creditors and of all the
contributories of the company as if it had been made on all the joint
petition of a creditor and of a contributory."
"456. Custody of company's property-(1) Where a winding up
order has been made or where a provisional liquidator has been
appointed the liquidator or the provisional liquidator, as the case may
be, shall take into his custody or under his control, all the property,
eff ects and actionable claims to which the company is or appears to
be entitled.
(1-A) For the purpose of enabling the liquidator or the provisional
liquidator, as the case may be, to take into his custody or under his
control, any property, eff ects or actionable claims to which the company
is or appears to be entitled, the liquidator or the provisional liquidator,
as the case may be, may by writing request the Chief Presidency
Magistrate or the District Magistrate within whose jurisdiction such
property, eff ects or actionable claims or any books of account or other
documents of the company may be found, to take possession thereof,
and the Chief Presidency Magistrate or the District Magistrate may
thereupon after such notice as he may think fi t to give to any party,
take possession of such property, eff ects, actionable claims books
of account or other documents and deliver possession thereof to the
liquidator or the provisional liquidator.
(1-B) For the purpose of securing compliance with the provisions
of sub-section (1-A), the Chief Presidency Magistrate or the District
Magistrate may take or cause to be taken such steps and use or cause
to be used such force as may in his opinion be necessary."
"468. Delivery of property to liquidator.-The Tribunal may, at any
time after making a winding up order, require any contributory for
the time being on the list of contributories, and any trustee, receiver,
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]
1066
SUPREME COURT REPORTS
[2023] 12 S.C.R.
banker, agent, offi cer 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 shall prevail and be observed with regard to-
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities; and
(c) the respective rights of secured and unsecured creditors;
as are in force for the time being under the law of insolvency with
respect to the estates of persons adjudged insolvent:
Provided that the security of every secured creditor shall be deemed
to be subject to a pari passu charge in favour of the workmen to the
extent of the workmen's portion therein, and where a secured creditor,
instead of relinquishing his security and proving his debt, opts to
realise his security,-
(a) the liquidator shall be entitled to represent the workmen and enforce
such charge;
(b) any amount realised by the liquidator by way of enforcement of
such charge shall be applied rateably for the discharge of workmen's
dues; and
1067
(c) so much of the debt due to such secured creditor as could not be
realised by him by virtue of the foregoing provisions of this proviso
or the amount of the workmen's portion in his security, whichever is
less, shall rank pari passu with the workmen's dues for the purposes
of Section 529-A.
(2) All persons who in any such case would be entitled to prove for
and receive dividends out of the assets of the company, may come in
under the winding up, and make such claims against the company as
they respectively are entitled to make by virtue of this section.
Provided that if a secured creditor instead of relinquishing his security
and proving for his debt proceeds to realise his security, he shall be
liable to pay his portion of the expenses incurred by the liquidator
(including a provisional liquidator, if any) for the preservation of the
security before its realization by the secured creditor.
Explanation.-For the purposes of this proviso, the portion of expenses
incurred by the liquidator for the preservation of a security which the
secured creditor shall be liable to pay shall be the whole of the expenses
less an amount which bears to such expenses the same proportion as
the workmen's portion in relation to the security bears to the value
of the security.
(3) For the purposes of this section, Section 529-A and Section 530,-
(a) "workmen", in relation to a company, means the employees of
the company, being workmen within 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
IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND
CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND
CUSTOMS AND OTHERS [SANJIV KHANNA, J.]
1068
SUPREME COURT REPORTS
[2023] 12 S.C.R.
right, on the termination of his employment before, or by the
eff ect 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 compensation under the said
Act in respect of the death or disablement of any workman of
the company;
(iv) all sums due to any workman from a provident fund, a
pension fund, a gratuity fund or any other fund for the welfare
of the workmen, maintained by the company;
(c) "workmen's portion", in relation to the security of any secured
creditor of a company, means the amount which bears to the value of
the security the same proportion as the amount of the workmen's dues
bears to the aggregate of-
(i) the amount of workmen's dues; and
(ii) the amounts of the debts due to the secured creditors."
14. As per Section 447 of the Companies Act, an order for winding
up of a company operates in favour of all the creditors as if it had been
made on a joint petition of a creditor. All creditors are treated as petitioning
creditors. Section 456 of the Companies Act requires a provisional
liquidator or a liquidator, as the case may be, to take all properties and
action claims, to which the company is or appears to be entitled, into
his custody or under his control. Sub-section (1A) to Section 456 of the
Companies Act entitles the liquidator or the provisional liquidator to write
a request to the Chief Presidency Magistrate or the District Magistrate
within whose jurisdiction such property, eff ects or actionable claims
etc. of the company may be found, and, thereupon, these offi cers, after
giving notice to the party, are to take possession of the properties, eff ects,
actionable claims, books of accounts, etc and deliver the possession to the
1069
liquidator or provisional liquidator. Sub-section (1B) to Section 456 of the
Companies Act permits the Chief Presidency Magistrate or the District
Magistrate to take such steps or use such force, as in his opinion may be
necessary. Section 468 of the Companies Act permits the tribunal/court
to direct any contributory, trustee, receiver, banker, agent, offi cer or other
employee of the company to pay, deliver, surrender or transfer forthwith,
or within such time as directed, to the liquidator, any money, property,
or books and papers in his custody and control to which the company is
prima facie entitled.
15. Sections 528 to 530 of the Companies Act fall under Chapter
V - 'Provisions Applicable to Every Mode of Winding Up', under the
sub-heading 'proof and 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 eff ects 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 specifi ed under Sections 529, 529A and 530
of the Companies Act. Accordingly, and with this objective, Section 529A
of the Companies Act refers to the doctrine of pari passu in the proviso
to sub-section (1) to Section 529, with reference to the claims inter se the
workmen and the secured creditors. Even otherwise, on a conspectus of
these sections, the principle applicable and underlying these provisions is to
stop alienation and preserve the assets on the date of the bankruptcy, which
date, in some cases, can relate back to the date of fi ling of the winding up
petition, as in case of execution of a decree.