K.A. Puj, J.
1. Since common issue is involved in all these Company Applications as well as Official Liquidator's report and since all these matters are heard together, the same are being disposed of by this common judgment and order.
2. Company Application No. 266 of 2008 is filed by State of Gujarat through Commissioner of Commercial Tax, Ahmedabad praying for review of the order dated 18.01.2008 passed by this Court in Company Application No. 554 of 2007 along with Company Application No. 555 of 2007 in Company Petition No. 261 of 2004 and for reviewing the said order after giving an opportunity of hearing to the Commissioner of Commercial Tax and further praying to hold that the tax dues payable to the Commissioner of Commercial Tax (earlier Sales Tax) have priority over all other dues in view of the said dues being crown dues which would have priority over all creditors including Secured and Unsecured Creditors under the Companies Act, 1956.
3. Company Application No. 83 of 2008 is filed by Triveni Builders, the auction purchaser seeking direction to the respondent Nos. 2 & 3 i.e. officials of the Commercial Tax Department, State of Gujarat, Ahmedabad, to forthwith remove their attachment from the Property Card in respect of land being open plot situated at 375, Survey No. 78 at Marol Naka, Opp. Mital Industrial estate, Andheri (East), Mumbai, in the interest of justice. The applicant has also prayed for the direction to the respondent Nos. 2 & 3 to submit report before this Court for not taking steps pursuant to the order dated 15.12.2006 passed by this Court in OLR No. 117 of 2006.
4. In Company Application No. 199 of 2008, the applicant, namely, M ONE Infrastructure Limited, has prayed for the direction to the respondents to incorporate the following clauses, as mutually agreed upon, in the Sale Deed of the immovable property described under the Schedule:
15. The purchaser shall be liable to pay all statutory dues, if any, due and payable on the properties of the subject company for the period after the date of winding up order. The payment of pre-liquidation period shall be settled as per the provisions of the Companies Act, 1956. However, dues, taxes, cess, if any applicable on the sale of assets shall be paid by the purchaser.
22. The purchaser shall be liable to pay and shall pay full amount of taxes of all kinds, whatsoever which may have to be paid in respect of the sale of the assets or any taxes to be paid in this connection.
The applicant has also prayed for the direction to the Official Liquidator to execute the Sale Deed after incorporating the aforesaid two Clauses in favour of the applicant forthwith. The applicant has also prayed for the direction to the opponents to remove encumbrances upon immovable properties prescribed under the Schedule and referred to the encumbrances in prayer Clause (3) of the Judge's Summons. The applicant has further prayed for the direction to the Official Liquidator as well as the Land Acquisition Department to take all necessary steps to inform the applicant the dues on the concerned land on and from the date of passing of the order of winding up and with further direction that on payment of all dues from the date of passing of the winding up order, all entries and charges in the land revenue records on the concerned land be removed enabling the applicant to deal with and/or use the concerned land for setting up a project free from encumbrances. The applicant has also prayed for the direction to the Official Liquidator to give clear, free and marketable title of the said immovable properties and to award exemplary cost of Rs. 50,000/- in favour of the applicant for the delay occasioned in executing the Sale Deed and in the encumbrances upon the scheduled property.
5. In OLR No. 48 of 2008, the Official Liquidator has prayed for the direction to the respondent No. 1 i.e. M/s. Keventer Agro Limited to take possession of the assets of the Company from the Official Liquidator and to bear the security expenses being incurred by the Official Liquidator from 15.02.2008 onwards till the date of actual possession by the respondent No. 1. The Official Liquidator has also prayed for the direction to the Sales Tax Department to remove attachments from the property card of the land of the Company in liquidation. The Official Liquidator has further prayed for the direction to the Commercial Tax department (Sales Tax Department) to lodge its claim in the office of the Official Liquidator, which will be dealt with in accordance with the Companies Act, 1956.
6. In Company Application No. 266 of 2008, an affidavit is filed by Shri Chandresh R. Mehta, the Commercial Tax Officer (I), Unit 5, Ahmedabad, in support of the Judge's Summons on 05.04.2008. The said Shri Chandresh R. Mehta has filed further affidavit on 25.04.2008. An affidavit-in-reply is filed by Mr. Satish Trivedi, an Authorised Officer of the respondent No. 2 Company who is the auction purchaser and in whose favour the order under review was passed by this Court on 18.01.2008.
7. Mr. Sunit Shah, learned Government Pleader appears for State of Gujarat. He has submitted that the tax dues of the Company in liquidation are to the tune of Rs. 10,20,71,815/- as on 29.02.2008. Out of the said dues, the Company in liquidation was supposed to pay sales tax dues of Rs. 4,66,90,640/- and the rest of the dues being Rs. 5,53,81,175/- being the dues of Growmore Solvent Limited which was merged with the Company in liquidation by an order dated 23.12.1999 passed by this Court. He has further submitted that apart from the payment of further interest of Rs. 10,20,00,000/-, further interest is also payable till the date of payment. The dues of the Company in liquidation relate to assessment year 1996 - 97 to 2001 - 02 and the dues of the amalgamated Company Growmore Solvent Limited to assessment year 1996 - 97 to 2000 - 01. He has further submitted that this Court, vide order dated 18.01.2008 passed in Company Applications No. 554 & 555 of 2007 allowed the said Company Applications and ordered that the Official Liquidator shall hand over the possession of the property in question free from all encumbrances and execute the Sale Deed accordingly. In the said Company Applications, the Sales Tax Department (now Commercial Tax Department) was not joined as party to the proceedings and its rights were decided without hearing the said department. The property in question was put for sale by the Official Liquidator on AS IS WHERE IS AND WHATEVER THERE IS BASIS, meaning thereby that the property should not be free from any charge or encumbrances. He has further submitted that it is the State which has an exclusive power of taxation which is given to the appropriate Government. The said power of taxation is sovereign power which has been exercised by the State. Thus, the function of the assessing and recovery of tax being sovereign function is well within the eminent domain of the State and will have overriding effect on any other party, person, entity including workers, secured creditors and other private parties including contracts entered into subsequent to the adjudication of tax dues including the proceedings initiated and going on for the purpose of recovery of the tax, inter alia, by way of attachment etc. Thus, the State will have a paramount right to recover this tax irrespective of and notwithstanding contained in any other Legislation including the Companies Act, 1956. The taxes were either to be direct or indirect. In every case, the requirement to pay by way of taxable event takes much earlier. In the present case, Sales Tax is an indirect tax and the Sales Tax is leviable on the sale of goods etc. A person / entity / registered or registered Dealer collects tax from the party producing goods from the seller. In other words, the selling party recovers tax from the purchasing party on behalf of the State and as per the provisions, Rules and Regulations, it has to deposit the said tax so collected with the revenue department. Thus, the respondent Company has already collected tax from public at large and it is only to be further transmitted to the State Government. The money collected by way of tax is on behalf of the State Government and it is held by the concerned seller as a Trustee for and on behalf of the appropriate taxing authority. Obviously, such tax so collected invariably will have to be deposited with the State Government. If such money so collected is not deposited with the exchequer, then it would, inter alia, tantamount to not only unjust enrichment but also legal enrichment and will, inter alia, be criminal breach of trust. He has, therefore, submitted that the dues of the Sales Tax department are something more than a debt payable whether secured and unsecured and they are on very different footing. Thus, by not paying the tax with interest and/or penalty, the said action would tantamount to interference with the sovereign powers and duties of the State.
8. Mr. Shah has further submitted that the taxes as per the Sales Tax Act are recoverable as arrears of land revenue. Thus, invariably, the State has the paramount right to recover the dues by way of priority over all dues. The Official Liquidator or any other party for that matter cannot urge that the Sales Tax Department will be paid its dues not in priority as stated by him. If the contention of the State is not upheld, it would mean that the payment to the workers as well as to secured creditors would be made out of the tax dues which would be payable to the State instead of making payment from the funds of the Company itself.
9. Mr. Shah has further submitted that all these issues which are raised in the present application were not considered by the Court while passing the impugned order and even the judgment of the Hon'ble Supreme Court in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Ors. : [2001]247ITR165(SC) was not properly considered and the ratio laid down therein has been misconstrued by this Court. He has, therefore, submitted that this is a fit case to recall the order passed by this Court in Company Application Nos. 554 & 555 of 2007 and the dues of the Sales Tax department must be paid out of the sale proceeds realized on sale of the assets of the Company in liquidation, in priority to all other creditors and workers.
10. In support of his submissions, Mr. Shah has relied on the judgments of (1) Dinshaw and Co., (Bankers) Limited v. Mst. Krishna Piary (1941) 11 Company Cases 138, (2) New Bank of India Limited v. Pearey Lal (1962) 32 Company Cases 90, (3) Baroda Spinning & Weaving Mills Company Limited (In Liquidation) v. Baroda Spinning & Weaving Mills Co-operative Credit Society Limited and Anr. (1976) 46 Company Cases 1 (Gujarat), (4) Rajratna Naranbhai Mills Company Limited v. Sales Tax Officer, Petlad : [1991]189ITR90(SC) , (5) Central Bank of India v. Recovery Mamlatdar and Ors. (1996) 87 Company Cases 284, (6) Sahakari Khand Udyog Mandal Limited v. Commissioner of Central Excise and Customs : 2005(181)ELT328(SC) , and (7) Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Ors. : [2001]247ITR165(SC) .
11. Mr. P.M. Thakkar, learned Senior advocate appearing with Mr. N. K. Pahwa for respondent No. 2 Company has submitted that the application moved by the State Government is not maintainable and is liable to be summarily rejected. There are no legal grounds made out by the applicant warranting any interference from this Court in the order dated 18.01.2008 passed by this Court in Company Applications No. 554 of 2007 and 555 of 2007. He has further submitted that the Company in liquidation is already ordered to be wound up by this Court and it is, therefore, not correct to state that the applicant has any right to recover any dues from the sale proceeds of the assets of the Company in liquidation, subject to and in accordance with the provisions of the Companies Act, 1956. No documentary evidence is produced by the applicant in support of the claims made by it in the present application. As the Company against which the applicant claims certain dues, the applicant may register / lodge its claim in accordance with the provisions of Sections 529, 529A & 530 of the Companies Act, 1956 and the Official Liquidator is obliged to settle the claims in accordance with the said provisions. The order passed by this Court on 18.01.2008 is in accordance with settled legal principles laid down in various decisions rendered by this Court and also in accordance with the provisions of Sections 529, 529A & 530 of the Companies Act, 1956. It is further submitted that the order dated 18.01.2008 is merely declaring the law of the land which is binding on the applicant State and hence, the applicant State not being party to the proceedings to Company Applications No. 554 of 2007 & 555 of 2007 would have caused no prejudice to the applicant. He has further submitted that the clause contained in the tender document, namely, 'AS IS WHEREIS AND WHATEVER THERE IS BASIS'could not apply to the issues raised by the applicant State or the issue decided by this Court in the order dated 18.01.2008. As regards the averments with respect to sovereign functions of the State and the exclusive jurisdiction to recover the dues with respect to tax are concerned, the same are not applicable to the Company in liquidation. So far as dues against the Company in liquidation are concerned, the same are to be recovered only in accordance with the priority set out in the provisions contained in Sections 529, 529A & 530 of the Companies Act, 1956. If a reference is made to the provisions of Section 529A of the Companies Act, 1956, which starts with non-obstante clause, it is clear that this provision forming part of the Central Statute as also a special statute would have overriding effect. The dues of the workmen and secured creditors are required to be settled by the Official Liquidator in priority to all other dues. A reference to Section 530 of the Act would clarify that the claims in respect of the revenue, taxes etc. to the Central Government or State Government which have been due and payable within 23 months next before the relevant date are to be settled by the Official Liquidator after the workmen dues and the dues of the Secured Creditors are paid as per the provisions of Section 529A of the Act. The claim of the applicant State in respect of Sales Tax dues squarely fall under Section 530(1)(a) of the Companies Act, 1956 which is to be settled by the Official Liquidator after the dues of the workmen and the secured creditors are settled in accordance with the provisions of Section 529A of the Act. The averments made by the applicant State in the affidavit filed in support of the Judge's Summons is totally misconceived in law. This Court in its order dated 18.01.2008 has considered this aspect and has also referred to various decisions of this Court while holding that attachment of Sales Tax department is illegal in as much as the Sales Tax department can only lodge its claim with the Official Liquidator who in turn is required to settle the same in accordance with the provisions of Section 529A read with Section 530 of the Companies Act.
12. Mr. Thakkar has made an alternative submission to the effect that as far as respondent No. 2 is concerned, the respondent No. 2 is the bonafide purchaser of the subject properties in the auction held before this Court and its relationship of the respondent No. 2 i.e. the Official Liquidator, the vendor of the property is governed by the terms and conditions of the sale as approved by this Court. As per Clause 15 of the terms and conditions of sale, the respondent No. 2 is not liable to pay any pre-liquidation dues of the Company in liquidation and the same are required to be settled as per the provisions of the Companies Act, 1956. In view of the said Clause 15, it is clear that in so far as respondent No. 2 is concerned, the respondent No. 2 is not at all liable towards any claim on account of sales tax as claimed by the applicant State. This Court in its order dated 18.01.2008 has rightly held that in view of Clause 15 of the terms and conditions covering sale, the respondent No. 2 is entitled to possession and enjoyment of the subject land free from any charge or encumbrance and the dues / claims of the applicant State with respect to arrears of Sales Tax are required to be settled by the Official Liquidator in accordance with the provisions of the Companies Act, 1956. Mr. Thakkar has also invited the Court's attention to the letter dated 15.11.2007 as well as the reply dated 12.11.2007 given by the Official Liquidator wherein also the position was made absolutely clear.
13. Mr. Thakkar has further submitted that so far as the Company in liquidation is concerned, the applicant is required to lodge its claim in accordance with the provisions of the Companies Act, 1956, more particularly, subject to the provisions of Section 529A of the Companies Act, 1956 and the Official Liquidator is obliged to settle the claims of the applicant State under the said provision. There is no substance in the submission that the dues of the Sales Tax Department are something more than debts payable whether secured or unsecured and that not paying the tax dues would tantamount to interference with the sovereign powers and duties of the State. There is also no substance in the submission that the provisions of the Companies Act are intended to infringe upon any of the powers of the State. Even if it were so, the applicant State cannot maintain the present application on the ground that statutory provisions do not permit settlement of claims of the applicant State in a particular manner desired by the applicant. It is also not correct to canvass before this Court that the Sales Tax dues are recoverable as arrears of land revenue even if the Company goes into liquidation. Once the Company is in liquidation, the recovery of Sales Tax dues can be undertaken only in accordance with the provisions of Section 529A read with Section 530 of the Companies Act, 1956. Therefore, interpretation sought to be canvassed by the applicant is not correct and the provisions of the Act are not in any way derogatory to the sovereign powers of the State. The applicant State, therefore, cannot claim any priority for the taxation dues. He has, therefore, submitted that there is no scope for any review of the order passed by this Court on 18.01.2008 and the present application summarily deserves to be rejected.
14. In support of his submissions, Mr. Thakkar relied on the decisions of (1) Regional Director, E.S.I. Corporation v. Official Liquidator of Prasad Mills Limited 2005 (3) 46 (3) GLR 2019, (2) Kerala State Financial Enterprises Limited v. Official Liquidator of Kerala High Court : AIR2007SC63 , and (3) UTI Bank Limited v. The Deputy Commissioner of Central Excise, Chennai and Anr. : 2007(208)ELT3(Mad) .
15. In Company Application No. 83 of 2008, an affidavit is filed by Shri Hasmukh Ratan Shah, Authorized Officer of the applicant auction purchaser in support of the Judge's Summons. Mr. N.K. Pahwa, learned advocate appears for the applicant and he has more or less reiterated the same submissions except the factual data which are given in the affidavit filed in support of the Judge's Summons. On behalf of State of Gujarat, affidavit-in-reply is filed by Shri Rameshkumar Shankerlal Parmar, Assistant Commissioner of Commercial Tax, Ahmedabad. Mr. Sunit Shah, learned Government Pleader has also reiterated and relied on the same submissions made by him in Company Application No. 266 of 2008. Affidavit further reveals that the issue has far reaching consequences regarding the dues of the State Government. Under the provisions of the Gujarat Sales Tax Act, 1969 read with Section 137 of the Code, the Sales Tax dues have priority over both the secured and unsecured debts. The restriction on priority would not apply to Sales Tax dues being regarded as arrears of land revenue. Since the applicant has purchased the property on AS IS WHERE IS AND WHATEVER THERE IS BASIS, the amount of Sales tax dues is required to be directed to be paid over to the sales tax department. The affidavit further reveals that the assessment orders have been duly passed and demand notices have been issued relating to assessment years 1974 - 75, 1983 - 84 and 1990 - 91 and 1991 - 92. The sales tax department had requested the City Survey Officer having jurisdiction over the subject property to take the said property on the attachment for recovery of sales tax dues to the tune of Rs. 10,17,39,284/- including interest calculated upto 31.03.1997 vide letter dated 08.03.2000. Pursuant to the said letter, the Competent Authority issued Revenue Recovery Certificate on 10.03.2000 on the basis of the statements regarding sales tax dues and forwarded the same to the department vide letter dated 13.03.2000. The subject property was placed under attachment by the Competent Authority by recording the same in the Property Card on 16.05.2000. The amount of sales tax dues pending from the Company in liquidation is Rs. 23,74,74,721/- as on 27.01.2004, which claim is duly submitted to the Official Liquidator.
16. The Official Liquidator has filed his report in this matter on 25.03.2008. It is, inter alia, stated therein that the sale of the land in question of the Company in liquidation was confirmed in favour of the applicant vide order dated 15.12.2006 passed by this Court in OLR No. 117 of 2006. The applicant purchaser has deposited in the office of the Official Liquidator the entire sale consideration of Rs. 21.01 Crores and the possession of the land has been handed over to the purchaser. Thereafter, Conveyance Deed has also been executed in favour of the applicant purchaser. The Sales Tax department had to recover certain outstanding sales tax dues from the Company in liquidation and for that purpose, it has got a lien on property card of the land in question. It is, therefore, while seeking confirmation of sale in favour of the applicant purchaser, the sales tax department was joined as party respondent No. 14 in OLR No. 117 of 2006 and it was submitted before the Court that the dues of the sales tax department fall in the clause of Preferential Creditors under Section 530(1)(a) of the Companies Act, 1956 and, therefore, the claim of the Sales Tax department would be settled by the Official Liquidator after satisfying the claim of the overriding Preferential Creditors under Section 529A of the Companies Act, 1956. The direction was also sought for the sales tax department to remove attachment from the property card. The sale was accordingly confirmed and this Court, in paragraph 8 of the order dated 15.12.2006 directed that the claim of the Sales Tax Department would be considered as per Section 530(1)(a) of the Companies Act, 1956. The sales tax department was served with a notice of OLR No. 117 of 2006, no representation was made by the Sales Tax Department in the proceedings. Therefore, the Official Liquidator vide his letter dated 11.10.2007 requested the Sales Tax Department to remove its attachment from the property of the Company but the Sales Tax Department has failed to do so and resultantly, the purchaser is not in a position to get the mutation entries recorded in its favour in the Property Card.
17. It is further stated in the report that so far as the dues of the Sales Tax are concerned, it has to claim the dues from the sale proceeds of the assets of the Company and the claim is required to be considered as per respective priorities prescribed by the Companies Act, 1956. The recovery proceedings initiated by the Sales Tax department cannot block the sale of assets and cannot change the priorities fixed by the Companies Act, 1956. Once a winding up order is passed, rules of priority would apply and, therefore, it is required to be ensured that no creditor or no class of creditor march over the rights of the other creditors or the other classes of Creditors. If the Sales Tax department is permitted to enforce its claim in absolute priority to all other claims against the Company, it will make the liquidation provisions redundant and since it will disturb the priorities of various classes of Creditors prescribed by the Companies Act, 1956. It is, therefore, submitted that the application moved by the applicant purchaser deserves to be allowed with a direction to respondent to remove the attachment from the Property Card of the land sold to the applicant purchaser.
18. In Company Application No. 199 of 2008, an affidavit is filed by Mr. Krupesh Patel, Managing Director of the applicant Company, in support of the Judge's Summons. Mr. Shalin Mehta, learned advocate appears on behalf of the applicant purchaser. He has more or less adopted the arguments of Mr. N.K. Pahwa. Further affidavit was filed by Mr. Krupesh Patel on 28.04.2008, inter alia, stating therein that during the pendency of the said application, a Sale Deed was executed at Anand on 28.03.2008 between the Official Liquidator and the applicant purchaser in pursuance of the order dated 27.12.2007 passed by this Court in Company Application No. 273 of 2007. A copy of the said Sale Deed is placed on record of this application. It is clearly stated in the Sale Deed that the vendee / purchaser has become an absolute owner of scheduled immovable property exclusively and absolutely free from any claim, encumbrance of lien and a scheduled property thus now stands transferred / conveyed absolutely upon the vendee / purchaser subject to the terms and conditions mentioned in the Sale Deed. It is, therefore, submitted that in view of execution of the Sale Deed in favour of the present applicant, the claim of the Sales Tax department, if any, must be satisfied by the Official Liquidator in accordance with the provisions contained in Section 530(1) of the Companies Act, 1956 and the applicant shall not be held liable for the said outstanding dues of the Sales Tax department. The attachment and/or encumbrance under the land in question, therefore, deserves to be vacated.
19. In Official Liquidator's report No. 48 of 2008, notice was issued by this Court on 04.03.2008. Parties were heard at length in the matter and same submissions were reiterated by the learned Counsels.
20. After having heard learned advocates appearing for the respective parties and after having gone through the pleadings contained in the memo of applications, affidavits and counter affidavits and after having considered the relevant statutory provisions as well as the authorities cited before the Court, the Court is of the view that Mr. Shah has raised mainly three contentions in support of the review application. These contentions are to the effect that the funds lying with the Official Liquidator in the account of the Company in liquidation are in the nature of Trust money so far as the Sales Tax dues of the State Government are concerned, secondly the principle of unjust enrichment is certainly applicable to the amount collected by the erstwhile management of the Company on account of Sales Tax and thirdly, the Sales Tax dues being crown dues are having precedence over the all other creditors either secured or unsecured, in view of the decision of the Hon'ble Supreme Court in the case of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Ors. : [2001]247ITR165(SC) .
21. In the case of Dinshaw and Co., (Bankers) Limited v. Mst. Krishna Piary (1941) 11 Company Cases 138, the Oudh Chief Court has held that where money is deposited by a person with a Bank as security for the good behaviour of an employee, the deposit is trust money. It is further held that the Trust monies are really entirely outside the liquidation and do not vest in the liquidator as assets. They never become assets of the Bank. The Court further held that where the Govt. promissory notes deposited with a Bank as security for the good behaviour of an employee were not traceable, but the Official Liquidator included the depositor's claim in the list of preferential claims under Section 234 of the Indian Companies Act, it amounted to an admission that the proceeds of those notes were included in the Bank's moneys and the Official Liquidator could not disclaim responsibility for the notes. The Court further held that in the case of a claim for the return of trust money from a bank in liquidation the claimant is entitled to recover interest up to the time of payment of the trust money and not only up to the date of the winding up.
22. In the case of New Bank of India Limited v. Pearey Lal (1962) 32 Company Cases 90, a resident of Lahore who was a customer of a Bank which had its registered office at Lahore paid an amount of Rs. 1,25,000/- into the Bank at Lahore with instructions to transmit the same to a branch of the Bank which was proposed to be opened at Calcutta for making fixed deposits according to his instructions on or after the opening date. The money was remitted to Calcutta and a branch was opened there but within a few days and before the customer could give any instructions an Ordinance was issued declaring a moratorium for the Bank prohibiting payments. The High Court sanctioned a scheme by which depositors were to be paid 70.5% of the deposits. On these facts, the Hon'ble Supreme Court held that the Bank was a trustee for transmission of the amount and in the absence of any instructions given by the customer for opening a fixed deposit account in respect of the amount transmitted, the Bank stood in a fiduciary relation to the customer and was liable to refund the full amount. The amount lying with the Bank at Calcutta was not a deposit and was not liable to any reduction.
23. In the case of Baroda Spinning & Weaving Mills Company Limited (In Liquidation) v. Baroda Spinning & Weaving Mills Co-operative Credit Society Limited and Anr. (1976) 46 Company Cases 1 (Gujarat), the Company was ordered to be wound up by an order dated 17.04.1968 and the Official Liquidator was appointed as the Liquidator. On the date of winding up order, the accounts of the Company showed a credit balance to the extent of Rs. 86,166.86 in the account of the Society. The Society claimed payment of that amount from the Liquidator in priority to any Creditor. The Liquidator moved an application before the Court for a decision of the question whether the said amount was trust money belonging to the society and did not form part of the assets of the Company. A question was raised as to the legality or validity of the agreement. The contention was that deduction from the wages of an employee would be unauthorized and illegal unless it fell within any of the clauses of the Payment of Wages Act, 1936. The Court after considering the relevant provisions contained in Payment of Wages Act and the Bombay Co-operative Societies Act and also considering the provisions of the Gujarat Co-operative Societies Act, 1961 and the tripartite agreement entered into between the employer, employee and the Society of which such employee is a member, held that an agreement between the Society and its member as envisaged by Section 50(1) of the Gujarat Co-operative Societies Act would impose a statutory liability on the employer of such member to make deduction from the wages or salary payable to such person pursuant to a requisition made by the co-operative society of which such employee is a member. The Company would, accordingly, acquire the character of an agent of the society to effect recovery on behalf of the society and pay the amount to the society. The Company would have no legal title to, or beneficial interest in, the money so collected by it. Only the society would have legal title to the amount. The moment deduction was made by the company from the wages or salary of the employee for the purpose of remittance of the amount to the society, the society would be the principal and the company the Agent. If the Company had neither legal nor beneficial ownership in the property and it was merely a custodian until it remitted the amount to the society, and could not mix the amount with its own funds and had no liability to pay interest, undoubtedly, the amount in the hands of the Company was impressed with a trust and could not form part of the assets of the Company. The Liquidator has, therefore, to pay it out before he undertakes distribution of the assets of the Company.
24. In the case of Rajratna Naranbhai Mills Company Limited v. Sales Tax Officer, Petlad : [1991]189ITR90(SC) , the Hon'ble Supreme Court has held that the legal philosophy which permeates Section 530(1)(a) is that the debts due and payable, so as to claim priority, must be appropriated to the period within 12 months next before the relevant date and their liability for payment must be founded during that period and no other. The State has a priority over debts, liability and obligation of which was born within the time frame of those twelve months and as such due and becoming due and payable within those twelve months next before the relevant date, ascertainable if necessary later, if not already ascertained. The words 'having become due and payable within 12 months next before the relevant date' need be understood to mean putting a restriction or cordoning off the amount for which priority is claimable and not in respect of each and every debt on account of taxes, rates and cesses etc. which may be outstanding at that time and payable. Such priority is in respect only of debts those of which become due and payable because the liability to those is rooted, founded and belonging to that period of twelve months prior to the relevant date and none other. Accordingly, the Court held that the Liquidator must first ascertain as to whether the liability to sales tax belongs to and is founded within the period of 12 months next before the relevant date i.e. the date on which the appellant Company was ordered to be wound up by the Court.
25. In Central Bank of India v. Recovery Mamlatdar and Ors. (1996) 87 Company Cases 284, the applicant Bank, as Secured creditor of a company in liquidation, in a petition seeking permission to realize its security, filed an application against a notice issued to the Company by the revenue recovery authorities for payment of sums due from the Company under the Employees' State Insurance Act, 1948, and the Payment of Gratuity Act, 1972, contending that it had first priority. This Court held that the money which the Company had deducted from the wages of the employees towards the employees' contribution had to be kept apart by the Company, as it was held by the Company in trust, and was liable to be returned to the employees or the Employees' State Insurance Corporation. The Court, however, allowed the application of the Bank, and restrained recovery proceedings by the revenue recovery authorities, permitting the Bank to proceed with the sale of the company's assets, subject to the Bank's setting apart a sum equivalent to the claim of the Employees' State Insurance Corporation.
26. In the case of Sahakari Khand Udyog Mandal Limited v. Commissioner of Central Excise and Customs : 2005(181)ELT328(SC) , the Hon'ble Supreme Court has held that 'Unjust enrichment' means retention of a benefit by a person that is unjust or inequitable. 'Unjust enrichment' occurs when a person retains money or benefits which in justice, equity and good conscience, belong to someone else. The doctrine of 'unjust enrichment', therefore, is that no person can be allowed to enrich inequitably at the expense of another. A right of recovery under the doctrine of 'unjust enrichment' arises where retention of a benefit is considered contrary to justice or against equity. The juristic basis of the obligation is not founded upon any contract or tort but upon a third category of law, namely, quasi-contract or the doctrine of restitution. The doctrine of 'unjust enrichment' is based on equity and has been accepted and applied in several cases. The Court, therefore, held that irrespective of applicability of Section 11B of the Act, the doctrine of unjust enrichment can be invoked to deny the benefit to which a person is not otherwise entitled. Section 11-B of the Act or similar provision merely gives legislative recognition to this doctrine. That, however, does not mean that in absence of statutory provision, a person can claim or retain undue benefit. Before claiming a relief of refund, it is necessary for the petitioner to show that he has paid the amount for which relief is sought, he has not passed on the burden on consumers and if such relief is not granted, he would suffer loss.
27. In the case of Ananta Mills Limited (In Liquidation) v. City Deputy Collector, Ahmedabad and Ors. (1972) 42 Company Cases 476, this Court held that in order to give full effect to the principle underlying the winding up provisions of the Companies Act, the only approach to the problem would be that an attachment simpliciter of the properties of a Company, which was subsequently ordered to be wound up without any further action being taken, would be of no consequence or effect against the Official Liquidator and the property could be disposed of by the Official Liquidator, wholly ignoring the attachment. Any other approach would run counter to the underlying thread in various provisions in the winding up chapter of the Companies Act. It would also give rise to a most undesirable tendency. A company in solvent circumstances could invite some of its chosen few creditors to file suits and obtain attachments.
28. In the case of Regional Director, E.S.I. Corporation v. Official Liquidator of Prasad Mills Limited 2005 (3)] 46 (3) GLR 2019, the Division Bench of this Court has held that Section 529A has been introduced in the year 1985. It starts with a non-obstante clause. It clearly provides that 'notwithstanding anything contained in any other provision of the Act or any other law for the time being in force'. A true understanding of Section 529A would make clear that the provisions of Section 529A shall override the provisions contained in Section 530. Not only this, the provisions contained in Section 529A shall override the provisions contained in the E.S.I. Act, because the E.S.I. Act is an Act of 1948, while the amendment in the Companies Act has been made in the year 1985 and with the fullest knowledge that it was to override the provisions contained in Section 530. If Section 94 of the E.S.I. Act and Section 530 of the Companies Act are made subordinate to Section 529A, then Section 529A shall march over the rights of the others to which the others are entitled either under the special laws or under Section 530 of the Companies Act. A combined / conjoint reading of Section 529A of the Companies Act would make clear that in a matter of winding up, the workmen's dues and the debts due to the Secured Creditors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529A pari passu with such dues, shall be paid in priority to all other debts. If such dues and debts are paid in full, and even thereafter, some money is left with the Official Liquidator for its distribution, then such money can be distributed under Section 530 of the Companies Act. When such a situation crops up, the State Government or the Central Government or the Local Authority may file their claim before the learned Company Judge and at that point of time, they may say that in view of their preferential right, either under the Local Act or under Section 530 of the Companies Act, they be paid. The Court further held that in absence of Section 529A, the answers certainly could be in favour of the E.S.I. Corporation. Since, after introduction of Section 529A and amendment to Section 530 of the Companies Act, the legal position is changed. When the Official Liquidator acquires or possesses the securities mortgaged with the Secured Creditors, then the Official Liquidator would be obliged to serve the provisions of Section 529A and Section 530 of the Companies Act. The question of equity would not arise because in a case where the securities / properties / assets are not sufficient to discharge the liability of the creditors described under Section 529A of the Companies Act, the question of payment under Section 530 of the Act would not arise. Section 530 of the Companies Act would come into operation only after the liability under Section 529A is discharged and some money is still left.
29. Mr. Shah's argument of Salex Tax dues being trust money do not form part of the assets of the Company in liquidation has no bearing so far as the present case is concerned. Dinshaw and Co. (Bankers) Limited's case does not render much assistance to the State. In that case, the Official Liquidator included the depositor's claim in the list of preferential claims under Section 234 of the Indian Companies Act. It was treated as an admission and the Court took the view that the Official Liquidator could not disclaim responsibility for the notes. Even otherwise, the said decision was rendered under the old Act and provisions similar to the provisions of Section 529A were not there. Hence, the said decision has no application to the facts of the present case. Similarly, New Bank of India Limited's case (Supra) has no application to the facts of the present case. In that case, the Court was of the view that the amount lying with the Bank of Calcutta was not a deposit and was not liable to any reduction. In the present case, when the Official Liquidator took charge of the assets of the Company in liquidation, no separate amount was earmarked for sales tax dues. Unlike the case of Baroda Spinning & Weaving Mills Co. Ltd., (In Liquidation) (Supra), there is nothing on record to show that Sales Tax alleged to have been collected by the Company was impressed a Trust and hence, it could not form part of the assets of the Company. Even otherwise, the said decision is rendered prior to the introduction of Section 529A and amendment in Section 530 of the Act, whereby the dues of the workers and Secured Creditors have been given priority over other dues and taxes etc. were put under the head 'Preferential Creditors' under Section 530 of the Act. Rajratna Naranbhai Mills Company Limited's case (Supra) is altogether on different issue. There is nothing on record to indicate that any part of the Sales Tax collected had become due and payable within 12 months next before the relevant date i.e. the date on which the Company was ordered to be wound up by the Court. The decision of the learned Company Judge in the case of Central Bank of India v. Recovery Mamlatdar and Ors. (Supra) has no binding effect in view of the subsequent decision of the Division Bench of this Court in the case of Regional Director, E.S.I. Corporation (Supra).
30. The reliance placed by Mr. Shah on the decision of Sahakari Khand Udyog Mandli Limited (Supra) for the purpose of invoking the doctrine of 'unjust enrichment' is uncalled for and unwarranted. The Company's liability to pay Sales Tax never ceased to exist. The Company has not got any refund from the Sales Tax department which was required to be passed on to the purchasers / customers as a result of cessation of any liability. None of the arguments canvassed by Mr. Shah could impress upon the Court to take any different view from the view already taken by the Court earlier.
31. On the basis of the judgment of the Hon'ble Supreme Court in the case of Dena Bank v. Bhikhabhai Parekh & Company and Ors. (supra), it was strenuously urged before the Court that the sales tax dues shall have precedence over any other debt, demand or claim whatsoever including in respect of mortgage. It is further contended that the provisions contained in Section 158(1) of the Karnataka Land Revenue Act and the provisions contained in Section 137 of the Bombay Land Revenue Code are more or less similar. Section 137 states that the claim of the State Government to any monies recoverable under the provisions of this Chapter shall have precedence over any other debt, demand or claim whatsoever, whether in respect of mortgage, judgment - decree, execution or attachment or otherwise howsoever against any land or the holder thereof.
32. It is, however, seen that the applicability of Section 137 is not absolute and it is subject to Section 151 of the Bombay Land Revenue Code. It discusses about revenue demands of former years how recoverable. It says that the said processes may be employed for the recovery of arrears of former years as well as of current year, but the preferences given by Sections 137 & 138 shall apply only to demands for the current year, provided that any process commenced in the current year shall be entitled to the said preferences, notwithstanding that it may not be fully executed within that year. Thus, the demand made by the State Government for recovery of the entire dues of former years is wholly unjustified. Their claim will have to be restricted only in relation to the current year's demand and how far this claim is justified, will have to be seen in light of the fact that the case before the Hon'ble Supreme Court is not that of the Company in liquidation whereas this Court is concerned with the case of a Company in liquidation and overriding effect of the preferential Creditors will have to be seen in light of the provisions contained in Sections 529A & 530 of the Companies Act, 1956. Even if it is assumed that there is some conflict between the provisions contained in Sections 137 & 151 of the Bombay Land Revenue Code on the one hand and the amended provisions contained in Sections 529, 529A and 530 of the Companies Act, 1956 on the other hand, the Companies Act, 1956 being later in point of time and also being Central Statute, must prevail upon the Bombay Land Revenue Code in view of Article 254 of the Constitution of India which states that if any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the concurrent list, then, subject to the provisions of Clause (2), the law made by the Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void.
33. In the case of Kerala State Financial Enterprises Limited v. Official Liquidator of Kerala High Court : AIR2007SC63 , it is held that attachment itself does not create any charge on the property. By reason of attachment, no decree is passed. It is further held that save and except certain special Statutes in relation to recovery of debts, from the properties of a Company which has been directed to be wound up, the provisions of the Companies Act shall apply. The Court further held that it may be treated if there exists a statute like SICA, the provisions thereof may prevail over the Companies Act, 1956. But in absence of a clear provision, the Companies Act cannot be held to give way to another Act providing for recovery only leaving the rights and liabilities of the parties to be dealt with under a general law.
34. In the case of UTI Bank Limited v. The Deputy Commissioner of Central Excise, Chennai and Anr. : 2007(208)ELT3(Mad) , the Full Bench of the Madras High Court was concerned with the claim of UTI Bank being a Secured Creditor, seeking precedence over the recovery of dues of the Central Excise Department. The Court held that generally, the dues to Government i.e. tax, duties, etc. (crown debts) get priority over ordinary debts only. When there is a specific provision in the Statute claiming first charge over the property, the crown debt is entitled to have priority over the claim of others. Since there is no specific provision claiming first charge in the Central Excise Act and the Customs Act, the claim of the Central Excise department cannot have precedence over the claim of the Secured Creditor, namely, UTI Bank Limited. In absence of such specific provision in the Central Excise Act as well as in Customs Act, the Court held that the claim of Secured Creditor will prevail over crown debts and it was also held that the UTI Bank being a Secured Creditor is entitled to have precedence over the claim of the Excise Department.
35. Here in the present case, even if it is assumed that the Sales Tax department is having a precedence over any other debt, demand or claim whatsoever under Section 137 of the Bombay Land Revenue Code, the same is repugnant to the provisions contained in Sections 529A & 530 of the Companies Act, 1956 which specifically state that notwithstanding anything contained in any other provisions 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 debts, shall be paid in priority to all other debts. The word 'all other debts' include debts due to the Sales Tax Department.
36. Under Section 178 of the Income Tax Act, which deals with Company in liquidation, every person who is the Liquidator of any Company which is being wound up, whether under the orders of a Court or otherwise, or who has been appointed as the Receiver of any assets of a Company (hereinafter referred to as the Liquidator), shall, within 30 days after he has become such Liquidator, give notice of his appointment as such, to the Assessing Officer who is entitled to assess the income of the Company. Sub-section (2) of Section 178 casts an obligation on the Assessing Officer to intimate to the Official Liquidator to provide the amount which would be sufficient for any tax which was or is likely to become payable by the Company. However, the proviso carves out an exception and says that nothing contained in this sub-section shall debar the Liquidator from parting with such assets or properties for the purpose of payment of the tax payable by the Company or for making any payment to Secured Creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding up of the Company. Thus, this proviso also makes it clear that the dues of the Secured Creditors shall have precedence or priority over the debts due to Government.
37. Taking any view of the matter, there is no substance in the arguments canvassed on behalf of the State Government and apart from the issue regarding maintainability of the review application, even on merits, the claim of the State Government is not sustainable. The Court has discussed this issue at length only because in other two Company Applications, the same issue has arisen. In view of this discussion and applying the law to the questions posed before the Court, the Court in its humble opinion takes the view that the applicants - auction purchasers and the Official Liquidator are right in their perception that the auction purchasers are not liable to discharge any of the liabilities pertaining to the pre-liquidation period of the Company in liquidation and all these attachments which are made on the assets of the Company in liquidation are required to be removed and the auction purchasers are entitled to get absolutely clear and marketable title, free from all encumbrances of the pre-liquidation period of the Company in liquidation. The concerned Revenue authorities as well as the Sales Tax authorities are, therefore, directed to remove the attachments, if any, on account of the dues pertaining to the pre-liquidation period of the Company in liquidation.
38. All these Company Applications and the report of the Official Liquidator are accordingly disposed of in the above terms.