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Motor Emporium Company Vs. N.H. Moos - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case NumberI.C. No. 36 of 1925
Judge
Reported inAIR1927Bom606; (1927)29BOMLR1446
AppellantMotor Emporium Company
RespondentN.H. Moos
Excerpt:
indian companies act (vii of 1918), sections 229, 230-presidency towns insolvency act (iii of 1909), section 49-company-liquidation-debts due to crown-priority over claim of other creditors.;in the winding up of a company under the provisions of the indian companies act, the secretary of state for india is entitled to claim priority for debts due to him by the company as crown debts over debts due to other creditors of the company. - - there is no reason why the creditors of an insolvent company should be in a better position as regards priority of crown debts than the creditors of a private individual......sides has been confined to the provisions of that act.6. in the insolvency of an individual all crown debts are entitled to priority of payment over all other debts under section 49 of the presidency towns insolvency act; and the advocate-general contends that these provisions of the insolvency law have been assimilated in the indian companies act and made applicable in the winding up of a company in liquidation by section 229 of the indian companies act, thereby putting crown debts in winding up in the same position as crown debts in insolvency. his case, therefore, rests on section 229 read with section 49 of the presidency towns insolvency act.7. on the other hand, the liquidator contends that section 229 has no application, for, it does not refer to matters of substantive law in.....
Judgment:

Talyarkhan, J.

1. An important question under the Indian Companies Act has been raised in this liquidation as regards the right of the Crown in a winding up to payment of its debt in priority to all other creditors of the company.

2. The Secretary of State for India is a judgment-creditor of the company in liquidation for Rs. 3922-15-8 including costs, for monies due in respect of certain trade or commercial dealings between the parties, and he claims that his debt is a Crown debt and that under the Indian Companies Act it is entitled in the winding up to priority of payment over all other creditors of the company.

3. It is not disputed that the debt is a Crown debt but the liquidator denies that it is entitled to priority under the Indian Companies Act.

4. It is to be observed at the outset that the Crown has two distinct prerogatives of which it may avail itself both in bankruptcy and in the winding up of companies. The one is that the Crown is not bound by the statute unless by express mention or necessary implication, and can, therefore, pursue its remedies irrespective of any limitations imposed by such a statute. The other prerogative is the right to be paid in priority to all other creditors of equal degree, whenever the rights of the Crown and the subject come into competition. Where, however, the Legislature has dealt with the powers under the prerogative, the prerogative must be taken to be merged in the statute, and the powers previously within the prerogative can be exercised only in the manner and subject to the limitations contained in the statute. See In re De Keyser's Royal Hotel Ld. [1919] 2 Ch. 197

5. In these proceedings, however, no question of the aforesaid common law prerogative of the Crown arises, for the right of the Crown to priority has been dealt with by the Indian Companies Act and the argument on both sides has been confined to the provisions of that Act.

6. In the insolvency of an individual all Crown debts are entitled to priority of payment over all other debts under Section 49 of the Presidency Towns Insolvency Act; and the Advocate-General contends that these provisions of the insolvency law have been assimilated in the Indian Companies Act and made applicable in the winding up of a company in liquidation by Section 229 of the Indian Companies Act, thereby putting Crown debts in winding up in the same position as Crown debts in insolvency. His case, therefore, rests on Section 229 read with Section 49 of the Presidency Towns Insolvency Act.

7. On the other hand, the liquidator contends that Section 229 has no application, For, it does not refer to matters of substantive law in insolvency but only to the 'rules' made under the Insolvency Act, and it is such 'rules' only which are made applicable in winding up and these 'rules' contain no provision for priority of Crown debts.

8. It is farther contended on behalf of the liquidator that the only provision in the Indian Companies Act dealing with the priority of Crown debts is contained in Section 230 of the Act which expressly gives priority only to those Crown debts which are therein mentioned, and that, therefore, Section 230 must be regarded as exhaustive and Crown debts not included in the section must be taken to have been excluded from priority. It is urged that the Crown debt in question obviously does not fall under Section 280, for that section provides for priority only of all 'revenue, taxes, cesses and rates payable to the Crown' whereas the Crown debt in question is merely a trading debt, an 1 it has therefore no priority over the other creditors.

9. Put in the form of an issue, the contentions of the parties therefore come to this : whether the priority of payment of all Crown debts which prevails in insolvency under Section 49 of the Presidency Towns Insolvency Act obtains equally in the winding up of a company in liquidation by reason of Section 229 of the Indian Companies Act, or, whether only those Crown debts have priority in winding up which are expressly mentioned in Section 230 of the Act. The answer to this depends on whether Section 229 Introduces the provisions of Section 49 of the Presidency Towns Insolvency Act into the Indian Companies Act.

10. Section 49(1)(a) of the Presidency Towns Insolvency Act provides that 'in the distribution of the property of the insolvent there shall be paid in priority to all other debts :-(a) all debts due to the Crown or to any local authority', so that in insolvency all Crown debts are given priority over all other debts of an insolvent, Section 229 of the Indian Companies Act provides that 'in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable. . .as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent.' It is, therefore, argued that under Section 229 debts due to the Crown in winding up are entitled to the same priority which they have under Section 49 of the Presidency Towns Insolvency Act, and that, therefore, the Crown debt in this liquidation is entitled to priority.

11. So far as the argument is based on the use of the word 'rules' in Section 229 I am unable to accept the liquidator's contention. The 'rules', referred to in Section 229, have reference to 'the rules that shall prevail and be observed with regard to the respective rights etc', which can refer only to matters of substantive law, such as are contained in Section 49 of the Presidency Towns Insolvency Act. To place a construction that by these rules is meant. the rules framed under the Presidency Towns Insolvency Act would be repugnant to the context. The words in Section 229 'the same rules shall prevail...as to debts provable' are wide enough to bring in that part of the insolvency law which directs which kind of debt is to be paid in priority to others, that is to say, the provisions of Section 49 of the Presidency Towns Insolvency Act apply in cases of winding up of insolvent companies. This construction is supported by English decisions. See In re Leng [1895] 1 Ch. 652; In re Heywood [1897] 2 Ch. 593 In re Whitekar [1901] 1 Ch. 9 In re II. J. Webb & Co. (Smithfield, London) [1922]2 Ch. 369 affirmed by the House of Lords in Food Controller v. Cork [1923] A.C. 617.

12. Relying on the last mentioned case the liquidator further argued that priority as regards Crown debts should be confined to the debts mentioned in Section 230 of the Indian Companies Act Under the English law, the provisions of the Bankruptcy Act as regards priority of Crown debts are the same as are contained in the English Companies Act of 1908, Section 209; and the difficulty which arises here from the difference between Section 49 of the Presidency Towns Insolvency Act and Section 230 of the Indian Companies Act does not now exist under the English law. The ratio in Food Controller v. Cork [1923] A.C. 617 seems to be that whenever a statute refers to the rights of the Crown the prerogative of the Crown should be confined within the limits mentioned in the statute. Applying that principle, effect must be given to Section 229 read with Section 228 which make the provisions of Section 49 of the Presidency Towns Insolvency Act applicable in ease of insolvent companies. On these grounds, I am unable to accede to the argument of the liquidator, and must hold that the Crown has, in winding up, the priority given to it under Section 49 of the Presidency Towns Insolvency Act. There is no reason why the creditors of an insolvent company should be in a better position as regards priority of Crown debts than the creditors of a private individual. :

13. I, therefore, hold, that the Crown debt in this liquidation is entitled to be paid in priority. Costs of both parties to come out of assets in the hands of the liquidator : those of the liquidator to be taxed as between attorney and client. Counsel certified.

14. Lastly, I may add that having regard to the different and various activities of Government in this country of a commercial nature, the Legislature might well consider whether the law in India should not be brought in line with the law prevailing in England, and by express enactment confine the preferential treatment of Crown debts to the debts mentioned in Section 230.


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