Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2005 Supreme(Mad) 36

High Court of Judicature at Madras
THE HONOURABLE CHIEF JUSTICE MR. MARKANDEY KATJU & THE HONOURABLE MR. JUSTICE D. MURUGESAN
ICICI Bank Ltd., - Appellant
Versus
The Official Liquidator - Respondents
C.R.P. (NPD) No. 2056 of 2004
Decided On : 07 January 2005

Advocates Appeared: For The Appellant :A.L.Somayaji, Advocate, T.Poornam, Senior Counsel. For The Respondent: B.Ramesh for Official Liquidator, V.Raghupathi, Govt. Pleader for C.T., Pushya Sitaraman for I.T.

The claim of a secured creditor will prevail over crown debts in the liquidation of a company, subject to the provisions of Section 529A of the Companies Act.

Headnote:
Secured Creditor - Priority of Claim - The court held that the claim of a secured creditor will prevail over crown debts, in accordance with the provisions of Section 529A of the Companies Act.
Fact of the Case:

The revision petitioner, a secured creditor, filed a Civil Revision Petition against the order of the Debts Recovery Appellate Tribunal regarding the priority of their claim over the claims of the Income-tax Department and the Karnataka Sales Tax Department in the liquidation of M/s.Vibrant Investments & Properties Ltd.
Finding of the Court:

The court, relying on the decision of the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., held that the claim of the petitioner, as a secured creditor, will prevail over that of the Income-tax Department and the Karnataka Sales Tax Department, subject to the provisions of Section 529A of the Companies Act.
Issues: Priority of claim in the liquidation of a company between a secured creditor, the Income-tax Department, and the Karnataka Sales Tax Department.
Ratio Decidendi: The court relied on the decision of the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., which established that the claim of a secured creditor will prevail over crown debts.
Final Decision: The court modified the impugned judgment of the Debts Recovery Appellate Tribunal and directed that the claim of the petitioner, as a secured creditor, will prevail over that of the Income-tax Department and the Karnataka Sales Tax Department, subject to the provisions of Section 529A of the Companies Act. The revision petition was disposed of with no costs, and related CMP Nos.15322 and 19436 of 2004 were closed.

Judgement Key Points

What is the priority of a secured creditor’s claim over crown debts in the liquidation of a company?

What is the effect of Section 529A of the Companies Act on the priority of a secured creditor’s claim?

What are the authorities or precedents that govern the priority of secured creditors against Income-tax and Sales Tax Department in liquidation?

Judgment :-

Markandey Katju, CJ.

This Civil Revision Petition has been filed against the order of the Debts Recovery Appellate Tribunal dated 27.8.2004. We have heard counsel for the parties and have perused the records.

2. The revision petitioner is a secured creditor. M/s.Vibrant Investments & Properties Ltd. was a company which went into liquidation and the question is whether the claim of the petitioner will prevail over the claim of the Income-tax Department and the Karnataka Sales Tax Department.

3. This issue is no longer res integra in view of the decision of the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. {(2000)5 SCC 694 vide para 10} where it has been held that the claim of a secured creditor will prevail over crown debts.

4. In view of the above, we modify the impugned judgment of the Debts Recovery Appellate Tribunal dated 27.8.2004 and direct that the claim of the petitioner will prevail over that of the Income-tax Department and the Karnataka Sales Tax Department, but this will be subject to the provisions of Section 529A of the Companies Act. This revision petition is disposed of accordingly. No costs. Consequently CMP Nos.15322 and 19436 of 2004 are closed.

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