Skip to content


State of Kerala Vs. Kerala Water Transport Corporation Ltd. (In Liquidation) Represented by the Official Liquidator - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberAppln. No. 360 of 1966 in C.P. No. 1 of 1965
Judge
Reported inAIR1967Ker150
ActsCompanies Act, 1956 - Sections 529(1) and 530(1); Kerala Insolvency Act, 1956 - Sections 64 and 64(1); Provincial Insolvency Act, 1920 - Sections 61
AppellantState of Kerala
RespondentKerala Water Transport Corporation Ltd. (In Liquidation) Represented by the Official Liquidator
Appellant AdvocateGovt. Pleader
Respondent Advocate S. Easwara Iyer and; L.G. Potti, Advs.
DispositionPetition dismissed
Cases ReferredMotor Emporium Co. v. N.
Excerpt:
.....(a) gives priority only to very limited class of such debts - section 529(1) does not attract rules of priority in section 64 - where section of act which lays down general rule is incorporated in another act which gives particular rule on same subject particular rule will abrogate general rule - held, liquidator rightly rejected claim of government. - - the remaining classes of debts specified in clauses (b) in (g) of section 530(1) rank equally with the debts specified in clause (a) so that it follows, on the terms of the section, that other debts due to government can come in only after the debts specified in clauses (b) to (g). section 611 of the companies act says that, subject to the provisions of the act as to preferential payments, the assets of a company shall, on its..........it is not disputed, is an insolvent company. some mention has also been made of the common law rule of priority for crown debts.3. the companies act, by section 530, enacts its own scheme of priority. on its wording, this section is equally applicable to an insolvent as to a solvent company subsection (6) of the section makes express and exclusive provision for an insolvent company and that scotches any attempt at the argument that section 530 being a general provision must yield, so far as insolvent companies are concerned, to the special provision in section 64 of the insolvency act as attracted by section 529 of the companies act. now, it will be noticed that, while section 64 (1) (a) of the insolvency act gives priority to all debts due to government, section 530(1)(a) of the.....
Judgment:
ORDER

P.T. Raman Nayar, J.

1. I think the Liquidator was right in rejecting the State Government's claim to priority for its debts otherwise than under Section 530(1)(a) of the Companies Act and that this appeal against that rejection, by application made under Section 460(6) of the Act read with Rule 164 of the Companies (Court) Rules, must likewise he rejected.

2. The claim is based on Section 64 (1) (a) of the (Kerala) Insolvency Act (Section61 (1) (a) of the Provincial Insolvency Act; which it is said is attracted by Section 529(1) of the Companies Act this company, it is not disputed, is an insolvent company. Some mention has also been made of the common law rule of priority for crown debts.

3. The Companies Act, by Section 530, enacts its own scheme of priority. On its wording, this section is equally applicable to an insolvent as to a solvent company Subsection (6) of the section makes express and exclusive provision for an insolvent company and that scotches any attempt at the argument that section 530 being a general provision must yield, so far as insolvent companies are concerned, to the special provision in Section 64 of the Insolvency Act as attracted by Section 529 of the Companies Act. Now, it will be noticed that, while Section 64 (1) (a) of the Insolvency Act gives priority to all debts due to Government, Section 530(1)(a) of the Companies Act gives priority only to revenues, taxes, cesses and rates due to Government and having become due and payable within the twelve months next before the relevant date. The remaining classes of debts specified in Clauses (b) In (g) of Section 530(1) rank equally with the debts specified in Clause (a) so that it follows, on the terms of the section, that other debts due to Government can come in only after the debts specified in Clauses (b) to (g).

Section 611 of the Companies Act says that, subject to the provisions of the Act as to preferential payments, the assets of a company shall, on its winding up, be applied in satisfaction of its liabilities part passu, and, although this section appears in Chapter III of Part VII of the Act dealing with a voluntary winding up, under the heading, 'Provisions applicable to every voluntary winding up' instead of, as it should, in Chapter II which is headed, 'Provisions applicable to every mode of winding up', it is well settled that tile provision therein is vital to every mode of winding up--See Section 428(2) and Governor General in Council v. Shiromani Sugar Mills, Ltd. AIR 1946 FC 16. That being so it would appear that, subject to the provisions of the Companies Act as to preferential payments, there has to be a pari passu distribution of the assets of the company in satisfaction of its other liabilities. That at once rules out the application of the common law rule of crown priority see Food Controller v. Cork, 1923 AC 647 and AIR 1946 FC 16. It would rule out also the application of section 64 of the Insolvency Act unless it be that that is a provision of the Companies Act as to preferential payments, a provision Incorporated by means of Section 620. And then the question might well be asked why a statute which makes seemingly self-contained and comprehensive provision regarding priority should, with regard to some debts included within us scope as also debts not so included (though others belonging to the same class of creditors are), seek to attract the provisions of another statute. If special treatment were re-quired for the excluded debts when due from an insolvent company, one would expecl that to be accorded by the statute itself, namely the Companies Act, Section 530 Moreover, as we shall presently see the rules of priority in Section 64 (1) of the Insolvency Act arc inconsistent with those in Section 630(1) of the Companies Act. The two cannot stand together and it should follow that it could never have been the intention of the Companies Act that the inconsistent rules in Section 64 of the Insolvency Act should be applied.

4. As we have already seen, while Section 64 (1) (a) of the Insolvency Act gives priority to all debts due to Government, Section 530(1)(a) of the Companies Act gives priority only to a very limited class of such debts. The class of debts included in clause (h) of Section 530(1) of the Companies Act is, despite the restriction in Sub-section (2) of that section, much larger than the class given priority under Section 64 (1) (b) of the Insolvency Act And the classes of debts specifield in Clauses (c) to (g) of Section 630(1) of the Companies Act find no place at all in Section 64 (t) of the Insolvency Act. The result is that certain classes of debts which are included in Section 64 (1) of the Insolvency Act are not included in Section 530(1) of the Companies Act. And vice versa. But both sections require that the debts specified in them shall be paid in priority to all other debts. This means that, according to Section 64 (1) of the Insolvency Act, the debts included in that provision must have priority over debts not so included even If they are included in Section 530(1) of the Companies Act. And vice versa. It is clear that the two sections cannot stand together; and if, in truth, the effect of Section 529 of the Companies Act is to attract Section 64 of the Insolvency Act we shall have to choose between the one provision and the other. And the choice must fall on the special statute providing for the particular subject and which applies in its own right, namely, the Companies Act, Section 530(1) rather than on the general rule, of another statute adopted by incorporation, namely, Section 64 (1) of the Insolvency Act see Craics on Statute Law 6th Edition, page 223 and In the matter of the N. Bengal Co. Ltd., (1937) 41 Cal WN 458. Cases where provisions of different laws, not mutually inconsistent, have been cumulatively applied to the same subject-matter have no bearing on the question.

5. Our Companies Act is, generally speaking, a copy of the English Act of 1948, and, in particular, the provisions which we are now considering, namely, Sections 528, 629, and 630 are a faithful copy of Sections 316, 317 and 319 of the English Act. The scheme of priorities enacted in Section 319 of the English Act is the very same as that enacted in Section 33 of the (English) Bankruptcy Act, 1914. And, if the effect of Section 317 of the English Act, which is the same as our Section 629, were to attract that provisions ofSection 33 of the Bankruptcy Act, you reach the surprising result that the English Act thought it necessary to attract the provisions of another statute for making exactly the same provision as that Act itself was making. So far as our Act is concerned the result would be not merely surprising. It would he impossible, for, as we have seen, it would be to attract, not the identical provisions of another statute as under the English Act, but to attract the repugnant provisions of another statute.

6. For the foregoing reasons it seems to me abundantly clear that it could not possibly have been the intention of Section 629(1) of the Companies Act to attract the provisions of Section 64 of the Insolvency Act, and T shall now proceed to consider whether, on a construction of the words used in that section, such a result is inevitable. I do not think It is. Indeed, it seems to me, that the more natural construction of the words used would lead to the conclusion that the provisions of Section 84 of the Insolvency Act are not attracted. Now, what Section 629(1) says is that, in the winding up of an insolvent company, the same rules (which of course means the same principles, not the same statutory rules) shall prevail and he observed with regard to the matters specified in the three clauses of that sub-section as are in force under the insolvency law. The clauses relevant for our present purpose are Clauses (a) and (c). Both clauses, it seems to me, are capable of a narrower and a wider meaning, a narrower meaning which would not have the effect of attracting Section 64 of the Insolvency Act and wider meaning which would have that effect. As I have already indicated the narrower seems to me the natural meaning and there can be no doubt whatsoever that while the narrower meaning would make Section 629(1) consistent with Section 580(1) of the Act, the wider meaning would bring It into conflict with that section.

7. What Clause (a) says is that the principles of the law of insolvency shall prevail and be observed with regard to debts provable. Now the narrower meaning of this clause would be that those principles shall prevail with regard to what debts are provable, whereas the wider meaning would be that they shall prevail with regard to all provable debts. The wider meaning would attract all the rules of insolvency with regard to such debts including the rules of priority. But the narrower meaning would attract only those rules which specify what debts are provable. In the context of the Companies Act, especially, having regard to the provisions of Sections 528 and 530, I have little doubt that the narrower meaning is the true meaning of Clause (a) of Section 629(1). What Section 528 says is that debts of all descriptions shall be admitted to proof subject, in the case of insolvent companies, to the application in accordance with the provisions of the Companies Act of the law of insolvency. This subjection is in the nature of a provisoand, it is the content of this proviso that is defined in Section 529(1)(a) which is the section of the Companies Act which provides for the application of the law of insolvency in the case of insolvent companies. While under Section 528 of the Companies Act, debts of all descriptions are to be admitted to proof, under Section 35 of the Insolvency Act (Section 34 of the Provincial Insolvency Act) debts of the kind specified in Sub-section (1) of the section are not to be so admitted. This provision of the Insolvency Act is attracted by Section 529(1)(a) and it constitutes, as I have said, a proviso to Section 528 so that on a true construction, the scope and content of Section 629(1)(a) is no more than the scope and content of Section 628 to which it serves as a proviso, namely what debts are to be admitted to proof. And, as I have already remarked, It would be surprising if the Companies Act, which by Section 530 enacts a seemingly self-contained and comprehensive scheme of priority, should seek to attract the entirely inconsistent scheme of priority in Section 64 of the Insolvency Act by the use of the phrase, 'with regard to debts provable In Section 529(1).

8. In In re, Whltaker, Whltaker v. Palmer, (1901) 1 Ch 9 Rigby and Romer L.JJ, construing the similar language of Section 10 of the Judicature Act, 1875, assigned the wider meaning to the similar phrase, 'as to debts and liabilities provable.' They thought that it meant that all the rules for the time being in force in the Court of Bankrupty with regard to debts and liabilities provable shall apply in the administration of the estate of a deceased insolvent which (along with the administration of an insolvent company In winding up) was what Section 10 of the Judicature Act provided for. But the judgment of their Lordships Indicate that the words are capable also of the narrower meaning I have assigned to them. Indeed, it must be on this narrower meaning that Lindley and A. L. Smith L.JJ., proceeded in re Leng, Tarn v. Emmerson, 1895-1 Ch. 662 although Lindley L. J., went on to observe that it was settled by the decisions that the phrase, 'as to debts and liabilities provable' in Section 10 of the Judicature Act was wide enough to include all rules as to priorities applicable in the event of bankruptcy. But, as I have said, the decision Itself proceeded on the footing that, under Section 3 of the Married Women's Property Act, 1882, the wife of a bankrupt had no provable debt in bankruptcy in respect of any money lent by her for his business until her husband's other creditors were paid.

'In other words in bankruptcy she has no provable debt until her husband s other creditors are paid' is what Lindley L. J. said see page 656 of the report. The rule in bankruptcy enacted by section 3 of the Married Women's Property Act was thus a rule regarding what debts were provable rather than a rule enacting priorities, and is attracted by the narrower meaning which I haveassigned to the words, 'with regard to debti provable'.

9. Clause (c) of Sub-section (1) of Section 529 is likewise capable of a narrower and a wider meaning. The words, 'the respective rights of secured and unsecured creditors' can mean merely the rights of the class of secured creditors on the one hand as against the class of unsecured creditors on the other, or it can include also the rights of secured creditors inter se and of unsecured creditors inter se. The former, narrower, meaning would not attract the rule of priorities as between creditors while the latter, wider, meaning would. I am unaware of any provision of the insolvency law which regulates the rights of secured creditors inter se. I asked counsel whether there was any such provision they were unable to bring any to my notice. There are provisions in the insolvency law regulating the rights as between the class of secured creditors on the one hand and the class of unsecured creditors on the other, and, therefore, I should think that the meaning to be assigned to Clause (c) of Sub-section (1) of Section 529 is the narrower meaning that I have assigned to it. This narrower meannig was the meaning assigned to the words, 'the respective rights of secured and unsecured creditors' by Fry. J., in In re Maggi, Winehouse v. Winehouse (1882) 20 Ch. D 545 when construing Section 10 of the Judicature Act of 1875, and, although the words were given the wider meaning by Vaughan Williams L. J. in (1901) 1 Ch. 9 there can be little doubt that they are capable of both the narrower and the wider meaning.

10. Both Jessel M. R. In In re Albion Steel and Wire Co. (1878) 7 Ch. D 547 and Fry J. in (1882) 20 Ch. D 545 thought that the language of Section 10 of the Judicature Act of 1875 which is similar to the language of Section 629 of the Companies Act did not attract the bankruptcy rules regarding priority of debts. And although a different view was taken in 1895-1 Ch. 652 and 1901. I Ch. 9 It must be remembered that those decisions construe the words used in the framework of the Judicature Act which enacts no rule of priorities and not in the framework of the Companies Act which does enact a comprehensive and self-contained scheme of priorities. Were those decisions concerned with construing the words in question in the context of either the English or the Indian Companies Act, I venture to think that they would have given the words the same meaning as was given to them by Jessel M. R. and Frv J.

11. If two constructions are possible of Sub-section (1) of Section 629 of the Companies Act, one which would be quite consistent with Section 580 and the other which would bring it into conflict with that latter section, there can be no doubt that the former construction must be chosen. It follows that what I have called the narrower construction, which, it seems to me, is also the literal construction, giving to the words used their ordinary and natural meaning, is the true construction.

12. On a true reading of Sub-section (1) of Section 529, that sub-section does not attract the rules of priority in Section 64 of the Insolvency Act. That being so, it is unnecessary to go any farther, and as was done in (1937) 41 Cal WN 458 apply the ride of statutory construction that, where a section of an Act which lays down a general rule is incorporated in another Act which gives a particular rule on the same subject the particular rule will abrogate the general rule. (Craies on Statute Law, 6th Edition page 223)

13. For the foregoing reasons I am, with great respect, in agreement with the conclusion reached in Secy, of State v Punjab Industrial Bank Ltd. ILR 12 Lah 678 :(A1R 1931 Lab 351) and in (1937) 41 Cal WN 458 and, with equally great respect. I am unable to agree with the view taken in Motor Emporium Co. v. N. II. Moos AIR 1927 Bom 606.

14. In the result, I dismiss this application with costs. Advocate's fee Rs. 250/-


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