Skip to content


State of Kerala Vs. Official Liquidator, Sitharam Spg. and Wvg. Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberA.S. No. 409 of 1974
Judge
Reported in[1979]49CompCas335(Ker)
ActsIndian Companies Act, 1913 - Sections 230 and 230(1)
AppellantState of Kerala
RespondentOfficial Liquidator, Sitharam Spg. and Wvg. Mills Ltd.
Appellant AdvocateAdv. General
Respondent Advocate T.S. Venkiteswara Iyer,; P.K. Balasubramoniam,; M.P. Men
Excerpt:
- .....by the liquidator and against the orders passed by the liquidator appeals had been filed by the state government, which were disposed of by the district court, as per an order dated 11th august, 1962, passed by the learned district judge. based on that order the workmen claimed preferential payment of the amounts so admitted to proof from out of the sale consideration deposited by the state government, their contention being that they have a prior charge in respect of those amounts under section 230 of the indian companies act, 1913. on behalf of the state government, a contention was put forward that the state government is a secured creditor standing outside the winding up and hence it is entitled to get the full amount of the mortgage executed in its favour from out of the sale.....
Judgment:

Balakrishna Eradi, J.

1. This appeal has been filed by the State Government against the order of the District Judge, Trichur, on Report No. 729 in Company M.P. No. 4 of 1953, filed by the official liquidator on the file of the District Court, Trichur. The liquidation proceedings relate to a company by name ' Sitharam Spinning and Weaving Mills Ltd.', Trichur, which was ordered to be wound up by the District Court, Trichur, on January 4, 1954. Two questions were raised before that court by the official liquidator, and both of them related to the disposal of the sale proceeds of the mills, which was sold in public auction and purchased by the Government of Kerala for a total sum of Rs. 23,50,010. Towards the said amount of sale consideration the Government of Kerala had deposited in the District Court a sum of Rs. 5,17,500.50 and filed an undertaking regarding the balance amount as directed by that court. The workmen of the company had preferred claims before the liquidator in respect of amounts due to them by way of wages, leave allowance, notice pay and gratuity. Several of those claims had been admitted to proof by the liquidator and against the orders passed by the liquidator appeals had been filed by the State Government, which were disposed of by the District Court, as per an order dated 11th August, 1962, passed by the learned district judge. Based on that order the workmen claimed preferential payment of the amounts so admitted to proof from out of the sale consideration deposited by the State Government, their contention being that they have a prior charge in respect of those amounts under Section 230 of the Indian Companies Act, 1913. On behalf of the State Government, a contention was put forward that the State Government is a secured creditor standing outside the winding up and hence it is entitled to get the full amount of the mortgage executed in its favour from out of the sale proceeds and that only the balance will be available for distribution amongst the other creditors including the workmen whose claims had been admitted to proof. The lower court rejected the said contention put forward by the State Government holding that the mortgage executed in favour of the State Government being itself a post-winding-up transaction it was not possible to recognise the State Government as a secured creditor who is entitled to stand outside the winding-up proceedings and claim payment of the full amount. The court below further found that the amounts due to the workmen which are covered by the earlier order passed by the District Court on 11th August, 1962, are liable to be disbursed on priority basis, in view of the provision contained in Section 230 of the Companies Act. Both the aforesaid findings entered by the court below have been challenged by the appellant in this appeal.

2. On the first point as to the entitlement of the State Government to be treated as a secured creditor standing outside the winding-up, we have no hesitation whatever to uphold the finding of the lower court that the said contention cannot be upheld in view of the fact that the mortgage on which the State Government relies is one executed in its favour by the liquidator during the winding-up proceedings.

3. There is, however, some force in the contention raised by the learned Advocate-General on the second aspect, viz., as to the right of the workmen to priority of payment in respect of the various amounts covered by the claims which were admitted to proof by the order of the District Court dated 11th August, 1962. Priority is claimed by the workmen only under Section 230 of the Indian Companies Act, 1913. Admittedly it is only Clauses (b), (c) and (e) of Sub-section (1) of the said section which are attracted in the instant case. Under Clauses (b) and (c) priority can be allowed only in respect of wages or salaries of clerks, or servants, labourers and workmen that have accrued due in respect of services rendered by them to the company within the two months next before the date of winding-up order. Under Clause (e), in respect of amounts due by way of provident fund, pension and gratuity there is no such limitation and the workmen will be entitled to priority in respect of such amounts irrespective of the dates on which they accrued due. This distinction does not seem to have been kept in mind by the lower court when it passed the order now appealed against. Although it was urged before us on behalf of the appellant that the amounts by way of leave allowance and notice pay will not partake of the character of wages, we do not find it possible to accept this contention. We hold that leave allowances and notice pay will come within the scope of the expression ' wages ' used in Clauses (b) and (c) of Sub-section (1) of Section 230. But, the right of priority in respect of such amounts will, as already indicated, have to be limited to the period mentioned in those clauses, viz., the period of two months next before the date of winding-up of the company.

4. The lower court will, therefore, investigate afresh the question as to which of the amounts claimed by the workmen will fall within the scope of Clauses (b), (c) and (e) of Sub-section (1) of Section 230 of the Indian Companies Act, 1913, and pass appropriate orders in the matter.

5. The appeal is allowed, the order of the court below is set aside to the limited extent indicated above and the matter is remanded to the lower court for fresh disposal in the light of the observations and directions contained in this judgment. The parties will bear their respective costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //