Union of India vs Ambica Mill Ltd. and Another

N.J. Pandya, J.—The only point left open by our learned brother, Justice S.D. Shah, in his order dated January 22, 1996, was "whether Union of India can claim preference over other creditors because the company is already ordered to be wound up ?"

Before proceeding further, we would like to record here as to how the matter came up before us. Earlier, First Appeal No. 1607 of 1982 was decided by a Division Bench of this court. Thereafter, M.C.A. No. 2019 of 1995 came to be filed and was dealt with by a learned single judge of this court. In course thereof, the learned judge (S. D. Shah), by his order dated January 22, 1996, worked out an interim arrangement, keeping the said question open and further directing that this question be heard and decided after counsel appearing for both the sides have made their submissions, and, therefore, a peremptory date was fixed. For one reason or the other, the matter could not be taken up by the learned judge and in course of time, the matter came before justice Y. B. Bhatt, and thereafter, before justice J. N. Bhatt. The learned judge (J. N. Bhatt J.) directed the office to obtain necessary orders from the learned Chief Justice for placing the matter before the appropriate Division Bench as the M.C.A. is given in a first appeal which came to be disposed of by a Division Bench.

We have, therefore, taken up the matter for further hearing from the stage where it was left by our learned brother, justice S.D. Shah, after his order dated January 22, 1996.

The learned advocate, Mr. Trivedi, appearing for the bank has strongly urged that there are several creditors of respondent No. 1 company and, therefore, the Union of India should stand in the queue and cannot claim any preference. This would be the position even u/s 530 of the Companies Act, because the company is being wound up.

For understanding the nature of the claim that the Union of India has against the company under winding up, one has to refer to the judgment of the Division Bench which disposed of the said first appeal, copies whereof are to be found at page 15 onwards, annexure Ill. Two appeals came to be disposed of by a common judgment. They were First Appeals Nos. 1607 of 1982 and 481 of 1983. The judgment came to be delivered by justice A. P. Ravani and S. K. Keshote on February 17, 1995.

The claim made by the Union of India is not in the nature of a debt simpliciter. It is with regard to the recovery of excise amount said to have been recovered by the company and deposited as such with the Union of India through its concerned department and by making a claim of goods being not excisable or not covered by a particular item under the Central excise enactments, the decree came to be passed in its favour and that decree came to be challenged by the Union of India in Appeal No. 1607 of 1982. The second appeal was in the nature of a cross appeal claiming interest over the amount which was decreed by the trial court.

Obviously, therefore, what was being sought back by the company, was not in the nature of a transaction between a creditor and a debtor, but it involved interpretation of the relevant statute and even if the company succeeded under the law, could the company claim the money back or could it have kept the money for itself. The provisions of law which govern the claim of the respective parties were to be found in section 11B of the Central Excises and Salt Act, 1944, as amended in the year 1991. That section was interpreted by the Supreme Court in its decision rendered in Union of India and others Vs. I.T.C. Limited, . It has been clearly held by the apex court that the said amendment has retrospective effect and, therefore, the amount once deposited with the Union of India through its relevant department cannot be claimed back by the company and that would be the end of the matter. Had there been a decree in favour of the Government and if it were confirmed in the appeal also, during its execution a question might arise as to preferential treatment being given to a creditor or a group of creditors. That is not the position here and following the aforesaid Supreme Court judgment, the appeals came to be disposed of by the said judgment of our learned brother and the decree in favour of the company under liquidation was set aside. The amount which ought to have been with the Union of India, was, therefore, to be returned and it was not a question of the company honouring its commercial transaction by being a debtor or a creditor, as the case may be.

The company had obtained money from the department and against that a bank guarantee was required to be furnished which was done by respondent No. 2 bank. In view of the aforesaid background, the guarantee being for return of money subject to the result of the litigation and the result having come in favour of the department, it is nothing else, but honouring its commitment given during the litigation and obviously the obligation has to be fulfilled according to the result of the litigation. In a broader sense, it might be considered a debt, but strictly speaking, from the point of view of the question of preferring one creditor over the other, this is not a debt in that sense.

If one visualises the situation that if the amount instead of being given back to the company, were lying with the Union of India, the matter would have been over the moment the appeal came to be allowed and the decree came to be set aside. The situation which now we are dealing with has arisen only because the money was allowed to either remain with the company or permitted to be withdrawn by it and for securing which, the bank was required to furnish a guarantee. Far from being added, therefore, this money retained by the company, ought to have been with the Union of India. For ensuring its payment back when the bank has furnished a guarantee, it cannot be heard to raise the said question of the Union of India being preferred over other creditors. Even if this question was open, probably section 530 of the Companies Act would still come to the rescue of the Union of India so far as preferential treatment under certain situations is concerned. We are not elaborating it, as that is not the question before us.

In our opinion, therefore, the application is required to be allowed. The bank is directed to deposit the amount on or before August 19, 1996. Option is left to the bank whether to deposit the amount in the court or directly to the Government. If the bank exercises the latter option it should issue a cheque in the name of the Assistant Collector of Central Excise and Customs, Division III, and receipt issued by him shall operate as due discharge of the bank''s obligation under its guarantee. The application is disposed of accordingly. Rule is made absolute.