GIOVANOLA BINNY LIMITED IN LIQUIDATION Vs. IN RE

JUDGEMENT

(1.) THE common question that arises in these applications is whether the income-tax claim against a company in liquidation can be satisfied from out of the proceeds of the sale of the company's assets either as "costs, charges and expenses incurred in the winding up" under Section 476 of the Companies Act or as an amount set aside under Section 178 of the Income-tax Act in priority to the claims under Section 529A of the Companies Act ?

(2.) COMPANY Application No. 478 of 1989 is filed by the, Canara Bank, for an order permitting the bank to appropriate a sum of Rs. 75,00,000 from out of the sale proceeds of the assets of Giovanola Binny Ltd. (in liquidation) towards the amounts due to the bank from the said company. M. C. A. No. 37 of 1989 is filed by the official, liquidator, who is the liquidator of the said company, for an order to sanction declaration of a first dividend of 27 paise in the rupee to the creditors of the company under Sections 529 and 529A of the Companies Act. Notice of these applications was given to the Income-tax Department. This court passed order dated March 30, 1989, permitting the bank to appropriate a sum of Rs. 75,00,000 from out of the sale proceeds towards the amounts due to the bank under the loan transactions of Messrs. Giovanola Binny Ltd. (in liquidation). However, this court made it clear that if it was found later that the balance amount is not sufficient to meet the claims of the Income-tax Department as well as other claims, it will be open to this court to reopen this order and. to direct the bank to bring to the common pool the whole or any portion of the amount allowed to be appropriated. Subsequently, by order dated July 3, 1989, in M. C. A. No. 37 of 1989, this court granted sanction to the liquidator to declare a first dividend of 27 paise in a rupee as shown in annexure A to the said application to the creditors of the company under Sections 529 and 529A of the Companies Act. In the very same order, this court directed the Canara Bank to provisionally set apart Rs. 27,00,000 for capital gains tax on the basis of the representation of learned standing counsel for the Department. It was also made clear that the reservation made for capital gains tax will be subject to a further order of this court regarding the liability of the company and all matters connected with payment of capital gains tax. <PARA> C. A. No. 106 of 1988, the applicant is a former employee of Messrs. Brunton and COMPANY (Engineers) Ltd. (in liquidation). His prayer is to pay him the amounts due to him from the company. According to him, there is no justification for setting apart Rs. 25,00,000 for payment of income-tax for that company. The liquidator has filed a counter statement stating that the applicant was paid two dividends aggregating to 27% and, therefore, the prayer for further dividend cannot be allowed at this stage as there are no sufficient funds to the credit of the company.

(3.) IN order to examine whether income-tax will form part of the "costs, charges and expenses incurred in the winding-up" and, therefore, under Section 476 of the Companies Act, the court may make an order for the payment of tax in priority to other debts, it is necessary to examine the claims set up. The claim of the workmen is under Section 529A of the Companies Act under which provision for workmen's dues shall be paid along with the debt due to secured creditors in priority to all other debts, notwithstanding anything contained in any other provision of the Companies Act or any other law. The claim of the bank is as a secured creditor of both these companies, the properties sold having been mortgaged to the bank. The instructive analysis of Rashbehary Ghose in his Tagore Law Lectures, Law of Mortgage (6th Edition, page 61), is very much helpful to understand the word "mortgage".