CASE DETAILS v. SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS

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. 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 For short, ‘IDBI’. 1 2 The Superintendent of Central Excise and Customs v. M/s. Sri Vishnupriya Industries Ltd. (in liqn.) and Others. For short, ‘the Company’. For short, ‘Companies Act’. For short, ‘Customs Act’. 3 4 5 IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND CUSTOMS AND OTHERS [SANJIV KHANNA, J.] 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 Show Cause Notices dated 17th February 2000 and 10th April 2000. 6 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’. 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. IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND CUSTOMS AND OTHERS [SANJIV KHANNA, J.] 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 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 sub- section (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. IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND CUSTOMS AND OTHERS [SANJIV KHANNA, J.] 1061 (2) The sum to which priority is to be given under clause (b) of sub- section (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, 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. IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND CUSTOMS AND OTHERS [SANJIV KHANNA, J.] 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. 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. IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND CUSTOMS AND OTHERS [SANJIV KHANNA, J.] 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, 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 IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND CUSTOMS AND OTHERS [SANJIV KHANNA, J.] 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 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 IDBI (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GoI) v. SUPT. OF CENTRAL EXCISE AND CUSTOMS AND OTHERS [SANJIV KHANNA, J.] 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. This preservation is with a view to ensure the division and application of the assets of the company being 1070 SUPREME COURT REPORTS [2023] 12 S.C.R. wound up, as it stood on the relevant date.20 The payment must be made in terms of the priority prescribed.

17. This Court in J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd.21 has held that once a winding up order is passed, the assets of the company under liquidation are passed under the control of the liquidator, whose statutory duty is to realize them. Thereafter, the creditors are paid out by the liquidator from the sale proceeds of the assets of the liquidated company. The creditors have to be paid in terms of the waterfall or priority mechanism. Therefore, payment has to be fi rst made in terms of Section 529A of the Companies Act to overriding preferential creditors, then to preferential creditors in terms of Section 530 of the Companies Act and lastly, payment has to be made and distributed pari passu among the ordinary or unsecured creditors. This objective and intent is also apparent when we examine the Company Court Rules, as per which the liquidator is to fi x a date on or before which all creditors of the company are to prove their debts or claims and to establish any title they may have to priority under Section 530 of the Companies Act.22 Not only this, the rules enable a creditor to claim interest up to the date of the winding up order, and in certain circumstances, payment of interest subsequent to the date of winding up.23 There is, however, an exception to the two-fold method, as has been held in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Others24, which we will subsequently elucidate.

18. This brings us to the interpretation of the expressions debt ‘due’ and debt ‘due and payable’ in Section 530(1)(a) of the Companies Act. The interpretation is no longer debatable in view of the judgment of this Court in Rajratha Naranbhai Mills Co. Ltd. v. Sales Tax Offi cer, Petlad25, which has approved the view taken by D.A. Desai, J., in his judgment in Sales Tax Offi cer, Petlad v. Rajratna Naranbhai Mills Co.