B.J.DIVAN, J. - (1.) THE question of law which arises in both these matters is regarding the preferential claims under s. 530(1)(a) of the Companies Act. Under that section, in a winding up, there shall be paid in priority to all other debts, inter alia, 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 cl. (c) of sub s. (8) of S. 530 and having become due and payable within the twelve months next before that date. Company Application No. 26 of 1973 came up for hearing before B. K. Mehta J. on October 11, 1973. In this application priority is claimed by the IT Department in respect of certain dues. At the same time priority is also claimed in respect of certain sales tax liability of the company in liquidation on behalf of the State Government and in the company application the main question is whether, and if so, to what extent, priority can be recognised for the liabilities for income tax and sales tax dues. When the matter came up for hearing before B. K. Mehta J. his attention was drawn to the decision of D. A. Desai J. in Company Application No. 94 of 1973 in Company Petition No. 21 of 1966, being the matter of Sales Tax Officer, Petlad vs. Rajratna Naranbhai Mills Co. Ltd. (1974) 44 Comp Cases 65 (Guj) B.K. Mehta J. was unable to agree with the conclusions reached by D. A. Desai J. in Rajratna Naranbhai Mills Co.'s case (supra) and hence he referred the matter to a larger Bench so that the entire question may be decided.
(2.) BEFORE this Company Application No. 26 of 1973 could be taken up for final hearing, appeal filed by the Sales Tax Officer, Petlad, in Rajratna Naranbhai Mills Company's case, being O. J. Appeal No. 2 of 1975, became ripe for hearing and since the question in both the matters is the same, we have heard both these matters together and we are disposing of both these matters by this common judgment. Before we proceed with the specific facts of each case, it will be necessary to set out some of the relevant provisions of the Companies Act. Under S. 528 of the Companies Act, 1956, provision is made for admitting to proof claims against a company in winding up proceedings. It provides that in every winding up, 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. Sec. 529 provides for application of insolvency rules in winding up of insolvent companies. But the provision which requires consideration in this case is S. 530, Sub S. (1)(a), which provides for preferential payments. Sec. 530(1)(a) is in these terms : "530. (1) In a winding up, 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 cl. (c) of Sub S. (8), and having become due and payable within the twelve months next before that date." Under Sub S. (8) of S. 530, for the purposes of S. 530 : "(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. . . . . .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 cl. (i) does not apply, the date of the passing of the resolution for the voluntary winding up of the company." The company with which we are concerned in Company Application No. 26 of 1973 was taken into voluntary liquidation and the relevant resolution as contemplated by S. 530(8)(c)(ii) was passed on August 30, 1968, and that date is the "relevant date" with reference to which the provisions of S. 530(1)(a) will have to be considered. The main controversy in this case is as to what is the meaning of the words "due and payable" when S. 530(1)(a) says that the taxes, cesses and rates which are to be given a preference under S. 530(1)(a) must have become "due and payable" within the twelve months next before the relevant date. It also says that not only they must become due and payable within the twelve months immediately preceding the relevant date but they must be due from the company either to the Central Government or to the State Government or to a local authority at the relevant date. Thus, S. 530(1)(a) lays down two conditions firstly, that the taxes, cesses, etc., must be due from the company at the relevant date and, secondly, the taxes, cesses, etc., must have become due and payable within the twelve months immediately preceding the relevant date. The decision of D. A. Desai J. in Sales Tax Officer vs. Rajratna Naranbhai Mills. Co. is now reported in [1974] 44 Comp Cases 65 and the view that he took was that the word "due" implies or conveys different meanings in juxtaposition in which it is used in the two parts of the same clause. The word "due" in the first part of the clause must mean "outstanding at the relevant date". When it occurs in the expression "having become due" in the later part of the clause, it means that the event which brought the debt into existence occurred and also it became payable, meaning thereby that its payment could have been enforced against the company within the twelve months before the relevant date, that is, the date of the order of winding up. Three specific conditions are prescribed in the clause and all the three must co exist and be satisfied in respect of any particular debt for which priority is claimed. The three conditions are : (1) Debt of the kind mentioned in the clause must be outstanding on the relevant date; (2) The debt must have become due, in the sense that it must have been incurred at any time within the twelve months next before the relevant date; and (3) The debt must have become payable at any time within the twelve months next before the relevant date.
(3.) THE main challenge on behalf of the taxation authorities, both sales tax and IT authorities, is to this interpretation placed by Mr. Justice D. A. Desai on the words "due" and "due and payable" The question that we have to ask ourselves is whether the splitting up of the words "due" and "payable" occurring in the phrase "due and payable" towards the end of S. 530(1)(a) is in accordance with the legal principles laid down by several decisions of the different Courts. Before we go on to the discussion of the different authorities on this point, we must mention that, as far back as 1946, in Governor General in Council vs. Shiromani Sugar Mills Ltd. (1946) 16 Comp Cases 71 (FC) the Federal Court had held that in the winding up of a company, the Crown is not entitled to any priority, prerogative or preferential treatment except to the extent provided for in the Indian Companies Act, in particular by ss. 230 and 232 of the Indian Companies Act, 1913. We are at present concerned with the provisions of S. 530(1)(a) of the 1956 Act which is equivalent to section 230(1)(a) of the 1913 Act and so far as the question before us is concerned, the provisions of S. 230(1)(a) of the Act of 1913 were in identical terms with the provisions of s. 530(1)(a) of the 1956 Act. In Builders Supply Corporation vs. Union of India (1965) 56 ITR 91 (SC), Gajendragadkar C. J., delivering the judgment of the Supreme Court, has referred to the common law doctrine and he has observed : "In construing the relevant provisions of S. 46, the High Courts in India have had frequent occasions to consider whether the Government of India is entitled to claim priority for arrears of income tax due to it from assessees over the private debts due from them to their creditors, and this claim has been consistently upheld." At the same time it has been pointed out with reference to the decision of the Federal Court in Governor General in Council vs. Shiromani Sugar Mills Ltd. (supra) : "It would be noticed that this conclusion postulates the applicability of the doctrine of priority of the debts due to the Crown and holds that as a result of the specific provision contained in S. 230(1) (a), the said doctrine must be worked in the manner prescribed by the said section and not outside it." ;